It may sound to the uninitiated as though science fiction conferences are bad places to go for insights into economics, but the uninitiated would be wrong. One of the more interesting sf phenomena of the last fifteen years or so has been the creation of a more economically literate science fiction, which gets away from the libertarian ‘competent man’ certitudes of much of the early writing in the genre. It seems to me that the Brits have pioneered this – Iain Banks, Charlie Stross, Ken MacLeod, China Mieville, Justina Robson, Paul McAuley come to mind – but notable Americans too (Steven Brust, Cory Doctorow and Neal Stephenson) have been guilty of economically sophisticated literature on occasion.
From the category archives:
Economics/Finance
John Kay has a good column (from yesterday’s Financial Times) arguing that the crisis on Britain’s railways and in the US electricity supply industry exemplify a more widespread failing affecting both public and private sectors: boosting revenues whilst neglecting the underlying assets
bq. … modern business depends on intangible factors that, for good reasons, are not measured on the balance sheet. Security of supply is one. But the loyalty of employees, the trust of customers and the quality of service are also assets that require investment and depreciate if not well maintained. Reducing these investments enhances earnings. Media companies could focus on producing clones of already successful works – and it would be a few years before their bored audiences turned away. Financial institutions could replace their customer service staff by sales people and call centres. And drug companies could reduce costs and obtain synergies through mergers – and today find their pipelines of new drugs narrower than they have ever been.
A week late and a couple of dollars short, here are my thoughts on the now defunct Policy Analysis Market. I’d note right up front that this “market” always looked suspicious to me; even when it was going, the website seemed to consist of precisely five flat, static HTML pages, and this for a website that was meant to be going live with active trading in October. Particularly since nobody seems to be at all clear on the details of what this market was meant to achieve (was it open to the general public? Only to specialists? Was it going to trade “assassination futures”? Or just derivatives on the EIU political stability indices?), let alone on its clearing arrangements, confidentiality clauses, etc, I rather suspect that the whole thing was disinformation from start to finish. That’s why I didn’t want to comment on it at the time.
However, I do want to comment on the fact that a number of bloggers analysed it in terms of Hayek’s concept of tacit knowledge and markets as information-creating social entities. Henry had an excellent first cut at trying to develop a more rigorous Hayekian analysis last week, but I’d like to take issue with some of his points and make a couple of my own about the characteristics of successful markets.
Tyler Cowen’s got more of his Macroeconomics series up. It’s nothing like as bad as the monetary economics post that I objected to yesterday. Part Three on fiscal policy is OK ..ish. I don’t agree with him on Keynes, and think his comments on deficits and interest rates are naïve (I include by citation Brad Delong posts on this subject passim ad nauseam), but I can see how others would class my disagreements with it as probably political rather than technical. And Four on open economy macroeconomics is actually quite good, although the omission of any discussion of optimal currency areas is a bit of a lacuna. Part 2 has one very serious error, but in being bad, it is actually good, because it’s clued me into what went wrong in the train wreck which was Part One.
I am somewhat uneasy about writing this, as it is about the fourth post in recent weeks having a go at the Volokh guys, and one of quite a few on Tyler Cowen specifically, but I simply could not let this post pass without comment. It’s part one of a “Guide to Macroeconomics in Five Easy Lessons”, on monetary economics. I wholeheartedly support the idea of someone producing such a guide, but the actual statements made about monetary economics seem to me to be horribly confused. So much so that I’ve been reduced to commenting on it line-by-line; I wanted to write a proper response, but grew worried that by concentrating on my main disagreements, I would be implicitly endorsing some of the errors I didn’t single out.
I’ve edited this twice to moderate some of the more temperamental remarks, but the tone is still pretty angry, as I’m genuinely annoyed that this is being fed to laymen. As a result, I have perhaps been excessively inclined to pick nits; that’s how I get when I’m angry. I will accept the judgement of Brad DeLong as definitive on the question of whether I have been unduly harsh and will post an apology here if he thinks I have been. I pre-emptively apologise to Mr Cowen for the lack of civility inherent to the “fisking” genre; as I mention above, I tried and failed to come up with alternatives.
There’s a lot of buzz in the blogosphere about a DARPA project which aims to predict terrorist attacks, assassinations and coups, through creating a futures market, in which traders can speculate on the possibility of attacks; the “NYT”:http://www.nytimes.com/2003/07/29/politics/29TERR.html?hp picks up on it too. Most of the commentary is negative, but “Josh Chafetz”:http://oxblog.blogspot.com/2003_07_27_oxblog_archive.html#105943317047655345 likes the idea, and invokes Hayek.
The new issue of Prospect includes a rather meandering piece by Samuel Brittan on baby bonds, basic income and asset redistribution. A central issue in this area is how to finance such proposals, and that’s something Brittan gets down to at the end of his article. He canvasses Henry George-style proposals for land taxation and also mentions inheritance taxes, but finally comes up with a somewhat odd suggestion:
… a very simple practical proposal, why not auction planning permission? Many local authorities have approached this piecemeal by making such permission conditional on the provision of local services such as leisure centres, approach roads and so on. But why not return this windfall to the taxpayer in the form of asset distribution and let citizens decide how to spend it?
America has become a second rate power. The trade deficit and the fiscal deficit are at mightmare proportions …. sorry, I was just memorising the opening paragraph of Gordon Gekko’s “Greed is good”1 speech. Though it did amuse me how his opening remarks had become topical again. “Wall Street” was on Sky TV at the weekend, and it reminded me that I’ve always wanted to do a particular kind of review of this film. I’m not really qualified to carry out a proper critique of it as a piece of work2, and the film probably deserves better treatment than to look through it for hilarious ’80s kitsch3.
But what I would like to do is make the following case; very few of the actions which bring down the whole house of cards on Bud Fox and Gordon Gekko were actually illegal under securities law at the time. In fact, I’d make a case that any sequel to this film would have to start with the premise that Gordon Gekko was acquitted on all charges of securities fraud.
“Friedrich Blowhard”:http://www.2blowhards.com/archives/000909.html#000909 has discovered public choice economics a la Buchanan and Tullock, and decided that he quite likes it.
bq. What a gas to see a group of smart people take many of my private musings of the past decade and set them out with more clarity than I ever gave them. I actually read a webpage outlining some of the notions of public choice while literally laughing out loud to see that I wasn’t the only lunatic in the insane asylum.
Friedrich is especially impressed with public choice’s description of how government tends to get captured by special interest groups, who gorge themselves at the expense of the public purse. He also suggests that public choice provides some interesting alternatives to the current political system.
“The Economist”:http://www.economist.com/displaystory.cfm?story_id=1907893 has a long article asking whether or not companies are too risk averse to take proper advantage of new opportunities and a changing marketplace. Explaining the roots of corporate advantage is tricky stuff; conventional economic theory isn’t very good at telling us when efforts to innovate are going to be successful, and when they’re not. Economic sociologists do a slightly better job, but they still have difficulty in providing useful lessons for business people. Which opens the way for all sorts of cranks and quacks, who offer dubious nostrums for business success, with all the fervid enthusiasm of a 19th century medicine show charlatan. I’m referring of course to management “theorists.”
The Cato Institute has published a new edition of its annual report on The Economic Freedom Of The World, endorsed by Milton Friedman and not to be confused with about a million other such reports produced by rival thinktanks (I seem to remember that Heritage were the first to get into this game, but their index is based on subjective scoring and is really bad, while Cato’s is based on publicly available economic and survey data and is only quite bad, from a scientific point of view.)
Lovers of liberty will be pleased to know that the forward march of human civilisation continues unabated and we are all precisely 0.15% freer than we were at the time of the 2002 Report; the Index of World Economic Freedom apparently increased from 6.34 to 6.35 in 2001. Is it me, by the way, or is it pretty pathetic that such a self-important document is only produced with a two year lag? Anyway, as usual the dominance of the rankings by a bunch of incredibly rich free-ports and tax havens at the top and a bunch of horribly poor kleptocracies at the bottom, means that they can publish their usual diatribe about how “economic freedom is closely correlated to wealth, equality, development, relief from aching piles etc”. But the interesting thing to me is the extraordinary level of philosophical incoherence of the whole exercise.
I’m normally quite a fan of Tory blogger Iain Murray, but I couldn’t believe his most recent TechCentralStation column. Iain is attacking some proposal for restricting carbon emissions that is currently before the US Senate and is full of doom and gloom about the economic implications. He cites a report on the impact of the proposed legislation – the McCain-Lieberman “Climate Stewardship Act” – from the Energy Information Administration (a government agency of which he clearly approves). Here’s Iain’s take on their report:
When the system comes into operation, the economy would be severely affected resulting in job and output losses in the short-run. Because of this shock, real disposable income would drop by almost 1 percent per person by 2011, and would take fifteen years to return to 2000 levels. By 2025, the average person will have lost almost $2,500 as a result of McCain-Lieberman. The effect on GDP is even more startling, with the nation losing $507 billion in real terms over the next twenty-two years. By 2025, the country’s GDP will be $106 billion lower in real terms than it is today.
Whoah! That looks pretty bad. So bad, in fact that I just couldn’t believe it. So I went to the EIA’s website and looked at the report for myself (available via the following, wonderful, URL http://www.eia.doe.gov/oiaf/anal_emissions.html ) It turns out that far from the US economy being worse $106 billion worse off than it is today (what! you mean the US economy which grew by 60% over the past two decades wouldn’t grow for 22 years because of one piece of legislation!!), it would be $106 billion worse off in 2025 than they are currently projecting it to be (peanuts for a 10 trillion dollar economy). What we’re looking at here is the compound interest effect of a very slightly reduced growth rate over a very long period (the expected difference in GDP between the two cases is simply the difference between a 3.02% and a 3.04% average annual growth rate over 22 years).
The NYT has a very interesting “article”:http://www.nytimes.com/2003/07/10/technology/circuits/10poke.html today on AI and poker. A group of researchers in Alberta are using game theory to create automated ‘bots that can take on and beat most players. Now this was a little worrying for me; two months ago, I wrote a “couple”:https://www.crookedtimber.org/archives/000064.html of rather confident “posts”:https://www.crookedtimber.org/archives/000068.html suggesting that game theory wasn’t very helpful in solving complex and open-ended games like poker. Indeed, as Chad Orzel “notes”:http://steelypips.org/principles/2003_06_29_principlearchive.php#105708829647353420, human beings sometimes have difficulty in dealing with this sort of stuff too.