Tag Archives: Economics

The Wealth and Poverty of Nations – David Landes

“The Industrial Revolution brought the world closer together, making it smaller and more homogenous. But the same revolution fragmented the globe by estranging winners and losers. It begat multiple worlds.”

If I had been asked what I thought 100 pages in, I would have been quite negative, I think. Landes attempts to write an economic history of the world, and in his first hundred pages or so he covers pre-industrial revolution. It felt disorganized: he has vast knowledge of the subject, but the interjections and tangents were overwhelming, and I am dubious about the accuracy of some of them.

Once he got onto the era of the Industrial Revolution though, he began to shine. His chapters on Japan (he argues that had Europeans not intervened, they might well have had an industrial revolution of their own – I had no idea that because early Japan guaranteed riparian cultivator rights so strongly, they actually built boat-mounted waterwheels!) are fascinating, and he does well to focus on finding the reasons why things happen, instead of ascribing historical events to chance. His studies of colonial powers are equally interesting, highlighting differences between the different powers and their influences in a comprehensive way that is not done enough. Where else can one learn that early England was mostly about privateers and piracy rather than colonies, and as a result the crown issued sailor uniforms without pockets so they couldn’t steal things from the captured ships before the crown got its share?

In some ways it’s a good but weaker precursor to Why Nations Fail: Landes too emphasizes institutions, though he also gives credit to geography, culture, and other factors. His knowledge, however, is considerably more comprehensive, and flipping to any point in the book can reveal an enormous depth of knowledge on the subject at hand (Galileo was in trouble for the same reason inexpensive pornography used to be banned in Italy: such things were fine for those with refined tastes, but not appropriate for the masses. Galileo published in Italian, not Latin). That can be both fascinating and frustrating, but it’s certainly impressive.

Overall, then, I’m impressed. I might skip the first few chapters and the last few, but the middle is well worth the read. Whether that means the book is worth reading overall, I suppose, depends on how much of a hurry you’re in: I’d suggest Why Nations Fail as a speedier, but less comprehensive and content-rich, alternative.

If you do want that deep knowledge of how rich countries developed their wealth, you get can the book here (or in the UK or Canada). Or, just subscribe to the Subtle Illumination email list!

Small is Beautiful – E.F. Schumacher

“Any intelligent fool can invent further complications, but it takes a genius to retain, or recapture, simplicity.”

Schumacher wrote extensively about natural capital consumption and his worry about the exhaustion natural resources, culminating in Small is Beautiful in the 70s. As a result, most of the ideas it presents do not feel new, largely because the ideas have been discussed widely since then. It remains, however, beautifully written.

I particularly liked his discussion of education, and found other chapters less compelling: I thought I’d share a few particularly good quotes, however;

 On Education

“The way in which we experience and interpret the world obviously depends very much indeed on the kind of ideas that fill our minds. If they are mainly small, weak, superficial, and incoherent, life will appear insipid, uninteresting, petty, and chaotic.”

“To do so, the task of education would be, first and foremost, the transmission of ideas of value, of what to do with our lives.”

“If the mind cannot bring to the world a set – or, shall we say, a tool-box – of powerful ideas, the world must appear to it as chaos, a mass of unrelated phenomena, of meaningless events.”

On Economics

“If we squander our fossil fuels, we threaten civilisation; but if we squander the capital represented by living nature around us, we threaten life itself.”

“We must study the economics of permanence.”

“A man is destroyed by the inner conviction of uselessness.”

“The modern world, shaped by modern technology, finds itself involved in three crises simultaneously. First, human nature revolts against inhuman technical, organisational, and political patterns, which it experiences as suffocating and debilitating; second, the living environment groans and gives sign of partial breakdown; and, third…the inroads being made into the world’s non-renewable resources, particularly those of fossil fuels, are such that serious bottlenecks and virtual exhaustion loom ahead.”

The Origin of Wealth – Eric Beinhocker

“This book will argue that wealth creation is the product of a simple, but profoundly powerful, three-step formula – differentiate, select, and amplify – the formula of evolution. The same process that has driven the growing order and complexity of the biosphere has driven the growing order and complexity of the ‘econosphere’.”

I can’t quite decide what I think of The Origin of Wealth. The book has considerable strengths: it contains one of the better histories of economic thought I’ve read, and its rich discussions of various economic studies and experiments are wonderful. I also found its thesis both interesting and compelling. Parts of the book, however, also feel like retreads of old ideas, with little particularly new to recommend them. I suppose what I can say is that it is excellent, but were it half as long, it would have been even better.

Focus on the good. Beinhocker is worried economics has got it wrong. When economics began, it emulated the ideas of physics, particularly equilibrium. Shortly after, however, physics abandoned the idea, and the real model for economics, Beinhocker argues, should be biology. He points to a meeting between physicists and economists in the 90s, when the physicists remarked that the economics reminded them of Cuban cars. The ingenuity of the Cubans keeping their cars running with salvaged parts was phenomenal, but they were still old cars.

The real economy, Beinhocker suggests, is determined by evolution and non-equilibrium physics. The supply of things is determined by the process of locally reducing entropy: we humans impose order on our world to create things we want. Our demand for things, in turn, is controlled by our preferences, which are determined by evolution. When you buy a shirt, it wasn’t designed: it evolved, in response to the demand of the market.

For what it’s worth, I suspect he’s probably right, and to be fair to economics it’s starting to adopt the ideas he discusses under the heading of ‘complexity economics’. The other strength of the book, however, is in some of its examples, and I liked a few of them so much I’m going to talk about them in detail later this week. So wait till then!

If you want to pick up The Origin of Wealth, you can get it here (or in the UK or Canada).

Debt: The First 5,000 Years – David Graeber

“How is it that moral obligations between people come to be thought of as debts and as a result, end up justifying behavior that would otherwise seem utterly immoral?”

A friend recommended Debt: The First 5,000 Years as a veritable bible of the Occupy movement, so I thought I’d pick it up. Its concern is distinguishing between moral obligations, as occur in a human economy, and market obligations (debts) that occur in a commercial economy. Graeber is worried that our modern economy has confused the two. Financial debts are denominated in money, and so are easily enforceable and transferable: moral obligations, like owing someone a favour, are not.

The book asks great questions, questions that aren’t studied nearly enough, like the effect of being in a perpetual state of debt on humanity, whether early cultures truly used a barter system (answer: usually only with strangers, not within the village, where non-market bonds held sway), whether debts of money and debts of morality are the same, and whether alternative systems to the current one exist. Overall, though, I was disappointed. His answers often feel confused, often asserting something only to disagree a few paragraphs later, or introducing what often felt like irrelevant distinctions instead of meaningful insights.

Unfortunately, as a result I struggled to find the book compelling. He makes blanket statements that barter economies never existed or world literatures condemned lending, for example, before backtracking and noting large exceptions shortly after. He also asserts that debts in monetary units are enforced by violence while moral debts are not, yet surely social norms and codes of behaviour, including what may be seen as a debt to society, were frequently enforced by violence. If you’re willing to overlook such claims, however, there are also important insights: it’s probably true that monetary debt’s ability to be transferred between creditors makes it more impersonal, and so justifies otherwise outrageous behaviour, for example. There are also great stories in it, like the discussion of the Tiv, who worried about being tricked into turning into witches by being fed human flesh.

The book does therefore have strengths. The questions and stories are interesting, and if a psychologist happens to write a book about the effects of debt on the human psyche, I’d definitely read it. For the nature of financial markets and moral markets, however, I found Michael Sandel more compelling and more clear, and for studies of how ancient cultures felt about debt and exchange, I’d turn first to Jared Diamond. If this is a subject you’re interested in, it’s definitely worth picking up Debt, but I’d start first with Diamond or Sandel, to get a grounding in the subject.

You can get a copy of Debt here (or in the UK or Canada). Or, wait for my review of Diamond’s The World until Yesterday, which I’ll post in the next few weeks.

Antifragile – Nassim Nicholas Taleb

“Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”

(Part 2 available here)

What’s the opposite of fragility? Most people say robustness, resilience, or strength. Most people, says Taleb, are wrong. Fragility is to be weakened by uncertainty or volatility, while resilience is to be unaffected by volatility. What we need is something strengthened by volatility and change – something antifragile.

In antiquity, Taleb points out, he would rather be the hydra which regrew two heads when one was cut off, rather than the phoenix, which rose identical from the ashes when destroyed, or the Gordian Knot, which fell apart at the first unexpected shock (a sword, to be specific). It’s not enough to ignore volatility; we must love volatility.

That, in a nutshell, is Antifragile. Like all the best ideas, it’s a simple idea with immediate, important, and interesting consequences. In particular, Taleb argues that the modern world, in its quest for efficiency and optimization, has ignored the effects of volatility. As a result, shocks (Black Swans) have catastrophic consequences. When one hits, however, we ask the wrong question. We demand to know why we failed to predict the housing bubble or disease outbreak, instead of asking ourselves why we built a system that is tremendously vulnerable to such shocks.

Instead of eliminating centralization and vulnerability in our systems, like big corporations or big bureaucracies, however, we keep trying to predict the future, an endeavor doomed to failure. Shocks, as Taleb has argued in other books, are rare, and so attempting to predict them is impossible because they happen so rarely – we never have enough data points to draw conclusions. (For the economists reading, he believes in fat tails). Rather than trying to predict the future, we should build systems that can evolve and adapt to it.

The second major problem he points out (the first being that our world is extremely fragile), is that many areas of antifragility in our world today are only so because people have shifted risk to others. Bankers, for example, are antifragile because they can just get a bailout if something goes wrong, while taxpayers and/or deposit holders get it in the shorts.

Above all, Anti-Fragile is a work of tremendous insight, one of interest to both layman and specialists, though laymen might be well advised to take Taleb’s advice to skip certain sections. We’ll further discuss some of the implications later this week, but in the meantime you can get a copy here (or in the UK or Canada).

The Prize – Daniel Yergin

“[W]e should be able to raise the whole power and efficiency of the Navy: better ships, better crews, high economies, more intense forms of war power – mastery itself was the prize of the venture.” –  Winston Churchill, talking of his decision to switch the British fleet to oil power in 1911

The Prize is one of the few books I’ve read I would describe as definitive. In it, Daniel Yergin tackles the history of the oil industry, and in scope, scale, and command of the subject he is unparalleled. It well deserved its Pulitzer.

Interpreting the history of the last 150 years through the importance of oil is somewhat disturbingly effective, a fact that Yergin makes the most of. World War 2, for example, he argues was won and lost due to the difference in oil supplies, forcing a German invasion of Russia and, in the Battle of the Bulge, leading to German tanks literally running out of fuel and grinding to a halt. The general lesson is perhaps that oil supplies have affected international policy for almost every nation state in the modern era, and almost no major event in the last century is left untouched by Yergin’s, as it were, oily hands.

The book is an impossible one to summarize in a few paragraphs, and I don’t propose to try. From Greek Fire, a mix of lime and petroleum used by the Ancient Greeks as an unquenchable war machine, to the first oil well, drilled in Pennsylvania in 1859 in order to make medicines and kerosene, through the breakup of Standard Oil and the world wars, to OPEC oil politics and Saddam’s invasion of Kuwait, Yergin explains history while exploiting his historian’s gift for finding interesting or amusing anecdotes in everything. I wasn’t aware, for example, that it took 1-3 kamikaze planes to destroy an aircraft carrier, or that President Carter referred to energy conservation as the moral equivalent of war (a quote from WIlliam James). Somewhat less grandly, I also wasn’t aware that the first motels were rented as often as 16 times per night (I leave to the imagination a nocturnal activity requiring 1/16th of the night), as they were valued for their convenient, by-the-highway location.

At 895 pages and seven years in the making, the book is hardly a light read. Nothing of its scope could be. It is however a fascinating read, and for anyone interested in the history of energy or global geopolitics, it is essential reading.

Up to the challege? You can get it here (or in the UK or Canada). Or, just join the Subtle Illumination email list to your right.

The Decline in Social Capital: Bowling Alone 1

“The core idea of social capital theory is that social networks have value. Just as a screwdriver (physical capital) or a college education (human capital) can increase productivity (both individual and collective), so too social contacts affect the productivity of individuals and groups.”

Today we’ll start with the evidence for and causes of a decline in social capital in the U.S. – next week (link here) we’ll focus on the value of social capital and potential cures.

On April 30th, 1999, the Charity League of Dallas met for the final time. They had met every Friday for 57 years, but by 1999, the average age of the members had increased to 80 and their last new member had joined two years earlier. As old members had passed, new members had not joined, despite increases in population. The same pattern is repeated across the country. Why? And does it matter? These are the questions Putnam seeks to answer. Bowling Alone is the classic work on social capital, and as such is frequently referred to elsewhere, both in sociology and more broadly.

Putnam believes that in the last forty years, America has undergone a dramatic fall in social capital. Social capital, he explains, is the networks and connections that unite us to others, smoothing our progress through life and adding value to our lives. Today, however, Americans no longer join as many clubs, volunteer as many hours, run as often for office, vote, play sports together, or eat together, and generally involve themselves less in civic affairs or their communities. At best, they are members of mailing list based organizations, watching from the sidelines as their organization lobbies Congress rather than being themselves involved.

Social change generally occurs as a result of a combination of two factors, changes in individual decisions and generational shifts. Putnam notes however that seniors remain as involved in the community as they were when younger. Instead, generational change has occurred; young people today are far less involved in the community than their forebears. Why? He lists four causes, and estimates their percentage of the total impact.

  1. The changing nature of households (10%). The entry of women into the workforce and the increase in full time as opposed to part time work.
  2. Urban sprawl (10%). Sprawl leads to an increase in commuting and the fracturing of communities.
  3. Electronic media, particularly TV (25%). TV takes up time and drains energy, so that people who watch TV do far fewer other activities even after controlling for the time taken.
  4. Generational change (50%). Intense community bonds were formed by generations who experienced the war, in contrast to late generations like baby boomers and others who did not have that formative communal experience.

Next week, we’ll discuss the benefits to social capital as well as Putnam’s suggestions for rebuilding or communal bonds.

In the meantime, if you want to read it for yourself, you can find Bowling Alone here (or in the UK or Canada). Or, just join the Subtle Illumination email list to your right!

The Price of Everything – Eduardo Porter

A little bit late this week – my apologies! Life sometimes gets in the way of the internet, I find.

“Market-transactions do not necessarily provide people with what they want; they provide people with what they think they want… [Prices] provide a road map of people’s psychological quirks, of their fears, their unacknowledged constraints.”

What do religion, happiness, healthcare, women’s rights, culture, and gifts all have in common? For good or for ill, says Eduardo Porter, they all involve prices. In The Price of Everything he covers how these issues and more are affected by the price system, and how people directly and indirectly put prices on everything that we interact with.

The standard criticism of this perspective goes back Oscar Wilde, of course: that people know “the price of everything and the value of nothing.” Porter argues that this can actually be a strength: prices may have little to do with what is good for people, but they can tell us what they believe or what they are willing to pay for. Many of our everyday values can be captured by the implicit prices we assign them, and even when prices are inefficient or incorrect, they still tell us what the people involved in the transaction believe.

An iphone app entitled “I am Rich” (now taken down) did nothing but flash a red gem on the screen, and retailed for $999, providing a price on status. Organs in Iran go for $1,200. Monogamy, he argues, spread largely as a result of an increased price on social cohesion, while animal rights movements are more common in the developed world because humane actions cost more in developing countries. All of these prices may be interesting, but unfortunately though his arguments have some merit, they feel incomplete. Few of us would agree, for example, that the Protestant Reformation occurred because the Catholic Church wasn’t giving good value for money.

Porter’s knowledge is broad, and unfortunately as a result the book can feel like a literature review that brushes over the material instead of providing insight. A chapter per subject, when the subjects are as vast as happiness, culture, and religion, means the book sometimes reads like a list of facts. I would enjoy a chapter here and a chapter there, but reading it cover to cover can be a a bit dry. In the end, though I enjoyed the brief anecdotes, I would have preferred a book that engaged with the material, rather than listed it. That said, though I can’t tell you the price of everything, I can admit I only paid £2 for the book.

Want more about the price of religion? Keep reading (or in the UK or Canada). Or, join the Subtle Illumination email list to your right!

The Clock of the Long Now – Stewart Brand

“How do we make long-term thinking automatic and common instead of difficult and rare?”

Stewart Brand is a worried man. Earthquakes, war, murder, the burning of libraries; bad things happen fast, he argues. Good things, in contrast, like reforestation, the growth of a child, the maturing of an adult, or the building of library, happen slow. Today’s world though happens on a faster and faster time scale – our “now” is a smaller and smaller increment of time. How, he wonders, can we make our society see the last ten thousand years as if it were last week, and the next ten thousand as if it were next week? How, in other words, can we give ourselves a long now?

The Clock of the Long Now is a collection of essays by Brand about this topic. Brand is an ecologist and environmental activist, including running the Whole Earth Catalog and being instrumental in having NASA release the first picture of Earth as seen from space, believing it could symbolize our shared destinies. Today, he is a co-founder of the Long Now Foundation, devoted to the issues The Clock of the Long Now raises.

For our world to survive, he argues, we must think and compete on 6 different time scales. Over the scale of years, individuals compete; over decades, families; over centuries, tribes or nations; over millennia, culture; over tens of millennia, species; and over eons, the whole web of life on our planet. Thinking on these scales means we can identify and work to preserve what really matters.

Unfortunately, as he points out, “the great problem with the future is that we die there.” It can be difficult to mentally immanentize the future. To help, he has a number of suggestions, including writing dates in five digits (02013, not 2013), increasing history education among all professions, and following James Lovelock’s proposal of writing a start-up manual for civilization, from making fire through ancient genetic design to modern biotech.

As with any collection of essays, any given reader will like some essays and dislike others. Overall, however, this book, and Brand’s foundation, form a powerful message. We can still read Galileo’s technical correspondence from the 1590s, but not the correspondence that launched AI research in the 1960s, because the electronic storage has decayed.  What does that say about what we’re leaving to future generations? I’m not sure Brand knows the answer, and I certainly don’t, but the question is one that is too often lost in the babble of the present.

Want more illumination? Keep reading (or in the UK or Canada). Or, join the Subtle Illumination email list to your right!

Prosperity Without Growth – Tim Jackson

“We must bring back into society a deeper sense of the purpose of living. The unhappiness in so many lives ought to tell us that success alone is not enough. Material success has brought us to a strange spiritual and moral bankruptcy.” – Ben Okri

Prosperity Without Growth tackles an intuitively fascinating subject. Economists and politicians tend to assume that the key goal of policy is to create perpetual economic growth. There is, however, a finite amount of resources on Earth, whether oil, steel, or even volume of sunlight. Are these two facts compatible?

Unfortunately, despite my interest in its subject, I didn’t find Prosperity Without Growth compelling. The first two thirds seemed to add little to the discussion, while frustratingly the final third introduced ideas and frameworks that could well have made for an interesting book had they been discussed earlier. The book’s audience also seems unclear: he goes from introducing macroeconomic equations, likely appealing only to economists, to explaining very basic economics of little interest to the same.

In that final third, Jackson points out that to reconcile growth and limits, one of two things must happen. Either we must have sustainable growth, in which the economy grows but doesn’t require more energy inputs, as for example when we move employment to low-carbon jobs, or we must have a sustainable no-growth economy, as when productivity increases but we work less hours to compensate. To do either, he says, we must establish limits, fix our economic system, and change our social logic.

Perhaps the most interesting piece I have read on this subject is a discussion between an economist and a physicist, available here. It introduces ideas that had never occurred to me, like a planetary heat death from waste heat, and though I’m not sure I agree when we discuss that scale of issue that ruling out space travel is fair (you’ll have to read the link for yourself), I found the whole thing fascinating. I’m not sure I can say the same about Prosperity Without Growth. Still, it’s a book that tackles a critical issue of broad interest to many, and for that alone it deserves some credit. It does also manage some nuance and depth at the end – I just regret it didn’t manage it earlier.

Keep reading here (or in the UK or Canada). Or, get more illumination by joining the Subtle Illumination email list to your right!