Book review: Econometrics for Dummies

I just finished reading Roberto Pedace's 2013 book Econometrics for Dummies. As you might expect from a book written as part of Wiley's 'Dummies' series, the book is written as a basic introduction to its topic, starting from the basics of probability distributions, and ending with a brief primer on how to conduct an econometrics research project, as well as common mistakes to avoid in applied econometrics.

The book mostly hits the mark as a good introduction. However, Pedace clearly has a high opinion of dummies, because he assumes a great deal of statistical understanding. The book also has a lot of mathematical formulae to negotiate. To be fair to Pedace, it would be difficult to teach econometrics without the formulae without turning it into a 'recipe book' of steps to follow that would not help readers to understand. Nevertheless, I feel like the book could have been pitched perhaps a little lower, as more of a stepping stone between basic statistics and a full introduction to econometrics.

Nevertheless, the book is well written and easy to follow. Pedace does use some unusual terminology though. I struggled with his reference to categorical variables as "qualitative variables". In my mind, qualitative is something quite different. The book is also a little repetitive at times, in part because Pedace has written it in a way where the reader need not necessarily linearly follow through each chapter, but instead can jump directly to the bits of most relevance without missing out on important details that are hidden earlier in the text.

The book may be an introduction for dummies, but Pedace certainly stretches the dummies. I really appreciated that it included a discussion of difference-in-differences (and regular readers of this blog will recognise that this is a research approach that is applied quite commonly in research papers). I also thought that Pedace gave the clearest description of the difference between fixed effects and random effects models for panel data, as well as the Hausman test. Although applications of econometrics to panel data are a feature of every econometrics textbook, in my mind most do not clearly explain these models. At least, not as well as Pedace does.

Finally, the book offers an online 'cheat sheet', although I was disappointed that this seemed to simply be a static webpage, and not really a sheet that can be downloaded or printed.

Overall, this book is a good accompaniment to a full econometrics textbook, or as a memory aid for those who did econometrics some years ago and want the simple details quickly. Or, for those who want an intermediate step between introductory statistics and a full econometrics book such as Mastering 'Metrics (which I reviewed here) or Mostly Harmless Econometrics (which I reviewed here).

Book review: How to Think Like an Economist (Roger Arnold)

If you ask many economics teachers, they will tell you that they really want to teach students how to think like an economist. However, in amongst the supply and demand curves, the elasticities, and the multiplier effects, the core goal of teaching students to actually think like an economist gets lost, overwhelmed by a lot of do this stuff like an economist. So, it's interesting when a book actually tries to get behind the models and teach the underlying thinking.

That's what the 2005 book How to Think Like an Economist, by Roger Arnold, tries to do. Arnold explains that:

To teach students how economists think, we must tell them stories. While we tell the stories, we must point out just what is "running through the economist's head." In this book, I have tried to focus on what goes through the economist's head as he or she looks at the world.

And mostly, Arnold is successful, although it isn't always the case that every economist would think in the same way. For example, Arnold makes a big deal about ratios. And while ratios are important, I for one am never thinking about the ratio of marginal benefit to marginal cost, when I can simply think about which one is larger. The ratio is redundant.

There is a lot to like about this book, and Arnold surfaces some of the more surprising (to non-economists) ways that economists would think about problems. For example, who but an economist would even ask the question, "What is the optimum amount of hitting yourself in the head with a hammer?". And yet, Arnold treats us to a consideration of exactly that question in the second chapter.

Having said that, I felt like the book was quite uneven. Although Arnold warns readers at the beginning that the book is intended as a companion to a more thorough textbook economics treatment, and gives examples of how the chapters can be mixed and matches with various styles of economics courses, a reader reading the book chapter by chapter is constantly confronted with terminology that is left unexplained until later chapters. This was most jarring in the case of the 'equilibrium price', which came with no explanation of what equilibrium is, nor why the equilibrium price is important at all. Similarly, Arnold uses the term ceteris paribus first, without explaining what it means. And if you want to understand how the economist thinks, understanding the meaning of ceteris paribus (which, for the record, means holding all else constant) is kind of important.

Arnold also betrays a lack of understanding of some real-world context. Blackjack is provided as an example of a zero-sum game played between the players. However, blackjack in the real world is not at all like that. Blackjack players are playing against the house, not against each other. One blackjack players win does not in itself entail a loss to the other players.

So, although understanding how economists think is important, and I applaud the effort and the approach that this book takes, I feel like it fell a bit short of the mark. This book is long out of print, but that might not be such a bad thing.

Book review: The Nvidia Way

The biggest news story about stock markets over the last three years has probably been the dramatic rise of technology stocks, and particularly those related to AI. And among those stocks, one of the standout performers has been computer chip maker Nvidia. The success of Nvidia now hides the fact that the company had many close calls, where it was literally on the verge of closing down. That is one of the key facts that I learned from reading The Nvidia Way, by Tae Kim.

Kim was previously a technology columnist at Bloomberg, and he tells us he wrote several comments critical of Nvidia. Nevertheless, Nvidia allowed him to have unprecedented access to Nvidia staff, but more importantly, to CEO Jensen Huang. And that is important, because the story of Nvidia, and 'the Nvidia way' is undeniably a story of Jensen Huang. Huang wasn't the only founder of Nvidia, but he has been the face of the company, the driving force behind its successes, and the person most responsible for picking up the pieces after its frequent failures. Kim writes that:

In all my years covering business, as a consultant, an analyst, and now as a business writer, I have never met anyone quite like Jensen. In the field of graphics, he is a pioneer. In the harsh technology market, he is a survivor. And he has been a CEO for more than thirty years - marking him, as of this writing, the fourth-longest currently-serving CEO in the S&P 500...

Kim clearly has a lot of respect for Huang, and this shines through the whole book. Even where other authors would press on the more negative aspects of Huang's personality, such as his ultra-competitive nature, Kim is more measured:

Jensen was so competitive that he challenged other employees even when he was at a disadvantage. In high school, CFO Geoff Ribar had ranked among the top fifty chess players in the country. His boss, however, would not accept that someone else was better than him...

Jensen attempted to close the gap between his and Ribar's chess skills through brute-force learning. He memorized chess openings and sequences of moves, so that he would control the board. Yet Ribar round his playing style predicable... Every time he lost, Jensen would swipe his arm across the board, knocking over the pieces, and storm away. He would sometimes later insist on a rematch on the ping-pong table. Ribar graciously accepted, knowing Jensen was purposely shifting the competition onto more favorable territory.

It is worth noting that Huang was a champion table tennis player. His competitiveness has clearly served him well in business, and is one of the key factors in Nvidia's success.

So, what is 'the Nvidia way', after which the book is titled? Kim notes that it has several characteristics, including the hiring raw talent especially through aggressive hiring methods, its emphasis on retaining high-quality employees, its strong focus on a culture of excellence, the high demands it in turn places on those employees, and the leadership of Huang himself. Not all of these characteristics, especially not Huang, could necessarily be replicated at other companies. However, there is a lot that budding leaders could nevertheless learn from this book.

Having said that, there is one element where the book could have explored deeper. There were many occasions where Nvidia was close to failure, including following the release of one of its very first chips. Obviously, Nvidia is wildly successful as a company now. But should we interpret the company's success in spite of its challenges as the result of good management, culture, and hard work, or should it be interpreted as luck? In other words, how much of Nvidia's observed success is simply survivor bias? Kim obviously sides with attributing the company's success to its own good efforts, but it would have been good for him to turn a more critical eye to just how lucky they had been at key points.

Despite that gripe, I really enjoyed this book. I distinctly remember buying an Nvidia GEForce graphics card many years ago. Kim does a great job of bringing to life all of the characters and their contributions to the story, as well as the key events in the life of the company. If you're interested in understanding the rise of Nvidia, this book is recommended.

Book review: The Corporation

I just finished reading Joel Bakan's 2004 book The Corporation. The book (and the accompanying documentary film (which is available on YouTube) outline the pathology of the corporation, given the centrality of corporations to modern life. On that point, Bakan writes that:

Today, corporations govern our lives. They determine what we eat, what we watch, what we wear, where we work, and what we do. We are inescapably surrounded by their culture, iconography, and ideology. And, like the church and the monarchy in other times, they posture as infallible and omnipotent, glorifying themselves in imposing buildings and elaborate displays. Increasingly, corporations dictate the decisions of their supposed overseers in government and control domains of society once firmly embedded within the public sphere.

This is Bakan at his most sweeping, and not always at his most convincing. It's clear that we have far more agency in our dealings with corporations than Bakan intimates. But nevertheless, corporations are and have been a big influence on consumer and government decision-making over many decades. That is why, despite being over twenty years old, the book retains its currency. The underlying incentive problems for large corporations have not really changed in that time, even if the particular corporations that might be the target of criticism may have.

Bakan's book develops a portrait of the corporation and its influence that is more than a caricature based on worn-out tropes. His work is based on exhaustive interviews (many of which can be seen in the documentary film) and research. And Bakan avoids the temptation, which many authors of similar books seem not to, to pin the blame solely on neoliberalism, laissez-faire economics, or economics in general. Instead of relying on such lazy cliches, Bakan provides a reasoned argument for questioning the place of the corporation in the modern economy.

One part of the book I appreciated in particular was the section talking about corporate social responsibility (CSR). I hadn't appreciated that CSR initiatives dated back as far as the end of World War I, where they were referred to as 'New Capitalism'. Bakan really takes issue with the double standards that corporations play, which is ably demonstrated by this passage:

Take the large and well-known energy company that once was a paragon of social responsibility and corporate philanthropy. Each year the company produced a Corporate Responsibility Annual Report; the most recent one, unfortunately its last, vowed to cut greenhouse-gas emissions and support multilateral agreements to help stop climate change. The company pledged further to put human rights, the environment, health and safety issues, biodiversity, indigenous rights, and transparency at the core of its business operations, and it created a well-staffed corporate social responsibility task force to monitor and implement its social responsibility programs... The company, which was consistently ranked as one of the best places to work in America, strongly promoted diversity in the workplace. "We believe," said the report, "that corporate leadership should set the example for community service."

That corporation was... Enron. Bakan delivers the punchline flawlessly.

This book is also more than a simple polemic against the evils of corporations. Bakan also considers potential solutions that could bring corporate behaviour more in line with social goals, and with more sincerity and depth than Enron clearly displayed. Bakan considers the potential for regulation, but is skeptical about it due to the risks of regulatory capture. In that, he rightly refers to the work of the economist George Stigler. Bakan finally alights on the prospects of charter revocation laws - laws that would allow the government to terminate a corporation. This is, obviously, a far greater penalty than has ever been imposed on a large corporation. Nevertheless, the rules do exist in many countries. 

Bakan's focus on charter revocation is interesting, but seems like an disproportionate response. If we consider the corporation as a person, which is a position that Bakan explicitly critiques, then charter revocation is the equivalent of a death sentence. While some may think that the worst actions of corporations deserve a penalty at that end, the innocent shareholders of the corporation would no doubt disagree. Aside from charter revocation, Bakan also notes that there are several things that governments can do, including improving the regulatory system, strengthening political democracy, creating a robust public sphere, and challenging international neoliberalism. Alongside that, greater penalties for senior managers and directors of corporations that break the rules would likely be an improvement, since that would focus more directly on changing the incentives of the decision-makers whose actions lead to corporate wrongdoing.

I enjoyed reading this book, especially as I didn't feel the need to be constantly defending economics in my mind while reading it. Sadly, Bakan's book could have been written today as many of the problems that he outlines are just as apparent with corporations in the 2020s as they were in the 2000s. There has been plenty of CSR language since then, as well as the rise of environmental, social, and governance (ESG) initiatives, but it is hard to see much of this as more than the same low-level box-ticking exercise that Bakan critiques. There has been far less movement on the deeper institutional reforms that Bakan favours, so it is likely that the problems will be just as apparent for corporations in the 2040s. It doesn't have to be that way, and anyone who believes in change would do well to read this book as a starting point.

Book revew: Abundance

In the corners of the Internet that I inhabit, one of the most talked about books over the past year was Abundance, by Ezra Klein and Derek Thompson. And now, I have finally finished reading it. The key theme of the book is, unsurprisingly, in its title. Klein and Thompson reject a world of scarcity, arguing that we should instead embrace a world of abundance. What does that mean? In their view, abundance is about "having enough of what we need to create lives better than what we have had", and the process of obtaining abundance is about building and inventing an abundant future.

The book is understandably US-centric, and most of the book is devoted to outlining the various ways that the US has lost its way. The consequences are seen in the housing crisis, climate change and energy, declining research productivity, and many other challenges that are not just apparent in the US, but appear as a constant theme across Western developed countries (as well as many other countries).

Klein and Thompson focus on the key bottlenecks that inhibit the progress towards abundance. One of the bottlenecks they highlight is group conflict and the collective action problem. In that, they highlight the work of the economist Mancur Olson, specifically his book The Rise and Decline of Nations. In that book, Olson wrote:

    ...if organizations and collusions for collective action usually emerge only in favorable circumstances and develop strength over time, a stable society will see more organization for collective action as time passes.

While collective action could be used to drive the economy towards abundance, so often it is used instead to prevent it. To me, this sounded very much like the problem in the theory of public choice around the optimal number of people to be involved in a decision (for example, see this post, where I describe the trade-off between external costs and decision-making costs). The greater the number of people who must agree with a decision, the greater are the decision-making costs. And collective action, which by definition increases the number of people involved in decision-making, can increase costs and paralyse the decision-making process.

The book is written in an easy-to-read style. Those who are familiar with Klein's columns in the New York Times or Thompson's articles in The Atlantic will recognise this. There are also some funny moments, such as one bit on whether it is government inefficiency that means that it is expensive to dig tunnels in the US. Klein and Thompson list other countries with lower costs of tunnelling, then say:

We looked into it, and it turns out that all those countries also have governments.

Indeed, they do. Government doesn’t inherently make infrastructure construction more costly. The problem lies instead in particular ways that government works (or doesn't).

The most disappointing aspect of the book is that Klein and Thompson spend over 200 pages outlining the problems and making the case for abundance, but then they are short on solutions. They wave away that criticism by noting that:

It is easy to unfurl a policy wish list. But what is ultimately at stake here are our values.

That may be so, but perhaps one concrete solution as a starting point would have been good. Maybe a specific example where permitting reform has been successful in raising housing supply and alleviating high housing costs, or where changes in research and development funding have meaningfully improved innovation. Despite the lack of specific solutions, they do highlight the existence of trade-offs, which is refreshing given that other books have unrealistically utopic views of what can be achieved in the face of big challenges. However, there are some clear blind spots, one of which is a failure to engage meaningfully with the arguments for de-growth. While I don't place a lot of stock in de-growth arguments, that doesn't mean that they don't garner a lot of attention. Even if de-growth is ultimately unpersuasive, a book making the normative case for abundance should probably explain why abundance is preferable to sufficiency, restraint, or reduced consumption.

This book has been a bit of a rallying cry for sections of the left since it was published. It is definitely worth reading in order to better understand the problems and their underlying causes. It is also helpful to think about how we might do better in the future. It is just unfortunate that Klein and Thompson leave us hanging, and wondering what to do next.

Book review: Cloud Empires

The libertarian ideal of the internet was that it was a place without borders, without gatekeepers, and without government control. However, the modern internet falls well short of that ideal. In the physical world, it is typically governments that make and enforce the rules. However, online it is increasingly large and undemocratic platform firms that make the rules and enforce them. That is the general idea underlying Vili Lehdonvirta's 2022 book Cloud Empires, which I just finished reading.

Lehdonvirta tracks in detail how we ended up in the current situation, noting that:

The Internet was supposed to free us from powerful institutions. It was supposed to cut out the middlemen, democratize markets, empower individuals, and birth a new social fabric based on self-organizing networks and communities instead of top-down authority. "We will create a civilization of the mind in Cyberspace... more humane and fair than the world your governments have made before."... This is what Silicon Valley's visionaries promised us. Then they delivered something different - something that looks a lot like government again, except that this time we don't get to vote.

Lehdonvirta outlines how the platform firms have essentially replicated the process by which governments established rules, because of the same underlying necessity to maintain control. He uses numerous examples including Amazon, eBay, and cryptocurrencies such as Bitcoin and Ethereum, to illustrate his points. These case studies demonstrate the challenges, and the close corollary between the economic institutions established by the platform firms and those established by governments. Lehdonvirta notes that the key difference between governments and platform firms is in the political institutions. Platform firms lack the accountability that is inherent in political systems, and there is little prospect of overturning the 'government' of a platform. Even the most autocratic state risks revolution in a way that is to a large extent impossible for users to achieve within a platform environment.

While Lehdonvirta does a great job of outlining the issues, where the book falls short is in terms of the solutions. The subtitle of the book promises to tell us, "how we can regain control". Lehdonvirta's solution is a 'bourgeois revolution', of the kind that western countries experienced through the late Middle Ages. The growing urban middle class ('burghers') developed significant resources and gradually pushed back against the local lords, helped by powerful allies in the Church and often the monarchy as well. These coalitions led to more devolution of political power and authority, and eventually to the modern political institutions we observe today.

Lehdonvirta notes that, with some creative licence, it is possible to imagine a similar dynamic playing out on the platforms. However, while he devotes a great deal of effort in explaining the problems and linking them to real-world case studies, he doesn't expend the same effort on his proposed solution. The reader receives a few, almost cursory, observations about how a 'bourgeois revolution' may play out in certain situations. I felt like the book needed a more detailed explanation, linking the solution to embryonic real-world efforts and charting a path forward for them. Although speculative, a 'road map' for advocates of returning some power to the platform users would have added significant value to the book.

Aside from that small gripe, I really enjoyed this book, and it was a good follow-up to reading the more textbook treatment of platforms found in The Business of Platforms (which I reviewed last week).

Book review: The Business of Platforms

As I teach my ECONS101 class, a platform market occurs when a firm acts as an intermediary and brings together two (or more) groups, who otherwise would not connect or easily interact (platform markets are also known as two-sided markets, because the intermediary brings together two sides of the market). We think of platforms as mostly an invention of the digital age, because most of the examples that come to mind (TradeMe or eBay, Facebook, the Android operating system) are digital platforms. But in truth, platforms are everywhere. Credit card companies are platform firms - they bring together merchants and cardholders. Malls are platform firm - they bring together stores and customers. And so on. Once you know what to look for, you recognise just how endemic platforms have become in the modern economy.

I was interested to learn more about the business of platforms, so a few years ago I bought the 2019 book The Business of Platforms by Michael Cusumano, Annabelle Gawer, and David Yoffie. I finally got around to reading it last month. It was not a moment too soon either. I was inspired by the book to greatly expand on the platform market content in my ECONS101 class, specifically in the topic we covered last week. I'm sure they won't thank me for adding to the quantity of ideas that they may be assessed on, but the material from the book added a lot of depth to what was previously a fairly cursory description of two-sided markets.

The importance of understanding platforms is exemplified by their growing importance in the (global) economy. Cusumano et al. write that:

In short, managers and entrepreneurs in the digital age must learn to live in two worlds: the conventional economy and the platform economy.

To that, I would add that consumers and policy makers also need to understand the fundamentals of platform markets. It is there that this book excels. Cusumano et al. provide a clear description of what platform markets are, the 'winner-take-all (or most)' nature of those markets, and the different types of platform markets. They use a wide array of examples to illustrate the concepts, from Android to YouTube, and everything in-between. I'm sure that they could have easily turned the exercise into a textbook treatment. However, the numerous examples they use give more depth and provide more interesting perspective than you would get from a textbook.

After outlining the basics over the first few chapters, the book turns to common mistakes that platform firms make. Many of their examples will be familiar as exemplars of business failure, such as how Microsoft first captured the browser market with Internet Explorer, before subsequently losing their dominance to Firefox and ultimately to Google's Chrome browser. Next, the book looks at how firms can develop a platform, again carefully illustrating the pitfalls of the different options available to firms with real-world examples.

Finally, the last section looks to the future of platforms, but also takes a more normative view, advocating that platform firms should "harness platform power, but don't abuse it". Cusumano et al. have written their book with managers and entrepreneurs in mind, and this last section is an appeal to those future leaders of platform firms. In particular, they focus on antitrust issues, privacy concerns, fairness towards the workforce ("not everyone should be a contractor", and in particular that firms should self-regulate. While this section does paint a picture of how platform firms can easily become bad actors, it seems unlikely to move the needle on platform firms' worst abuses.

Overall, I really enjoyed this book. It is rare these days that a single book adds significant new content to one of the papers I teach, and I really appreciated the clarity that Cusumano et al. bring to this topic, and the way they structured their ideas in a way that was easy to follow. If you are looking to understand platform markets, this book seems essential to me, and I highly recommend it.

Book review: Economics (Ben Mathew)

I just finished reading Ben Mathew's 2013 book, imaginatively titled Economics. The subtitle is more descriptive though: "The remarkable story of how the economy works". The subtitle is also an accurate statement, as how the economy works does make for a remarkable story. Unfortunately, Mathew only provides a narrow (and biased) part of the story.

Don't get me wrong. This book is beautifully written, and will be easy for most non-economists to follow. I really enjoyed large parts of it. It is also quite humorous in parts. Consider this bit, which is both quite true and quite funny:

A Scottish philosopher by the name of Adam Smith figured out the answer and wrote it down in a book called An Inquiry into the Nature and Causes of the Wealth of Nations. The massive tome was published in 1776 and invented modern economics. All economists have a copy on their shelf, and some have even read parts of it.

Guilty as charged: I have a copy of The Wealth of Nations in my bookshelves, and I have even read parts of it (but not the whole book).

What lets this book down is the single-minded market fundamentalist approach. This book is everything that critics of 'neoliberal economics' love to hate. Mathew puts capitalism, the market, and prices at the centre of the 'remarkable story', which is sensible. However, he bats away or ignores critical problems with markets, such as externalities, information asymmetries, and monopoly or market power. Public goods do get a mention, but not until the last five pages of the book. Aside from public goods, the only market failures that are discussed are those caused by government intervention: price controls and taxes.

This uneven treatment isn't going to convince many readers, and those who area already skeptical of markets and economists will have cause to double-down on their skepticism. The market fundamental approach is understandable coming from Mathew, who was trained at the University of Chicago, the epicentre of 'price theory'. However, given how wonderfully Mathew writes, I feel like this was a real missed opportunity to have a book that truly describes the remarkable story of how the economy works, not based on a market-centred idealist view, but in all of its messy glory. Perhaps readers should read this book alongside Michael Sandel's What Money Can't Buy (which I reviewed here), and take the average of the two?

Book review: Economists in the Cold War

In 2024, I reviewed Alan Bollard's book Economists at War, noting that it sat awkwardly in-between being a biography and an economic history. I just finished reading Bollard's 2023 book Economists in the Cold War, which follows a similar approach.

This book is basically a sequel to the earlier book, and adopts a similar format, focusing on seven economists: Harry Dexter White, Oskar Lange, John von Neumann, Ludwig Erhard, Joan Robinson, Saburo Okita, and Raul Prebisch. Each chapter is devoted to the life and works (and times) of one of these eminent economists. This book differs from the earlier volume by setting each of the seven economists against one of their contemporaries, respectively: John Maynard Keynes, Friedrich Hayek, Leonid Kantorovich, Jean Monnet, Paul Samuelson, Zhou En-lai, and Walt Rostow.

There is a bit of overlap with the earlier book, which features Keynes, Kantorovich, and von Neumann. However, there is plenty of new material in this book, and I especially appreciated the chapters on Lange, Erhard, Okita, and Prebisch, who I knew little about. I also really enjoyed the chapter on Joan Robinson, which helped me to solve the mystery (to me, at least) of why she never won the Nobel Prize in Economics. On that point, Bollard writes that:

Once more, Robinson had no compunction about forming strong public views from limited evidence on contentious issues... It has been suggested that the polemical content of these writings may have cost Joan Robinson the Nobel Prize in economics which her mainstream contributions might otherwise have earned... She never saw the need to separate her economic findings and her political opinions.

Bollard has a good way of bringing in anecdotes, even though he is adamant that he is not writing a biography of each economist. On Oskar Lange, Bollard tells us that:

...he was once invited to lunch by Al Capone the famous gangster, who he found to be self-educated and well-read with a good knowledge of politics and economics. They had a most interesting conversation, and at the end Capone offered: 'Professor, if you ever have a problem, anything at all, please do not hesitate to call me!'...

It is not just any economist who can call on such support! On the negative side, there is a fair amount of repetition, both between this book and the earlier volume, and even within the book itself. For instance, Bollard twice tells us that British government economist Alex Cairncross's brother John was a spy for the Soviets, within the span of 17 pages. This, and the several other similar instances, is a minor point in an otherwise excellent book, but was quite distracting for me.

Overall, I rate this book as highly as the earlier volume, but as I noted at the beginning it suffers from a similar flaw. In trying to avoid being biography and economic history, it ends up awkwardly caught in-between. Perhaps my views have softened somewhat on this in the last couple of years, or perhaps it was that this book covered a lot of new ground for me, but I thought that overall this was the better of the two books. Like Bollard's earlier book, I recommend this one for anyone interested in the key players and in the development of 20th Century economics.

The changing system of regional economic development in New Zealand

I just finished reading the edited volume Economic Development in New Zealand, edited by James Rowe and published in 2005. Edited volumes are difficult to review, particularly when the collection of chapters have only a loose connection and lack a common thread, and that was the case with this book. Instead, I want to share one overall takeaway from reading the book, and that is how the policy environment for regional economic development has changed immensely since the 2000s. This matters because the way that we organise regional development determines who sets priorities, where capability accumulates, and whether regional growth is sustainable or merely a sequence of centrally funded projects.

So, what has changed? We can think about how leadership and decision-making has changed, how funding and strategy-setting has changed, and how the roles of business, educational institutions, and the research sector have changed.

In the mid-2000s, regional economic development had a lot of prominence, and it has seen a bit of a revival in recent years. However, there are some substantial differences in how that prominence manifests between the two eras. In the mid-2000s, regional economic development was led by the regions. The central government had an important role in setting the policy environment and steering the direction through funding, but regional development initiatives typically came from the regions. This is exemplified by the Regional Partnerships Programme (RPP), which involved central government funding regions to develop their own plans, build capability, and then back major initiatives coming out of those plans. Business had a strong role in partnership with government, not just as part of the RPP, but more generally. Region-wide strategy and plan development tended to rely on input from local business and industry leaders. There was also an important role for training , research and development, and innovation, and so universities, polytechnics, and Crown research institutes were all closely involved in regional development.

Fast forward to today, and regional development has been embodied in the Provincial Growth Fund, which has a lot of different aims, one of which is to "create jobs, leading to sustainable economic growth", and more recently the Regional Strategic Partnership Fund, which had a much more narrow aim to "make regional economies stronger and more resilient to improve the economic prospects, wellbeing and living standards of all New Zealanders". In both cases, it is central government that is largely the decision-maker, in addition to funding the initiatives, rather than the regions themselves. Business input is now largely channeled through consultation and deal-making, rather than input into the strategic direction of regional development. The rhetoric for business has changed to more of an emphasis on innovation and increasing productivity. That applies to the education and research sectors as well, where the role has shifted to more of a focus on core skills development and innovation, rather than being part of regional strategic plan development.

In between the mid-2000s and today, regional development did go through a bit of a quiet patch. It is clearly back in vogue now, although the policy environment and systems have changed tremendously. What that means is that there is not much from Rowe's edited volume that translates directly to today's situation, sadly. The initiatives that the authors were writing about are long gone, even the AUT Masters degree in Economic Development that one chapter describes has long since closed down. However, the value in reading Rowe's book is that it provides a useful reminder that regional development has long been a goal of central government, and that there is more than one way to approach that goal.

Book review: The Big Con

Many of my students go into the consulting industry when they graduate. Most go to one of the 'Big Four' (PWC, EY, Deloitte, KPMG). I've only had a couple that I know have gone to McKinsey, and none to Boston Consulting or Bain (the 'Big Three'). So, I was interested to read what Mariana Mazzucato and Rosie Collington would have to say in their 2023 book The Big Con. The thesis of the book is simple, as they explain in the introduction:

This book shows why the growth in consulting contracts, the business model of big consultancies, the underlying conflicts of interest and the lack of transparency matter hugely. The consulting industry today is not merely a helping hand; its advice and actions are not purely technical and neutral, facilitating a more effective functioning of society and reducing the "transaction costs" of clients. It enables the actualisation of a particular view of the economy that has created dysfunctions in government and business around the world.

The book uses a large number of real-world stories of 'consultancy firms gone wrong', stitching them together into a narrative of how the consulting industry makes us worse off. Many of the individual stories will not be unknown to those who regularly keep up with business and politics. What Mazzucato and Collington do well is track the rise of the consulting industry over time, and how it has become endemic across the public sector in particular. They use far fewer examples from the private sector, but I don't doubt that many of the issues that governments face also apply to private sector firms, but just do not have the same societal impacts. Through the development of the consulting industry, Mazzucato and Collington unpack the industry incentives at play, the interconnections between consulting, business, and government, and the conflicts of interest that result. Finally, they outline the consequential impacts on state capacity. In particular:

The more governments and businesses outsource, the less they know how to do, causing organizations to become hollowed out, stuck in time and unable to evolve. With consultants involved at every turn, there is often very little "learning-by-doing." Consultancies' clients become "infantilised"... A government department that contracts out all the services it is responsible for providing may be able to reduce costs in the short Term, but it will eventually cost it more due to the loss in knowledge about how to deliver those services, and thus how to adapt the collection of capabilities within its department to meet citizens' changing needs.

What is missing from the discussion of problems is an evaluation of just how costly the loss of capability in the public service is. Governments are focused on cost savings, and there are short term cost savings. But how large are the long-term losses that result from the loss in the ability to monitor and evaluate contracts (as one example)? This would have given the arguments in the book more weight than the few case studies that Mazzucato and Collington use.

Moreover, while the explanation of the problem and the examples used to illustrate it are good, the solutions proposed are underdeveloped and somewhat banal. For example, while "a new vision, narrative and mission for the civil service" is a shout-out to Mazzucato's previous book Mission Economy (which I reviewed here), the book fails to provide a coherent pathway to extricate the public sector from the grip of consultants. I imagine that, faced with the need to develop a new vision, narrative, and mission, the first thing that many government departments would do is to contract a consultancy to assist with that need. Mazzucato and Collington don't offer a way of avoiding that outcome. Their second solution, of investing in internal capacity and capability creation, is likely to be important. But again, it requires the public service to disentangle itself from the consulting industry, and the ways that can be achieved are not explained. Third, embedding learning into contract evaluations is important, but it relies on other factors that are not addressed, such as the ability of the public sector to retain talent. Finally, mandating transparency and disclosure of conflicts of interest should almost go without saying, but it is good that Mazzucato and Collington say it.

Overall, I enjoyed reading this book. It's a couple of years old now, but the examples are still highly relevant, and the consulting industry's tentacles are still firmly wrapped around the body of government in many (most?) countries. Mazzucato and Collington have highlighted the problem, and shone some light on potential solutions. What we need now is a strong public sector leadership, backed by government, that is willing to rebuild capacity and capability in sensible ways. Hopefully, this book is one step on that journey (and apologies to my future students if the consulting industry becomes smaller as a result!).

Book review: Indigenous Economics

Hot on the heels of reading Raymond Firth's Economics of the New Zealand Maori (which I reviewed here earlier this week), I read Indigenous Economics, by Ronald Trosper. This book attempts to explain economics using an Indigenous worldview. This is incredibly ambitious, given that Indigenous groups are not all alike. However, there is enough commonality that Trosper is able to weave together a coherent text using examples from North America, South America, Australia, and New Zealand.

The common themes that, according to Trosper, underlie Indigenous economics and distinguish it from 'traditional economics' are relationality and consciousness of all beings (including nonhuman beings such as animals, and more-than-human beings such as rivers or mountains). As Trosper explains in the introduction to the book:

This book explains how a focus on relationships generates a different kind of economic theory than the mainstream approach in all its variations. Persons replace the individual in standard economics; persons become active agents in the creation of the lives they live rather than passive responders to incentives given by prices. Persons combine into relational subjects of many different types that are similar in their dependence on dialogue and reflexivity among the persons who comprise them. Relational subjects can differ in scale with corresponding differences in the modes of dialogue and interaction. Relational subjects include all beings in a landscape.

The book had both strengths and weaknesses. The key strengths include the wealth of examples that Trosper uses to illustrate his ideas. However, that strength also contributed to the weakness, which is that the book is light on developing theory and principles and explaining in depth how an Indigenous economics could be constructed from those principles. I will acknowledge though, that this criticism is really based on the book that I wanted to read, which is not necessarily the book that Trosper wanted to write. If Trosper's intended audience is mainly Indigenous readers who have already in their minds rejected traditional economics and want to see their own worldview presented as economics, then he has nailed it. And indeed, the book could have been written in this way because of relationality. But for a reader like myself, who wants to understand how an Indigenous worldview enhances our understanding of economics, or even better, how a truly Indigenous economics can be constructed from principles drawn from an Indigenous worldview, the book falls short.

As you might expect, Trosper mainly does a good job of contrasting the views of 'traditional economics' with views through an Indigenous lens, and that is where the book offers the greatest value. For instance, a large section of the book essentially explains why the western conception of 'private property', especially in relation to land, is inappropriate in an Indigenous context. This is tied very closely to the two themes:

An economic system based on relationships that include nonhumans cannot use a private property system or even a property system because to do so fails to recognize the consciousness and agency of nonhumans who enter relationships. The owner of a thing as property has control over it in a way that is inconsistent with treating it in a respectful manner.

That section was particularly strong, and yet at the same time it was underdeveloped. Trosper acknowledges a counterargument based on efficiency without taking nonhumans into account, but then flippantly explains this away, with:

These criticisms ignore the ways in which Indigenous territorial systems do have incentives to use the land well; those with leadership responsibility are expected to have solid relationships with the beings living on the land. The valuation of the land includes the relational values created through relational goods.

I agree with his counterargument here, but these ideas could have been explained in more detail and the counterargument would have been much more solid. Also, linking more explicitly to the economic theory of property rights, such as from Nobel Prize winners Oliver Williamson and Oliver Hart, would have provided either a stronger foundation, or a clearer critique.

Similarly, in the section on Indigenous entrepreneurship, Trosper doesn't engage with the idea of profit maximisation (a key assumption in mainstream economics) until near the end of the section. At that point, he reframes profit as a constraint, rather than a goal, of Indigenous business:

The need to accommodate Indigenous viewpoints by business presents an obvious issue: How can one make a profit selling things or experiences without fully giving in to market culture with its individualistic focus? Part of the answer is to distinguish between maximizing profits as a goal and achieving positive profits as a constraint. This is often stated in this manner: rather than making profits the goal of the firm, the profit requirement is changed into a constraint. How can a firm pursue other goals without profit falling into negative territory?

I feel like that statement would have been a good place to start the section on Indigenous entrepreneurship, and building out the theory of profit as a constraint rather than a goal. Again, this seemed like a lost opportunity. The book did link to ideas of social enterprise, but could have looked at some of the research on social preferences beyond the work of Samuel Bowles. I also thought that there was a strong case to include some of the ideas on identity economics from Akerlof and Kranton (whose book Identity Economics I reviewed here).

Trosper also makes some simple errors in basic economics, such as claiming that "[i]n standard economics, states produce public goods and individuals produce private goods". As my ECONS102 students would attest, this is one of my pet hates. Governments can (and do) provide private goods, and many public goods are provided privately. Similarly, Trosper creates a strawman argument when he writes that:

Standard economics focuses only on private goods and public goods (Samuelson 1954).

The fact that his supporting citation is Samuelson's textbook that is over seventy years old should tell you that this statement lacks support. It is in fact quite untrue, and Elinor Ostrom's work (which Trosper cites extensively) on common resources clearly demonstrates that the statement is unsupportable. It is also quite unnecessary to create such a strawman argument. This book shouldn't be about pitting Indigenous economics against traditional economics, but instead showing how they differ in meaningful ways.

Despite my gripes, I did enjoy reading this book, and it opened my eyes to some of the possibilities for a truly Indigenous economics that is constructed from its own principles. Someday perhaps we will see that ideal fulfilled. Unfortunately, this was not the book to do it. I’d still recommend this book for readers who want an accessible introduction to Indigenous perspectives on economics, but economists looking for a fully articulated alternative theory may come away wanting more.

Book review: Economics of the New Zealand Maori

In amongst my collection of books, I have assembled a number of classics, including some reasonably rare editions. One of those is Economics of the New Zealand Maori [*] by Raymond Firth. This book was originally published from Firth's PhD thesis in 1929 (the thesis was approved in 1927 at the University of London). The edition I read was the second edition (and once belonged to the Stanford University library), published in 1959 with substantial updates (you can read the first edition for free online here). Despite the age of the book, this is still an important read, as I outline below.

Firth had a background in economics, including undergraduate and graduate study at Auckland, but then shifted focus to become one of the first 'economic anthropologists'. Aside from being an astute study of what the title suggests, this book was also a demonstration of the emerging techniques of economic anthropology.

To be honest, I was expecting this book to be mildly and casually racist, but Firth is very careful in his presentation of pre-European and colonial Māori culture and economy, including for the most part avoiding the 'noble savage' portrayals that have been eviscerated in more modern 'enlightened' times. As a pākehā scholar writing in the 1920s though, there is still phrasing that made me cringe. However, this was more in the case of the gendered language, rather than the language related to Māori. Putting aside the issues of historical expression though, what the reader gets from this book is an explanation of how Māori organised themselves both socially and economically (the two being closely intertwined).

I really appreciated Firth's writing style, which has a creativity that is lacking in more contemporary academic writing. Consider this beautiful passage from the start of the second chapter:

The gannet dives, the gulls cry; no other living thing is seen. Mile after mile stretches the unbroken coast, till in the far distance the eye loses sense of form and shape in the shimmering blue haze. Inland, as covering for the Earth Mother, lies the dark forest with its mosses and dropping ferns, the virgin bush, broken only by the tiny clearings of neolithic man. At times it gives way to rolling open fern-lands, to tussock or swamp or the sage-green manuka scrub. Such is the face of Nature in the home of the ancient Maori.

The book covers a wide range of topics, from social structure, to work, 'magic', distribution, property ownership, land, and gift exchange. The last substantive chapter looks at economic aspects of cultural change, in response to contact and conflict with the settler colonial government. There is a wealth of detail on each topic, and much of the economics remains current. Of course, someone writing the book today would cover slightly different topics, or cover the topics in a slightly different way and with reference to more recent developments in economic theory (including social preferences, common resources, public choice theory, and information asymmetries). However, the core of economics as we continue to teach, including specialisation, constrained choices, and the role of incentives, are clear. Some sections even anticipate later considerations, such as moral or social incentives:

In our scheme of economic motivation we must include as powerful incentives to action the sense of communal responsibility and the desire to contribute to the well-being of the group, backed up by the strong forces of custom, habit, and tradition.

The role of social sanctions, as later developed by the work of Nobel Prize winner Elinor Ostrom, who studied how communities govern common resources, are also evident. The role of the distribution of the gains from economic activity takes a prominent role in the book, and in Firth's telling it is here where the Māori economy differs most strongly from the settler colonial economy:

However, it is clear that it was considered that all the members of the community were entitled to share in the product of any large-scale activity. It would be incorrect to picture the Maori distributive system as an idyllic kind of communism, but it is true that the manner of apportionment of goods - or food, at all events - bore direct relation to the needs of the people. Starvation or real want in one family was impossible while others in the village were abundantly supplied with food. Nor did this give the opening for idleness which one might expect. here, again, the force of public opinion stepped in, and for sheer peace the would-be slacker was obliged to defer to it and make some show of assuming his proper responsibilities. Proverbs and traditional tales also contributed to this end...

The last sentence, pointing to proverbs (whakataukī) and traditional tales, hints at another aspect of the book that I really appreciated - the links to Māori culture, and especially the retelling of stories and sayings, often accompanied by the original te reo Māori. As a beginner speaker of te reo, I always appreciate the opportunity to connect a little more with words, concepts, and sayings outside of my regular experience.

Also hinted at in the previous quote was Firth's offence at previous writers' insistence on the Māori economy as communist. In fact, he devotes a whole section of the book to debunking this idea, including:

Yet if the work of these various writers who so freely use the term communism be examined it is found that at no point do they attempt to explain what they understand by it. Apart from the absence of any definition, no consistent or detailed account of the precise operation of the communistic principle is given...

In all its varieties of meaning it retains the essential points: a common ownership of the means of production, labour contributed according to ability, and a sharing out of the fruits of industry on the basis of the needs of the members of the society... To apply the term to any vague form of group activity or group control is only to introduce needless confusion.

Shots fired! Firth carefully uncovers the private control (if not 'ownership' in the settler colonial tradition) of resources such as eel weirs, or trees for the trapping of birds, which is just one piece of evidence that demonstrates that the Māori economy was not communist. And while exchange did not occur through what an economist would think of as a market, there was nevertheless a complicated system of gift exchange within and between hapū (sub-tribes) and iwi (tribes). In terms of the latter, Firth stresses the role of generosity in distribution. From the conclusion to the book:

And so proverbs, songs, legendary tales and the stream of public opinion all combine to extol generosity in giving, open-handedness in disposing of the wealth accumulated. In the apportionment of food, in the exchange of goods the dominance of this attitude has been proven. On the whole, then, the compulsion to work, to save, and to expend is given not so much by a rational appreciation of the benefits to be received as by the desire for social recognition, through such behaviour. The entire scheme of motivation in industry is thus lifted from the biological to the social plane.

I also found Firth's writing on land tenure to be interesting. Firth wrote his thesis in the 1920s, only about 60 years after the Native Land Court (1865) was formed, and about 50 years before the Waitangi Tribunal (1975). The section on land is more in keeping with the latter:

Despite the comparatively small population in pre-European times, there was no appreciable area of land anywhere in the country which was without its owners. Districts devoid of permanent inhabitants were yet visited periodically if not for cultivation at least to obtain other food supplies... Again, the extent of ownership of land was not correlated merely with its economic productivity. The sentiment felt for it and the strength of ancestral associations, as already shown, were factors of great importance in determining ownership.

As I noted earlier, more contemporary writers would likely express this differently. For instance, 'ownership' might be too contentious a term for some Māori to use in relation to land, but the concept of a deep and abiding connection to the land, which transcends mere ownership, does come through in this book. There is also much to commend in the way that the book approaches the environmental aspects of the economy, long before sustainability became fashionable. There is also a clear and convincing discussion on the economic reasons underlying the practice of polygyny.

I really enjoyed this book. It will not be for everyone, but for those who are interested in the Māori economy this should be required reading. And those who can read it as a book written in its time, and look through some of the dated expressions to see the economic ideas that underlie the prose, will find a taonga (a treasure, or a valuable cultural artifact) that can take them a few steps along the way to understanding both the early and contemporary Māori economies.

*****

[*] New Zealand readers may wonder why I have omitted the macrons from Māori in the title of the book and from other words in the quotes. In the entire book, Firth only used a few macrons, and I quote his book verbatim (including the title) without correction.

Book review: In This Economy

Kyla Scanlon rose to some prominence during and after the pandemic, through her short explanatory videos about the economy, money, and finance. She may not have been the first, but certainly is one of the most prominent members of the #EconTok community on TikTok (as well as being active on other social media as well). Certainly, she has developed a large following, particularly among younger people. So, I was really interested to read her 2024 book, In This Economy.

I have to say that I was quite disappointed though. On the plus side, Scanlon plays to her strengths, and the early parts of the book are strong on exploring the role of vibes on the economy (Scanlon coined the term 'vibecession', to mean "a period of temporary vibe decline during which economic data such as trade and industrial activity are okay-ish"). Those chapters are generally good (although see my later comments). However, significant parts of chapters are less explainers about "how money and markets really work", which is the subtitle for the book, and more a commentary on current US policy on housing, immigration, clean energy, and the like. This is not just apparent in the final chapter, which is supposed to be more policy focused. The parts of the book where Scanlon held forth on her views were far less compelling to me, because the role of vibes was largely forgotten. It would have been more interesting to know how vibes may play a role in housing policy, or immigration policy, and whether a change in vibes might change policy. The book could have been tightened up significantly, and made an interesting contribution that other authors are less well equipped to make.

What put me off most though, were the inaccuracies in the book. The worst offence (to a New Zealand economist) was this, about inflation targeting:

That's because the 2 percent figure is sort of random. The idea originally came from Arthur Grimes, the Labour Party finance minster [sic] of New Zealand in the 1980s. He went on TV and said, "Two percent should be our inflation target," and now everybody goes after that magic number.

Arthur Grimes was never an MP, let alone finance minister (I checked this with him!). Scanlon might owe Arthur an apology for confusing him with Roger Douglas. One of my colleagues ventured that perhaps ChatGPT wrote those sentences. It is the sort of hallucination we might expect from an LLM, but who knows if that was the source. Sadly, it is indicative of the inaccuracies in the book. Consider this one:

In one example of the extremity of market moves, the yield on thirty-year U.K. inflation-linked bonds jumped by more than 250% (meaning that they fell 250% in price) after the Bank made the announcement that it was not going to intervene.

If something falls in price by more than 100 percent, that means that the seller pays the buyer to buy it from them. The correct figure here should be 60 percent I think, not 250 percent. Similarly:

So when news headlines say, "Inflation Rate Falls to 3 Percent," that doesn't mean that prices fell three percent; it just means that the rate of change of price increases fell three percent.

No, it means that the rate of change of prices fell to three percent (from whatever it was before). There is unfortunately a lot of this sort of lack of attention to detail. At one point, Scanlon provides an estimate of GDP for the 'Gingerbread Yeti economy', then converts it to 'real nominal GDP' by dividing by one plus the current year's inflation rate. First, there's no such thing as 'real nominal GDP'. There is 'nominal GDP' and there is 'real GDP'. And second, the calculation does provide a measure of real GDP, measured in terms of dollars from the year before. However, the calculation that is presented gives the impression that dividing by one plus the current year's inflation rate is the standard way of calculating real GDP. It isn't. It's not just the current year's inflation that matters in calculating real GDP, but the inflation in every year between the current year and the base year. The base year matters, and the base year is not always the year before the current year.

Despite my grumpiness, there are some good aspects to the book. Scanlon does have a good way with words that I think connects with younger people (and that much is clear from her success on social media). She also provides some interesting examples to illustrate her explanations, such as the 'economics kingdom' (which illustrates how parts of the economy are related), the 'cake of uncertainty' (which relates expectations, theory, and reality), and the aforementioned 'Gingerbread Yeti economy'. Scanlon also refers to a lot of memes, probably many more than I would recognise. And yet I found the explanation of how 'meme stocks' worked to be a bit underdone.

Sadly, I don't think I can recommend this book, even to my younger students who might connect with the contemporary material more than they would with earlier pop economics books. There are simply too many bits where I worry that the book would steer them wrong. Normally, I find that Tyler Cowen makes excellent book recommendations. In this case, I'm really not seeing whatever he saw in this one.

Book review: Capitalism, Alone

I've long been a fan of Branko Milanovic's careful and detailed work on global inequality. I've written several posts based on his work (most recently my review of his 2016 book Global Inequality, in 2023). So, I was interested to see his take on capitalism, as expressed in his 2019 book, Capitalism, Alone.

The title references that, after the fall of communism in the early 1990s, capitalism remained the only game in town. To support this claim though, Milanovic makes the case that China, Russia, Vietnam, and other countries with similar political systems are really capitalist. Milanovic draws on the political philosophy of Max Weber in defining 'political capitalism' as the state-led authoritarian capitalism exemplified by China, distinguishing it from the Western tradition of 'liberal meritocratic capitalism' exemplified by the US and western Europe.

The book starts by drawing the distinction between political capitalism and liberal meritocratic capitalism, illustrating the development of both with data on incomes and inequality, as you would expect given Milanovic's pedigree. I really enjoyed this section, especially where Milanovic outlines how both a liberal view of history and a Marxist view of history fail to explain key events. The liberal view expects capitalism to converge of liberal-democratic norms and peaceful growth, but that view fails to adequately explain World War I. On the other hand, the Marxist view that communism would replace capitalism was contradicted by the reversion of former communist countries in the Russian sphere to political capitalism. As Milanovic concludes:

We thus reach the conclusion that two of the most important events in the global history of the twentieth century, World War I and the fall of communism, cannot both be consistently explained within the liberal or Marxist paradigms. The liberal paradigm has problems with 1914, the Marxist paradigm with 1989.

The first few chapters are backward looking, and set a solid foundation. Milanovic then turns his attention to the interaction between capitalism and globalisation, as a segue into thinking about the future of capitalism. I found these latter chapters of the book to be somewhat uneven. Some parts are well thought out and interesting, such as the discussion on the free movement of factors of production, particularly migration (although I think more could have been made of a particular model that Milanovic uses, and I may follow up on that in a future post).

Other parts of the last two chapters seem to be a collection of anecdotes, musings, and speculation, lacking much in the way of theoretical or empirical grounding. This part of the book does provide a broad synthesis, but really lacks the depth of the earlier chapters, or of Milanovic's earlier writings. As just one example, in the section on migration and the welfare state, Milanovic discusses the political consequences of close links between the welfare state and citizenship. There is a related literature from on the work of Elinor Ostrom on the challenges of common governance when a group is made up of heterogeneous sub-groups (migrants and the native born) that Milanovic could have drawn on to give more depth to this section. Again, a missed opportunity.

Overall, I did enjoy reading the book. It is thought-provoking and even the latter sections were a nice read, despite their relative shallowness. However, reading the concluding chapter gives one a feeling that all is not well with capitalism, now and in the future. Milanovic tries to present a vision of 'the people's capitalism', but what I took away from that discussion was just how far things would need to move to make that vision a reality. And sadly, since the writing of this book we have gotten no closer to Milanovic's ideal, and in many respects we are farther from it than we have been in a long time. Capitalism may now be alone, but its victory is no assurance of a future worth celebrating.

Book review: The Rise of the Western World

It is somewhat fitting that, in a week where Joel Mokyr won the Nobel Prize in economics, I was just finishing up reading a book on economic history. It wasn't one of Mokyr's books though (although they are on my to-be-read list now). It was The Rise of the Western World, by Mokyr's fellow Nobel laureate Douglass North, co-authored with Robert Thomas.

A lot of economic history focuses on the Industrial Revolution. North and Thomas focus their attention earlier, on the period between the High Middle Ages and the Enlightenment, between 900 CE and 1700 CE. This period is of interest because it was when western Europe emerged from a feudal society into more modern political states, and during which property rights over land increasingly developed. These changes formed the antecedents to the Industrial Revolution that was to come. North and Thomas summarise this in the introduction to the book:

Economic growth occurs if output grows faster than population. Given the described assumptions about the way people behave, economic growth will occur if property rights make it worthwhile to undertake socially productive activity. The creating, specifying and enacting of such property rights are costly, in a degree affected by the state of technology and organization. As the potential grows for private gains to exceed transaction costs, efforts will be made to establish such property rights. Governments take over the protection and enforcement of property rights because they can do so at a lower cost than private volunteer groups. However, the fiscal needs of government may induce the protection of certain property rights which hinder rather than promote growth; therefore we have no guarantee that productive institutional arrangements will emerge.

My ECONS102 students will probably recognise important elements in there from their lectures, including property rights, institutions, and transaction costs. Indeed, I learned a lot from reading this book that will help to better articulate and link those points, as well as bringing in not only this work, but the work on common governance by Elinor Ostrom.

The majority of the book works through the period chronologically, developing the ideas and presenting supporting data where needed. It finishes by considering differences in institutions and economic growth performance in the 'early modern period' between England, France, Spain, and the Netherlands. The writing can be a little dry, but it is neither heavily data-driven nor overly theoretical. However, economic theory definitely underpins the key ideas in the text. Consider this bit on growth in the Middle Ages:

...we suggest that a growing population was the exogenous variable that basically accounts for the growth and development of Western Europe during the high Middle Ages. An expanding population in a local area would eventually encounter diminishing returns to further increases in the size of the labor force. Part of the increased labor force would as a consequence migrate to take up virgin land in the wilderness, thus extending the frontiers of settlement. However, the density of habitation would still be greater in the older areas than on the frontier, and this differential, resulting in a variation of land-to-labor ratios between areas, when coupled with regional differences in natural resource endowments, would lead to different types of production. Such variances would allow profitable exchanges of products between regions. We submit, therefore, that the development and expansion of a market economy during the Middle Ages was a direct response to the opportunity to gain from the specialization and trade made feasible by population growth.

North and Thomas don't pause to explain the economic terms in their exposition. So, while this book is readable to a non-economist, it seems to me that only those with a bit of economic training will truly appreciate the ideas presented in the book. Indeed, that is almost certainly the audience that North and Thomas had in mind. For those with a little bit of economic knowledge, and an interest in economic history, there is a lot to be gained from reading this book. I recommend it, especially to anyone looking to see the story up to the point where the economic historians specialising in the Industrial Revolution take over.

Book review: Microeconomics Made Simple

How simple can microeconomics be? Can a person learn the basics by reading a book of only 100 pages? If we look at Microeconomics Made Simple, by Austin Frakt and Mike Piper, the answer is clearly yes.

Frakt and Piper set themselves an ambitious goal. However, they are careful not to over-pitch the book, at least to students:

For any students using this book in an academic setting: If your professor expects you to read a several-hundred-page textbook, please do not think that you can read this book instead and learn all of the same information. This book may serve as an introduction - a way to get a grip on the basics so that the textbook is easier to understand - but it's not meant to be a replacement for a comprehensive text.

Although the book was published back in 2014 (which is when I bought it, and it has sat unread on my bookshelf ever since), it has aged well, helped by the fact that key economic concepts don't change much over time. Across 11 chapters, Frakt and Piper cover the basics of utility and opportunity cost, production possibilities and the gains from trade, demand and supply and government intervention in markets, costs of production, and market structures (perfect competition, monopoly, oligopoly, and monopolistic competition). And they do a great job. The book is clearly written and, although it doesn't go into the depth that a textbook would, or provide the same range of examples as a textbook, it likely achieves its goal of providing a basic level of understanding of microeconomics.

I see a different use of the text than Frakt and Piper though. Rather than encouraging students to use this as an introduction, which they would build on in by later reading a more comprehensive textbook, I think this book would serve as an excellent refresher for those who studied microeconomics some years ago and want to be reminded of the key points. If that describes you, then I highly recommend this book.

Book review: Gender and the Dismal Science

The gender gap in economics is large and persistent (see the links at the end of this post for details). They have also been around since the founding of the discipline. In her 2022 book Gender and the Dismal Science, Ann Mari May documents the gender gap in economics between the founding of the American Economic Association (AEA) in 1885, and 1948. As May describes it, the book uses:

...novel data sets to offer new information on the proportion of women members in the AEA, their backgrounds, and their limited role in the association's work in its first sixty-three years of existence. At the same time, they provide information on the "old boy network" in publishing - in monographs and in scholarly journals such as the AER and the QJE.

May has exhaustively investigated the women in economics during those early decades of the AEA, and compares them with a sample of randomly selected male economists from the same era. This offers insights into the number of women (compared with men) earning doctorates in economics, joining the AEA, receiving faculty appointments, becoming officeholders in the AEA, as well as co-authorship (within and between genders).

Readers who are familiar with the gender gap in economics will not be surprised at all by the results. However, some aspects of the gap do make for uncomfortable reading. For example, May notes the perniciousness of marriage bar policies and antinepotism rules, which had the effect of limiting the hiring of married women and were used to fire women from existing positions if their marriage was discovered. Unsurprisingly, this meant that successful female economists typically were unmarried. In contrast, nearly all male economists, including successful male economists, were married.

Another result that should be more widely known is that the first woman to serve as president of the AEA was Alice Rivlin, as late as 1986. And similarly, the first woman to serve as editor of the association's premier journal, the American Economic Review (AER), was even later, with Pinelopi Goldberg taking on the role in 2011.

The quantitative analysis in the book is quite descriptive and relatively shallow. Given the small sample size of women in the early years, it would be difficult for it to be otherwise. And to be honest, we don't even need the quantitative analysis to recognise that economics had a real problem in those early years, and that was the genesis of the problems that the discipline faces today. The more qualitative elements of the book, being the stories of the women who were trying to make their mark on economics in the early years of the AEA, stand out as important testimony of the problems. May has done a great job of surfacing and summarising this information, and for anyone interested in gender in economics, this book is an important read.

Book review: Lives of the Laureates

During my travels in Europe, I managed to get through reading Lives of the Laureates, which includes autobiographical accounts written by Nobel Prize winners in economics. The source material is an ongoing lecture series hosted by Trinity University in Texas, who invite recent Nobel laureates from US institutions to reflect on their 'evolution as an economist'. The lectures are collected together in this volume.

The first edition of the book was published in 1985. I read the sixth edition, which was released in 2014. However, I note that a seventh edition was published last year. The difference between the editions is the selection of economists whose lectures are included. I was a little disappointed to find out that earlier editions included lectures by Arthur Lewis and Ronald Coase, among others. The seventh edition adds many more recent Nobel laureates, including Amartya Sen, Michael Spence, and Alvin Roth, as well as adding back in the earlier lectures that were missing from the sixth edition.

Each lecture is a standalone autobiographical account written by the laureate. However, each lecture is quite idiosyncratic, as each laureate takes a different approach to their task. Some present what is essentially an extended timeline of their research work, while others present a much more personal account. I much preferred the latter, for the additional insights into the people behind the Nobel Prizes. The lectures by Douglass North, James Heckman, and Thomas Schelling were particularly interesting to me. For instance, I learned that Schelling wrote a review of Peter Bryant's book Red Alert, which drew the attention of Stanley Kubrick and eventually became the movie Dr. Strangelove. I also got to learn a lot about the Nobel Prize winners that I didn't know much about before, including Lawrence Klein, Eric Maskin, and Peter Diamond.

There were also a number of interesting anecdotes, such as this from Franco Modigliani, about the research that introduced the now-famous Modigliani-Miller theorem:

This paper has since become quite well known, and it has been assignment to students in business and finance all over the world... this paper was never meant for students. The paper was meant to upset my colleagues in finance by arguing that the core issue that receive most attention in corporation finance, namely finding out what exactly is the optimum capital structure, was not really an issue. It didn't make any difference.

On a similar note, I hadn't appreciated just how negative the reaction to Gary Becker's work was from within economics, at least initially. For example:

The negative reaction to my work on discrimination, coupled with Frank Knight's hostility toward my article on democracy, made it clear to me that using economic analysis to discuss social and political issues was not going to be welcomed with open arms by most economists... I was surprised that the main hostility toward my work, at least as it was explicitly stated, came from economists, not non-economists.

Although the lectures are quite different, there are nevertheless some common themes, which the final chapter of the book attempts to draw together. One that stood out to me while reading was:

...the role of luck... The laureates often use the term "luck" to mean the unpredictability or unplanned path through which their career evolved. each can readily imagine some alternative turn taken early in life that would have set them on an altogether different path.

And finally:

One cannot come away from these lectures without an appreciated for the critical role of teachers, the intellectual environment, the search for rigor and relevance, and the role of happenstance in the evolution of modern economic thought.

I really enjoyed this book, and I recommend it to anyone who wants to learn a little bit more about the history of economic thought, from a variety of different perspectives to those found in traditional textbooks or more general books on the topic.