| Blog: |
| The Filter^ |
Topics: |
| economics, music, architecture |
It's in the context of how fast umbrella-sellers spring up as soon as it starts to rain. The protagonist is wondering what mechanism mobilises them all so quickly. He's not familiar with Hayek, nor Kirzner clearly.
I've seen two productions of 'The Cherry Orchard' recently. A joint review is up at our sister site, here.
I was in a bar in Elounda, Crete, that was evidently geared towards Brit's abroad. Aside from the free shots (seriously, what's with downing a shot within a half pint of lager? who thought that would ever be a good idea?), the decor was comprised of Premier League jerseys. I was glad to see an Everton one (albeit next to the gents), but couldn't make out the signature. It has the number "11" underneath, and is one of the Keijan kits from 2002/03 (the one on the left here). So I figure it must be Mark Pembridge, but there's no way that this is what the autograph says. The others shirts seemed to be signed by players, so it's a mystery. Any thoughts?
Update: 2 different people have suggested James McFadden, and comparing his autograph it looks like a match. My only question - why did he sign a shirt from the year before he joined us?
I've just returned from a week in Greece, and took the chance to read some fiction (or, at least, a break from economics). Here's what I enjoyed:
P.S. Photos are up on my flickr site if anyone's interested. I recommend Crete strongly.
A nice overview of Cultural Theory (based on Matthew Taylor) is available here.
I was at the LSE's impressive "New Academic Building" last night for Dani Rodrik's talk, Capitalism 3.0. I got there 10 minutes early but had one of the last available seats, with many people being forced to watch via a live video feed from the room next door. It was an impressive and justified turnout.
Whilst waiting for it to begin I reflected on the title. I was surprised (and disappointed) that Rodrik would go for such a gimmick, but the more I thought about it the less grating I found it. Web 2.0 wasn't so much about a concerted effort to redefine and remodel global computing, but a label applied to the spontanous order that had emerged out of the previous system. Indeed as with most "revolutions" it's hard to establish a distinctive discontinuity, showing that we live in a world of marginal change. If Rodrik's talk was simply an attempt to label and focus attention (i.e. create communities of shared understanding) on the ways int which the global economic system will evolve following the financial crisis, fine.
So it was amusing when the first thing Rodrik did was apologise for his "too cute by half" title, which (somewhat facetiously) he likened to something Tom Friedman would come up with. But what grated the most was not the choice of title, but the underlying objective. This wasn't about interpretation and judgment, it was a positive program for global statesmanship. This was the talk of an architect.
If anyone can justify reflecting deeply and widely about global capitalism, it's Rodrik. He is a notorious heretic of globalisation and the development community. He is one of the few leading academics to simulatanously oppose the "one size fits all" Washington consensus (see Anne Kruegar), and the "spend it and they will come" approach to large scale aid-sponsored infrastructure (see Jeff Sachs). My problem with Rodrik is that the self-styled "Mr Institutionist", or "Mr Context" is less of a maverick than he thinks. At the end of the day he's a tenured Professor at Harvard, indellibly committed to mainstream methodological devices (even his analytic narratives, for example, are more straightforward case studies than what Bates et al propose), and sits at the top table of public debate. I'm sorry, but Rodrik is an "establishment" economist. I was bouyed by his recent engagement with Pete Leeson over anarchy (albeit - as I mentioned here - I feel he made more concessions than he realised) but Rodrik seems acutely unaware that he's not the only academic economist that opposes both the Washington consensus, and exporting socialism. what would it take to avtively engage with Rodrik, and for him to make a charitable reading of the work of the Global Prosperity Initiative at the Mercatus Center? For example:
There are sophisticated works by economists that treat institutions and ideas seriously. The policy conclusions and general libertarian outlooks of the authors should not preclude engagement. Indeed a recurring theme of Rodrik's talk was that libertarianism was self-evidently not a serious option. His argument would be stronger if he engaged in making that argument.
Back to the title, and my other frustration was Rodrik's premise that capitalism is malleable and evolves over time. I'm not sure this is helpful. The economic system that we experience is malleable, and evolves over time, for sure. Our understanding of capitalism, might well be likewise. But "capitalism" itself? Can we not give it a non-arbitrary definition? Surely the only way we can study evolving processes is by defining terms so that they act as stable reference points. This might be a minor point, but I don't think there is a fundamental conflict between "American capitalism" and "Chinese capitalism" because neither truly are capitalism, because "capitalism" is a thought experiment.
The talk of Capitalism 3.0 suggests there's been previous "versions", and indeed Rodrik traces a familiar story:
[Aside: the audience seemed to lap up Rodrik's comment that the current financial crises shows that markets aren't self-regulating. Whilst student Fabians might buy this, we as economists have a responsibility to be a little more honest. In the US and the UK we have a monopoly issuer of base money, and it is a nationalised institution. The financial system is built around a central planning board. It is no where close to being a free market. This seems such an obvious and basic point but we need to repeat it over and over again]
Rodrik argued that this has resulted in a fundamental imbalance between the reach of markets (a global system of Capitalism 1.0) and the the scope of governance (numerous local systems of Capitalism 2.0). He pointed out two "neoliberal" blindspots: (1) the belief that where markets go institutions will automatically follow; (2) integration has benign effects on domestic institutions; arguing that they lead to the following:
Indeed his explanation for the financial crisis is the combination of the above.
But wait a minute. I think there's two major flaws with this. The first is that he's taken for granted that the previous systems have failed. He's essentially saying that what the First World War did to Capitalism 1.0, the 2008 financial crisis did to Capitalism 2.0. It's not stretching the point too much to say that his implication is once again we're back where we started. But we're not. Living standards are immeasurably higher now than prior to either Capitalism 1.0 or 2.0. We have seen real increases in wealth that will not all be swept away during this recession. Interestingly in the Q&A session Danny Quah stated that US real median incomes have fallen over the last few decades. I just find this factually inaccurate.
Secondly, Rodrik spent a lot of time explaining why Capitalism 2.0 was inherently flawed (I was impressed by his acknowledgment that a global government is (i) simply not going to happen since countries won't relinquish sovereignty; and (ii) undesireable since it ignores the richness of institutional diversity at national levels), but he took for granted that the laissez faire model of Capitalism 1.0 was suboptimal. The only attention he gave to this was not so much that libertarianism is inefficient, but that it's unethical. His example was the "difficulty" in deciding on labour standards between countries at different stages of development. He mentioned jobs that "last 12 hours a day" or "take place in hazardous conditions" and questioned whether trading rules should prevent companies from getting around domestic labour laws through outsourcing. However there is a legal distinction between importing a good from a supplier and manufacturing it itself (to be fair to Rodrik maybe he said "outsourcing" when he meant "offshoring"), and there is a non-arbitrary way to "solve" this "problem" - allow people to form voluntary contracts. He said that "although libertarians wouldn't see a problem with allowing domestic companies to participate in such labour practices, the rest of us would legitimately have a problem" (or words to that effect). Really? You don't think people should be allowed to work 12 hour shifts or in hazardous conditions? It's a sign of how rare it is to consider libertarian objections that his examples were so weak.
Another dilemma that he posed was the impact on trade agreements if the EU citizenry were allowed to adopt tougher environmental standards than the rest of the world. And in this example I think his whole framework falls apart. Should the EU citizenry be allowed to choose tougher environmental standards? This is the importance of methodological individualism and Public Choice analysis. It's at best a naive view of politics that equates national policy with the will of the governed. Later on in his talk he attempted to deal with the special cases of "non-democratic" countries, and acknowledged that special rules would have to apply for countries where the population don't give their consent to be governed. But it's one thing to say that a refusal to emigrate is tacit commitment to a national institution, and quite another to take for granted that the outcome of a democratic process is less arbitrary and more consensual than non-democratic regimes. Rodrik short changed the libertarian position because he was operating from a model of benevolent governance and enlightened constructivism. When push comes to shove he's almost as bad as Joe Stigliitz, "halfway there". Yeah Dani, all attempts at intergovernmental statecraft have failed, but if only *you* were in charge it would work.
So, having explained and destroyed 1.0 and 2.0, he outlined a vision for the future (note: not a projection of what might occur, but an opinion about what should happen)
Ultimately Rodrik wants to aim for the maximum "thickness"/depth of exchange between "like minded" nations, consistent with maintaining space for national diversity (and "traffic rules" to manage the interface between "thin"/shallow exchange. Again, I'm reminded of Chandran Kukathas' work and the image of a liberal archipelago. My estimate would be a large system of culturally and socially embedded countries enjoying the fruits of an international division of labour (i.e. globalisation), with a large population suffering from either: domestic government failure (that fails to protect rights and uphold the rule of law); and international government failure (that fails to include them in the process of globalisation).
Rodrik believes - somewhat naively - in the power and efficacy of deliberative policy formation. I probably underestimate the degree to which policy reform can and does occur with widescale public participation. Like Rodrik I believe in the power of ideas to overcome vested interests, and the role of public debate to improve economic policy. Whilst the audience seemed deeply hostile to the point, Rodrik elegantly and forcefully argued that interest explanations are incomplete, and even though we don't know the scale, there must be scope for ideas. As he said to finish:
I'm developing a section of my Macro lectures called "digging deeper", which is providing evidence that we need to look beyond broad and aggregate indicators to really understand economic development. For example, people and business aren't uniformly affected by a recession. If incomes fall by, say, 5%, it encourages us to believe that everyone is 5% poorer. On the contrary, during the recession in the early 1990s a majority of people ended up better off. Similarly, we tend to look at the rate of bankruptcies and imagine that all companies are equally affected. But note the empirical and theoretical side of this. Firstly, all companies are not equally affected. Many famous companies were founded during a recession, being able to exploit falling asset prices and a rising pool of labour. But this is the whole point of economic interaction - prices generate a profit and loss system and it's the recessions where farsight and entrepreneurial alertness is rewarded. For the past decade successful entrepreneurs have been competing with "lucky" ones (i.e. businesses that were only able to cover the cost of capital due to either artificailly low interest rates, or artificially high asset prices) - now is the time that those who planned ahead can reap the rewards. The companies that were planning for a recession and changing their prodcut line accordingly get to not only steal a lead on less effective rivals, but buy them up at low prices when they fail. An article in the Financial Times reports a survey showing just hpw many companies are "in the mood to expand". Of the 300 companies surveyed in December 2008-February 2009 (i.e. before any signs of "green shoots":
As Rob Donaldson says,
This in itself is uninteresting. If a 5 year fixed rate mortgage is about 5%, then a 0.86% rise would have a minimal impact. Compare with The Times:
Nationwide Building Society, Britain's third biggest lender, was putting up rates by up to 0.86 percentage points today, the biggest hike in mortgage rates for months. A five-year fix has jumped from 4.78 per cent to 5.64 per cent
At least now I have a decent example for when I point out the difference between "percent" and "percentage points" in class. The Guardian article goes on to say:
In this case I'm being more than pedantic, but I read it as confusing two things. It is correct to say that "when the price of gilts falls, their yield... goes up", but the yield isn't "the interest rate the government must pay to borrow". The yield is the return the purchaser of the gilt receives. The "interest rate the government must pay" is the coupon, which is fixed. The article is correct to say that falling gilt prices means that governments borrowing costs rise, but only because they have to offer a higher coupon.
Paul Krugman's given an interesting interview with Will Hutton in The Observer (edited only slightly):
WH: So, the United Kingdom might actually get through this in reasonably good shape?
So just to be clear - Krugman's arguing that Obama should spend more, whilst pointing to the UK (a country he acknowledges has utilised monetary policy far more than fiscal policy) as leading the upturn? Also, just to be clear, I don't think anyone argues that quantitative easing can boost measured output in the short term. The real issue (the "exit strategy") is:
For me the key point he makes is that:
In ten, twenty years time how will what we teach as basic macroeconomics change? I think two things should, and will, happen:
According to Ian Williams, (City Financial Strategic Gilt Fund):
Ben Bernanke feels able to declare that:
In the Evening Standard, Anthony Hilton writes:
The decision by the Bank to launch it with a major purchase of Government securities, rather than buying bank loan books or corporate bonds, sent the price of gilts soaring and dropped the long-term rate of return from 1.4% to little more than 1% - a shift that has potentially disastrous implications across the financial sector.
This is because the price of long-term Government securities is the benchmark for the long-term real rate of return in the economy, and as such it is the measure that governs the valuation of pension-fund deficits and the liabilities against which insurance companies have to hold matching assets.
Roughly speaking, the drop in the long-term real return last week was one third, which adds one third to all liabilities across the financial system that use it as a benchmark.
It therefore puts huge additional pressure on companies with defined-benefit pension funds to pump in additional assets to top up the funds.
Paradoxically, given the purpose of the policy, it could even make it harder for banks to lend.
And with all this talk of "exit strategy" a note of caution:
So here's the problem with gilts - the emergence of the Bank of England as a big buyer has pushed up prices, but their reason for doing so is to get money flowing. If this works it'll be inflationary, and erode the value of (non-index linked) gilts (around 75% of the market). The two arms of government are moving in opposite directions.
A couple of objections:
Finally, I saw in the Guardian on (June 11th) that:
According to the FT they were at 4.12% 1 month ago. What am I missing?
Update: Reading back through my post I realised it might be construed that I was claiming the "naive thoughts on UK gilts" were Chris'. To clarify, these are my naive thoughts - Chris is as far from naive as I can imagine!
Update II: Chris proves me right, with a considered response to Guido here
Fascinating article in Wired about Doug Jackson (via Tyler Cowen):
The story of the first digital currency backed entirely by gold and silver began in 1995, while Jackson was still treating cancer patients. A longtime student of economic history, Jackson was convinced that gold was a superior currency to paper money, despite the consensus among professional economists that a gold-standard prevented governments from responding quickly to monetary crises; when an economy faltered, treasuries couldn’t easily manufacture gold bars to stimulate it.
The United States dropped its reliance on gold in 1971, but Jackson doubted the wisdom of this move. “Many a paper currency has spun out of orbit in a calamitous trajectory,” he once wrote. “There has never been an instance of gold or silver being discarded as worthless.”
I went to the 18th Annual Hayek Lecture in Westminster last night, held by the Institute of Economic Affair. Imagine sitting down with someone from the World Bank, or Department for International Development and asking them what kind of education system they would like to see in the poorest parts of the world. The straw man expectation is that they'd outline a "vision" for universal coverage of primary education, somewhat detached from the on-the-ground reality. You'd ask how many children currently received primary education, but would they know the answer? James Tooley's work (previously mentioned) starts off by recognising that the claim that children are already in affordable primary education is met by two major doubts:
The research of Tooley and his team at the EG West Center have systematically provided the evidence to suggest that a majority of slum children are likely to be in private education (with more of them in unregistered private schools than government ones), and that their test scores are higher than state-educated kids (even when contorlled for income). The unintended consequences of the best intentions of "development" agencies are that by encouraging students to move from private to state schools enrollment rates fall, and those who remain in school do worse. It's not hard for an economist to see why students do better when parents have school choice, but the great contribution of Tooley is to move debate away from ideological conviction towards the empirical reality. Regardless of what we dream up in London, the only reason these children are receiving an education is due to the entrepreneurial endeavours of for-profit schools. It costs us nothing other than our political pressure to stop these schools being shut down. And - to push this point even further - the only reason you could object to the flourishing of private education is because you think poor people are stupid. They're not.
Here's a CATO interview with Tooley. Buy his book. Talk to people about this. This is a triumph of markets and a triumph of ideas on a large scale. But it could be even bigger.
Recent Comments