Today’s Wall Street Journal has a review, King of the Shopkeepers, of a new biography from Caroline Dakers. A Genius For Money tells of the rags-to-riches life of James Morrison, a Victorian innovator of retailing and banking in England. I can already tell that I am going to order the book as soon as I’m done writing this post:
Morrison was not an inventor-capitalist but a retailing genius, more Sam Walton than Steve Jobs. He catered to England’s growing consumer class by diversifying his wares and, in his ever-growing network of shops, introducing luxurious showrooms. He was a disciple of volume, seeking “high turnover, small profits, and quick returns.” He sent his traveling men not to find buyers, as was typical, but to find the best suppliers. Advantageously purchased in bulk, goods would sell themselves. Morrison’s buyers were specialists, anticipating the practices of later department stores. He kept his finger on the pulse of fashion and on “market making” events. Legendarily, he was never caught short of black crepe when a member of the royal family was ill. “The Duke of York has died most conveniently,” he once quipped while tallying profits.
Entrepreneurs like Morrison and Josiah Wedgwood transformed the everyday lives of so many people, and changed how we view work, consumption, and beauty. They also made markets work more efficiently, Morrison through banking and Wedgwood through infrastructure investment (he was a driving pioneer in the construction of canals in England). In that sense, innovators like Morrison and Wedgwood are equilibrating entrepreneurs in the way that Kirzner describes. The review of Dakers’ book also suggests that it raises themes that Deirdre McCloskey raises in The Bourgeois Virtues and Bourgeois Dignity, and that we have discussed here in the past.
I have the first really bad cold, complete with ear infection, that I’ve had in almost two years. Other than the throat and ear pain, the coughing, and the congestion, I can tell it’s bad because I’ve stayed home from work for two days, and rather than being my usual Energizer bunny self I have little energy for anything other than light reading …
… which means I am about 40 percent through Neal Stephenson’s new book Reamde, but don’t have the cognitive energy to use this time to dig in! Too bad, because so far I am enjoying it a lot, but in a different way from either Anathem or the Baroque Cycle trilogy. Those two works were intellectually and historically meatier, but Reamde shares with them Stephenson’s telltale characteristic weaving of multiple stories into a witty, wry, and intentionally slightly opaque narrative. It’s definitely primarily a technology thriller along the lines of Zodiac and Snow Crash, and so far I’m enjoying it as a well-told set of interwoven stories with compelling character development.
So this afternoon instead I will couple my Cepacol lozenges and hot tea with Wives and Daughters by Elizabeth Gaskell; isn’t Victorian fiction a more suitable companion in the sickroom anyway?
There’s a lot of exciting work right now in political economy at the intersection of academic scholarship and application to public policy, ranging from law to public finance to regulation to development and beyond. Mark Pennington’s Robust Political Economy is one of the most exciting, thoughtful, and valuable of the recent work in political economy (it’s been out of stock in the US, but now it’s back and you can get yourself a copy!). Whether you are a scholar working in this area, a policymaker interested in thinking more deeply about what you do, or someone who works in an area where you engage with public policy, you will find lots if ideas here worth considering, presented in a clear, scholarly narrative.
He begins by drawing some stylized categories of ideas that will provide the context for his analysis, and the main contrast he draws is between classical liberalism and ideas critiquing classical liberalism from several directions, such as communitarianism, egalitarianism and, even, neoclassical economics. A lot of political economy analysis takes place in the realm of these theoretical archetypes — people formulate their positions in opposition to these theoretical archetypes, and often simplify or mischaracterize them. One of the intellectual, analytical, and rhetorical strengths of Mark’s work is that he really fleshes out those archetypes so they are not simplistic straw men. I think he reads the various critiques of classical liberalism fairly and in an open-minded manner, and describes their analyses and positions in ways that I find quite reasonable (I say that, though, acknowledging my confirmation bias and my agreement with and sympathy with his own argument).
Mark’s emphasis is on creating an analytical classical liberal framework for examining and understanding issues in public policy. To do so he tackles several tasks in this work: he lays out his conception of classical liberalism, he uses that conception to contrast with a range of ideas critiquing classical liberalism, and he then applies that framework to analyze some selected public policy issues. His contextual lens is primarily British and European, so for readers in other areas some of the specifics of the intellectual debates may be unfamiliar, but the general ideas and principles still translate clearly.
I find the most valuable contribution of Mark’s work to be the conceptual framework for classical liberalism as “robust political economy” that he provides in Chapter 1, and then elaborates on in contrast to other sets of ideas in the ensuing 4 chapters. Why is this idea of robust political economy so important? Robustness is like resilience; it’s a performance criterion by which we can evaluate a set of institutions to see how well they perform in real-world situations across time and space. Robust social institutions take into account the cognitive, psychological, and strategic realities of being human and trying to live together in civil society, rather than being based on some mythical, hypothetical individuals who are either entirely Cartesian-rational, entirely Hobbesian-rapacious, or possessing full foresight. Mark takes on all of these traits of real humans, and a lot of his argument is grounded in the reality of the knowledge problem (a topic near and dear to my heart and brain).
Human beings are limited in their cognitive capacities and as a consequence even the most intelligent and far-sighted people are relatively ignorant of the society in which they are situated (Hayek, 1948a; Simon, 1957). Given the imperfections of human knowledge, the consequences of any particular action, either for the actors concerned or for the wider society, will at any given time remain uncertain. Robust institutions should therefore allow people to adapt to circumstances and conditions of which they are not directly aware, and under conditions of ‘bounded rationality’ must enable them to learn from mistakes and to improve the quality of their decisions over time. (pp. 2-3)
Taking into account the knowledge problem, what are institutional traits that enable heterogeneous self-interested individuals, for whom self-interest usually takes many different forms, to live together and hopefully to thrive in civil society? Mark’s primary argument throughout the work is institutions reflecting classical liberal ideas and principles are best situated to do so. He synthesizes Scottish Enlightenment political economy, Austrian economics, pubic choice economics, and new institutional economics into a classical liberal framework that qualifies as robust political economy. These institutions focus on “private or severally owned property, a market economy, and a limited government confined to the resolution of disputes between private parties” (p. 3). The synthesis across these areas is a substantial original contribution of this work, because he provides the clearest articulation I’ve seen thus far of how the ideas arising from these various strands of thought complement and reinforce each other. Mark melds the complexity and emergent order approaches of the Scottish Enlightenment and of the knowledge-problem-focused Austrian economics with the ideas of adaptation and evolution in those traditions as well as in new institutional economics. He blends the polycentric and locally-driven approach to institutional design from NIE with the “model men as if they are knaves” to constrain selfish minorities that we see in David Hume, James Madison, and modern public choice economics. He further combines all of the above with the idea that processes that enable emergent, decentralized, polycentric institutions will do a better job of enabling people to thrive in civil society (i.e., be robust) precisely because they allow for trial and error, for experimental evolution, and that the combination of community processes of consent with real options for both voice and exit are a crucial component of creating this robustness. I have never read a more compelling or uplifting account of this argument, which regular KP readers will recognize as resonating strongly with the approach to regulatory policy that I have advocated here and in my own book in 2008.
Taking this framework, Mark then confronts the challenges to classical liberalism that neoclassical economics (focusing on “market failure”), communitarianism, and egalitarianism provide. He also argues that none of these three sets of ideas qualify as foundations for robust political economy. His analysis of neoclassical economics includes a strong critique of the theoretical emphasis on equilibrium outcomes and the existence of equilibria, and his discussion of how such arguments misunderstand the nature of competition do a good job of making that Hayekian point more clear and relevant to modern policy debates. I recommend this chapter in particular to all graduate students in economics, as a spur to think more deeply and critically about our models and how we use them. I am less familiar with the communitarian and egalitarian literatures in political science and philosophy with which Mark then engages, but what I found most interesting in those chapters was how he showed that classical liberal ideas and institutions do address many of the issues and concerns of those scholars, contrary to their beliefs.
In the final section of the book Mark applies classical liberalism as robust political economy to three policy areas: poverty relief and public services, international development, and environmental protection. In each chapter he provides an in-depth discussion of the policy implications of the four main sets of ideas (classical liberalism, neoclassical economics, communitarianism, and egalitarianism), again consistently anchored in the complexity and knowledge problem traits of reality, which lead him to conclude that institutions grounded in classical liberal principles are the most likely to qualify as “robust” and to thus be the most likely to enable people to thrive in civil society in each of the three areas.
An enthusiastic must-read, from which I learned a lot and which has changed and refined my thinking about some of my own work.
Earlier this year Mark did a book event at Cato, complete with a companion podcast and a video of the event:
He also occasionally blogs at Pileus, always informatively and eloquently.
If you leave aside the somewhat silly world of bottled water, there has been almost no innovation in the industry of water for decades. A water facility today uses the exact same technology it did in 1973. In what other industry is that the case? The typical Wal-Mart long-haul truck has more intelligence in it than the typical water system.
The technological revolution has completely bypassed the world of water, mostly because of the strange nature of the market for it. Water has almost no pricing signals. You can’t trade it. And while in the developed world you don’t typically run out, if serious scarcity develops, you can’t just buy more, no matter how much you’re willing to pay. The most liquid and plentiful natural resource on the planet is almost completely illiquid as an asset.
Actually, I’d be surprised if many water systems are not using microprocessors, for example, or other technologies in their systems. The “exact same technology [as] 1973″ sounds a little over dramatic. But “strange nature of the market for it” is right.
Fishman has a new book out on water supply, The Big Thirst. (More: A WSJ review of The Big Thirst, the book’s website: http://www.thebigthirst.com/.) Fishman’s prior book was The Wal-Mart Effect, so perhaps he really knows something about how smart those long haul trucks are.
In the current issue of Regulation, Tim Brennan reviews Electricity Restructuring: The Texas Story, edited by Andrew Kleit and our own Lynne Kiesling. After a lengthy introduction discussing how deregulation came to the electric power business (mostly it hasn’t, but parts of the industry have been reorganized), Brennan gets down to the book at hand. He tells us, “The subject of their important book is why Texas appears to have succeeded where the rest of the country has failed.”
Brennan finds the book useful as a guide to what Texas has been doing with its electric power market and how they got to where they are today. He finds the book a bit full of “inside baseball,” stocked as it is with contributions from many of the state commissioners, regulatory staff and other folks who were front-line participants in the developments discussed. Brennan would have liked to see more external evaluations of market performance to complement the insider views. He also found that the book missed opportunities to convey some of the lessons learned in the Texas experience, as with Texas’s initial choice of a zonal market design and subsequent switch to a nodal market design. Finally, with the book’s heavy focus on the Texas experience, it neglects discussion of developing issues of interest.
Overall, despite the mild criticism, Brennan finds the book a valuable contribution on a subject of importance. I’ll endorse that view. Anyone who wishes to be up-to-speed on electric power restructuring policies in the United States should read this book.
Having a bookish day here at KP … just heard a news story that reminded me that the shortlist for the Booker Prize was announced earlier this week, and here’s a brief synopsis of each of the six novels. Last year two of the shortlisted books, Wolf Hall (the ultimate winner of the prize) and The Children’s Book, were easily the two best novels I read. Out of this list, the one that seems to fit my tastes best is Peter Carey’s Parrot and Olivier in America, a tale based on a fictionalized version of Alexis de Tocqueville and his manservant on their voyage to the young United States.
And, because I appreciate witty, ironic, comic writing, I really enjoyed Harry Mount’s Telegraph column on serious comic writing from earlier this week. If you are a fan of Austen, Wodehouse, and/or Waugh, you’ll appreciate his observations, and, like me, you’ll probably appreciate his closing Walpole quote:
Horace Walpole, the 18th-century writer, said: “This world is a comedy to those that think, a tragedy to those that feel.”
Speaking of Neal Stephenson, he’s involved in a new, online, serialized novel called The Mongoliad. Set in 1241, it’s an adventure journey story with the Mongol invasions of Europe as a backdrop. There are some stories you can read on the site for free, but to receive the weekly chapters you have to subscribe. So it’s an interesting venture both in a literary sense and as a new online business model (which hearkens back to the early 19th century in a way that I find charming).
Happy reading! What are you planning to read this weekend? I am finishing up Deirdre McCloskey’s The Bourgeois Virtues and Paul Seabright’s The Company of Strangers, and will probably have some things to say about both of them.
One thing I’ve been doing a lot this summer is catching up on my reading, both on books I’ve had on my list for a while and new releases. Right now I am in the middle of Mises’ Human Action, which I am slightly embarrassed to say I’ve never read from the beginning in its entirety, although I’ve read extensive excerpts. At some point I would love to discuss Human Action with some of my friends who are more familiar with it and its historical context, like Pete Boettke or Pete Leeson or Steve Horwitz.
In terms of fiction I’m also in the middle of A.S. Byatt’s The Children’s Book, which is just out in paperback (although I’m reading the hardcover version). It’s right up my alley — set in late 19th-century England, opening scene in my favorite museum (the V&A), lots of Arts & Crafts themes and imagery, a multi-layered and historically-informed plot, all written with Byatt’s characteristic subtle language and rich visual imagery in her prose. I don’t think the casual reader would enjoy it (i.e., it’s not a beach book unless you’re already predisposed to like Byatt and/or historically-contextualized fiction), but I am enjoying it a great deal. It’s definitely going with me on vacation up to the Boundary Waters at the end of the month.
Almost all of my recent reading has been nonfiction; let’s see if you can infer the unifying theme. In no particular order:
Vernon Smith, Rationality in Economics: Constructivist and Ecological Forms. Here Vernon synthesizes the results of experimental economics (particularly findings of more cooperation and more sharing than game-theoretic models predict) with the work of Scottish Enlightenment scholars and F.A. Hayek to argue that individuals employ a more ecological rationality than the Cartesian, deductive, constructivist form that is embedded in most standard economic theory. Part of this ecological concept of rationality involves heuristics we use so we can function in the face of overwhelming information, and part involves recognizing the inherent sociability of humans. A valuable corrective against the excessively Cartesian constructivist concept of individual rationality that has gone unchecked for too long in economic theory (yeah, representative agent macroeconomics, I’m lookin’ at you … but you’re not alone there.)
Joel Mokyr, The Enlightened Economy. I’ll have more to say on this in a separate post (I promised Joel a review and then life happened), but for now I will give a hearty recommendation to read it. Joel does two extremely valuable things in this extensive work: he updates the scholarship on industrialization in Britain that has occurred since 1990 and the publication of his excellent Lever of Riches, and he extends the theoretical framework for understanding and “explaining” the Industrial Revolution to include knowledge, particularly what he classifies as “useful knowledge”. Thus he connects the intellectual developments of the Enlightenment explicitly to the Industrial Revolution. More commentary to come later …
Marco Iacoboni, Mirroring People: The Science of Empathy and How We Connect with Others. If you are curious about neuroscience and the recent research on mirror neurons but you aren’t interested in reading the primary neuroscience literature, Iacoboni’s written a very accessible summary of what neuroscientists have discovered and the likely connections of mirror neurons to social cognition, empathy, language acquisition, and interpersonal relations in general. If you have no idea what mirror neurons are but you enjoy reading Jonah Lehrer’s books or blog, and/or you listen to Radiolab, you’ll enjoy this book.
James Otteson, Adam Smith’s Marketplace of Life. Again, a work from which I’ve read snippets, but I’ve finally read it cover-to-cover this summer. Jim’s book is great. He does a very thorough analysis of Smith’s Theory of Moral Sentiments, and even though I’ve read TOMS cover-to-cover twice and reread various parts of it frequently, this is an outstanding analysis and companion. In particular, he argues (persuasively, to me) that Smith’s moral philosophy and moral psychology enable Smith to articulate the moral foundations of unintended, emergent social order. And he does so in a way that I think is accessible even if you’re not a philosopher or economist (yeah, I’m lookin’ at you, D.O.U.G.!).
Fonna Forman-Barzilai, Adam Smith and the Circles of Sympathy: Cosmopolitanism and Moral Theory. Hot off the press … I met Fonna at a Liberty Fund conference last fall, and we found that we had very similar perspectives and interpretations of Smith. Not surprisingly, then, I found a lot of her analysis here interesting and useful. Here she analyzes Smith’s moral theory and arguments in TOMS looking at how it relates to modern questions of cosmopolitanism. She is engaging with literatures in political theory that don’t overlap directly with my economics interests, but her analysis and application to modern concepts of distance and community (and, for example, globalization) is really thought-provoking.
Charles Griswold, Adam Smith and the Virtues of Enlightenment. This 1998 work is a go-to analysis of Smith’s moral philosophy and virtue ethics. I actually finished this before either Otteson or Forman-Barzilai, and my understanding of Smith’s arguments in TOMS and their broader moral and economic implications jumped discretely upon reading Griswold.
Matt Ridley, The Origins of Virtue: Human Instincts and the Evolution of Cooperation. Ridley has built an extensive oeuvre of works exploring human behavior that synthesize biology, anthropology, history, economics, and sociology, and this is a very useful example of his work. Here he covers evolutionary biology, anthropology, game theory, and economics to explore how it is that we humans create emergent social order through cooperation. If the set of ideas I’m tossing around in this post intrigues you but you are not familiar with them, this is where I’d start.
Matt Ridley, The Rational Optimist: How Prosperity Evolves. Ridley’s most recent work, and one that I enjoyed a great deal. Again a synthesis of economics, evolutionary biology, and anthropology, all animating the theme that humans do cooperate, do have incentives to behave in ways that are efficient and socially beneficial in the long run, create sustainability through innovation, and are not going to trash the planet. I am persuaded by his rendition of the argument, but I am predisposed to, because I already agreed with him … which leads to my only criticism of the work. The tone is too “just so”, the arguments too pat — I doubt that they will be persuasive to anyone who isn’t already predisposed toward his worldview and toward being an optimist. That said, I’ve been pretty cranky and pessimistic for the past couple of years because of the wretched, stupid, counterproductive policy decisions that are perpetuating our economic downturn and killing our individual liberties by a thousand cuts, so I needed a good dose of rational optimism! I’d encourage you to read Rational Optimist after reading Enlightened Economy, which will provide more depth and backstory to support Ridley’s arguments.
On their faces these works may not appear directly relevant to the political economy of regulation and competition in large infrastructure industries experiencing technological change, but I think they are all likely to interest you if you are interested in the political economy issues inherent in regulation. Some of the Smith scholarship may verge too deeply into philosophy and political theory, depending on your personal interests, but I have certainly enjoyed every one of these works and recommend them all as worthwhile reads.
But, since it’s a Friday afternoon in late summer, I’m going to close with a couple of videos of Matt Ridley discussing The Rational Optimist. The first is a recent TED talk he gave in Oxford (can’t get the embed to play well with WordPress, grrr), using the “when ideas have sex” meme that is the tagline for the book. The second is from the PBS Newshour.
At the Freakonomics blog, James McWilliams offers a review of sorts of Robert Bryce’s new book Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future. McWilliams reports that the book is “a sustained attack on our irrational infatuation with wind and solar power.” Part of Bryce’s “sustained attack” is a chapter on Denmark and wind energy, and McWilliams’s piece mostly directs itself to explaining and commenting on the Denmark chapter.
Unfortunately, McWilliams’s review only convinces me I shouldn’t rely on his opinions on energy topics.
I end up not believing the review mostly because the explanations of Denmark’s situation feel incomplete and a bit ad hoc. But rather than ask you to trust my feelings, let’s look at a point McWilliams made where fact checking is easy. Here is McWilliams:
It should be noted, in all fairness to Denmark, that its citizens have done something the U.S. seems unwilling to do: they’ve kept energy demand flat. Today, Denmark uses the same amount of per capita energy as it did in 1981. Remarkable.
Do you interpret these two sentences as McWilliams claiming that Danish consumers have kept per capita energy use level since 1981 and U.S. consumers have increased per capita energy use?
A few moments on the internet turns up data from the U.S. Energy Information Administration on per capita energy use: per capita energy use was 332 million BTU in the United States in 1981, 327 million BTU in 2008, and 310 million BTU in 2009. These numbers are from the 2008 Annual Energy Review and the 2010 Annual Energy Outlook. A EIA spreadsheet from the 2006 International Energy Annual [XLS] has data on many countries, including the U.S. and Denmark, over the period 1980-2006. In general both countries have seen ups and downs in per capita energy use from 1980 to 2006, with the ups tending to reflect periods of low energy prices or stronger economic growth and the downs tending to reflect periods of higher energy prices or weaker energy growth. Unremarkable.
Since I can’t rely on McWilliams’s review, I don’t know yet whether I’m interested or not in Bryce’s book. However, Bryce’s “Five myths about green energy,” an op-ed appearing in the Washington Post just before the his book was published, seems similarly incomplete and ad hoc in its analysis. (How critical for energy policy analysis is a calculation of watts of energy output per square meter of land devoted to energy production? It strikes me as reaching for a techno-scientific sounding statistic to dress up the author’s dismissal of wind power which is itself based on other grounds.) But op-eds are brief and by nature driven to anecdote rather than careful explication of data; maybe the book has more substance.
I’ve been reading, thinking about, and watching lots of Jane Austen lately, and I’ve found two funny renditions of my favorite book, Pride and Prejudice: Austenbook, a Facebook-style retelling of the story, and Pride and Prejudice in emoticons. I guffawed out loud in an unseemly manner ill befitting a lady, but I suspect that Ms. Austen would be highly amused if she were a part of our culture.
I haven’t read Pride and Prejudice and Zombies yet, but the KP Spouse has, and he allows that he was excessively diverted by reading its rollicking, light juxtaposition of zombies into the story. He says that the author, Seth Grahame-Smith, does a very good job of using the essence of Austen’s language, and that it’s pretty obvious that Grahame-Smith used the 1995 BBC video version with Colin Firth (yum!) as the skeleton upon which he told the zombie story. I have, though, been enjoying A Truth Universally Acknowledged:
33 Great Writers on Why We Read Jane Austen, a collection of essays on Austen. All of these are excellent diversions for a winter weekend.
