Z-Fallingwater

Book Recommendation - Hayek's Challenge

My favorite book over the last twelve months, excluding arcane things normal people would never read, is Bruce Caldwell's Hayek's Challenge. Caldwell has an extremely engaging writing style, especially for someone writing in an area like History of Economic Thought. With Hayek's The Road to Serfdom still sitting comfortably in the Amazon.com top 100 nonfiction books for the last 269 days following Glenn Beck's pimping thereof, I hope Caldwell's book will generate more interest. To be honest, even though The Road to Serfdom was meant to be a work aimed at a popular (British) audience, the prose is pretty impenetrable. I also don't think Beck and other pundits/intellectuals are really right in pointing to Hayek's work as a relevant criticism of the Obama administration; The Road to Serfdom had a particular argument at a time when socialism meant something entirely different than it does today. Caldwell's accessible, academic, broad ranging work presents a much more effective overview of the meaning of Hayek's oeuvre and presents some very pertinent criticism of the status quo in academia.

Book Review(s) - "Wikinomics" and "Free"

I've recently read two books dealing with a similar subject matter: Wikinomics: How Mass Collaboration Changes Everything Don Topscott and Anthony Williams and Free: The Future of a Radical Price by Chris Anderson. To get to my conclusion, Free is the much better of the two. Anderson is a much better writer, while Topscott And Williams have a painfully repetitive and prophetic tone. Their general messages are very much similar, which is that consumers now expect free content and that there is nothing wrong with that.

Anderson, despite being a "mere" journalist, has more and better economics on his side. The way he phrases his argument is that in today's world of bits (in contrast to atoms), the marginal cost of providing a good is so close to zero that it makes sense to round down to zero and get them to pay another way. This version of "free" is categorically different than previous generations' skeptical understanding of "free" stuff because free stuff in the time before computers nearly always meant that you would be paying someway else later (e.g. one month trials). Today, companies can easily afford to give away literally free services if a certain portion of hardcore users is willing to pay for a better service. This is actually just one way, what Anderson calls "freemium", that online businesses now can choose to pay for their operations. On a similar note, Anderson temporarily released his book for free on pdf form soon after it was published, although the links are no longer (legally) up anywhere. You can still score the book for free in an unabridged audiobook format, however. Recommended.

Topscott and Williams fail where Anderson succeeds. This may be unfair since their book was published way(?) back in 2006, while Anderson published his just last year. Still, what is supposed to be a serious business, economic-y book should have a use-by date of at least a decade from when it was published. The authors' discussions of social networking sites focuses on myspace, for example, and it was already being passed by facebook at that point (it should also be noted that facebook would not have gelled quite as nicely with their thesis as myspace does).  The thesis in general is a subtle (but less focused, and paradoxically, more specific) variation on free price- companies will and must begin releasing free IP into the marketplace in exchange for (often) free labor from volunteers. IBM did this with many of their patents and was thus able to plant themselves in the Linux community; they now profit from selling services in connection with that. These anecdotes in general are far less interesting than Anderson's and focus on interviewing company executives as a way of buttressing their statements. While they make a couple references to Ronald Coase's theory of the firm, the arguments in the book are not especially well-endowed in economic theory. Ultimately, the book may have been somewhat readable if it was one hundred pages shorter, but as it is, far too much time is spent sermonizing about their grandoise predictions of the future of business - with predictions that have already been falsified.

This is a topic I'm definitely interested in, and nonfiction publishers have pumped out quite a few books on topics similar to this in recent years. Of these two however, you now know where I stand.

Book Review - The Return of Depression Economics

The Return of Depression Economics and the Crisis of 2008 by Paul Krugman is written by a brilliant Nobel Laureate whose arrogance and intolerance leaves him unable to countenance any deviance from his scientific (that is, scientistic) dogma. He gives a reasonable, mainstream interpretation of recent international economic history, which makes sense, since that is his specialty. I won't agree with everything he said by any stretch of the imagination, but there wasn't a lot that was off-the-wall, either. The rest of the book contains little else besides misstating his opponents' arguments, oversimplifying, and repeatedly applying a single metaphor (the breakdown of the "monetary" system of a babysitting commune/club) to a variety of situations without heeding the mere possibility that the New Keynesian focus on aggregate demand may not actually explain every modern economic crisis.

In my last post from a couple weeks ago, I put up a youtube music video which explained the Austrian Theory of the Business cycle, while giving an actor portraying Keynes to at least state the influential economist's argument (which wasn't really Keynes's argument, although it is what "Keynesians" say today). I don't believe that anything which the actor playing F.A. Hayek said is objectionable or mystical. Nonetheless, when Krugman discusses the pre-Keynesian view of the business cycle that crises are caused by malinvested capital, he portrays the Austrian Theory as this perverse, Dark Ages conception wherein the economy must "pay for its sins." If you click the link, you'll also see that he has his history all screwed up when he makes it out to be "before" Keynes; fiscal stimuli were already proposed before the Austrian theory briefly achieved prominence. Also note that another prominent Keynesian, John Taylor, makes arguments similar to the Austrian theory, minus the element of the capital structure. Is he living in the Dark Ages too, believing the economy has angered a jealous god who now desires to make us pay the indulgence of unemployment?

There are other areas where Krugman's intellectual dishonesty is just as apparent (I say dishonesty because he's too intelligent to just be ignorant about it). He throws out the Community Reinvestment Act as a contributor to the crisis (an area I actually agree with him on in the grand scheme of things) because it was first passed in 1977, altogether ignoring that conservatives argue that it was later legislative alterations upping enforcement which caused problems. Krugman also brusquely dismisses any form of supply side economics as being anything more than the garbled popular interpretation academic debates by conservative ideologues, even though supply side economics is a distinct school of macroeconomic thought, with notable academics like Arthur Laffer. Nothing I'm saying is particularly arcane or academic; these are issues that people conversant in macroeconomic policy know as common knowledge. That includes, of course, Paul Krugman, but that doesn't keep him from saying otherwise, apparently.

This book is purely ideological. Krugman is sneering and absolutely asinine. Anyone who keeps track of the issues at a slightly deeper level than watching the business channels and reading the Wall Street Journal would see each of the issues I raised immediately. And if it doesn't seem like I brought up an awful lot, I guess I didn't, but that is because everything Krugman says besides these haphazard drive-bys targeting other schools of thought is only asserted; he doesn't actually present other explanations of historical events he provides except to present them as naive (although the ones he chooses to bring up are mostly populist and virtually by definition are naive). His presentation, besides the ridiculous, strained metaphors and ivory tower sneering, isn't terrible. It's well written, definitely, and if you're liberal-but-not-socialist and wanted to feel like you have a handle on macroeconomics, you would probably love it. And that is exactly the target audience of the book, and it will allow them to remain cheerfully ignorant but feeling totally justified in condemning the many failings of the free enterprise system.

Book Review - "Superfreakonomics"

I had low expectations for this Superfreakonomics going in, seeing as how the original mostly annoyed me with its dogmatic empiricality and presumptuous interpretations of humankind's selfish "rationality." Superfreakonomics, while ostensibly similar, ditches both. Ultimately, it reads more like a Malcolm Gladwell book than a popular economics book, except Levitt is competent in his statistical intuition, in contrast Gladwell's tendency to making ridiculous, sweeping assertions at the end of each anecdote he tells.

Emblematic of that fact is the two groups'  (Levitt/Dubner versus Gladwell) telling of the Kitty Genovese murder. While Gladwell uses the anecdote as a particularly blunt object to make a banal point on social psychology in Blink, Levitt discusses it in the context of a pretty nuanced argument about behavioral economics. Levitt's chapter, "Unbelievable Stories about Apathy and Altruism," summarized as, "In which people are revealed to be less good than previously thought, but also less bad," really made me think. To me, at least, Levitt gained a lot of credibility in his criticisms of behavioral economics, a carefully developed thesis against the naive assumptions that go into certain psychological experiments. Other chapters aren't quite as strong, but they are a full step above the level of discourse found in Gladwell.

All of this is a shame, given the backlash against the last chapter of the book, in which Levitt talks about global warming. He has been branded as a global warming denier, which is flatly ridiculous, although some of the calmer criticisms are likely warranted. At the same time, the spin that Levitt puts on many things don't fall so far into the realm of deceit that the chapter is worse than any typical polemic; that is, he accentuates the positive and fails to fully acknowledge the negative. A more rigorous discussion would of course be desirable, but many of Levitt's central points about global warming deserve attention, and I would certainly say that other polemics from the opposite direction like An Inconvenient Truth stretch the truth just as much, if not more, than Levitt does.

Furthermore, a tacit dishonesty that has appeared repeatedly in criticism of Levitt is that his (very inexpensive) solutions do not deal with the loss in biodiversity that will take place should carbon dioxide reach the point that it will begin actually poisoning the oceans. I feel like I'm reasonably well informed, but I only heard of this being a problem at all a few months ago. And not to downplay the negative effects of such losses, but they do not have the potential of destruction as does global warming itself. Quite honestly, I don't think I've heard "the" problem of global warming as being framed in such a way, and in comparison, loss in biodiveristy is a tertiary concern. To jump on Levitt because he didn't fully acknowledge it or "fix" it in his solution his remarkably dishonest by those accusing him of dishonesty. Such criticism is also an implicit defeat, since it implies that Levitt did actually solve the whole global warming part of carbon emissions.

This book was very enjoyable, and I hope anyone who leans left of center will not dismiss it outright based on what they heard. Levitt and Dubner beat Gladwell at his own game. Still, I consider the book to be a failure on a certain level, because I don't really think it's economics anymore. It instead falls into the category of popular nonfiction that doesn't really have a category, straddling the line between economics, sociology, psychology, business, and probably another half dozen other designations. I would group Superfreakonomics much more readily with Gladwell or The Wisdom of Crowds by James Surowiecki (a favorite of mine) or The Long Tail by Chris Anderson or The Black Swan by Nassim Taleb (another favorite) before giving it the popular economics designation. If you heard of Superfreakonomics and want to read it because you want to see economics at work in an entertaining and easily comprehensible way, I wouldn't recommend it. Of the books that are out there which actually do that, I would first recommend The Undercover Economist by Tim Harford, which can teach you a lot. Superfreakonomics is excellent for what it is. It's just not really economics.

Mises.org Audiobooks

The Ludwig von Mises Institute (mises.org) has maintained an impressive collection of free economic literature for a while now, ranging from the seminal work of Austrian economics, Mises' own Human Action, to the earliest bits of esoterica published by free market journalist Henry Hazlitt. The institute possesses the copyright to these works and keeps them in print, but we're treated to these .pdfs out of nothing but the Austrian evangelism in the hearts of its trustees. While I've been haphazardly perusing the contents of the site for the last year, feeling like I've been given the keys to the library of babel, I did not notice until very recently that the institute has gone through the trouble of recording .mp3 audiobooks out of their most popular works. For free. Right this moment, you can legally click on that link and download anarcho-capitalist Murray Rothbard's "The Case Against the Fed" to your iPod. Or, perhaps you're in the mood for some [not at all] light fiction, like Old Right journalist Garet Garrett's "The Driver"? And of course, for reasons I frankly don't understand, the institute apparently paid a professional narrator to record all 900 pages - almost 2 days of audio - of Human effing Action (or he volunteered to narrate it, which is even more frightening).

Anyways, it isn't quite fair or nice of me to make fun of a nonprofit think tank which promulgates a radical economic philosophy that comes very close to my own. In fact, I can't overemphasize how valuable of a service the production of these audio files is. Instead of listening to idiotic sports radio when commuting, I listened to a couple of the books listed in recent weeks: "For a New Liberty" by Rothbard and "The Law" by Bastiat. Neither of those is enough of a true econ book for me to want to get into here, but both are decent enough polemics. Both, however, are extreme in every sense of the word and I would not wish their ferocity upon any political moderate looking to broaden his/her knowledge. If you are said moderate, you should probably start here before jumping in anywhere else.

Book Reflection - "A Conflict of Visions"

A Conflict of Visions by Thomas Sowell is the best book that I've read for a while. For me, at least, it was one of those books whose thesis was on the tip of my proverbial tongue, but I could not put into words before having read it. Partially, that's because I've read another similar book by Sowell, The Vision of the Anointed, which, despite coming out a few years after Conflict, seems less developed  and more transparently partisan. Although I'll have to think about it much more, Conflict may be the best, closest exposition of my libertarian-ish point of view, with its epistemic framework justifying limited, non-interventionist government all the while emphasizing: Yes, I wish poor people weren't poor; or Yes, I want criminals to become active members of society; but that setting those outcomes as political goals is just going to screw everything up!

Let me take that back a little bit. Sowell demarcates two broad "visions" of how the world operates - the "constrained vision" and the "unconstrained vision"- while refusing to remain unnecessarily dogmatic about how issues must fit with one or both of them. The unconstrained vision sees all knowledge as collectible and knowable by all, and that there are groups of people out there that have been able to aggregate it rationally and find solutions to the problems plaguing society. This vision seeks to identify problems in the results of social processes, such as poverty, to intervene and come up with a solution.

The constrained vision sees knowledge as being necessarily dispersed among all individuals and therefore impossible to meaningfully aggregate in the mind of anyone. This knowledge is expressed and utilized through systemic processes to create optimal outcomes. In addition to the "obvious" systemic process, the free market, Sowell also argues (leaning heavily on F.A. Hayek) that institutions like tradition, rule of law, common law, and the family also possess this form of information. The constrained vision looks at these institutions and understands them further to communicate the incentives which properly motivate people to perform socially beneficial behavior.

To restate succinctly: the unconstrained view focuses on results and asks how a situation may be made better. The constrained view focuses on the process and seeks to avoid the destruction of society.

Sowell, obviously coming from the constrained vision (as do I), maintains an even-handedness in discussing either vision and insists that most political disagreements come from this conflict of visions, not from people being "stupid" or "evil". He provides a list of a surprisingly broad (although econ-heavy) group of philosophers which exemplify either vision. Among the unconstrained visioned, he lists William Godwin, Jean Jacques Rousseau, Voltaire, Condorcet, Thomas Paine,  George Benard Shaw, Harold Laski, Thorstein Veblen, John Kenneth Galbraith, Ronald Dworkin, and Earl Warren. His describes as constrained the views of Adam Smith, Thomas Hobbes,  Edmund Burke, Alexander Hamilton, Oliver Wendell Holmes, Milton Friedman, Thomas Malthus, and F.A. Hayek. My nitpicks are limited to the fact that Sowell seems to cite Godwin, Dworkin, and Hayek a bit too much relative to their popularity, which only suggests he was struggling to find effective citations in heavier hitters. Secondly, and although this is probably pretty stupid of me to say, but I wish he didn't cite Hobbes, Hamilton, or Malthus as those of the constrained vision, because I'd rather not be associated with any of them.

I should also probably say that the reason why I ended up reading this book over Sowell's approximately 500,000 other bits of popular nonfiction was that Steven Pinker, of all people, recommended it. It's not often that a Harvard University professor stands up and takes notice of a book on political philosophy by some old curmudgeon free market type like Sowell, so I figured that I, hopeful future curmudgeon free market type, better get around to reading it. Albeit, Pinker doesn't praise Sowell for turning him into an extreme right-winged libertarian. Instead, he gives Sowell credit as coming the closest in A Conflict of Visions of articulated his point in The Blank Slate. In that, Pinker argues (and I'm going off of wikipedia here since I didn't actually read it yet) against the concept of tabula rasa, which is an arcane, pretentious way of saying that humanity comes into this world as a figurative "blank slate." If you squint a bit, you can see the similarity. The constrained view places limits and intrinsic behavior patterns in humans (Pinker would describe from the standpoint of evolutionary psychology) and wants to create incentives that allow society to function best. The unconstrained view sees humans as a "blank slate" that alternative social organization can improve upon. I don't want to go too far in discussing this because I'm planning on reading The Blank Slate in the near future and may want to talk about it then, but I'd like to give you another reason for wanting to A Conflict of Visions.

One house-of-cards-ish aspect of the book is Sowell's dichotomy between the constrained and unconstrained, and I think it deserves to be looked at a bit more. He admits as much, as I said already, that not every issue fits perfectly, but he also argues that it fits surprisingly well. Mostly, I agree, if for no other reason, then from the standpoint of a single question- does knowledge exist primarily in a form that can be clearly understood and articulated? If you answer yes, you're going to hold the unconstrained vision, no matter what end of the political spectrum you find yourself in. Yes, that includes libertarians, with the very easy example of Ayn Rand. I'm also guessing that anyone answering "yes," has been very confused by the contents of this entry, and while I hope I piqued your interest, the arguments as to why the unconstrained view wouldn't be the case are probably beyond the scope of what I'm trying to accomplish here.

I'd rather discuss the one area that I think Sowell screwed up. As I alluded to, there are portions of the book that are very transparently leaning completely on Hayek. According to him, as Sowell, different bottom-up systems, namely, the market, the family, common law, rule of law, traditions, miscellaneous taboos, and a half dozen other things I'm not thinking of this moment, were developed over a long period of distillation. Meaning, these processes are probably with us today because they helped their respective cultures survive and flourish in competition with others. That isn't to say that those cultures are on some deeper, philosophical level "better" than the ones that didn't, but that through, some (other) stochastic process, certain groups created institutions which were more conducive to the growth of advanced civilization than others.

What Hayek then considers and Sowell doesn't is to group these institutions into what institutions are meaningful only in the "tribe" (the extended family) and those that can be extended to society in general. The market and legal conventions obviously should remain a part of government. But attitudes that govern the way we treat our "tribe" do not necessarily translate into society as a whole when we have no expectation for altruistic love. While "traditional" social processes may continue to be important, effective, and applicable, Hayek also argues that fallacious tendencies towards socialism (among other things) are also rooted within the attempt to apply the social morals of the tribe to the extended order (i.e. society).

Related somewhat to that, Sowell takes it way too far in discussing patriotism and the willingness to fight for one's country in the context of the book. While I agree with him that we should maintain our ability to deter enemies, he also says that siding with your country for the sake of it is part of the constrained vision, which I think is silly. And the extent to which it is "constrained" or "traditional" is certainly irrationally tribal and inapplicable to modern warfare involving America's near hegemony. Yes, American lives may be lost, but it takes quite the imagination to say that our failures in Iraq or Vietnam match those of prehistory (when losing meant the men were killed and the women and children sold into slavery) when human tendency towards patriotism was probably developed. Sowell nearly goes as far as saying that we should only be counting deaths on the American side of the ledger when waging war; while I don't think we should be treating lives as fully commensurate (although I understand why some might want to), it's not reasonable to insist that it's only within the constrained view to take such as harsh standpoint. I don't see how it has anything to do with the way in which knowledge exists in society.

I don't want to end on such a sour note, but I don't think I have much else to say. The points I disagree with this book amount to a handful of pages. I recommend it for anyone.

Book Review - "Money, Markets, and Sovereignty"

“Money, Markets, and Sovereignty”, released this year by Benn Steil and Manuel Hinds (both from the Council on Foreign Relations), provides an extensive yet unconvincing justification for both globalism and the gold standard. Polemical in nature, it methodically abstracts first to the Hellenistic philosophy of Stoicism before retracing the steps of free trade, the nature of money, and financial crises throughout history. It concludes with a thesis guaranteed to infuriate nearly everyone: globalism is essential to economic welfare, but it is completely incompatible with monetary sovereignty.

According to the authors, our public policy situation is unique in history. Never before has such an element of free trade ever been before combined with fiat money. The only other episode of extreme free trade, the Western world from the middle of the nineteenth century to World War I, was coupled with the gold standard. This situation brought with it the Humeian concept of the species flow; trade self-regulated with outflows and inflows of gold. Today we see a much different monetary situation, where everything is effectively linked to the dollar and everyone overseas holds the dollar because they don't trust their own government's fiat money. This is not a stable relationship and cannot last indefinitely. America's dollars have taken the place of gold in bank's around the world, and since the Federal Reserve can print as much as it wants, there is no feedback mechanism the market can use to determine the correct allocations of worldwide imports and exports.

There are a few nitpicks that do not necessarily hurt the authors' overall agenda, but render it far less convincing than it could be otherwise. Mainstream economic orthodoxy is ignored all too much. The international conception of free trade is largely dismissed, and they'll say things (paraphrasing, “floating exchange rates is the contrary to free trade”) that a typical economist would find absurd. They may then justify their statement, but they do not adequately demonstrate why the orthodoxy says what it says. In the course of discussing the gold standard and the Great Depression, they bring up Keynesian economics, oversimplify it as being unwarranted concerns about wage inflexibility or debtors being unable to repay debts in the face of deflation, and leave it at that. Again, this doesn't take away from the legitimacy of what they're arguing, but I do not see how they would expect to make inroads into academia and persuade moderates if they are more or less ignoring them.

Secondly, they use empirics rarely, and when they do, they use it very poorly. The handful of regressions that appear are all single variable graphs with blatant heteroskedacity (an econometrics issue which invalidates statistical significance). They didn't really need the graphs and the relationships they were discussing therein could have been explained intuitively, so I don't understand why they even put them into the book. They only detracted from their credibility.

Lastly, they overstated the degree to which the late nineteenth century was truly on the gold standard. The United States had nontrivial barriers for redemption, had a habit of regulating private banks out of existence, was off the gold standard altogether during the Civil War, dragged its feet when getting back on it, and ham-handed it when it finally did. To name just a few of its derivations. The Bank of England was a bit better, but it still had a functioning, regulating central bank which both monopolized the issue of notes and acted as a lender of last resort. This was not free banking. It was not really the gold standard. In fact, it was managed trade and managed (sovereign) monetary policy. The degree to which that is true then is far less than it is today, but it isn't quite as categorically different as the authors pretend.
I like this book, but that's probably only because I already accepted the thesis. Which means that the book is either A) an excuse for confirmation bias on the part of Austrian economists and like-minded goldbugs or libertarians or B) propaganda targeted at people who have not read that much on mainstream analysis of free trade and international economics. I'm inclined to think it's (A) both for the sake of the authors and because parts of it are too technical for a layman to understand 100% (or it's trying to obfuscate by doing so, which would be worse). (A) is still nothing to be proud. The fact of the matter is that this point of view is SO far off the map of mainstream journalists, politicians, and informed individuals that it can't possibly be taken seriously as something that will persuade them. You're not going to convince Ralph Nader and Patrick Buchanan that free trade is good because the Stoics said so, it's part of the classically liberal tradition, and a bunch of economists agree that it will increase general welfare. You're not going to convince the Democratic Leadership Council or free market republicans that we should blow up the Fed because of this interesting-but-weird historical paradigm you set it in (even if they understand what the hell you're talking about). And least of all are you going to convince academia, which will immediately see this style of argument (perhaps rightly) as the work of propagandizing ideologues. I won't blame any of them.