Author Archives: Nick

Capital in the 21st Century – Thomas Piketty

“The overall conclusion of this study is that a market economy based on private property, if left to itself, contains powerful forces of convergence, associated in particular with the diffusion of knowledge and skills; but it also contains powerful forces of divergence, which are potentially threatening to democratic societies and to the values of social justice on which they are based.”

This is a longer review than I normally write, so I thought I’d summarize takeaways first (who has the time to read long reviews with all those cat videos?)

  • Overall very good: lots of interesting information on wealth and income inequality.
  • Before world wars, inequality was from wealth inequality; now, it comes from income inequality. Rise of the supermanager.
  • Policy analysis weak – hasn’t really considered other options or read the literature. Still, capital tax may be good idea: can replace the common and unfair real estate tax. WIsh he had discussed a consumption tax.
  • Long run, the only cure to inequality is better education.
  • No big surprises: basically just fleshes out ideas that most people would have believed true intuitively, if without data.

Piketty’s work has been ridiculously popular: for a 600 page economics treatise to outsell fiction on Amazon.com is amazing to me, particularly given that it wasn’t very popular in France, where it was first published. Still, any book that can manage that is worth a read.

Piketty argues that because the interest on capital (r) is larger than the growth rate of the economy (g), capital ends up growing faster than the economy. Over time, therefore, capital owners own a larger and larger share of the whole pie, which leads to inequality. Though there are compensating factors, like the diffusion of knowledge and skills, without comprehensive educational policies and redistributive taxation, this inequality can grow to extreme levels. He uses income tax and estate tax information to study wealth and income inequalities over the past 200 years, finding high inequality pre world wars, low inequality after world wars, and increasing inequality today, though unlike before the wars, it is largely due to income inequality, not wealth inequality (managers with high salaries, not landowners).

His fundamental insight, as anyone who has read a review will know, is the fact that r > g. I think that’s true, and it does have the effects he describes, but speaking as an economist it’s also not surprising. Interest rates on capital are relatively high partly because people are impatient and aren’t good at saving, at least judging by their ability to save for retirement. If society lowers the return on capital, people will save less, and I’m not sure that’s a good thing either, something Piketty doesn’t consider. Still, he’s right that increasing inequality can be a source of stress for society, and it’s definitely an important subject for study.

The book is divided into a section analyzing the data, a section predicting future trends, and a section discussing policy. The first section is excellent; the Financial Times has raised some problems with his data work, but by and large I think it’s well done and the results are unchallenged. Lots of interesting information. The second section has the bad habit of making a prediction then immediately disavowing it as a guess, which is common but I think a bit disingenuous.

The third section I found very weak. The policies he supports may well be good ones, and I think there are good arguments for a capital tax, since most countries have a property tax and that’s basically just a capital tax that’s very unfair to the middle class. It’s clear this is not an area Piketty has thought about much, though, and his discussion of education policy is pretty shallow. Dismissing a consumption tax based on total spending, which is often a popular policy, he rejects it in a single line as never having been done, before advocating a global capital tax that has also never been done before. Long run, as he points out, it appears the only cure to inequality is better education and better skills transfer, and I think almost everyone, left or right, would support that.

Whether when you think of capital you think of landed aristocracy, as the French Piketty does, or of Bill Gates, as I suspect a lot of North Americans do, may play a role in how you feel about the book. In the end, I think the power of Marx’s original Capital is that it provides a new way of thinking about the world. I didn’t find Piketty managed the same: perhaps it’s because I’m an economist, but most of what he said I would have assumed to be true. I also find anyone that introduces mathematical identities (like 2+2=4, things that are defined to be true) as “fundamental laws of capitalism” to be a little pretentious for my taste, but that definitely doesn’t relate to the overall quality of the book. It’s well worth a read, and thinking about inequality and its solutions is definitely an important issue.

You can see the Amazon reviews here.

The Principles of Scientific Management – Frederick Winslow Taylor

“We can see our forests vanishing, our water-powers going to waste, our soil being carried by floods into the sea; and the end of our coal and our iron is in sight. But our larger wastes of human effort, which go on every day through such of our acts as are blundering, ill-directed, or inefficient…are but vaguely appreciated.”

Which would you prefer? Good pay, but a job where every detail is spelled out for you, with no chance for autonomy or individuality, or worse pay, but a job where you can use your personal expertise to make a difference to the result? That question lies at the heart of your judgment of the Scientific Management.

I’d hate to speculate how many (or few) management consultants have read it, but Scientific Management is a seminal work in the field, quite possibly a founding work. Taylor argues that progress requires management to become more scientific: that the traditional knowledge of workers must be studied and tabulated by management, and narrow, well-defined tasks should be given to workers, with every aspect detailed. Managers shouldn’t just ask workers to carry pig iron: they should specify how far, how heavy a load, how long to rest, how often, and method of lifting.

Some of Taylor’s suggestions seem reasonable to modern ears: he recommends frequent breaks for workers and limits on hours, for example, so that workers can “work while they work” and “play while they play.” More fundamentally, one of his core suggestions is simply to gather data, which I certainly wouldn’t disagree with: finding the best weight someone can shovel without hurting their back is an experiment anyone who has shoveled snow can support.

Where Taylor runs into trouble is the extreme centralization of knowledge his system requires. As Shop Class as Soul Craft can tell you, such a reduction of worker responsibility can be dehumanizing, and long run it’s hard to believe anyone can perform well when they feel like a cog in a machine they do not understand. To be picky, his experiments are also terribly run, and the results are almost entirely attributable to selection bias, since he fires anyone who doesn’t perform: clearly average performance increases then, but it need not have anything to do with management methods.

Still, the book is worth reading, particularly if you plan to talk to MBAs very often. Even if you don’t, Taylor provides a frank commentary on how he sees the problem of management, and perhaps particularly if you disagree, it’s useful as a way to figure out what you think might work best.

Summer Reading Suggestions

In honour the end of June (and Canada Day!) I thought I’d offer some suggestions for reading for the summer.

Food and The Omnivore’s Dilemma – Michael Pollan

Summer’s the perfect time to review your eating habits, and Michael Pollan is the perfect person to help.

The Better Angels of our Nature – Steven Pinker

A long book, but one that is worth taking the time to read. Pinker will tell you why you can still be optimistic about humanity: violence is falling, cruelty is diminishing, and overall we’ve actually been quite successful at reducing war, homicide, and other violent crimes.

The Righteous Mind – Jonathan Haidt

Summer’s also a good time for trying to reach across the aisle and understand the other side. Haidt is the ideal way to do that: fair and openminded, he analyzes morality, and instead of arguing the other side is immoral and the debate so often seems to descend to, he looks at the basis for morality that underlie the arguments on both sides.

Quiet – Susan Cain

A nice light read, but for all the introverts out there who sometimes feel overwhelmed by an extroverted society, a great read.

On my stack

Of course, I plan to do some serious reading myself, too. On my stack at the moment is

Capital in the 21st Century – Thomas Piketty

This 700 page economics treatise outsold fiction for weeks on Amazon: what that means for readership I have no idea, but at the very least there’s a lot of copies out there.

The Panic Virus – Seth Mnookin

An examination of the autism-vaccine controversy.

Risk-Savvy: How to make Good Decisions – Gerd Gigerenzer

Gigerenzer is an unusual psychologist who argues that the modern perception that we are biased actors who need to be fixed is flawed. Instead, he argues for biases as an ‘adaptive toolbox’: a series of adaptations that are by and large useful to us.

J’accuse – Emile Zola

The classic work of the Dreyfus Affair. In French, which is slowing me down but good for me.

The Notebooks of Leonardo da Vinci

We’ll see how these read when I get there!

 

George-Etienne Cartier: Montreal Bourgeois – Brian Young

“Tied to a specific mid-nineteenth-century milieu, Cartier, in his family, life-style, social ambitions, politics, and professional and business interests, serves as one barometer of the Montreal bourgeois experience.”

Canadian independence was rather less traumatic than the American experience, lacking a revolutionary war or even (so far) a civil war. Nevertheless, involved significant institutional change, as a country that initially consisted of only four provinces in Eastern North America attempted to develop its own institutions, culture, and society. One of the leaders in this process was George-Etienne Cartier, a French-Canadian statesman and partner of John A MacDonald.

I don’t really expect anyone who isn’t a Canadian history buff to have heard of Cartier, and since Brian Young’s book quotes liberally from French sources without translating, I wouldn’t recommend the book to anyone who wasn’t one either, or at least to anyone who doesn’t speak French. The book is interesting though: rather than attempting to retread old ground, it focuses on Cartier’s origins and bourgeois background, before skipping to his political life.

It is his political activities, in the context of a young country trying to grow, that are particularly interesting. He was instrumental in codifying the laws of Quebec, which still operates under a different legal code than the rest of Canada; helped establish the school system of Quebec, imposing a tax-supported system on a reluctant population; and most of all bringing Quebec into Confederation, his alliance with MacDonald instrumental in convincing Quebec to join. Cartier was a French nationalist, but one who believed that Quebec was better off in a union within a greater Canada, rather than outside it or paired only with Ontario.

Canada still struggles to reconcile the French and English elements within it, a cause that has endured from Cartier’s day. Without him, though, and people like him, Canada might never have existed as it does today.

Spillover – David Quammen

“Human-caused ecological pressures and disruptions are bringing animal pathogens ever more into contact with human populations, while human technology and behaviour are spreading those pathogens ever more widely and quickly.”

The elimination of smallpox is unquestionably one of humanity’s greatest achievements. Before it was eradicated, it killed upwards of three million people per year in the 20th century, far more than the world wars or any other cause. Sadly, it also remains one of only two diseases to be eradicated in human history (the other is rinderpest): polio has seen a recent resurgence, partly due to unwillingness to accept vaccines, and we aren’t even close on most other diseases. A dramatic failure on humanity’s part, and one with an end goal that we all agree on: it doesn’t bode well for global warming.

Quammen, however, has some more bad (but interesting!) news. Many diseases are zoonotic: they use animals as reservoir hosts, often causing no symptoms, and are only noticed when they mutate and jump to humans. AIDS, Ebola, bubonic plague, Spanish influenza (and all influenzas), West Nile fever, rabies, anthrax, Lyme disease; all zoonotic, and the list goes on. That means elimination isn’t really an option, unless we’re prepared to resort to xenocide against the species in question, and as humans eliminate natural habitats and spread more widely we make cross-species infection, called spillover, more and more likely. In most countries, AIDS education materials recommend practicing safe sex or not sharing needles: in Cameroon, the signs recommend not eating apes.

What makes the book work is that the existence of reservoir hosts makes the study of the disease like a detective novel: scientists have to search for the reservoir and solve the mystery, though most of them don’t wear deerstalkers. Disease is one of those things it’s easy to forget about when we’re not in the grip of a crisis, but preparation, as with anything, is critical to reducing the impact later on. For that reason alone, I’d say it’s worth reading Spillover: the fact that it has some fun stories and interesting characters in it is icing on the cake. Even better, mind you, is seeing Quammen speak in person about it, as I was lucky enough to do: he’s a good speaker, and summarizes both content and stories well. Either way, a serious issue for humanity, and one the wise should definitely be thinking about.

You can get a copy of Spillover here.

Dead Souls – Nikolai Gogol

“But wise is the man who disdains no character, but with searching glance explores him to the root and cause of all.”

“Countless as the sands of sea are human passions, and not all of them are alike, and all of them, base and noble alike, are at first obedient to man and only later on become his terrible masters.”

In Gogol’s satirical look at Russian society, Dead Souls refers both to serfs who have died but not yet been recognized as dead by the Census, and the natures of his characters, all of them flawed or caricatures in some way. Gogol’s goal was to capture the flaws and faults of the Russian character, and then in Book 2 provide some insight into solutions. Unfortunately, Gogol was unhappy with Book 2 and burnt it shortly before he died, leaving Book 1 to end mid-sentence: what that says about the Russian character I leave to the reader.

Dead Souls is about a rather untraditional con artist, one attempting to buy dead serfs. In Czarist Russia, the count of serfs under each landowner was established by the census, and if one died between one census and the next, then the landowner has left with a deed of ownership and not much else. Chichikov, our hero, strikes on the idea to buy these dead souls for a pittance and mortgage them for a vast amount of money, then leave with it. Unlike today, when we are lucky enough to have a modern middle class with enough money to be worth stealing from, that meant going to the large rural landowners in search of ones with dead souls to sell. Fortunately, people with dead souls are in abundant supply in Gogol’s epic. Chichikov’s odyssey, and the parallel is intentional, involves repeated, cyclical stops in small town Russia, where he encounters, and indeed personifies, the Russian concept of poshlost: a moral and spiritual vulgarity.

Comedy is a tremendously difficult thing to translate well: jokes rely so much on context and subtle meaning that they almost always fall flat in translation. This translation, the Robert Maguire, very much suffers for it, and I’m not sure if another translation could do better: lacking the background Gogol expected of his readers, much of the satire is lost on me. Still, the book has strengths, and if not replete with laugh out loud moments, there remain some great insights into human nature, always a Russian virtue. I wouldn’t take it over a Dostoyevsky or Solzhenitsyn, but if you like the Russian authors (and I very much do!), he provides a nice change from the better known ones.

The Economic Consequences of the Peace – John Maynard Keynes

“The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable – abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe.”

Keynes wrote the Economic Consequences in 1919, and it played a critical role in turning public opinion against the Treaty of Versailles as too harsh and unfair to Germany. In it, he argues that France’s desire to punish Germany and unwillingness to raise taxes to pay for the war has led to reparations wildly beyond Germany’s ability to pay, and worries about the future of Europe after a crippling peace treaty and continuing instability.

Keynes is fun to read because he’s ridiculously clever, and this book is no exception. He’s witty, he’s insightful, and he’s entertaining. Conveniently, history has also judged him right, with the punitive terms of the Versailles Treaty contributing to the outbreak of World War 2. Being Keynes, though, he also had opinions on a wide variety of other topics.

On History

“The great events of history are often due to secular changes in the growth of population and other fundamental economic causes, which, escaping by their gradual character the notice of contemporary observers, are attributed to the follies of statesmen or the fanaticism of atheists.

On Poverty and Inequality

“Men will not always die quietly, for starvation, which brings to some lethargy and a helpless despair, drives other temperaments to the nervous instability of hysteria and to a mad despair. And these in their distress may overturn the remnants of organization, and submerge civilization itself in their attempts to satisfy desperately the overwhelming needs of the individual.”

“Then a man shakes himself, and the bonds of custom are loosed. The power of ideas is sovereign, and he listens to whatever instruction of hope, illusion, or revenge is carried to him on the air.”

On inflation

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

On the Modern World

“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep…The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life.”

Vanity Fair – William Makepeace Thackeray

“All is Vanity” – Ecclesiastes

“Ah! Vanitas Vanitatum! Which of us is happy in this world? Which of us has his desire? Or, having it, is satisfied?” – Vanity Fair

In 1899, Veblen published his The Theory of the Leisure Class, arguing that most of society’s activities were focused purely on establishing status. We engage in conspicuous consumption, we train ourselves in skills with no remunerative reward, we even pursue conspicuous leisure, all to prove we have the money and status such activities require. It’s not clear much has changed, unfortunately.

Fifty years before, Thackeray wrote on a similar subject. He satirized early 19th century Britain, with its class-obsessed, materialist fixations and flaws. His novel, subtitled A Novel without a Hero, has only flawed characters, with a devil’s assortment of opportunists, snobs, fools, hypocrites, adulterers, psychopaths, and more. No character is wholly flawed, however: many are explained to be products of their poverty or straightened circumstances, or also have redeeming virtues. From a mild beginning, it descends into a bleak view of human nature from which there is no escape or possibility of reform.

The glory of the book, however, is in Thackeray’s narration. One of the best known omniscient narrators, he is at times scornful, biting, and incisive, and always clever. He even insults his readers, suggesting that anyone interested in such Vanity Fairs must be lazy or sarcastic. Though grim, however, his insights are brilliant, and maintain their potency today, particularly in a world of increasing inequality and consumption.

“Be humble, my brother, in your prosperity! Be gentle with those who are less lucky, if not more deserving. Think, what right have you to be scornful, whose virtue is a deficiency of temptation, whose success may be a chance, whose rank may be an ancestor’s accident, whose prosperity is very likely a satire.”

“Some cynical Frenchman has said that there are two parties to a love-transaction: the one who loves and the other who condescends to be so treated.”

“The world is a looking glass, and gives back to every man the reflection of his own face. Frown at it, and it will in turn look sourly upon you; laugh at it and with it, and it is a jolly kind companion; and so let all young persons take their choice.”

How the Mind Works – Steven Pinker

“The mind is a system of organs of computation designed by natural selection to solve the problems faced by our evolutionary ancestors in their foraging way of life.”

Books bemoaning how irrational people are have become increasingly popular in recent years. We believe that after a series of sixes a dice is ‘due’ for a different number, or that basketball players can have ‘hot hands’; we are incapable of properly updating Bayesian probabilities, such as when we calculate the likelihood of actually having a disease given a positive test; and when Kahneman asked people whether a young woman active around issues of discrimination and social justice was more likely to be a bank teller or a bank teller active in the feminist movement, they said the second, a logical impossibility.

With such dismal news, one might be forgiven from assuming human intelligence is something to be pitied. For that reason, How the Mind Works is a welcome change. In it, Pinker argues that though we certainly do have inborn biases and weaknesses, many of them make sense from an evolutionary perspective, even providing an evolutionary advantage. Most events do demonstrate reversion to the mean, for example: dice or basketball players might not be due for a change, but weather is. More broadly, Pinker uses the computational theory of the mind to explain human reason, emotion, the senses, consciousness, social relations, humour, and in the final chapter, the meaning of life. It was a finalist for the Pulitzer prize when it was published in 1997.

As with all Pinker books, it is filled with amusing anecdotes, illustrative examples, and incisive analysis. Still, I found it less compelling than his others, though that’s partly due to personal taste rather than inherent quality: I preferred the focus of Blank Slate, which covers some of the same material but with particular emphasis to societal implications, rather than the descriptive approach given here. It also shares significant content with some of his other books, including the Language Instinct and Better Angels. That said, if you’re interested in an overview of the computational theory of the mind, or are hoping to brush up on your knowledge of cognitive psychology, the book is useful and entertaining.

Scarcity – Sendhil Mullainathan and Eldar Shafir

“Scarcity captures our attention, and this provides a narrow benefit: we do a better job of managing pressing needs. But more broadly, it costs us: we neglect other concerns, and we become less effective in the rest of life.”

Angry Birds, the game in which you lob birds at obstacles, has been phenomenally popular. Angry blueberries, a game created by the authors in which you lob blueberries at obstacles, has been somewhat less popular, but shows an interest result. Some players are given three blueberries per round, others six. People with more blueberries do better, of course, but they do a lot worse per blueberry!

Scarcity, the authors say, focuses the mind. We have finite mental capacity, and when we are forced to focus it, we do much better on that task, but much worse on every other task. They worry that the modern obsession with time management and efficiency makes time a scarce resource. That may help us schedule, but makes us sloppy in other areas, and vulnerable to any sort of unexpected demand on our time: something comes up, and it ripples through our entire week, making everything stressful. A little more slack in our schedule isn’t just wasted time a management consultant can help us fill: it’s a shock absorber, making our work schedule antifragile.

As with most good behavioural books, it does have a lot of fun studies though: pill bottles that beep and then send text messages when they haven’t been opened that day, gift cards for savings, and others. In the end, I’m not sure the book tells us anything any other behavioural economics book doesn’t. Introducing scarcity, though it makes for nice sound bites, doesn’t really add much to the analysis, despite their hard work attempting to use it to explain things.

If your bookshelf is looking scarce, however, you can get a copy here!