I Pencil: A product of the mixed economy

Updated June 2019: The book mentioned in this post is now published as Economics in Two Lessons, from Princeton University Press.

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!

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Towards an economics of unhappiness

For at least the last decade, there has been a boom in work on the economics of happiness. But following Tolstoy[1], I’ve always wondered why we don’t study the economics of unhappiness instead: after all, there’s so much more data.

For the last year or so, I’ve been planning a paper in which I took off from this point and made the case for unhappiness as a driver of economic activity and particularly of economic change (including ‘growth[2]’). But, as usually happens[3] with my thoughts along these lines, it looks as if someone has beaten me to it.

Chris pointed me to this piece by Stefano Bartolini, which argues that people strive to increase their wealth as a response to the negative externalities generated by positional externalities[4] and the destruction of social capital.

I’ve also been reading a translation of Sedlacek’s Economics of Good and Evil, a surprise hit in the original Czech, which discusses many of the same issues, focusing on the contrast between the economics of the ancients and that of Adam Smith.

I have a more positive take on unhappiness. It’s possible, I think, to want something better than what you have (for many different values of “better”) without being actively miserable. In a world where change, both good and bad, is inevitable, cultivating a position of stoical detachment seems to me to be something of a copout[5}

fn1. Tolstoy had his own economic ideas, which drew (not surprisingly for the time, and for a dissident landowner on Henry George)

fn2. Growth, like GDP is a tremendously unsatisfactory and misleading concept when dealing with complicated economic aggregates, some components increasing and others decreasing. But that’s another post.

fn3. Often by a fair stretch of time, as I’m very slack about reading the literature. I was very pleased with my discovery of Ramsey’s Rule of Saving until I discovered that Ramsey had got there first.

fn4. To translate from the economese, the fact that some social benefits depend more on your relative position than your absolute wealth means that if one person becomes better off, others are worse off.

fn5. Does this useful slang term have an equivalent in formal English? I can’t think of one that isn’t a paraphrase.

Swan on Keynesian policy

Wayne Swan has a Fabian Essay defending the Keynesian credentials of the Rudd and Gillard government. The central argument is sound enough

if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again. That means a speedy return to surplus.

But there are a couple of big problems. The first is one of timing. The 2009-10 Budget, which included a large deficit as a Keynesian stimulus, proposed a return to surplus by 2015-16. This was seen at the time as quite ambitious – most developed countries have no obvious path back to surplus.

Nevertheless, by May 2010, with economic conditions much stronger than expected, it seemed as if the government had not been ambitious enough and the target date was brought forward to 2012-13.

Over the past year, however, the economic news, both locally and globally, has mostly been bad, with natural disasters producing short-term shocks, and the US and Europe mired in heavy debt and sluggish recovery. The economy has slowed a bit and tax revenue has fallen short of expectations. Unsurprisingly, on the government’s current policy settings, the return to surplus would be delayed, though probably still ahead of the original 2015-16 target.

From a Keynesian point of view, that’s exactly what should happen. Although the slowdown isn’t enough to justify an active fiscal stimulus, the standard Keynesian prescription would be to allow the automatic stabilizers to work, smoothing the path back to full economic recovery. Unfortunately, that’s not what the government is doing.

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Lindzen, Davidson and statistical significance

Among the many anti-science talking points, a striking one is the widely repeated claim (originating with Richard Lindzen) that there has been no significant warming since 1995. In his original statement, Lindzen was careful to refer to “statistically significant” warming, but he must have known that most of his readers would understand “significant” in its ordinary sense, and in fact Lindzen fell into the same trap himself in this Quadrant article. Sinclair Davidson cites the BBC interview leading to the famous Daily Mail article that got this utterly wrong, but doesn’t point this out to his audience (most of whom wouldn’t know a t-statistic if it bit them, but nevertheless feel qualified to “make up their own “minds”” in accordance with their political prejudices.)

As I pointed out, all Lindzen’s claim means is that, given the noise in the data, you need more than the 14 annual observations from 1995 to 2008 (when he made the claim) to get statistical significance. Of course, we had the additional observations, namely those before 1995, so Lindzen’s statement was trivial. It was also safe to predict that, given a few years more data, the trend for the period since 1995 would be significant, and so it has proved.
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Zombie Doppelganger

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?