Category Archive for: Books [Return to Main]

Thursday, October 27, 2016

Economic History: The Roots of Growth

Brad DeLong (reviewing Joel Mokyr's A Culture of Growth: The Origins of the Modern Economy in Nature):

Economic history: The roots of growth: What is modern economic growth? Going by the best available measure (it might be more honest to say 'guess'), today's average material living standards and economic productivity levels are some 20 times what they were in the agricultural era (about 6000 BC to AD 1500). And the efficiency with which humanity uses technology and organization to transform resources into useful commodities is currently growing at 2% per year — perhaps 100 times the rate common before the Industrial Revolution.
Some think that the current rate will slow down. But very few see it coming to a rapid end, unless there is a nuclear war or an equivalent catastrophe. The slowing will come as low-hanging fruit is picked and resource scarcities bite; but resource exhaustion followed by crash, as described in Jay Forrester's 1971 World Dynamics (Wright-Allen Press), is likely only in systems in which scarce resources are not rationed by high prices.
What set the stage for industrial expansion and unleashed the virtuous spirals that drive growth? ...

Saturday, September 27, 2014

'Seven Bad ideas'

Paul Krugman reviews Jeff Madrick's book “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World”:

Seven Bad Ideas: The economics profession has not, to say the least, covered itself in glory these past six years. Hardly any economists predicted the 2008 crisis — and the handful who did tended to be people who also predicted crises that didn’t happen. More significant, many and arguably most economists were claiming, right up to the moment of collapse, that nothing like this could even happen.
Furthermore, once crisis struck economists seemed unable to agree on a response. They’d had 75 years since the Great Depression to figure out what to do if something similar happened again, but the profession was utterly divided when the moment of truth arrived.
In “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World,” Jeff Madrick — a contributing editor at Harper’s Magazine and a frequent writer on matters economic — argues that the professional failures since 2008 didn’t come out of the blue but were rooted in decades of intellectual malfeasance. ...

Wednesday, June 25, 2014

'Speculation, Trading, and Bubbles'

For those who might be interested, an excerpt from a new book by José A. Scheinkman, Speculation, Trading, and Bubbles (with contributions by Sanford J. Grossman, Patrick Bolton, Kenneth J. Arrow, and Joseph E. Stiglitz):


Tuesday, April 02, 2013

'Is the Demand for Skill Falling?'

Arnold Kling:

Is the Demand for Skill Falling?, by Arnold Kling: Paul Beaudry, David A. Green, and Benjamin M. Sand have a paper with an intriguing abstract, which says in part,

Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.

If true, this would upset nearly everyone’s narrative apple cart, including mine.

Monday, October 08, 2012

What Really Happened

This is from David Warsh (note that, despite Dodd-Frank and other regulatory measures instituted since the financial crises,we are still susceptible to the shadow bank run problems described below):

What Really Happened - Economic Principals: ...the best economics book on the fall calendar ... (to be published next month) is a slender account about the circumstances that led to that near meltdown in September 2008, and an explanation of why they were not apparent until the last moment. Misunderstanding Financial Crises: Why We Don’t See Them Coming (Oxford University Press), by Gary Gorton, of Yale University’s School of Management ... can be viewed as an answer to the question famously posed to their advisers, in slightly different ways, by both George W. Bush and Queen Elizabeth: why was there no warning of a calamity that was warded off only at such great expense? The answer is that, lulled by nearly 75 years without one, economists had become convinced that banking panics had become a thing of the past. The book is probably better understood as the successor to Charles P. Kindleberger’s 1977 classic, since updated many times, Manias, Panics, and Crashes: A History of Financial Crises. This time, I think, the message won’t be brushed aside.

Not that building the near-certainty of periodic crises back into economics’ analytic framework will be easy. Gorton is an economic historian by training, and the economists with whom he collaborates mostly have monetary, financial or organizational backgrounds. This means they are up against macroeconomics, one of the most powerful guilds in ... virtually all of macro, from Edward Prescott on the right to Olivier Blanchard on the left, in the form of models of that describe economies in terms of dynamic stochastic general equilibrium (DSGE). More on that in a moment.

But Gorton, 61, possesses several advantages that Kindleberger (1910-2003) did not. He is an expert on banking, for one thing. (Kindleberger specialized in the international monetary system.) He’s mathematically adroit, for another, a quant. Most significantly, he is an insider, the economist whose models and product concepts were at the heart of insurance giant AIG’s Financial Products unit, whose undoing amid a stampede of competing claims was one of the central events of the crisis. As such, he had a front row seat.

Gorton’s case is ostensibly simple. Where there are banking systems, he says, there will be periodic runs on them, episodes in which everyone tries to turn his claim into cash at the same time. He sets out the pattern this way:

  • Crises have happened throughout the history of market economies.
  • They are about demands for cash in exchange for bank debt — debt which takes many different forms, not just retail deposits.
  • The demands for cash are on such a scale – often the whole banking system is run on – that it is not possible to meet those demands, because the assets of the banking system cannot be sold en masse without their prices plummeting.
  • Crises are sudden, unpredictable events, although the level of fragility may be observable.
  • Crises, when they occur, may be contained, panics halted, but only at enormous cost.
  • Preventing depression means saving the banks and bankers. As Treasury Secretary Timothy Geithner put it: “what feels just and fair is the opposite of what’s required for a just and fair outcome.”

The problem is that, starting in the 1970s, many economists convinced themselves that bank runs were something they no longer had to worry about, or even think about. They thought because the measures implemented during the Great Depression – deposit insurance, careful segregation of banks by line of business, and close supervision – had ushered in what Gorton calls “the quiet period.” Between 1934 and 2007 there were no financial crises in the United States. (Expensive as it was, the savings and loan debacle of the late 1980s and early ’90s, doesn’t meet the definition of a crisis. Some 750 of around 3,200 institutions failed, in slow motion, over a period of several years, but there was no run on any of them, because depositors expected that the government would make them whole.)

It was in these years that new models began taking over macroeconomics. These new models are said to be dynamic, because in them things change over time; stochastic, because the system is seen to respond to periodic shocks, factors whose origins economists don’t try to explain as part of their system, at least not yet; and general equilibrium, because everything in them is interdependent: a change in one thing causes changes in everything else. Best of all, such models are set to rest on supposedly secure microfoundations, meaning the unit of analysis is the individual or firm. One trouble was that no one had succeeded in building banking or transactions technology into such a model (though some economists had begun to try). Another was that the behavioral aspects of those microfoundations were anything but secure.

It turns out the villain in the DSGE approach is the S term, for stochastic processes, meaning a view of the economy as probabilistic system ... as opposed to a deterministic one... It is ... when economists begin to speak of shocks that matters become hazy. Shocks of various sorts have been familiar to economists ever since the 1930s, when the Ukrainian statistician Eugen Slutsky introduced the idea of sudden and unexpected concatenations of random events as perhaps a better way of thinking about the sources of business cycles than the prevailing view of too-good-a-time-at-the punch-bowl as the underlying mechanism.

But it was only after 1983, when Edward Prescott and Finn Kydland introduced a stylized model with which shocks of various sorts might be employed to explain business fluctuations, that the stochastic approach took over macroeconomics. The pair subsequently won a Nobel Prize, for this and other work. (All this is explained with a reasonable degree of clarity in an article the two wrote for the Federal Reserve Bank of Minneapolis in 1990, Business Cycles: Real Facts and a Monetary Myth). Where there had been only supply shocks and demand shocks before, now there were various real shocks, unexpected and unpredictable changes in technologies, say, or preferences for work and leisure, that might explain different economic outcomes that were observed. Before long, there were even “rare economic disaster” shocks that could explain the equity premium and other perennial mysteries.

That the world economy received a “shock” when US government policy reversed itself in September 2008 and permitted Lehman Brothers to fail: what kind of an explanation is that? Meanwhile, the shadow banking industry, a vast collection of financial intermediaries that included money market funds, investment banks, insurance companies and hedge funds, had grown to cycle and recycle (at some sort of rate of interest) the enormous sums of money that accrued as the world globalized. Finally, there was uncertainty, doubt, fear, and then panic. These institutions began running on each other. No depositors standing on sidewalks – only traders staring dumbfounded at comport screens.

Only a theory beats another theory, of course. And the theory of financial crises has a long, long way to go before it is expressed in carefully-reasoned models and mapped into the rest of what we think we know about the behavior of the world economy. Gorton’s book is full of intriguing insights, including a critique of President’s Obama response to the crisis, and glimpses of a pair of reforms that might have put the banking system back on its feet much more quickly had they been widely briefed and better understood: federally charter a new kind of narrowly-funded bank required to purchase any and all securitized assets; and regulate repo (the interest-bearing repurchase agreements through which financial giants created the shadow banking system), to the extent that there would be limits on how much non-banks could issue (a proposal recently defeated at the Securities and Exchange Commission after massive lobbying by the money-market funds).

There is going to be a long slow reception to Misunderstanding Financial Crises. Let’s see how it rolls out. I’ll return to the topic frequently in the coming months.

Tuesday, April 24, 2012

"The DRM Free Movement for eBooks Expands"

Joshua Gans notes a new development in the eBook wars:

The DRM free movement for eBooks expands, Digitopoly: So it started with JK Rowling who went platform independent and effectively DRM free on the Harry Potter series. This meant that for those books purchasers would not be locked into any one platform (e.g., Kindle) and that also meant that no platform could use lock-in to build up market power. Interestingly, you can’t buy those books from Apple’s iBookstore but you can buy them direct from Pottermore and import them into iBooks... Some other publishers have offered DRM free versions but JK Rowling was the first to break through Amazon’s store to get what is effectively a non-platform specific version on the Kindle.

Today comes an announcement from TOR books (who is owned by Macmillan) that their entire line of science fiction books will be available in a DRM free version. ...

Now as Amazon sells these as does Apple, I wonder if that means TOR will be using a similar method that Pottermore uses to break through those platforms. It will be interesting to see.

This all suggests that publishers are waking up to the fact that if they have ceded power to eBook platforms it is of their own choosing by insisting on DRM. ...

The same thing happened in music. DRM was the thing that got music publishers interested in digital downloads (like iTunes) and then something we couldn’t have predicted in 2003 happened; DRM was abandoned and nobody really noticed. What is more DRM was abandoned with a coincidental 30% (!) price increase to consumers as compensation for the extra value provided by portability. My feeling (based on no real evidence) is that overall the consumers won out of that deal (they are paying a little more to save on paying lots more later). It will be interesting to see how TOR’s pricing changes as it goes DRM free.

Publishers were always aggregators to some extent. They (supposedly) found the best writing from all the manuscripts that are out there, or solicited it themselves, and then made it available for a fee (the price of the book).

As authors take things into their own hands and self-publishing in the form of eBooks proliferates, there will likely be a role for publishers to continue doing this. They won't get paid for binding books in the traditional sense, but they can still offer a platform where authors will get noticed in return for exclusivity. That is, if a site develops a reputation for aggregating the best content and has a large following, then it can use that reputation to attract the best authors to the site. It can also lock the authors up with contracts that do not allow them to publish on other sites in return for exposure (which works best with new authors). The public can go to the site, know there's a good chance of finding something interesting -- just like browsing for books now -- and then purchase an eBook (the sites could also be supported, in part or in whole, by ads).

Or will some other model prevail?

Sunday, December 18, 2011

"The Darwin Economy"

I am hosting a discussion of Robert Frank's The Darwin Economy at FDL (2-4 PST). The introductory post is here, and you are, of course, welcome to join in.

One theme in the book is that the debate between libertarians and progressives over government intervention in the economy is a false one. Robert Frank argues that libertarians ought to support government intervention to stop the "arms race" for positional goods since the race wastes resources without providing any benefit to those engaged in the contest. But the ideas are presented as correcting both libertarian and progressive views. One thing I want to ask is why he sees his ideas as standing in opposition to traditional ideas about market failure that many progressives use to justify government intervention rather than enhancing and complementing them.

Monday, September 14, 2009

"Gender, Risk, and Competition"

Are differences in risk aversion and competitiveness between men and women due to cultural pressures rather than innate tendencies?:

Gender, risk, and competition, by Alison Booth, Vox EU: It is well known that women are under-represented in high-paying jobs and top-level management positions. Recent work in experimental economics, largely examining college-age men and women attending coeducational universities, has examined to what degree this underrepresentation may be due to innate differences between men and women. Experimental studies have shown that women are less willing than men to take risks or to enter a competitive environment such as a tournament (see for example Niederle and Vesterlund, 2007).
Gender differences in risk aversion and competition, it is sometimes argued, may help explain some of the observed gender disparities in labour force achievement. For example, if remuneration in high-paying jobs is tied to bonuses based on a company's performance and if women are more risk-averse than men, fewer women may choose to take high-paying jobs because of the uncertainty.

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Saturday, September 05, 2009

links for 2009-09-06

Thursday, August 27, 2009

"Revisiting Popper"

Is it true that "History and society are not law-governed systems for which we might eventually hope to find exact and comprehensive theories"?:

Revisiting Popper, by Daniel Little: Karl Popper's most commonly cited contribution to philosophy and the philosophy of science is his theory of falsifiability (The Logic of Scientific Discovery, Conjectures and Refutations: The Growth of Scientific Knowledge). (Stephen Thornton has a very nice essay on Popper's philosophy in the Stanford Encyclopedia of Philosophy.) In its essence, this theory is an alternative to "confirmation theory." Contrary to positivist philosophy of science, Popper doesn't think that scientific theories can be confirmed by more and more positive empirical evidence. Instead, he argues that the logic of scientific research is a critical method in which scientists do their best to "falsify" their hypotheses and theories. And we are rationally justified in accepting theories that have been severely tested through an effort to show they are false -- rather than accepting theories for which we have accumulated a body of corroborative evidence. Basically, he argues that scientists are in the business of asking this question: what is the most unlikely consequence of this hypothesis? How can I find evidence in nature that would demonstrate that the hypothesis is false? Popper criticizes theorists like Marx and Freud who attempt to accumulate evidence that corroborates their theories (historical materialism, ego transference) and praises theorists like Einstein who honestly confront the unlikely consequences their theories appear to have (perihelion of Mars).

At bottom, I think many philosophers of science have drawn their own conclusions about both falsifiability and confirmation theory: there is no recipe for measuring the empirical credibility of a given scientific theory, and there is no codifiable "inductive logic" that might replace the forms of empirical reasoning that we find throughout the history of science. Instead, we need to look in greater detail at the epistemic practices of real research communities in order to see the nuanced forms of empirical reasoning that are brought forward for the evaluation of scientific theories. Popper's student, Imre Lakatos, makes one effort at this (Methodology of Scientific Research Programmes; Criticism and the Growth of Knowledge); so does William Newton-Smith (The Rationality of Science), and much of the philosophy of science that has proceeded under the rubrics of philosophy of physics, biology, or economics is equally attentive to the specific epistemic practices of real working scientific traditions. So "falsifiability" doesn't seem to have a lot to add to a theory of scientific rationality at this point in the philosophy of science. In particular, Popper's grand critique of Marx's social science on the grounds that it is "unfalsifiable" just seems to miss the point; surely Marx, Durkheim, Weber, Simmel, or Tocqueville have important social science insights that can't be refuted by deriding them as "unfalsifiable". And Popper's impatience with Marxism makes one doubt his objectivity as a sympathetic reader of Marx's work.

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