Category Archives: Economics

Unaccountable – Kevin Page

“At its core, the parliamentary budget officer position as created in 2006 was to be responsible for forecasting the cost of purchases resulting from specific policies.” – Unaccountable

Budget Offices, whether congressional or parliamentary, serve to my mind a very important function. It is too easy for governments to fudge numbers: to take a trite example, the economy is always reported as doing well just before an election, but if another party wins they always conclude that it is actually doing terribly. Budget Offices provide essential analysis that helps support transparency and good decision-making.

Unfortunately, if that’s what you’re interested in, Unaccountable doesn’t add much. It is written almost entirely for partisans, and if you’re interested in economics, public policy, or budget offices, the book offers little in terms of details or facts. It focuses largely on the fact that when the PBO asked for information, the conservative government in power refused them. I’m sure that’s true, but having acknowledged that I would have liked the book to move on, not just repeat the same thing ad nauseam.

Kevin Page is a devoted civil servant and I suspect highly competent—he would have to be to have succeeded as PBO. I was disappointed, therefore, that this book didn’t provide more. He’s clearly very bitter about his experience, and perhaps that has affected his entire worldview. While leading the PBO, for example, he suggested the government intentionally misled Canadians. Though probably true he has no evidence for it, and I suspect making such claims without evidence only costed the PBO credibility. Throughout the book, because he doesn’t come across as unbiased or even self-aware, it’s hard to know how much credibility to give him.

Perhaps the strongest section is the final chapter, where he considers the future of the civil service. Even there, unfortunately, he skirts issues rather than engaging with them though: he argues that civil servants should provide information directly to Canadians, for example, but doesn’t mention how that fits with the Westminster model of a neutral civil service that serves the government of the day.

Inside the Nudge Unit – David Halpern

The UK Nudge Unit is the most trendy thing in behavioural economics these days, and quite possibly one of the most exciting things in government. To my mind, their basic message is twofold. First, that people should pay a little more attention to the details of how policies and programs are implemented; little things, like how a notice of overdue taxes is phrased, can make a big difference to how effective it is. Second, that we should be testing our policies: that experiments and randomized control trials can play a key role in making sure we know what works and how governments can best serve their citizens.

The idea behind behavioural insights is that small, even superficial changes to things can make a big difference. If you tell people that everyone else pays their taxes, they’re more likely to do so; if you offer to clean people’s lofts if they agree to insulate it, even if you charge them for the cleaning, they’re more likely to insulate their lofts (which reduces carbon emissions); texting people that they still owed fines to the UK Court service increased payment rates, saving money on bailiffs and courts’ time. Small changes, but a few percentage points increase in taxes paid can save millions of dollars.

The team started with an admirable focus: if they didn’t manage to transform at least two major areas of policy, spread understanding of behavioural approaches across the UK government, and achieve a tenfold return on the cost of the unit, it would be shut down on its second anniversary. More government programs could do with such a motivator. The fact that they’re still around testifies to the enormous impact they’ve had.

David Halpern, as head of the Nudge Unit, is clearly a true believer, and he glosses over some things that I suspect his critics would not. He doesn’t mention, for example, one of the Nudge Unit’s most controversial policies, attempting to convince immigrants to leave the UK: while he discusses some potential ethical objections to nudging generally, he rapidly concludes that none of them hold water and that nudging is perfectly acceptable, which I’m not sure all readers will agree with. He also spends a lot of time explaining behavioural economics more generally, but to be honest if you want a general primer I’d start with Nudge or Thinking Fast and Slow – the value added of this book is the actual story of the Nudge Unit, and it is unfortunate he doesn’t spend more time on that. Still, if you’re interested in behavioural economics, well worth the read, though I wouldn’t start with it.

One Man’s View of the World – Lee Kuan Yew

“I am in favour of sending students on scholarships to Britain instead [of the USA], because I am sure they will come back. In the UK, you do not stay behind because you are not welcome.” – Lee Kuan Yew

Whether you think Lee Kuan Yew was a dictator or a saviour, it’s hard not to agree that he was hugely influential. Singapore went from a city that was actually thrown out of the Malaysia union, with rather bleak prospects, to an economic powerhouse that remains what is probably the most developed country in Asia. With a ruthless focus on human capital, eliminating corruption, and meritocracy, it is rich, successful, and – to some – overly sanitized.

One Man’s View of the World is Lee’s views on trends in the wider world, taken region by region. It is interesting because he is scathingly blunt, as the quote above suggests. He dismisses Europe as doomed to decline and discord because they wouldn’t accept political unification along with their economic union, and without it the countries are all too small to compete; he believes the Middle East is in trouble as long as most people’s first loyalty is to tribe, not country, which means they fail to acknowledge the equality of all citizens and so neglect much of their human capital, particularly women; he respects American dynamism, but worries their educational system is phenomenal at the top but fails everyone else, weakening the middle class; and he believes China will continue to flourish, but because of its emphasis on a strong center, will evolve very different institutions that the Western world, sometimes to its cost, as for example its failure to have an independent judiciary.

Some of the book is a bit fluffy, particularly some interviews he gives to the Singapore press, but the parts where he gives his frank opinion on the medium-term prospects of various regions are definitely worth the read. Much like his record, whether you agree or disagree, and opinions are heated on both sides, his ideas are worth thinking about.

Misbehaving: The Making of Behavioral Economics – Richard Thaler

“My only advice for reading the book is stop reading when it is no longer fun.” – Thaler, Misbehaving

Economics is tremendously influential today, perhaps with some justification. Unlike many social sciences, it works from a single unified body of theory, based on the idea that people optimize. Paired with the mathematical tools of constrained optimization and equilibrium, that cohesiveness has given it significant strength. It isn’t correct, of course, but it’s a useful model, and empirical research doesn’t depend on it anyway. Thaler, however, has championed the push to expand theoretical models to include other factors, enriching the models and leading to behavioural economics.

Dick Thaler is a past president of the American Economics Association, a professor of behavioural economics at the University of Chicago, and an all-around swell guy (really – I’ve seen him speak, and he seemed great). Nudge, a previous book of his, has been a huge bestseller and tremendously influential in governments around the world. Misbehaving is less directly applicable, but just as well written and, for me at least, just as interesting.

Misbehaving tells the story of the history of behavioural economics, which conveniently for Thaler is also basically a biography of him. The book provides a solid introduction to behavioural econ, though perhaps not as thorough as Thinking Fast and Slow, but has the added advantage of also providing a great summary of the history of economics more generally, since at each stage it contrasts behavioural and typical economics.

Whether you’re wondering why people don’t sell wine that has appreciated in value, even if they wouldn’t buy such expensive wine, why people pay more for beer when it’s sold at a resort, or even if you have questions that don’t involve alcohol, Misbehaving is a great book. It will be more entertaining if you know a bit of economics already, but even if you don’t, I think it’s a great introduction to the field and to how the field has evolved in the past 40 years. Plus, behavioural economics is awesome!

In the Plex – Steven Levy

“Google’s culture has informally emerged from its founders’ beliefs that a workplace should be loaded with perks and overloaded with intellectual stimulation.”

Working at Google (also: Alphabet) means you get free food, pilates, doctors, massages, and swag. In some ways, it is organized to feel exactly like college, and indeed they recruit people who haven’t done anything else. It has a strong, probably unique culture, and possesses tremendous power in the modern world, both for the information in possesses and the services it provides.

All that sounds nice, and in many ways its culture has led to its strength. It has also led to some blind spots, though. Googlers (Alphabeters?) can sometimes be baffled by the public’s response to their products: for a company based explicitly on doing good, they have managed to alienate a number of their natural allies, including people who believe in freedom of information and transparency. It is in some ways a closed shop, quick to accuse critics of self-interest rather than legitimate concerns, and oblivious to the fact that the massive power it has assembled can be used for evil as well as good. Their behaviour has also not always matched their ideal, as when they first partnered with, then crushed, Mozilla, or when they settled with the publishing industry to not actually make books available to the public, but just to sell them.

In the Plex, with extensive interviews of googlers and studies of google, looks at this issue in the broader context of google’s evolution as a firm. As it continues to expand, it faces the dual challenge of outside critics and how to maintain its culture in an increasingly sprawling empire. The book addresses a lot of important questions, and google’s story is certainly fascinating. In the Plex can sometimes be a bit oblivious, as when it discusses Google using Al Gore to give free gmail accounts (which were at the time selling for about $100 on a secondary market) to politicians who were critics of them, without seeming to realize that verges on bribery. Overall, though, it does a good job looking at the challenges with the triumphs. I’m not sure anyway wants to go back to a world without google, but I think there are a lot of people who would like to see some changes in how data is protected and stored

The 4-Hour Work Week – Tim Ferriss

Note: I’m travelling for the next few weeks, so I may be posting a bit less than usual.

“Whether a yearlong sabbatical, a new business idea, reengineering your life within the corporate beast, or dreams you’ve postponed for “some day,” there has never been a better time for testing the uncommon.”

Have you thought much about lifestyle design? Most of us save our plans for our ideal lifestyle for when we’re retired. Now, I’m not one to discourage retirement saving – definitely a good idea! – but time is also a limiting factor. Is it worth working hard today to free up more time in retirement? Or would it be better to take more free time today, even if it means having less retirement? Our retirements have increased dramatically in length in recent decades, but it seems possible we’d be better spending some of that time off in advance (say with a 4-hour work week), and working a little later in our lives.

Ferriss is one of these guys that if you’ve done an MBA, you probably couldn’t avoid hearing about him. He appeals specifically to people who feel trapped in an investment banker or consultant-style life, and feel like they’re missing out on other things in life. The book is basically an extensive application of the 80/20 rule: that you can get 80% of the results you want for only 20% of the effort, or conversely you can avoid 80% of the problems by doing 20% less. Applied to life, that says that if you redesign your life a little, you can free up a lot of time (though sadly, 20% of a forty hour work week is 8 hours – math is once again sacrificed to salesmanship), which you can then use for the things that really matter.

Sounds reasonable, and I think we could all do a better job focusing on what matters instead of getting caught up in the rat race. How Ferriss chooses to spend his time is not what I would choose: Wikipedia suggests he spends the bulk of his time self-promoting, and I suspect there’s a grain of truth in that. He won a kickboxing championship in China, for example, by carefully reading the rules, temporarily dropping 30 pounds just before the weigh in, and then just pushing the other competitors out of the ring with his much greater size. Permitted by the rules, but I’m not sure I’d find it satisfying. His advice also isn’t exactly the golden rule, doing unto others. Still, reminders to focus on what’s important are always good, and his advice to seek the millionaire lifestyle if that’s what you want, rather than money for the sake of money, is spot on. I’m sure he’d agree his choices are not for everyone, but we might all enjoy a 4-hour work week.

Unfinished Business – Anne-Marie Slaughter

“I want a society that opens the possibility for every one of us to have a fulfilling career, or simply a good job with good wages if that’s what we choose, along with a personal life that allows for the satisfactions of loving and caring for others.”

Ann-Marie Slaughter lit a fire with her publication of ‘Why Women Can’t Still Can’t Have It All’ in the Atlantic, arguing that women who manage to be mothers and top professionals are superhuman, rich, or self-employed. She suggested that there are limits – in time, energy, fertility, and desire – that are unavoidable, and that no one can do everything. She speaks from experience: she gave up a high-powered job under Hillary Clinton as secretary of state to return to a less demanding (though still very impressive) job as a professor at Princeton.

In her forthcoming book, she extends this argument, suggesting that though there are some unavoidable limits on humans, society also imposes a lot of artificial ones. She argues that most jobs can be sorted into caring or competitive roles: investment banking might be competitive, but sectors like healthcare and education are more about caring. Society underrates caring jobs, she argues, and those jobs have also traditionally been the responsibility of women. If we are to achieve a better society, we need to increase the value we place on those caring jobs, whether it is childcare or senior care, and also make the workforce more flexible to accomodate more mixing of options, allowing part-time work, more parental leave, and other arrangements. Society, she says, has unfinished business when it comes to workplace arrangements and to social norms.

It’s a solid point, and I quite like her almost Buddhist discussion of limits. Her analysis of the psychology of caring vs. competitive jobs can sometimes feel a bit trite, though: it’s well out of her area of expertise, and isn’t as strong as the similar discussion in Friend and Foe, for example. Still, she’s engaging with an important issue, and one that in the U.S. in particular is often dismissed. Things like parental leave programs can help give children that crucial good early start, and most countries could do with thinking it over a little more. In a sense, it’s a nice complement to Sandberg’s Lean In: Lean In describes how to do well in the world as is, whereas Unfinished Business seeks to suggest how the world should change.

Disclosure: I read Unfinished Business as an advance reader copy. You can read more reviews, or pre-order the book, on amazon: Unfinished Business. It is released September 29th.

The Economics of Enough – Diane Coyle

“For more than a generation Western governments have been borrowing on a large scale from their own citizens but increasingly also from foreigners in much poorer countries. The cost of these promises will be piled onto taxpayers as yet unborn or too young to vote.”

At the moment, we appear to be leaving future generations a rather bad hand. Public debt seems to verge on the unsustainable, and the number of things they’ll to pay for, whether cleaning the environment or reducing inequality, seem to be increasing. Axel Weber, previously president of Germany’s Bundesbank, once joked that in face of spiraling debt, future generations “are doing the only thing they can. They’re avoiding being born.” One of the less common explanations for Europe’s demographic crisis.

A fairly basic law says that what cannot go on forever will stop. Whether it is climate change, public borrowing, inequality, or deteriorating social capital, says Coyle, we’re in the midst of a number of unsustainable trends, ones that can and must change. That means measuring things properly (as she discusses in depth in another book, GDP: A Short History), and making decisions as if the future matters, indeed as if we should leave the next generation with at least as much capital as we inherited.

In the end, Coyle is hopeful: by curbing our instinct to demand ever more, and making sure we think about the consequences for the future of our decisions today, she says, we can do a lot to leave future generations in a good position. This also means facing basic trade-offs, though, instead of pretending they don’t exist and borrowing to avoid them: she suggests, for example, that we should pick any two of efficiency, fairness, and freedom, but that not all three can be achieved simultaneously.

It’s not a new message, perhaps, but it is an important message. We could do a lot more to care for future generations (some days, it might be fair doing anything would be an improvement, Elon Musk excepted). Coyne mixes some practical suggestions with philosophical discussion, and if it doesn’t quite feel like she’s cracked the problem, she’s at least thinking about the right things.

To Sell is Human – Daniel H. Pink

“Selling in all its dimensions — whether pushing Buicks on a car lot or pitching ideas in a meeting — has changed more in the last ten years than it did over the previous hundred.”

You probably believe you have a job that isn’t sales (unless you are in sales). Perhaps you think you’re a university professor, a doctor, a machinist, or an electrician. That’s all well and nice, says Pink, but you’re kidding yourself. Almost all of us spend a large chunk of our time convincing other people to do things – as teachers, we convince students to learn, or as office workers, we convince our coworkers to help on our projects or our bosses to listen to our ideas. Despite the bad name of sales, says Pink, this isn’t a bad thing. In the modern world, salespeople can no longer rely on asymmetric information to bamboozle their clients: instead, in an age of free information, they have to rely on actually working in the client’s interest.

It’s an interesting point, and an interesting book. I’m not quite convinced, though. I agree we all spend a lot of our time convincing others of things, but I’m not sure that’s a modern phenomenon: I suspect that’s been true in almost any age. Man, said Aristotle, is a political animal, after all. I’m also not sure sales doesn’t – in part – still deserve its bad name. It’s true, the internet means you can look up a used car as well as the salesman, but even when the information exists, finding it isn’t easy given how much else is out there. Salesmen still have an advantage because they curate information, even if they aren’t the sole holders of it.

The book also has a bunch of cute stories, as these books often do. The first ‘elevator pitch’, for example: the man who figured out how to make elevators safe for people needed a way to convince them it worked, so he built an elevator at a world fair, hoisted it up, and cut the cable. To the gasps of the crowd, it plummeted…until the automatic brakes kicked in and stopped it. I’m not sure I agree with the book’s thesis, but for a quick summer read, it’s light, entertaining, and interesting.

GDP: A Brief but Affectionate History – Diane Coyle

“Environmentalists believe it leads to an overemphasis on growth at the expense of the planet, “happiness” advocates think it needs to be replaced with indicators of genuine well-being, and activists such as those in the Occupy movement argue that a focus on GDP has disguised inequality and social disharmony.”

GDP gets used a lot, in almost any discussion of politics or economics. It’s easy to forget it’s a recent phenomenon: the idea dates back only to the 1940s, and as recently as 1985, we really only had GDP data for around 60 countries, and that of poor quality. Only in 1999, when Angus Maddison published long-run estimates, did we actually get long-run GDP data on most countries, and even those are limited.

Today it is the rod by which all else is measured. As Diane Coyle points out, however, it is also deeply limited – some would say flawed. It counts some major sectors poorly, such as services, and omits others, such as household work: if a woman marries her gardener and stops paying him, GDP falls. The current system also gives a vast estimate of the contribution of financial services to the economy, giving that sector tremendous political influence, as in the UK: it’s not clear this estimate is reasonable, since in some ways it measures how much risk they bear, not how much value they are creating.

What’s the solution? Coyle argues that attempts to replace GDP with a new single metric won’t work: whether it’s happiness or inequality, no single number can capture the complex mix of freedom, prosperity, fairness, and the human capability to innovate and create that we believe is important. Instead, she suggests we use a dashboard approach: that using a mix of indicators allows us to measure how we are doing in a number of areas, and to tradeoff one against the other as necessary.

A sensible idea, in a sensible, well-written book. I’ve met Diane personally, and her personality shines through clearly in her writing: data-driven, clearly analyzed, and well-researched. The history of GDP may never be a summer thriller, but the book is about as light as it could be, and it covers and important and interesting topic.