I’m still redrafting the opening section of my book, on the concept of opportunity cost. Some applications to specific problems coming soon, I promise. In the meantime, comments and criticism, including editorial corrections and nitpicks, much appreciated.
I’m still redrafting the opening section of my book, on the concept of opportunity cost. Some applications to specific problems coming soon, I promise. In the meantime, comments and criticism, including editorial corrections and nitpicks, much appreciated.
As part of the research for Economics in Two Lessons, I’m looking in to the history of some of the ideas I’m talking about, including Pareto optimality, externalities and of course opportunity cost. I’m undecided as to whether I’ll include this material, perhaps as starred (skip if you feel like it) sections, or in an Appendix. Suggestions on this point are welcome.
My research on the intellectual history of opportunity cost has so far gone no further than Wikipedia, which attributes the term to Friedrich von Wieser, an Austrian economist in both the national (he was Minister for Finance there in 1917) and theoretical senses. Turning to the article on von Wieser, I was surprised to read that he put forward an argument very similar to mine regarding the relationship between opportunity cost and the distribution of wealth
Instead of the things that would be more useful, there are things that pay better. The greater the difference in wealth, the more striking are the anomalies of production. The economy provides luxury to the capricious and greedy, while it is deaf to the needs of the miserable and poor. It is therefore the distribution of wealth that decides what will be produced, and leads to a consumer of a more anti-economic variety: a consumer wastes on unnecessary, guilty enjoyment that which could have served to heal the wounds of poverty. —Friedrich von Wieser, Der Wert Natürliche (The Natural Value), 1914.
It turns out, even more surprisingly to me, that von Wieser was linked to a Viennese group of Fabians.
I’m still trying to digest this, and work out where to go next with it. Can anyone point to useful information about von Wieser?
Over the page, the draft preface for my book-in-progress, Economics in Two Lessons
I got some great comments first time round, but I can see it would be easier if I presented my drafts in a more orderly fashion, though not necessarily sequential. So, I’ll begin at the beginning. Comments, both critical and favorable, much appreciated.
After a couple of preliminary posts, here goes with my first draft excerpt from my planned book on Economics in Two Lessons. They won’t be in any particular order, just tossed up for comment when I think I have something that might interest readers here. I’ll update as I go, in response to comments and criticism; this may create some difficulties reading the comments thread, but hopefully the improvement in the final product will be worth it.
To remind you, the core idea of the book is that of discussing all of economic policy in terms of “opportunity cost”. My first snippet is about
The situation where there is no way to make some people better off without making anyone worse off is often referred to as “Pareto optimal” after the Italian economist and political theorist Vilfredo Pareto, who developed the underlying concept. “Pareto optimal” is arguably, the most misleading term in economics (and there are plenty of contenders). Before explaining this, it’s important to understand Pareto’s broader body of thought, one which led him in the end to embrace fascism.
Pareto and the libertarian path to dictatorship
Pareto sought to undermine the version of liberalism that dominated 19th century economics, according to which the optimal (most desirable) economic outcome was the one that contributed most to human happiness, often (if somewhat loosely) summed up as ‘the greatest good of the greatest number’. Particularly as developed by the great philosopher and economist John Stuart Mill, this is a naturally egalitarian doctrine.
The egalitarian implications of the classical framework reflect the fact that the needs of poor people are more urgent than those of the better off. So, the happiness of the community as a whole all be increased by policies that benefit the poorest members of the community, even if these benefits come at the expense of those who are better off. It follows that a substantial degree of income redistribution will be social desirable and that large accumulations of individual wealth, which contribute only marginally to the happiness of a small number of people are undesirable in themselves, though they may in some circumstances be a by-product of desirable policies.
Pareto’s big achievement, further developed by a large number 20th century economists, was to show that much of economic analysis could be undertaken without invoking the concept of utility. Hence, interpersonal comparisons of happiness, which invariably lead to the conclusion that redistributing wealth more equally is beneficial, could be dismissed as ‘unscientific’.
Pareto didn’t stop with an attack on the economic implications of Mill’s approach. Mill’s philosophical framework implied support for political democracy, including the enfranchisement of women. Since everyone’s welfare counts equally in the classical calculus, the political process should, as far as possible, give everyone equal weight.
Pareto reversed this reasoning, arguing that a highly unequal distribution of income was both inevitable and desirable; he proposed what he called a power law, described by a statistical distribution which also bears his name. Pareto’s “Law” may be summed up the 80-20 proposition, that 20 per cent of the population have 80 per cent of the wealth.
The supposed constancy of income distribution implies that any attempt at redistribution must be essentially futile. Even the aim is to benefit the poor at the expense of the rich, the effect will simply be to make some people newly rich at the expense of those who are currently rich. Pareto called this process ‘the circulation of elites’. (In his dystopian classic 1984, Orwell has the Trotsky-like character Emmanuel Goldstein present the same idea as the starting point of The Theory of Oligarchical Collectivism. Orwell almost certainly derived the idea from James Burnham, an admirer of Pareto whose work Orwell saw as the embodiment of ‘power worship))
All of this led Pareto to become one of the first advocates of a political position combining an extreme free-market position on economic issues with hostility to political liberalism and democracy. Pareto welcomed the rise of Mussolini’s fascist regime, and accepted and accepted a “royal” nomination to the Italian senate from Mussolini. However, he died in 1923, less than a year after
Pareto was not really a fascist however. Rather, he developed a version of liberalism similar to that of his more famous successors, Hayek and Mises, both of whom embraced and worked for murderous regimes that had come to power by suppressing democratic socialist parties. Like Pareto, neither Hayek nor Mises can properly be described as fascists – they weren’t interested in nationalism or in the display of power for its own sake. Rather, their brand of liberalism was hostile to democracy and indifferent to political liberty, making them natural allies of any authoritarian regime which adheres to free market orthodoxy in economics. (Fn Supporters of Hayek and Mises commonly describe themselves as “libertarians”, but their alliance with brutal dictators makes a travesty of the term – they have been derisively described as “shmibertarian”).
Now back to “Pareto optimality”, and why it is such a misleading term. Describing a situation as “optimal” implies that it is the unique best outcome. As we shall see this is not the case. Pareto, and followers like Hazlitt, seek to claim unique social desirability for market outcomes by definition rather than demonstration.
If that were true, then only the market outcome associated with the existing distribution of property rights would be Pareto optimal. Hazlitt, like many subsequent free market advocates, implicitly assumes that this is the case. In reality, though there are infinitely many possible allocations of property rights, and infinitely many allocations of goods and services that meet the definition of “Pareto optimality”. A highly egalitarian allocation can be Pareto optimal. So can any allocation where one person has all the wealth and everyone else is reduced to a bare subsistence.
Recognising the inappropriateness of describing radically unfair allocations as “optimal”, some economists have used the description “Pareto efficient” instead, but this is not much better. It corresponds neither to the ordinary meaning of “efficient” nor to the meaning with which the term is commonly used in economics, which is also misleading, but in a different way.
The concept of opportunity cost gives us a better way to think about the possibility of making some people better off while no one is worse off. If such possibilities exist, then there are potential benefits that have no opportunity costs. Conversely, if there is a positive opportunity cost for any benefit, then we can’t make anyone better off without making someone else worse off. So, a “Pareto optimal” situation may be described, more simply as one where all opportunity costs are positive.
Working on my Economics in Two Lessons book, I’ve had to address the concept of Pareto optimality, which naturally raises the question of how it fits into Pareto’s larger body of anti-democratic and anti-egalitarian thought, which culminated, at the end of his life, in his embrace of Mussolini’s fascism. This led me to an article (paywalled, sorry) published by Renato Cirillo, in 1983, defending Pareto against the charge of being a precursor of fascism. Cirillo asserts that, far from being a fascist, Pareto
“manifested consistently a strong attachment to a type of liberalism not dissimilar to the one later attributed to Mises and Hayek”
These are rather unfortunate examples, in view Mises writings in praise of fascism and work for the Dollfuss regime, and (even more), Hayek’s embrace of Pinochet, at the very time Cirillo was writing [^1].
This, along with my discovery that Locke was actively involved in the expropriation of the native American population, justified by his theory of property, led me (back) to the question of the relationship between the writings of political theorists (broadly defined to include economists, sociologists and philosophers engaged with these issues) and their personal political activity and commitments. I’ve come to two conclusions about this.
First, for serious writers on political theory, political engagement is and ought to be the rule rather than the exception. I don’t mean that philosophers should (necessarily) run for office. Rather someone whose political theory doesn’t lead them to have and express views on the great political issues of their day probably doesn’t much of interest to say about theory either (unless of course, their theory leads them to some form of quietism). That’s true of the writers whose commitments were creditable (for example, John Stuart Mill and Bertrand Russell) as well as the discreditable cases I’ve mentioned.
Second, it makes no sense to look at the theoretical writings and ignore the political commitments with which they are associated. For example, it is easy to construct readings of Pareto, Mises and Hayek in ways that make them appear either as friends or as enemies of political liberalism. Their (remarkably similar) actions make it clear which reading is correct. Eventually, of course, ideas outgrow their creators to the point where original intentions, and the texts in which they were expressed, cease to be relevant. But, as the Locke example shows, that’s a very slow process. As long as a writer is regarded as having any personal authority, the weight of that auhtority must be assessed in the light of their actions as well as their words.
[^1]: To be sure, none of these writers can properly be described as fascists – they aren’t interested in nationalism or in the display of power for its own sake. Rather, their brand of liberalism is hostile to democracy and indifferent to political liberty, making them natural allies of any fascist regime which adheres to free market orthodoxy in economics.
I’ve been promising for a long time to write a new book, framed as a reply to a free-market tract Economics in One Lesson by Henry Hazlitt, published in 1946, but still in print and popular among free market advocates. Its popularity reflects the fact that it’s a reworking of Bastiat’s “What is Seen and What is Not Seen”, still one of the best statements of the case for free markets.
Bastiat’s argument is implicitly based on the concept of opportunity cost but, since the term wasn’t coined until 1914, he doesn’t use it. Neither, more surprisingly, does Hazlitt. Once this is made explicit, Hazlitt’s rather ponderous, and misleading statement of his “One Lesson”
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
can be boiled down to the much simpler statement “Market prices reflect opportunity cost”. In important respects, this is true, particularly when we consider the problem from the perspective of choices about how to allocate an individual, family or government budget. With fixed aggregate levels of public expenditure, for example, more money for the military means less for schools, and vice versa.
There are plenty of other questions about private and public decisions for which Hazlitt’s One Lesson is useful. Another example is the well-supported finding that the best way to fight poverty is to give money to poor people. This is unsurprising given that poor people themselves will usually have a much better idea of the opportunity costs they face than will those seeking to help them.
But as a general statement, Hazlitt’s One Lesson is false, which is why my working title is Economics in Two Lessons”. Lesson Two is “Market prices do not reflect all the opportunity costs we face as a society”
The latest controversy in the US about Rick Perlstein’s new book is an opportunity to post a couple of thoughts I’ve had for a long while.
First, the outsize Republican idolatry of Reagan is explained in part by the fact that there’s no one else in their history of whom they can really approve. The Bushes are a bad memory for most, Ford was a non-entity and Nixon was Nixon. Eisenhower looks pretty good on most historical rankings, but he’s anathema to movement conservatives: Eisenhower Republicans were what are now called RINOs. Going back a century, and skipping some failures/nonentities, Theodore Roosevelt is problematic for related but different reasons. Going right back to the beginning,and skipping more nonentities and disappointments, some Repubs still try to claim the mantle of the “party of Lincoln” but that doesn’t pass the laugh test. As many others have observed, the “party of Jefferson Davis” is closer to the mark. So, they have little choice but to present Reagan as the savior of the nation.
Something of the opposite problem is found on the left. I haven’t read Perlstein yet, but a lot of the discussion is based on an implicit or explicit assumption that the shift to the right in the US since the 1970s can be explained by the successful organizing efforts of movement conservatism, culminating in Reagan’s 1980 election victory. That’s an explanation with a lot of contingency attached. Suppose, for example, that the attempted rescue of the Iranian embassy hostages in April 1980 had been a success. That, along with some fortuitous good economic news, might have been enough to propel Carter to victory. By 1984, Reagan would have been too old to run as a challenger, and Bush senior would probably have been nominated.
I don’t think, however, that this would have had a huge effect on economic-political developments in the US. Other English-speaking countries, with very different political histories followed much the same route, ending up, by the late 1990s, with a hard-line rightwing conservative party driving policy debate and a “Third Way” centre-left alternative trying to smooth off some of the rough edges. The election of Carter, a conservative by the standards of the times, was a step towards that outcome.
I don’t want to overstate the determinism here. Individuals matter, and national circumstances differ. Still, I think we are talking about variations on a common theme, driven by global economic events, rather than a US-specific story beginning with Reagan’s 1964 address in support of Goldwater.
Among the zombie ideas refuted in my book, Zombie Economics, “trickle down” economics is the one that dare not speak its name. Even those who believe, or are paid to say, that favored treatment for the rich will benefit the poor mostly avoid the term “trickle down”, preferring bromides like “a rising tide lift all boats”.
But that didn’t deter Ian Young, Vice-Chancellor of ANU and head of the Group of 8 Universities (basically, those established first, which have, as elsewhere in the world, gained a permanent high-status position as a result). As I predicted not long ago, he wants to raise fees and reduce the number of students at elite universities, including ANU, allowing them to offer a more personalised education.
Young’s argument is that students excluded from the Go8 will “trickle down” to lower-status universities, giving them a chance to both increase numbers and raise standards. But this suggestion doesn’t stand up to the most cursory examination. Both logic and historical evidence suggests that all or most universities will follow the lead of the Go8. In both the UK and Australia, whenever universities have been given option to increase fees or hold them steady, nearly all have gone for the maximum increase.
Think about this from the position of a university in the tiers immediately below the Go8 in the prestige hierarchy, the 1970-vintage unis like Griffith and Macquarie, and the Universities of Technology. Both groups can fill all the places they have, and both, like all Australian universities are straining at the seams in terms of both physical space and overloaded staff. They could not possibly take in more students with their current finances. It makes perfect sense for them to do the same as the Go8, raise fees a lot, and pass on some of the benefits in the form of smaller classes.
There’s a cumulative effect here. Suppose the Go8 institutions reduce their student intakes by 30 per cent. A few of those will give up on uni altogether, deterred by higher fees, but most will try a second-tier uni, displacing other students who would otherwise have been accepted. On top of that, there will be less places in those uni, say another 30 per cent. So, something like 60 per cent of the students formerly admitted to these unis will be excluded.
At the bottom of the status scale, the hard-pressed regional universities and former CAEs probably won’t be able to raise their fees as much as the Go8. But they will still be in a position to raise fees and entry standards at the same time, and, if they choose, to reduce their numbers as well. This isn’t so much trickle down as a cascade effect.
Of course, if you believe the increasingly silly Business Council of Australia, this is all to the good. Its head, Catherine Livingstone (BA, Macquarie) thinks we need less university students. Her members clearly don’t agree, judging by their hiring patterns. The unemployment rate for university graduates is estimated at 3.3 per cent, about half that for non-graduates. Wages and participation rates are also higher.
The Oz (no link) is touting a campaign by Andrew Forrest to introduce an Australian version of the US “food stamps” system, replacing cash payments with a card that can only be used to buy an approved list of items. This is yet another step in the abandonment of economic rationalism by the political right. I’d be surprised if Forrest could get the support of any economist for this (though the recent performances of the IPA crew give me some pause). Free market advocates, following Milton Friedman, have long sought the replacement of in-kind benefits with cash. To those on the left, even where enthusiasm for markets is more qualified, the conclusion is reinforced by the obvious class warfare involved here. At best, someone like Forrest can be seen as a paternalist, hoping to protect the poor from themselves. But it’s obvious that the Murdoch press, and its target audience, want to punish the poor, not protect them.
As it happens, my slowly-progressing book has a section on just this issue, presenting the standard arguments of Friedman and others as part of the case for why markets work so well (when they do)
Apparently, despite all the past experience, lots of people were shocked by the latest developments in Game of Thrones. Still, not everyone is willing to wade through 700-page volumes just to avoid being surprised by a wedding episode on their favorite show. So, as a public service, I’ve listed, over the fold, all the important and exciting developments in Volumes 4 and 5.
I got a review copy of this book by Alice Goffman a while back, and have been meaning to review it, but the multiple demands for Piketty reviews, responses, rejoinders to rightwing critics etc make it highly unlikely that I’ll get to it. So, I’ll just say that it gives some amazing insights into the way the War on Drugs is fought on the streets of US inner cities.
I’ll be talking on this topic at a hastily-organized workshop at ANU tomorrow. Details here
It is surely not without just reproach, that a nation, of which the commerce is hourly extending, and the wealth encreasing, denies any participation of its prosperity to its literary societies; and while its merchants or its nobles are raising palaces, suffers its universities to moulder into dust.
A JOURNEY TO THE WESTERN ISLANDS OF SCOTLAND by Samuel Johnson
In my book, Zombie Economics, I started the account of macroeconomics with the observation
Macroeconomics began with Keynes. Before Keynes wrote The General Theory of Employment, Interest, and Money, economic theory consisted almost entirely of what is now called microeconomics. The difference between the two is commonly put by saying that microeconomics is concerned with individual markets and macroeconomics with the economy as a whole, but that formulation implicitly assumes a view of the world that is at least partly Keynesian.
Long before Keynes, neoclassical economists had both a theory of how prices are determined in individual markets so as to match supply and demand (“partial equilibrium theory”) and a theory of how all the prices in the economy are jointly determined to produce a “general equilibrium” in which there are no unsold goods or unemployed workers.
I went on to observe how the pre-Keynesian approach had been revived by the “New Classical” school, and how the apparent convergence with “New Keynesian” economics had been shown to be illusory after the failure of Dynamic Stochastic General Equilibrium models to deal with the 2008 financial crisis and the subsquent, still continuing, depression.
With all of this, though, I still never thought of academic macro, in either saltwater or freshwater form, as being a simple reversion to the pre-Keynesian notion of general equilibrium, with no concern about aggregate demand or unemployment, even in the short run. It turns out that, at least for a large segment of the profession, this is quite wrong. I’ve just received a book entitled Big ideas in Macroeconomics: A nontechnical view by Kartik Athreya, an economist at the Richmond Federal Reserve who made a splash a few years back with a piece entitled Economics is Hard. Don’t Let Bloggers Tell You Otherwise, which, unsurprisingly, did not endear him to bloggers. As a critic of mainstream macro, I’m briefly mentioned, and I just got a review copy.
The new book is an attempt to simplify things, and indeed it has proved enlightening to me and also to Herb Gintis who contributes a blurb on the back, commending it as an accessible and accurate description of the dominant way of thinking about macroeconomics.
The easiest way to see why the book is so striking is to list some topics that do not appear in the index (and are not discussed, or only mentioned in passing, in the text). These include: unemployment, inflation, recession, depression, business cycle, Phillips curve, NAIRU, Taylor Rule, money, monetary policy and fiscal policy.
I’m currently reading Scarcity by by Sendhil Mullainathan and Eldar Shafir. At this stage, I’m inclined to sympathise with the unnamed colleague who commented “There’s already a science of scarcity. It’s called economics”. So far, it’s mostly straightforward applications of the observation that time and attention are scarce resources, combined with some fairly familiar observations from behavioral econ on how people fail to optimise either the first-order problems of allocating a tight budget or the second order problem of allocating time and attention to the first-order problem (my terms here, not theirs). However, I’m only part way through, and the authors promise to show how their approach differs from the way in which economists would normally think about this kind of problem.
This post is about a specific and well known observation cited by Mullainathan and Shafir. Faced with paying $100 for an item that could be had elsewhere for $50, most people are willing to put in a fair bit of effort (say, driving for an hour) to get the lower price.[^1] On the other hand if the item costs $1050 and could be had for $1000, people with reasonably high incomes mostly pay up, instead of driving to the other store. This is obviously inconsistent with standard opportunity cost.
Since it appears that the Abbott government intends to restart the History Wars, I thought I would point out that the leading warrior on Abbott’s side of the debate has now been AWOL for more than ten years. Nothing much has changed recently, so I’ll just repost (most of) my remarks from my last post on this topic, in April.
Long-term followers of this dispute will recall that, back in 2002, Windschuttle made quite a splash with The Fabrication of Aboriginal History, Volume One, Van Diemen’s Land, 1803-1847, which attempted a revisionist account of the tragic history of the Tasmanian Aborigines. He didn’t achieve much except to point out some sloppy footnoting in a fairly obscure recent history. The main interest in the book was as an appetiser for the succeeding volumes, on Queensland and Western Australia, promised to appear on an annual schedule. Here, Windschuttle promised to refute the work of Henry Reynolds and others, who painted the frontier as a scene of prolonged violent warfare between the indigenous inhabitants and the white settlers who sought, successfully in the end, to displace and subdue them.
Year followed year, and promise followed promise, but Volumes 2 and 3 didn’t appear. Finally, in 2009, Volume 3 was published. Not only was there no Volume 2, but the new Volume 3 bore no resemblance to the book originally promised for 2004. Instead, it was a critique of the Stolen Generations report and the film Rabbit Proof Fence. Windschuttle said that this volume had been published “out of order”, and that the missing volumes 2 and 4 would appear “later”.
Even by Windschuttle’s standards, this is bizarre. The Stolen Generations debate refers almost entirely to the 20th century, so this volume, on his reasoning ought to come after the others, and be numbered as Volume 4.
It’s silly enough to see self-satisfied climate “sceptics” who can’t even calculate a standard error, but have convinced themselves they are smarter than professional scientists. But surely even the editor of a literary magazine ought to be able to count to three.
Of course, Windschuttle’s problems with the integers are trivial. His real offence was to attack scholars like Henry Reynolds on the basis of promised evidence he has been unable to deliver. It’s more than a decade since Windschuttle started this stuff and, to the best of my knowledge, he hasn’t published anything since then showing a single error in Reynolds’ work on the Queensland frontier, or that of the other historians he accused of fabrication. His “Sydney Line” website hasn’t been updated for years. If he has produced anything more substantial than opinion pieces, since the forgettable Volume 3, I haven’t been able to find it.
It’s pretty clear who is spinning the fabrications here. In the language of the tech sector, Windschuttle is a seller of vaporware.
fn1. The Tasmanian history Windschuttle wants to deny wasn’t invented by leftwing historians in the 1970s. It was the standard account in the very conservative version of history I was taught in primary school, based on the tragic and undeniable fact that a people who had lived in a harsh environment for thousands of years were wiped out almost completely in a couple of generations by a combination of disease, conflict and starvation.
I’ll be at Brisbane’s Avid Reader bookshop this evening, helping at the launch of Pushing our luck: ideas for Australian progress, a new book of essays from the Centre for Policy Development. We’ve got a few years to reflect on policy ideas now, so this is a good time to get started.
While I’m at it, I’m going to mention a bunch of books I’ve read, and intended to write about, but haven’t had time
Earthmasters: Playing God with the Climate by Clive Hamilton, is about geo-engineering, often presented as the backstop alternative to reducing greenhouse gas emissions. As the title indicates, this book is an argument that reliance on geo-engineering is a recipe for disaster. I agree, though I think it’s clear that sometime this century we are going to have to find a way to achieve, in effect, negative emissions, that is a situation where human and natural processes take more CO2 and methane out of the atmosphere than they put into it. That’s not exactly geoengineering, but it is a conscious intervention to change the atmosphere, or at least return it to an earlier state
Battlers and Billionaires: The Story of Inequality in Australia by Andrew Leigh, economist and MP. A great book on the looming end of the “fair go” in Australia. I’d put more emphasis on the role of policy and less on technology than Andrew does, but that puts me in a minority among economists.
The Infinite Resource by Ramez Naam. This is the book that Bjorn Lomborg ought to have written, instead of the silly and deceptive “Sceptical Environmentalist”. Naam doesn’t pretend that the risk of environmental catastrophe is spurious or that markets will fix the problem by themselves, but nonetheless has an optimistic take on the scope for innovation to allow the human race to not only survive but thrive.
Occupy the Future a volume of short essays arising from the Occupy movement. Lots of useful resources here
Masters of the Universe:Hayek, Friedman, and the Birth of Neoliberal Politics by Daniel Stedman Jones. Not a new topic, but a lot of new information and analysis – well worth reading.
The New American Economy:The Failure of Reaganomics and a New Way Forward From 2009, interesting in itself and because Bartlett is one of the most notable examples of the intellectual trend of conversion from right to left, evident since the late 1990s, and reversing the pattern of earlier decades.
Merchants of Doubt by Naomi Oreskes and Erik Conway Another older book, but indispensable now that the merchants of doubt and delusion have gained political power here
Bankers, Bureaucrats, and Central Bank Politics: The Myth of Neutrality by Christopher Adolph. Makes the obvious but vital point that central bankers aren’t neutral bureaucrats. For many, central banking is a step towards, or an interlude in, a career in the financial sector, and the policies they advocate while in the public sector reflect this.
That hasn’t left a lot of time for fiction, but I think I have now read everything by the late and much-missed Iain Banks (including all the SF stuff written as Iain M. Banks).
Over at Crooked Timber, we are running a seminar on Erik Olin Wright’s Envisioning Real Utopias. Here’s my first contribution. Feel free to discuss here or go over to CT.
The first question to be asked about Erik Olin Wright’s Envisioning Real Utopias is whether it makes any sense to pursue, or even talk about, utopian projects.
I’ve been a big fan of Frank Moorhouse’s Edith trilogy since I first encountered it nearly a decade ago. The first two volumes, Grand Days and Dark Palace dealt with the heroine’s adventures (political and sexual) as a young and optimistic staff member with the doomed League of Nations. That was a fascinating glimpse of a world that had vanished well before I was born, and showed up Moorhouse’s capacity for imaginative recreation of that world, as well as the marvellous character of Edith Campbell Berry.
In the third volume, Cold Light, Edith turns up in early postwar Canberra, and there’s a sudden shift of view for me (and I guess, also for Moorhouse). The story runs into the early 1970s, when I was growing up and going to uni in Canberra. Edith is an observer and occasional participant in events ranging from the creation of Lake Burley Griffin to Menzies’ attempt to ban the Communist Party. Not only that, but most of the characters, with the exception of Edith and those in her immediate circle, are real people. Notable examples include Latham, Menzies and Whitlam, but also some academics from the early days of the ANU. I knew quite a few of them, and some of them even knew me: Heinz Arndt, for example, paid me the backhanded compliment of describing me as “a very dangerous young man” .
Reading and visualising a book so close to your own life is an odd experience – I was starting to wonder if I would appear in a crowd scene, perhaps outside Parliament House after Whitlam’s dismissal. For younger readers, of course, the early days of Canberra belong to the same dim past as the Kellogg-Briand Pact. They will, I think, find the book just as rewarding as I did, though in a very different way.
fn1. Arndt had been a leftwing social democrat in his early years in Australia, but moved sharply to the right later. In mischievous moods, I sometimes cited, with approval and without mention of his subsequent evolution, his early work advocating bank nationalization.
Reader “Nicholas Bourbaki” has sent me a link to an animation illustrating some of the ideas in Zombie Economics (with actual zombie, naturally). It’s done using the Xtranormal movie maker all the cool kids are using these days. Watch and enjoy.
fn1. Apologies to Nicholas if Mr and Mrs Bourbaki were big fans of 20th century modern mathematics or 19th century French demagoguery and really did name their baby in this way.
I had a fun interview with Sophie Roell of The Browser, talking about Five Books with the organizing theme of Utopia. It’s partly a plug for Zombie Economics, which just came out in a new paperback edition in the US, and also in an Australian edition published by Black Inc.
As I wrote before, my immediate (over-)reaction to George Megalogenis The Australian Moment, was driven by the ageist generational clichés that started on page 1, and reappeared periodically thereafter. But I promised to write something about the serious content of the book and here it is.
My one-line summary is that this is probably the best exposition of Australia’s political history, over the period of market liberal reform, and from the viewpoint of the reformers, that we have seen, or are likely to. In particular, it’s better than the main rival, Paul Kelly’s End of Certainty.
The Australian edition of Zombie Economics, updated and with an additional chapter on Economic Rationalism, is about to go on sale. I’ll be appearing at a launch event at Gleebooks in Sydney on Wednesday (9 May) talking with Jessica Irvine of the SMH.
The launch coincides with the US publication of a paperback edition, with a new chapter on Austerity. The Italian translation also came out recently, and there are versions coming in French, Greek, Portuguese, Korean and Simplified Chinese. Collect them all!
Update On reflection, I went a bit over the top here. Generational stereotypes press my hot buttons, but that’s no excuse for the excess aggression in this post. I respect George Megalogenis as a journalist and, except on this point, I’ve found him to be insightful and thoughtful. So, apologises for losing my temper here. I will try to write a proper review of the book soon. End update
When I started reading George Megalogenis’ new book The Australian Moment I was stopped on page 1 by a piece of generation-game nonsense so silly I could scarcely believe someone as smart as GM would write it. Several people commented that it was unfair to judge a book by its first page, which is true, though I don’t see that there is anything wrong with commenting on the first page.
Anyway, after finishing a couple of other books that had jumped ahead in the queue (notably Red Plenty about the hopes for, and ultimate failure of, planning in the Soviet Union), I got back to The Australian Moment last night.
It started well. The discussion of the Whitlam government was excellent with some keen insights and use of declassified US State Department cables I hadn’t previously seen. Then on p29, we get a quote from a young fogeyish Paul Keating in 1970, saying that “husbands have been forced to send their wives to work”. Graciously admitting that Keating is too old to be a baby boomer, Megalogenis nevertheless asserts that he “spoke for boomer men”.
Really? On the standard dating of the baby boom from 1946 to 1964, the youngest of them were six years old at the time, and even the oldest (at 24) were mostly unmarried. I doubt that many of them were worrying about household budgets. In any case, the terminology of “sending wives out to work” was crankily old-fashioned even in 1970. Keating was probably the last (in the sense of latest-born) person ever to use it in Australia. Boomer women joined the workforce as a matter of course when they finished school. The big problem for boomers entering the workforce in the 1970s wasn’t the need for two jobs but the lack of any.
At this point, I went to the index to check whether the generation-game stuff gets any better. It doesn’t. To take one of many examples, Megalogenis touts his own “generation W” as responsible for punk rock, and, in particular the Sex Pistols (fronted by John Lydon, aka Johnny Rotten, born 1956), The Saints (Ed Kuepper, born 1955) and The Ramones, (formed in 1974, when most of Generation W was still unborn).
My point here isn’t that Megalogenis needs to redo his generation stuff with more accurate dating, though that would be better than nothing. It’s that any approach to political analysis that classifies people by birthdate is doomed to failure. As I pointed out more than a decade ago,
by the time the members of a given cohort reach their late twenties, their life courses have diverged so much that they cease to form a well-defined group with common experiences. The differences between men and women, rich and poor, workers and bosses, married and single, parents and nonparents count for much more than the commonality that comes from sharing a date on a birth certificate.
So what am I going to do here? If I could I would get Megalogenis to rewrite his book, deleting every reference to generations. Since that’s not possible, I will do the next best thing, and skip a couple of pages every time the word is mentioned. With that omission, the book promises to be a good read.
fn1. In reality, of course, given that it’s impossible to read more than a tiny fraction of the books that are printed every year, we all, quite literally, judge books by their covers most of the time.
fn2. No mention of the rumors, rife at the time, of CIA involvement in Whitlam’s dismissal.
fn3. An amalgam of Gens X and Y, consisting of those born between 1964 and the early 1990s. W stands for “Wogs and Women”.
fn4. If you are going to play this game at all sensibly, you need to split the Baby boom into the Vietnam generation, born before 1954 and therefore, if male, liable to conscription, and Generation Jones, born after 1954, who entered the workforce after the collapse of Bretton Woods. But the best thing to do is not to play the game at all.
I’ve just finished revising Zombie Economics for an Australian edition, to be published by Black Inc in May, with an all-new chapter on economic rationalism, the Australia form of Zombie econ. Keep a lookout!
At one point in Zombie Economics, I tried a Popperian (or maybe Paulian) smackdown, saying that some defenders of EMH used arguments that effectively rendered it unfalsifiable. I thought that was a bad thing, but apparently at least one reviewer disagrees. Following my stoush with Murdoch, a commenter pointed me to this piece by Stephen Williamson of Washington University at St Louis, who has apparently been asked to review the book for the Journal of Economic Literature. Williamson claims that I am badly confused about the EMH, and that
Market efficiency is simply an assumption of rationality. As such it has no implications. If it has no implications, it can’t be wrong.
He follows up with “Like the “efficient markets hypothesis,” DSGE has no implications, and therefore can’t be wrong.””
A while ago I wrote a post responding to a Lowy Institute blurb for a new book by Michael Wesley, called There goes the Neighborhood and described as ‘A loud and clear wake-up call to Australians’. In response, I said that ‘At the global level it’s hard to think of a time when we have been less threatened, at least within living memory’, and concluded ‘unless commenters can point to something I’ve missed, I’m going back to sleep’.
Michael Wesley has now responded, and sent me a copy of the book, which I hadn’t read when I responded to the blurb. It turns out that he agrees with me that most of the threats that worried us in the past have dissipated. Also, as I surmised, his main concern is about the way in which the rise of India and China changes our strategic environment. He concludes
In short, we’re entering a world not of threats but of agonising choices that will come at us constantly. My bet is that we’ll look back on the vanished threats that Quiggin talks about with nostalgia for a world that all seemed so simple.
I agree with Wesley that the rise of India and China makes life more complicated in important ways. In the past, our foreign policy consisted, in essence, of the US alliance. That alliance gave us some protection against our local fears, most notably with respect to Indonesia, while also exposing us to some big costs (the need to join faraway wars in which we had no say) and an increased risk of nuclear annihilation, which faded away along with the Cold War, though it hasn’t disappeared.
In the new world, Wesley correctly argues, an uncritical adherence to the US alliance would be a disaster, particularly in the event of a major dispute between the US and China. I agree, and I think most serious foreign policy types already know this. Kevin Rudd’s recent visit to Washington seemed to be devoted, in large measure, to hosing down any expectation that Australia would line up with the US against China in any future dispute (a much more sophisticated line than the updated “All the way with LBJ” line, typically repeated by visiting PMs, up to and including Gillard). Even under the Howard government, generally gung-ho about the US, our diplomats sent the same kind of message from time to time.
Wesley also wants the Australian public to be more engaged and informed, pointing to the deplorable ignorance and anti-Indonesian prejudice surrounding the Schapelle Corby case. Actually, I think this was a good learning experience – most people eventually worked out that, while she cut a sympathetic figure in prison dress, Corby was given a fair trial, (if fact, the Indonesian courts had bent over backwards to give her justice, admitting evidence that would never be allowed in Australia). Australians are gradually adjusting to the idea of Indonesia as a friendly neighbor rather than a foreign threat. Even so, I think they are well justified in leaving to the experts the kind of diplomacy involved in telling three great powers what they want to hear, while committing ourselves to none of them.
fn1. While I’m on this, I’ll welcome the news that the death sentence imposed on Scott Rush has been commuted. This case was a far worse travesty of justice than anything in Corby’s case, but those most to blame were the Australian Federal Police, who sent Rush to possible death in Indonesia, rather than warning him off (as his parents begged them to do) or arresting him on arrival in Australia (which would have reduced their chances of convicting the ringleaders).
Ian Masters, who’s the US representative of the well-known Australian clan (Chris, Roy, Sue and Olga are all prominent figures here) has interviewed me for this radio program Background Briefing, broadcast and podcast on KPFK-LM, in LA, about my book Zombie Economics. Interview should go to air about noon Sunday Pacific time, and the podcast will be available almost immediately, and also, a bit later at Ian’s own site.
I’m thinking about doing another book, which would be a reply to Henry Hazlitt’s Economics in One Lesson a tract published in 1946, and available online, but still in the Amazon top 1000. It’s largely (as Hazlitt himself says) a rehash of Bastiat.
I’ll try to put up a prospectus soon, but I thought I’d start with something simpler, a response to Leonard Read’s 1958 I, Pencil. This essay is a description of the incredibly complex “family tree” of a simple pencil, making the point that the production of a pencil draws on the work of millions of people, not one of whom could actually make a pencil from scratch, and most of whom don’t know or care that their work contributes to the production of pencils. So far, so good. Read goes on to say that
There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work.
Hold on a moment!
I got an email the other day, trying to set up an interview about Zombie Economics: How Dead Ideas Still Walk Among Us. Shortly afterwards there was a cancellation – they actually wanted the author of Zombie Economics: A Guide to Personal Finance, due to be released in May.
I’m well aware that there’s no copyright in book titles (Zombie Econ was originally going to be called “Dead Ideas from New Economists, and back in the 90s I wrote one which the publisher insisted on calling Great Expectations), but I can’t help wondering about the implications for sales. At least for the moment they don’t look too bad. According to Amazon, 12 per cent of people who viewed the doppelganger ultimately bought my book, while the proportion going the other way is zero (although some zombie fans go for Chris Harman’s Zombie Capitalism). But I imagine that’s the result of bad search results among people looking for mine, rather than a spillover from those looking for the doppelganger. If so, I imagine the flow will reverse when the new one is released.
Are there other interesting examples of book title recycling, or interesting ideas for new takes on classic titles?