Tag Archives: Business

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.

The Art of the Long View – Peter Schwartz

“The point of scenario-planning is to help us suspend our disbelief in all the futures: to allow us to think that any one of them might take place. Then we can prepare for what we don’t think is going to happen.”

How do you take the long view to prepare for the future? Do you try to predict what’s most likely, then prepare for it? If so, you’re doing it wrong.

Schwartz instead argues for scenario-based reasoning. The core of the idea is that the world is unpredictable: since we cannot know for sure what will happen, it is foolish to prepare for only one future. Instead, you come up with several plausible scenarios of how the future might turn out, and then look for solutions and plans that allow us to prepare for all of them. I would call this prediction using confidence intervals, not point estimates, but the point is the same. By using a point estimate (or single scenario), we blind ourselves to other possible outcomes, and neglect ideas that might have served us well in an uncertain and unpredictable world.

By using stories, we can make these futures seem real, helping us truly change and deepen our mental models of the world and take a long view. Typically, three scenarios are enough to capture three possible types of future: more of the same, but better; worse; and different but better. Of course, there are infinite possible futures, but these three classes generally help us prepare for them.

Though pretty simple, I actually think the method is pretty compelling, and the book is a well-written introduction to it. Among other things, I think Schwartz’s method helps provide a common language for discussing the future, something often not accounted for. As Greece negotiates with the euro, for example, I think both could benefit by having some scenarios of what the future could look like.

It isn’t a perfect method: there were a few points I found unconvincing, particularly that you should never probability-weight scenarios. If you come up with three, one of which has a 90% likelihood of happening, should you really prefer a solution that works better in the other two? I’m happy to agree you should consider all three, and if a solution works for all then great, but the hard decisions are when solutions are good in some scenarios, and bad in others. Still, a powerful method that deserves broader application.

Speaking of the future, having had my PhD viva last week, I am finally left with a bit more free time, and so hopefully can start posting reviews more regularly again. Look forward to it!

Shadow Work – Craig Lambert

“The innocence of leisure makes it vulnerable to the predations of organized bodies — and there are many — that have designs on our free time, something they view as a natural resource awaiting their schemes.”

The average American commute is 16 miles each way. At the 2015 federal auto mileage reimbursement of 55 cents per mile, that’s almost $20 a day, or $4,400 a year. Over the year, commuters each spend – on average – five forty-hour weeks of unpaid time commuting. That’s shadow work: work for which we are neither thanked nor remunerated, but which is increasingly pushed onto us by firms trying to reduce their costs. Whether we’re pumping our own gas, going to online forums for tech support, or self-diagnosing with WebMD, we’re doing shadow work, and it is eating into our leisure time at a ferocious rate.

At the end of the first chapter of Shadow Work, I was a little worried. Shadow work is an interesting trend, one that we are often surprisingly unconscious of. I just wasn’t sure what Lambert planned to add in the rest of the book. Fortunately, Shadow Work more than finds its feet in the second chapter. The rest of the book serves as a thoughtful and insightful reflection on the nature of work and the nature of leisure in the modern world, from increased complexity to reduced social contact.

Whether shadow work is good or bad depends on circumstance: I like going to automatic check-out machines in the supermarket, but find it annoying to wade through phone menus rather than just talking to someone for tech support. Overall though, as Lambert points out, shadow work gives us autonomy and self-sufficiency, but at a price: isolation. Shadow work creates the opportunity for a self-imposed bubble in which we interact with ATMs, automatic cashiers, and websites, but not our fellow humanity. It also gorges on our free time in what is already a rushed and harried world. I don’t mind giving up some leisure time for choice, but given how much I’ve already lost, I’m finding it harder and harder to think I should give up any more.

Overall, thoughtful and insightful, and analyzes a trend with implications for all of us. It’s easy to slip into shadow work without noticing, bit by bit, and Lambert is right to highlight the costs. Definitely recommended. You can read more reviews on amazon, here: Shadow Work.

Increase Your Financial IQ – Robert T. Kiyosaki

“Ultimately, it is not gold, stocks, real estate, hard work, or money that makes you rich – it is what you know about gold, stocks, real estate, hard work, and money that makes you rich.”

I don’t really know if entrepreneurship can be taught. Critics of traditional education argue that if anything, schools teach the opposite: stay safe, give the accepted answer, and you get an A. Do something different, try something new, and you risk failure – even if you succeed, you may still be marked wrong, and at best you do no better than your peers who took the safe path. It’s not clear that’s what life is like.

Of course, I’m also not sure the point of school is to teach entrepreneurship: there are many things I’d like children to learn, and though risk-taking is one of them, citizenship, confidence, and a solid knowledge base on a range of topics that allows them to participate and contribute to modern society – not to mention reading and math – also score highly. Perhaps schools are better trying to teach knowledge, and leave spiritual growth and personal development to other fora, or perhaps there’s a way to fold in learning such things without formally trying to teach them, by including useful experiences and activities.

Either way, I wish people were more financially literate: as regular blog readers will know, for me it’s one of those things that if you don’t grow up with it, it can be hard to catch up later in life, and yet it seems to play a key role in determining financial security and stability.

The Rich Dad Poor Dad series is a titan among financial literacy books, selling millions upon millions of copies. Given my own interest in financial literacy, regular readers will know I often find reading such books interesting. For me though, Financial IQ is not a success, neither entertaining nor particularly informative. It is mostly fairly tired advice that is unlikely to surprise anyone, as well as some odd tangents on the value of the gold standard, which isn’t well linked to the content of the book. Not recommended.

The Undercover Economist Strikes Back – Tim Harford

“Microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally. Or to be more technical, microeconomics is about money you don’t have, and macroeconomics is about money the government is out of.” – P.J. O’Rourke

How, you might wonder, should governments fight recessions? Keynesians suggest that recessions happen because there is too little demand: the answer is to stimulate demand, using government spending and monetary policy. More classical economists suggest it may be because there is insufficient supply: the economy just isn’t producing enough stuff, or has endured a serious shock like a spike in oil prices. To that line, we should stimulate production: reform the economy, increase efficiency.

Undercover Economist Strikes Back is Harford’s attempt to explain macroeconomics, in contrast to his other, microeconomics-focused, books. There’s a lot of solid common sense in it, such as the point that despite Krugman’s bombast, Keynesianism vs classical is almost certainly a false dilemma: in the short run, you should do one, and in the long run, the other.

He also responds well to the concern (often raised by physicists) that the economy simply can’t keep growing because there are finite limits to energy we can use. The second half of that is true, of course, but as Harford rightly points out the first half doesn’t follow. Physicists think about physical processes, and those do require increasing amounts of energy. Economic growth though doesn’t equal energy growth: in the last 30 years in the US, for example, the economy has grown by 2.5% a year, and energy use has actually fallen.

For more wonkish readers, I also learned something amusing: the oft-quoted story about the babysitter group in D.C. usually doesn’t include the ending. They did indeed double the number of scrips as a Keynesian policy, but they then ended up with too many scrips, and the market collapsed again. Not something the proponents of such policies seem to remember when they tell the story.

The book struggles a bit at some points: Harford isn’t a macroeconomist, and it shows. I’m also not sure whether a macroeconomist would be particularly pleased with some of his analysis. Still, if you’re looking for a jovial tour through macroeconomics, Harford is, as always, entertaining, amusing, and enlightening.

The Wealth Chef – Ann Wilson

“Each and every day wasted on not investing will cost you dearly. Not only will it cost you in terms of the lost impact of compounding, but you’ll also lose the most important thing of all: the opportunity to learn from experience…The sooner you start gaining your 10,000 hours of investor experience, the sooner you’ll have this investing business figured out.”

Financial literacy is hugely important in the modern world, but unless you grew up in a family that talked about money, it can feel overwhelming. I frequently speak to friends who are interested in money and want to get out of debt/invest/save, but simply have no idea where to start. It’s an interesting challenge.

Ann Wilson introduces money through an extended conceit: cooking. There are four wealth flavours (assets, liabilities, income, expenditures) which you need to develop your palate to distinguish, two spices (time and interest rates), and a number of useful kitchen implements (your motivation as a a wealth obsession magnet, income statement as scales). Yeast, of course, is compound interest. The goal is to be a Wealth Chef, not just a cook!

Some first steps: use your last 3 months of bank statements to estimate your expenses, then write up a balance sheet listing all your income generating assets (sadly, your home would not count, and if you’re hoping to retire your job might not either). You are financially free when your generated income is enough to cover all your expenses.

It’s a fun way of introducing financial concepts, and judging by her own successful wealth-counselling business, an effective one. Her markets particularly to housewives and other women, which is reasonable – as she points out, at least historically men were frequently the one who managed the money, but in a world of increased equality and divorce, this is nonsense.

I have a few complaints at the margin: Wealth Chef uses 8-10% as a conservative interest rate on savings, for example, which is reflective of the historical return on the stock market but not of most people’s portfolios, which are a balance between equity and bonds. Italso emphasizes the credit score more than I would, though I agree that for people working their way out of debt, it is a useful way of tracking progress. For my tastes, the book also has a few too many exclamation marks, but it adds to the non-confrontational style.

Overall, definitely recommended if you’re intimidated by money and like cooking. If you’re an investment banker, probably not: consider reading guides on how baking cupcakes is like investing instead.

Disclosure: I read it as an advance reader copy. You can read more reviews of The Wealth Chef on Amazon.

Climate Shock – Gernot Wagner and Martin L. Weitzman

“We, together with most economists, would be fine with either carbon taxes or caps, done correctly.”

What, you might frequently wonder, is geoengineering? If you’re a scifi fan, you’ll know terraforming is shaping the earth’s surface. Geoengineering refers to using similar techniques on Earth, usually particularly in reference to controlling the temperature. The release of particle such as sulfate aerosols help block sunlight from reaching the earth, similar to the effect of the eruption of volcanoes: in 1815, the eruption of Tambora encouraged Mary Shelly to spend her summer holiday indoors, writing Frankenstein. You may think this is better than sliced bread, or absolutely crazy, solving a symptom rather than the disease. Economics, though, says that what you think doesn’t really matter: since geoengineering is relatively easy, so much so it could be done by a single country, it will be hard to stop someone from doing it, whether a rogue climate engineer or Vanuatu as it gradually submerges beneath the waves.

Climate Shock looks at the insights economics can provide as we try to understand and prevent climate change. In particular, it focuses on the economics of uncertainty – how we deal with things when we are unsure of them – and externalities – how people decide to do things when the decision will affect others. Geoengineering is a classic externality (as are carbon emissions): if someone decides to release chemicals into the air because they’re too hot, everyone is affected.

The uncertainty relates to the fact that we really don’t know the potential outcomes of warming. In the Pliocene era, carbon dioxide levels were similar to today, but the seas were 20 meters higher, and Canada had camels. We don’t know how likely that is to happen again, but we probably want to avoid it (unless you’re a camel).

The book is a great survey of some economic insights for global warming, and Martin Weitzman in particular is a titan in the field. My only comment is I suspect it would struggle to convince anyone who isn’t already a believer. If you’re looking to arm yourself with facts about warming to argue with your friends, it’s a great resource: if you’re not sure what to think, less so. Some of their arguments also feel a little hasty, not really engaging with other perspectives. David Friedman, for example, argues that uncertainty cuts two ways: global warming could also end up being good for the world, as well as bad. I’m not sure I find that convincing, but I would have liked to see Climateshock rebut or acknowledge it. Their final point, however, is a good one: even if everyone agrees that carbon emissions are immoral, and that in itself is unlikely, the immediacy of the problem means taking the economics of it seriously.

You can see more reviews and buy it on amazon here: Climate Shock.

The ABCs of Real Estate Investing (Rich Dad Advisors) – Ken McElroy

How, you might be wondering, would I go about buying an apartment building (or multiplex, or whatever) with the intention of renting it out? First, check out cities: what are supply and demand like? Is there something limiting supply, like an urban boundary? Is population growing, increasing demand? Is a new business moving in, boosting employment? Second, focus on a submarket: if the city is in a downturn, which region or neighbourhood is likely to turn around first? Third, get down to the nitty gritty: focus on gathering as much information as possibly to really get a feel for the area: meet with officials, local real estate agents, etc. At every stage, focus on the big forces of supply and demand, and also on location: is it near services, close to employment, in a good area? Then, buy the property, become wealthy, and wash, rinse, and repeat.

Real estate is an investment niche that frequently appeals to people: unlike the stock market, it provides something concrete that people can admire, and is often easier to understand because everyone owns or rents a house of their own. On the downside, however, it can often require a fair amount of capital to get started, in order to make the down payment, and though house prices generally (though not always) increase, covering the mortgage payments and taxes may mean you’re making less of a return than you would have if you’d just put it in the stock market and forgotten about it.

Rich Dad Poor Dad is a tremendously popular series, and has sparked a number of spinoffs, including this one, focused on real estate investing. It is intended for a novice in the field, and focuses on apartment buildings, though many of the lessons are also relevant to single-family homes. McElroy’s approach is also quite mathematical: he focuses on calculating your return on investment, and then using that number to calculate what the building is worth. Buy it only if you can get it for less. Words that could have done a lot for people who suffered in the sub-prime crisis, I suspect.

The book is not as strong as some of Rich Dad Poor Dad’s other works, but if you have a particular interest in real estate, it’s not a bad introduction. I think for most people, though, the sums he talks about in buying and selling apartment buildings make it seem a bit far away: many families have experience buying single family homes, but most haven’t considered buying multi-million dollar apartments. The principles are the same, but it makes it feel less relevant. Still, if you can get past that (or are considering buying apartments yourself!), then a solid introduction to a very popular field.