Tag Archives: review

Saving and spending time

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My first read of the New Year has been an eccentric book, Jam Tomorrow: Why Time Really Matters in Economics by Charles Crowson. I bought it because of a very positive although short FT review that called it: “an important exposition of why economists ought to think deeper about how we value time — past, present and future.” I’m about four fifths of the way through writing my next book, which is all about my research on economic measurement over the past decade or so. (BTW I need ideas for a title – current working title is ‘The Measure of Progress’.)

Most of this is concerned with measuring the digital economy (we don’t). But one of my preoccupations is a paper I wrote with my friend Leonard Nakamura about whether time use would be a useful accounting framework. Productivity is about saving time. On the consumption side, what wellbeing (or utility) we get from how we spend time is surely what matters to people. The paper is open access.

Anyway, there are relatively few books on this subject so I thought Jam Tomorrow might be interesting. It is quite interesting but not what I thought. It’s about money, assets and interest rates – the price of time. The central point is that ‘we’ in general (in the high income west) have been too short-termist and borrowed to consume, at great environmental cost, and also leading to a malfunctioning housing market in the UK, where housing is seen mainly as an asset. I don’t disagree at all. But reading the book was a bit like sitting at dinner next to someone with lots of strong opinions who is speaking a slightly different language (and there’s an obligatory but irritating chapter about why all economics is rubbish … sigh). There are long chunks of text I either found obvious or alternatively hard to understand – and not a few cliches – but with some really thought-provoking formulations popping up.

For example: “If the price of bread or milk rose sharply in a given week we would instinctively cal it inflation. Yet of the Dow Jones stock index were to rise by 2% on a given day, we don’t say, ‘The Dow inflated by 2% today.” One could rationalise the difference but the point about language is really interesting (and there’s a whole chapter about language and analytic philosophy).

So it’s a sort of mixed review from me; interesting but could have done with quite a hands-on edit. The core argument is summed up nicely: “The central idea in this book is that economic decisions are fundamentally decisions about time, reflecting a basic choice between consumption in the present or delaying that consumption by saving for the future.” Yes indeed. But economists have in fact thought quite deeply about this choice. I’m thinking of a different time margin, how we use – ‘spend’ – our time in the present, the 24 hours a day we cannot save to carry over for tomorrow.

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The beauty of infrastructure

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How Infrastructure Works by Deb Chachra is a good complement to Brett Frischmann’s now-classic Infrastructure, which has more of a focus on the economic analysis. Chachra is an engineer, which leads to her focusing more on the physical aspects and affordances of the technologies involved. Having said that, there were two aspects of the book I really appreciated. One is that she links access to infrastructure to Sen’s capabilities approach, and the fact that it gives people agency to lead their lives as they see best. It is also progressive – those with fewer private assets get more value out of public assets.

The other is the emphasis on the collective character of infrastructure assets – which is one reason my colleagues and I recently called for a Universal Basic Infrastructure (rather than income, or even services, both of which involve an individual perspective). The ability of a society or community to invest in and indeed maintain infrastructure – now very complicated and multi-layered – is a thermometer of its political and social health. Something Chris Arnade recently pointed out with regard to the US: decaying transport system, declining polity.

As Chachra points out, the lens of economic efficiency is inadequate. It leads to under-investment in systems that need redundancy, to create resilience at all, and all the more necessary now to enable the needed energy transition.

She’s optimistic about the possibility of shifting to green energy – more so than Brett Christophers in his excellent forthcoming book The Price is Wrong – perhaps because Chachra assumes the state will undertake a lot of the needed investment. Although she adds, “Stability of all sorts, including political and economic stability, is what makes it feasible to front-load large investments of resources with the expectation of continuing benefits over a long period.”

“The true value of these [infrastructure] systems is literally incalculable … because they enable systems and behaviours that wouldn’t be possible without them,” she writes. Above all, what I like about the book is its recognition that “the political and the engineering questions are inextricably linked.” I’ve been slightly obsessed with the dysfunction of applying cost-benefit analysis to major infrastructure, and the need to maintain and upgrade it to at least mitigate deep spatial inequalities. Bennett Institute colleagues have worked on social infrastructure and we have a new British Academy project on a measurement framework for social and cultural infrastructure. The term has recently been more widely used, and perhaps the definition needs revisiting. But the focus on the collective rather than the individual, on the future not just the immediate present, and on the inadequacy of the static efficiency lens when we need an “ethics of care rather than utilitarianism”, is surely correct.

The Guardian had a taster essay extracted from the book, but it is well worth a read as a whole. It’s thoughtful, informative and also very well written.

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When preferences change

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One of the assumptions an economics student is quickly socialised into accepting is that people’s preferences are fixed – those indifference curve diagrams mapping one’s trade-off of apples for bananas. Of course at the back of your mind you know it isn’t true, but fixed preferences are a key building block of most of the subsequent economics one learns. At every stage we assume that people maximise their utility subject to budget constraints, and if preferences are not fixed that becomes a task like nailing jelly to the wall. How do you do a welfare evaluation in that case?

Well, it’s a key question for economists to tackle, not only on principle but because this is an age of saturated traditional media and social media aimed exactly at changing people’s preferences. So I was delighted to see David Kreps, a game theorist, tackling this in a book of lectures, Arguing About Tastes: Modeling How Context and Experience Change Economic Preferences. As Joe Stiglitz points out in his commentary in the book, there is a long and now growing literature on endogenous preferences, much of it linking with other areas such as social psychology or cultural evolution. What this short book does is formalize other-regarding preferences (which indeed date back to Adam Smith and Moral Sentiments) and changing preferences, with a focus on intrinsic versus extrinsic motivation in areas such as work effort. As the other commentary, by Alessandra Casella notes, the next step is to take this to social choice theory.

I couldn’t agree more. Recently I argued (with distinguished co-authors) for a reboot of welfare economics – applied social choice theory. Among the many reasons for this are the pressing collective action problems facing humanity (climate, biodiversity) amd the automation of a growing number of decisions in modern life using algorithms implicitly encoding social welfare functions. Arguing About Tastes is a technical book (for non-economists – fairly straightforward for those habituated to Max(U)) but a useful contribution to the challenge.

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Institutions, finance – and war

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Perhaps it was because I read the book in several stages, but I found it hard to take away a single line of argument from Geoffrey Hodgson’s The Wealth of a Nation: Institutional Foundations of English Capitalism. There is plenty of interest in the book but the chapters seem unconnected. One of the comments on the back, from my former colleague Sheilagh Ogilvie, makes a virtue of this, praising it for steering clear of monocausal explanations, which is true. But the book is also making an argument about the mode of economic analysis as well as about causes of the Industrial Revolution.

Anyway, here is what I took from my read:

  1. Other accounts of the origins of the Industrial Revolution and capitalism in England get something wrong: Marx, McCloskey, Mokyr, Allen, Weber, Uncle Tom Cobbley and all.
  2. This is because they do not employ the framework of evolutionary economics.
  3. Economics goes wrong big time in mixing up capital as in physical capital goods and capital as financial capital, starting with Adam Smith.
  4. Economic development is a process of the creation and changing of both technical and institutional rules.
  5. The distinctiveness of capitalism lies in the development of financial instruments and markets, especially mortgages lent against collateral: “Developed financial institutions make capitalism historically specific.”
  6. The Industrial Revolution was due to institutional evolution – mostly gradual but with some big moments of dramatic change such as the deal that brought about the 1688 accession of William and Mary.
  7. But the impact of external shocks – especially war – in bringing about economic development is under-appreciated.

I liked this observation about institutions: “They function as information registries of what is produced and owned, and of rules governing their use and allocation.” Hodgson cites Shannon and Weaver’s definition of information – something whose receipt can cause an action. This metaphor of units of information underlies the evolutionary approach, as I understood this chapter. Hodgson here and elsewhere has strongly argued the case for a paradigm shift in economics away from its still-extant physical production function framework to the evolutionary framework. (I do see the crumbling of the old paradigm in some respects but we’re far from a new one taking its place.)

The book ends, to my surprise, with a chapter about Japan’s economic development. I think the point here is that: “Major institutional changes in the fundamental areas that matter for economic development typically depend on exogenous shocks.” For Japan these were the Meiji restoration, then loss and occupation in 1945/6.

All in all, an interesting read, but it made me think I’d get more from reading one of Prof Hodgson’s earlier books on evolutionary economics.

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Pricing the priceless

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Paula DiPerna’s Pricing the Priceless is an excellent general introduction to the questions of measuring the value of nature, and the use of economic instruments to improve the sustainability of economic activity. The author has been involved in environmental campaigning ‘at the forefront of finance and climate policy’, as the blurb puts it.This included a pioneering privately-created carbon market in the US. Her aim is to persuade those concerned about the environment – and I take this as her target audience – that better outcomes will result from pricing nature, even accepting its intrinsic value.

The first chapter covers the flaws in the use of GDP as the metric of economic success – familiar territory. It’s somewhat unfairly dismissive of the efforts that have gone into the Sytem of Environmental Economic Accounting, that will bear fruit in the 2025 revision of the way GDP statistics are defined and measured. But as the chapter points out, the efforts to measure digital intangibles have helped parallel efforts to measure nature and ecosystem services.

Subsequent chapters take specific contexts and types of instrument – carbon markets, water markets, rhino bonds, carbon offsets and so on. They make for interesting reading. The chapter on China’s interest in carbon markets was particularly interesting. I hadn’t realised that it measures carbon intensity (per unit of eocnomic output) rather than the aboslute amount of CO2-equivalent.

For people who are already persuaded of the need for tools such as markets and payments for ecosystem services to improve the chances of a sustainable path to prosperity, the attraction of the book is in the vivid detail. The author has quite a florid writing style, but has a lot of insights and interesting detail, and it’s quite fun to read about her audience with the Pope (who was converted to the carbon markets idea). For the unpersuaded, the ecologists and environmentalists who find this approach repugnant (in the sense of Roth’s repugnant markets as well as the normal sense), I don’t know if the book will change their minds. I hope so.

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