Books

It’s been slow going, but I’ve finally finished the draft chapter of my book-in-progress that looks forward to a new research program for macroeconomics, an absurdly ambitious task, but one that needs to be tackled. Of course, what I’ve written isn’t fundamentally new – it’s a distillation of points that Old Keynesians, post-Keynesians and some behavioral economists have been putting forward for a while. But I hope I’ve got some positive contribution to make. More than ever, comments are much appreciated.

Update In response to comments, I’ve fairly substantially revised the section on “avoiding stagflation”. While I don’t back away from the points I made previously, I took for granted some things that I’d mentioned in other places in the book. The result made for a fairly unbalanced treatment with an excessive focus on the role of labor militancy. I’ve now tried to put this into proper context. I don’t expect that will satisfy everybody, but this is closer to what I meant to say all along.End update
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I just listened to an EconTalk podcast interview with Richard Posner about his new book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression [amazon]. The book has gotten a bit of buzz for the way in which Posner semi-recants certain libertarian or Chicago-style economics positions he is known for. But certain other positions he has not recanted, such as his narrow view of economic actors’ duties to consider negative externalities of their activities (discussed at CT before here and here). In the podcast, Posner basically asserts that those actors in the financial sector who almost crashed the world economy were right to do so, in the sense that it was rational for them, individually, to be massive ‘risk polluters’ (to coin a phrase someone else has probably coined already.) He would probably go further, although he isn’t actually asked to in the podcast: some of these actors were obliged to take the risk. In at least some cases it would have been their strong, positive fiduciary duty, under the circumstances, to do something which – taking a larger view – seriously threatened to run the whole world economy off a cliff. Because that was the apparent route of profit-maximization. It was their job not to take the larger view. Posner blames regulators, not these profit-maximizing actors, for the market failure; for not seeing that the damage to everyone downwind of all that toxic risk was so great that it should not have been permitted. [click to continue…]

[self-promotion]My first book is out from Cambridge (and has been for a few weeks). Entitled _The Political Economy of Trust: Interests, Institutions and Inter-Firm Cooperation in Italy and Germany_, it sets out a rational choice account of how institutions affect the ways in which people do or do not trust each other, and applies it to explain cooperation among firms in Italy and Germany, as the title suggests, as well as among Sicilian mafiosi. I received some help from CT readers on Sicilian dialect, which is duly acknowledged in the book itself. I’ve set up a basic website for the book at “http://www.explainingtrust.com”:http://www.explainingtrust.com with information, blurbs and the book’s introductory chapter. The book is an academic hardback, and hence not cheap, but those with (a) an interest in the topic, and (b) a research budget/substantial discretionary income, or (c ) a friendly institutional librarian are warmly encouraged to take all appropriate steps (if it sells well, it will then go into paperback). If you order “directly through Cambridge”:http://www.cambridge.org/catalogue/catalogue.asp?isbn=9780521886499 before the end of the year, you can use the discount code E09FARRELL which will get you 20% off the book, and indeed any other purchases you make (as far as I can make out, this is the cheapest source). Alternatively, you can buy it at “Powells”:http://www.powells.com/partner/29956/biblio/9780521886499?p_cv%27%20rel=%27powells-9780521886499, “Amazon”:http://www.amazon.com/gp/product/052188649X?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=052188649X, “Barnes and Noble”:http://search.barnesandnoble.com/The-Political-Economy-of-Trust/Henry-Farrell/e/9780521886499/?itm=1&USRI=henry+farrell+political+economy+of+trust or “Amazon UK”:http://www.amazon.co.uk/Political-Economy-Trust-Institutions-Cooperation/dp/052188649X/ref=sr_1_1?ie=UTF8&s=books&qid=1257452790&sr=8-1. And if you do read it, comments, rejoinders etc are all warmly welcomed.[/self-promotion]

My friend Josh Glenn, and his collaborator Rob Walker, have been running an interesting project: Significant Objects. I’ll quote from the project info page:

THE IDEA

A talented, creative writer invents a story about an object. Invested with new significance by this fiction, the object should — according to our hypothesis — acquire not merely subjective but objective value. How to test our theory? Via eBay! [click to continue…]

Gotta change things up, keep things fresh. This video is fantastic and highly educational. It teaches you how to whittle your own 19th Century dictionary, using only string, a turnip, and a clamp. But first you have to make your own Linotype machine. It’s much easier to go here and just win one of these beautiful artifacts of book artistry. (You will have to be lucky, however.) [click to continue…]

Robin Kinross – who knows more about Tschichold than I – showed up in comments to my Tschichold post to object that the book I said was pretty good is actually a shameful mess. [click to continue…]

My colleague Axel Gelfert just launched a bold book review-type literary thing, The Berlin Review of Books. And he kindly invited me to review a big fat book, Jan Tschichold: Master Typographer: His Life, Work and Legacy [amazon], for his grand opening. So here is my review. It’s a long one. My main pivot is around one quote from the master, from 1959:

In the light of my present knowledge, it was a juvenile opinion to consider the sans serif as the most suitable or even the most contemporary typeface. A typeface has first to be legible, nay, readable, and a sans serif is certainly not the most legible typeface when set in quantity, let alone readable … Good typography has to be perfectly legible and, as such, the result of intelligent planning … The classical typefaces such as Garamond, Janson, Baskerville, and Bell are undoubtedly the most legible. In time, typographical matters, in my eyes, took on a very different aspect, and to my astonishment I detected most shocking parallels between the teachings of Die neue Typographie and National Socialism and fascism. Obvious similarities consist in the ruthless restriction of typefaces, a parallel to Goebbel’s infamous Gleichschaltung (enforced political conformity) and the more or less militaristic arrangement of lines.

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Work on my book-in-progress has been slowed by other commitments. Among other things I’m fighting privatisation proposals from a Queensland Labor government that seems to have learned entirely the wrong lessons from the global financial crisis. Here’s a section on the GFC and the failure of the micro-foundations approach to macroeconomics. As always, comments much appreciated

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I snagged another good comics history recently. A History of American Graphic Humor, vol. 2: 1865-1938 (1938), by William Murrel. (You could get it through Abebooks; but I bought the last cheap copy. Sorry.) They sure liked to make fun of Oscar Wilde, back in the day. [click to continue…]

Given recent “ambiguous FTC mutterings”:http://arstechnica.com/tech-policy/news/2009/10/ad-group-ftc-blog-rules-unfairly-muzzle-online-media.ars, it is probably no bad thing that I make it clear that I receive lots of free copies of forthcoming books (partly because of CT; partly because I help out the Book Salon people at FireDogLake), and that any reviews I do are likely as not of books that I have gotten for nothing. When I first decided to write this post a few days ago, I was going to talk about all the things that I’d like to get for free but don’t, starting with good f/sf books (nearly everything I get is non-fiction) and in particular _Unseen Academicals_, then moving rapidly through ever more preposterous requests for technology (the new Barnes and Noble e-reader looks quite interesting; I would _happily_ review one of the new Macs with the 27 inch screens), and finishing with the frankly unethical/completely implausible – books that didn’t exist but that I promised to review favorably if only the authors in question would get their arses in gear and produce them. I figured that I’d be prepared to trash my integrity for a complete and definitive edition of _Bloom County_, or indeed for an ARC of _A Dance With Dragons_ (my come-on – “George R.R. Martin Is Not My Bitch”:http://journal.neilgaiman.com/2009/05/entitlement-issues.html – but _I’ll be his_ if only he gets it finished). But then I saw (via Laura) that “Volume I”:http://nymag.com/arts/books/features/59885/ of the complete _Bloom County_ has just come out _without any inducements whatsoever_ on my part. Can this be taken as a sign from the Fates that the GRRM logjam too is about to break …

There’s been a lot of discussion of Ayn Rand the last few days, because of the new (and very-interesting sounding) “biography”:http://www.amazon.com/gp/product/0195324870?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0195324870. Personally, I could never stand her work, not because of the libertarian philosophy (I like me mid-period Heinlein just fine), but the excruciatingly bad writing. If Chris Hayes is right, she finally has a worthy successor. Ladies, gentlemen, I give you Ralph Nader and “Only the Super-Rich Can Save Us”:http://bnreview.barnesandnoble.com/t5/Reviews-Essays/Only-the-Super-Rich-Can-Save-Us/ba-p/1582.

As a novel it is a dismal affair: gracelessly written, ploddingly plotted, and long. Oh God so long. And as a political tract it advances a conception of politics both grossly condescending and depressingly elitist. Democracy, Nader seems to say, could be ours: if only the oligarchs would get behind it. The basic plot goes like this. Moved by pity to travel to New Orleans in the wake of Katrina to oversee relief efforts, Warren Buffett encounters one desperately poor and grateful recipient of his charity who announces, “Only the super-rich can save us.” This gets Buffett thinking, and he proceeds to convene a top secret meeting in a Maui resort. There he gathers an eclectic group of the super-rich: Paul Newman, George Soros, Bill Gates Sr., Ted Turner, Barry Diller, Peter Lewis (owner of Progressive Insurance), and, somewhat randomly, Yoko Ono, among others, to create a “people’s revolt of the rich.”

This is apparently not a satire. But it does raise the question of whether there are any genuinely good, genuinely political novels out there. Since we’re coming up on the weekend, I’ll throw this out as an open thread (I have a few nominations myself, but don’t want to bias the sample). Have at it.

I wrote a “review”:http://www.timeshighereducation.co.uk/story.asp?storycode=408555 a couple of weeks ago of Viktor Mayer-Schoenberger’s “Delete: The Virtue of Forgetting in the Digital Age” (“Powells”:http://www.powells.com/partner/29956/biblio/9780691138619, Amazon)

Information technology has grown so entwined with our lives that it is easy to overlook the marvels flowering forth from it. … But if Viktor Mayer-Schonberger is right, these technologies may grow to entangle and choke us. They create a kind of external memory, recording our actions and interactions in digital video footage and thousands upon thousands of digital photographs. … Mayer-Schonberger argues that these developments challenge how we organise society and how we understand ourselves. … At its heart, his case against digital memory is humanist. He worries that it will not only change the way we organise society, but it will damage our identities. Identity and memory interact in complicated ways. Our ability to forget may be as important to our social relationships as our ability to remember. To forgive may be to forget; when we forgive someone for serious transgressions we in effect forget how angry we once were at them. … Delete argues that digital memory has the capacity both to trap us in the past and to damage our trust in our own memories.

I probably should have linked to it before, but didn’t, because I wanted to combine the link with a short review of Tyler Cowen’s recent book “Create Your Own Economy: The Path to Prosperity in a Disordered World” (Powells, Amazon) As I mention in the review, Tyler’s book presents a very interesting contrast to Viktor’s. What Tyler sees as evidence of individual empowerment, Viktor sees as as a serious threat to personal identity. Viktor fears that technologies will undermine our sense of self, and our ability to remake ourselves in order to respond to a changing social environment. Tyler sees new technologies as valuable precisely _because_ they allow us to remake ourselves and our identities, creating our own ‘economies’ (here, I think he is harking back to the Greek origins of the term) or internally ordered environments by picking and choosing “small cultural bits” and assembling them according to our own personal hierarchies.
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In response to some comments, I’ve written a little bit about the representative agent assumption in Dynamic Stochastic General Equilibrium Models. I argue that, given the underlying DSGE assumptions, you won’t get very much extra by including heterogeneous agents.

But, I intend to say in the “Where next” section, it seems likely that heterogeneous and boundedly rational individuals, interacting in imperfect and incomplete markets will generate ’emergent’ macro outcomes that are not obvious from the micro foundations. Of course, this is going to be a prospectus for a theory, not the theory itself.

In the meantime, comments on my snippet would be much appreciated.

Update Looking at the responses, I think just about everyone has missed the point, which suggests that maybe I didn’t make it very well.

I’m not saying that heterogeneity doesn’t matter, but that introducing (tractable) heterogeneity into a DSGE model isn’t likely to yield radically different predictions about macroeconomic outcomes. If that’s correct, then if you think DSGE models work well (for some evaluative procedure), you can be relaxed about using representative agents. And if you don’t think DSGE models work well, the representative agent assumption isn’t the problem, or at least it isn’t the only problem.

Since my statement of the situation didn’t help much, I’ll present it as a question instead. Can anyone point me to a DSGE-style model that derives strongly non-classical results from the introduction of heterogeneity? Or, failing that, does anyone have a convincing argument that such results should emerge?

I’m aware of course that, in general, anything can happen with aggregation across heterogeneous agents, so I’m not much interested in arguments for agnosticism starting from that point. End update

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Another section from my book-in-progress. The book-so-far can be viewed here.
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