Tag 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.

Influence – Robert Cialdini

“Because technology can evolve much faster than we can, our natural capacity to process information is likely to be increasingly inadequate to handle the surfeit of change, choice, and challenge that is characteristic of modern life…When making a decision, we will less frequently enjoy the luxury of a fully considered analysis of the total situation but will revert increasingly to a focus on a single, usually reliable feature of it…The problem comes when something causes the normally trustworthy cues to counsel us poorly, to lead us to erroneous actions and wrongheaded decisions…If, as seems true, the frequency of shortcut response is increasing with the pace and form of modern life, we can be sure that the frequency of this trickery is destined to increase as well.”

Attractive candidates in Canadian Federal elections have received 2.5 times as many votes as unattractive candidates, a fact that presumably makes Justin Trudeau rub his hands with glee. Better yet, despite such evidence, 73% of Canadians denied any possibility that physical attractiveness affects their votes. We don’t understand our own biases well, and they make a huge difference to our behaviour. That makes them fascinating and also extremely important.

Cialdini lists 6 factors that influence our behaviour: consistency, reciprocation, social proof, authority, liking, and scarcity. These explain why we buy what we do, how we vote, how Chinese POW camps worked, why giving people electric shocks or hazing them to join a group makes them value the group more, how to fundraise, why we say we won, referring to a sports team, while they lost, why banning cleaning products containing phosphates increased how effect people believed them to be, and many, many, many other factors.

Influence has been on my list for a while, and I’ve only just gotten around to reading it. I shouldn’t have taken so long: I can’t recommend this book highly enough. It’s the best guide to behavioural economics I’ve read, written when behavioural economics wasn’t much more than a dream in the minds of people like Kahneman, Tversky, and Thaler. It’s fascinating and feels almost comprehensive in its discussion of the factors that influence our behaviour, and provides useful, insightful examples and commentary. My only complaint is that each section ends with a discussion of how to avoid the bias, and it does feel a bit out of date: using modern terminology, he basically just advises us to engage system 2 each time. Still, well worth the read, and definitely a classic.

1493 – Charles C. Mann

“To the history of kings and queens most of us learned as students has been added a recognition of the remarkable role of exchange, both ecological and economic…Columbus’s voyage did not mark the discovery of a New World, but its creation.”

I found this book fascinating. I had no idea North America didn’t have earthworms before Columbus, and that soil was brought over as ballast for ships that would return full of tobacco, nor that much of the silver mined in the New World was actually sold to China, who had collapsed their currency repeatedly for several hundred years (they were the first to introduce paper currency, due to a lack of available metals), and so were desperate for a precious metal they could use to stabilize it.

Mann’s thesis is that Columbus’ journey marked the beginning of true globalization, not because it marked the developed world discovering the new world (which isn’t really true anyway), but because it led to a worldwide mixing of ecologies and economies. Columbus himself may have been wrong about almost everything, but his voyage still had dramatic consequences, good and bad. The whole book is excellent, containing fascinating stories such as the evolution of potatoes from a poisonous plant that could only be safely consumed when eaten with clay (which bound the poison molecules to itself and could be excreted), to a worldwide phenomenon that allowed dramatic increases in population density across Europe and China and a (temporary?) escape from the Malthusian Trap. You can still buy the poisonous varieties in South America, complete with clay dust, by the way.

Ecological globalization wasn’t the only thing that happened around 1493, of course, and Mann is good about highlighting the complexity and agency of the peoples on both sides of the Atlantic before Columbus, something that is often neglected by European historians. In some ways he seems guided more by curiosity than anything else, omitting some things to focus on others he finds more interesting. Still, the ecological changes that resulted from the increased mixing have been dramatic, in ways we don’t notice because we don’t realize they could have been different. North American forests are very different with the presence of earthworms, because they decompose underbrush; today they are destroying terraces in Southeast Asia by making them spongy.

Highly recommended. Not perfect, and with such a wide scope details can sometimes suffer, but well worth the effort.

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.

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.

Dear Undercover Economist – Tim Harford

“When a dinner party guest wonders how much to spend on a bottle of good wine, Dear Economist ignores the Good Wine Guide and reaches for the Journal of Wine Economics.”

What, you might wonder, is the secret to happiness? Harford, citing Kahneman, says that sex is best, but that exercise, food, and prayer are also good. In fact, all human contact is good, except for that with your boss, which is quite bad. The secret to happiness? Don’t have sex with your boss.

Tim Harford is a frequent writer for the Financial Times, and has also published several excellent pop economics books, including The Undercover Economist. Dear Undercover Economist, however, is a collection of advice columns he published in the FT. Written in the classic style of Dear Abby columns, they use economics to answer questions about love, family, careers, and other domains. He gives advice to a man who gives bad first impressions (give a signal of quality, like giving the girl theatre tickets for a third date with him when they first meet); a student who is too busy with his karate club activities to study (gains from trade: find a weakling to do his homework and beat up the weakling’s enemies); someone looking for missing socks (give up on them: instead, focus on interchangeable parts, and just buy all identical socks); and, in response to someone concerned about inflation and the shrinking size of Mars Bars, points out they are actually a very stable unit of account, with about 20,000 bars buying you a small car for the last 70 years.

This is classic pop economics, freakonomics-style. It takes the insights of economics, particularly signalling, screening, and trade, and applies them to problems outside economics’ traditional gaze. I’m not sure I’d take the advice myself, but the columns are entertaining and well written: you could do worse if you’re trying to learn some microeconomics for yourself, or if you’re a student taking microeconomics. After all, how many other opportunities will you have to make economics fun? Overall, a great romp through the insights of economics, applied to everyday problems.

Zero to One – Peter Thiel

“Zero to One is about how to build companies that create new things…The single most powerful pattern I have noticed is that successful people find value in unexpected places, and that they do this by thinking about business from first principles instead of formulas.”

Thiel divides the world into four: an axis of pessimism and optimism, and an axis of future-definite and future-indefinite. Entrepreneurs, he argues, rely on future-definite thinking: they believe the future can be predicted and so work to shape it. Much of the US, however, has fallen to optimistic/future-indefinite thinking. They believe the future will be better, but have no idea how or why, and so don’t bother to prepare other than to get general skills and knowledge, a process that culminates in becoming a lawyer, consultant, or banker. Thiel recommends the opposite: pick one valuable skill or area, specialize carefully, and double down to achieve enormous success.

Zero to One is Thiel’s hymn to entrepreneurs and innovators, those individuals who don’t just achieve incremental improvements (one to two), but manage a real step change in technology, going from zero to one.

In truth, for me there are a couple of points I don’t think he’s entirely thought through. He waxes eloquent about monopolies, for example, arguing that they are the best way to run a business: “the more we compete, the less we gain.” I completely agree, I’m just a little worried his ‘we’ only includes businesses, not the consumers, who take it in the shorts. That said, monopolies may also provide more resources for innovation, so the question is not as simple as economics 101 might argue. His advice to specialize the same: he’s wholly correct that if you want to be a billionaire that’s the way to go, but he doesn’t seem to have considered that it’s a high-risk strategy. The returns are so high precisely because of the enormous number of people who will fail utterly as a result.

In some ways, the book is interesting because of these weak points: it tells us what Peter Thiel, the billionaire co-founder of Paypal, believes. Paypal’s team has also achieved great things: 7 of the early employees have founded billion dollar businesses, from Youtube to Tesla to LinkedIn. It’s a success so noted that they’re sometimes referred to as the Paypal Mafia in the tech world. The team was clearly doing something right!

Carrot and Sticks – Ian Ayres

“This book is centrally about how to craft commitments that will work best for you”

StickK.com is a website designed to help you achieve your goals. You pick a goal or activity you want to do, pick a referee to check to make sure you did it, and then put up a stake you’ll sacrifice if you don’t follow through: the money can go to a charity or, for the truly motivated, an anti-charity, such as the Bush Presidential Library if you’re left wing, or the Obamacare support fund (not a real thing) if you’re right wing.

It was set up by Ian Ayres, a contract lawyer and behavioural economist, and he’s now written a book to explain the ideas behind it. The idea is pretty simple, and so the book focuses largely on a multitude of great examples, from drugs that make you throw up when you drink alcohol or ingest too much fat, to signs in US National Parks that said that so many guests were stealing petrified wood they were running out, which actually increased total theft. In Israel, so-called ‘kosher phones’ were even set up by the Rabbinic council in Israel to block numbers for escort services and charge more than $2/minute for calls on the Sabbath!

The book got a little wearing for me in the middle: it felt a bit like a long list of examples. The end picked up again, though, first with a chapter on diets (if you want to keep weight off, weigh yourself regularly: it correlates highly with persistence in weight loss. Equally, if you’re on a strict diet, careful you don’t substitute to other activities: 20-30% of bariatric surgery patients pick up another vice, such as gambling, smoking, or drinking), and then a chapter on public policy helping people commit to desirable activities, such as reduce energy use. Overall, very worth the read! Interesting, entertaining, and if a little slow in the middle, still informative.