This is from Elias Canetti’s memoir, volume three, The Play of the Eyes:
When friends had told him that someone had praised The Man Without Qualities to the skies and would be overjoyed to meet him, Musil’s first question was “Whom else does he praise?”
I am happy to praise these memoirs too.
That is the new and oddly underreported book by Mark Kurlansky, about Clarence Birdseye and the early history of frozen food. I found it consistently good and enjoyable, here is one excerpt:
Birdseye asked himself many questions about food and survival in the subarctic. Why, he wondered, did people in Labrador eat lean food in the summer but a tremendous amount of fat in the winter? The ultimate winter survival dish was something he called bruise, which is sometimes known as brewis, a combination of dried and salted food mixed with a tremendous amount of fat. Usually it was salt cod, hardtack, flour, and water, baked hard and mixed with cubed salt pork, and then boiled and served like a hash with huge globs of melted pork fat. Bowls of melted fat were often served on the table to spoon onto food. Birdseye laughed when heard a host say, “Have some more grease on your bruise,” but everyone then took a few spoonfuls. It was a Sunday morning breakfast favorite. He remembered that people also ate a great deal of grease in the Southwest, where it was hot in the summer. They would open a can of corn and eat it with pork fat.
Here is one picture of fish and brewis. I found this book especially interesting on the early history of European-settled Labrador.
You’ve heard how microcredit was born. In a nation long shackled by British rule and wracked by famine, a brilliant man was seized with a desire to strike a blow against the poverty all about him. Defying common sense and the skepticism of his colleagues, he began lending tiny sums out of his own pocket to poor people, which they were to invest in tiny businesses. He demanded no collateral, only the vouchsafe of the borrowers’ peers. The borrowers rewarded his faith with punctual repayment. In time, his experiment spawned a national movement that delivered millions of loans to poor men and women and broke the power of money lenders.
The hero of this story is…Jonathan Swift, author of Gulliver’s Travels.
Swift developed the main ideas of microcredit–small sums, co-signers on the loan who knew the recipient, loans to women–in the 1730s. Although the system did not grow large in his lifetime, by the 1840s Irish microcredit institutions served a fifth of the population of Ireland.
The quote and information are from David Roodman’s excellent book Due Diligence: An Impertinent Inquiry into Microfinance. Roodman is a remarkable scholar, equally at ease collecting information in the slums of Bangladesh as writing complex computer code, and Due Diligence is a very good book not just on microcredit but on development more generally.
(Loyal readers may recall that Tyler also noted Swift’s connection to microcredit in a post from 2006.)
…experts and consumers agreed in aggregate about the quality of a book.
Amazon reviewers were more likely to give a favourable review to a debut author, which the Harvard academics said suggested that “one drawback of expert reviews is that they may be slower to learn about new and unknown books”.
Professional critics were more positive about prizewinning authors, and “more favourable to authors who have garnered other attention in the press (as measured by number of media mentions outside of the review)”.
Discovering that an author’s connection to a media outlet increased their chances of being reviewed by roughly 25%, and that the resulting review was 5% more favourable on average, the academics then investigated whether this was down to collusion.
They concluded that the bias was down to the media outlets aiming their reviews at their audience, “who have a preference for books written by their own journalists”, rather than collusion.
Here is more, written up by The Guardian. The research paper, by Michael Luca, is here. It is not his first published paper, and he teaches at Harvard Business School.
Rather than demanding an end to default-prone subprime lending funded with hair-triggered short-term debt, bank critics have, ironically, demanded an end to proprietary trading, which they view as unnecessarily risky, but which was inconsequential to the cause of the Crisis. In a world where banks underwrite and trade risk, what constitutes proprietary trading? When a bank takes credit-default risk by making aloan, is it taking proprietary risk? It is, without a doubt. But loaning money is what banks do. When a bank like Goldman Sachs seeks to unwind that risk by shorting mortgages prior to the downturn, is that proprietary trading? Yes. So is borrowing short and lending long. With banks now primarily underwriting, pricing, and trading risk rather than merely funding loans, restrictions on proprietary trading unnecessarily imperil banks and distort capital markets to restrict banks to only the long side of the trade. restricting banks to long-only positions substantially increases withdrawals in the event of a panic.
I would stress that the real problems come when the overwhelming majority of banks go heavily long on some fairly simple assets — usually real estate — in an overly optimistic way. Think Ireland, Iceland and the United States during the last crisis, among many other instances. Once the short-term debt behind those banks starts to unravel, all hell breaks loose and the central bank can at best limit but not stop the carnage. That is the main problem financial regulation should be trying to address and it isn’t easy.
I am much less worried about “rogue trades” or “rogue investments” at individual banks (or non-banks), even very large ones. Such trades surely exist: think LTCM or even Continental Illinois. Ex post, there is usually a way to plug the gap, if only by having the Fed backstop a deal. After all, the rest of the banking system is sound in these scenarios. Prop trading may increase the chance of this second problem, but arguably it decreases the chance of the first and larger problem.
You can buy Conard’s stimulating book, Unintended Consequences, here. Conard, by the way, does object to how the government implicitly subsidizes the short-term debt of the major U.S. banks and he views that as the root of the problem behind proprietary trading, not the trading itself.
Edward Conard, author of Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong, offers a hypothesis. He suggests the underlying cause is the (relatively recent) prevalence of risk-averse foreign capital:
With an abundance of risk-averse offshore capital, the constraint to increase investment and risk taking has been the capacity of risk underwriters, not capital providers. Today, Wall Street uses financial innovation to decouple risk from investment capital and predominantly sells risk to risk underwriters, which is no different from an insurance broker or insurance company. Wall Street deconstructs, prices, underwrites, syndicates, trades, and makes markets for risk. Because Wall Street now performs the more abstract function of syndicating risk rather than merely raising capital, people — even people as well informed as former president Bill Clinton — have naively concluded that these transactions serve “no economic purpose.” Risk underwriting is every bit as important as funding investment, perhaps even more so in today’s economy where the trade deficit leaves us awash in risk-averse short-term debt to fund investment provided someone else underwrites the risk.
So far I find parts of this book brilliant and other parts dead wrong. In any case it is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.
There is much in the review, excerpt:
In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resource curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn’t explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why. Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on reversal of fortune surprisingly doesn’t mention the authors’ own interesting findings about how the degree of reversal depends on prior wealth and on health threats to Europeans.
Do read the whole review (that is not just the usual cliched command to do so), and I will gladly link to any response by Acemoglu and Robinson. Here is Diamond’s bottom line:
My overall assessment of the authors’ argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That’s enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensible to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren’t economists.
1. Héctor Abad, Oblivion: A Memoir. A charming and intense memoir of a boy and his relationship to his father. It seems to be true, but it can be read profitably as either non-fiction or the equivalent of fiction. Recommended. Abad is still an underrated author in the United States.
2. Steve Coll, Private Empire: ExxonMobil and American Power. It’s OK enough, and certainly informative, but I found it a little boring. Somehow the organizing principles behind the material needed to be stronger.
3. Michael Dirda, On Conan Doyle: Or, the Whole Art of Storytelling. Short meditation on both the merits of Doyle beyond Sherlock Holmes and why fiction, and our responses to it, are and should be deeply strange. I very much liked it.
4. Nell Freudenberger, The Newlyweds. For modern fiction this is not too trendy, and it ends up being deeper than one expects. It is the story of an American man who meets his Bangladeshi bride over the internet and flies to Bangladesh to woo her and bring her back.
5. Arthur Herman, Freedom’s Forge: How American Business Produced Victory During World War II. I wish the book had more explicit economic content, but it is nonetheless an interesting look at the supply-side improvements which helped the American economy during World War II.
That is the new book by James Fallows. On the surface it is a book about aviation in China, but it is also one of the best books on China (ever), one of the best books on industrial organization in years, and an excellent treatment of economic growth. It is also readable and fun.
Highly recommended, it is sure to make my best books of the year list.
Solomon’s Knot: How Law Can End the Poverty of Nations has received less attention than some of other recent big books on development but I found it to be rich in institutional detail, wisdom and practical advice. The authors, Robert
Cooter and Hans-Bernd Schafer, are law professors and as befits their expertise they spend less time on why institutions differ and more on the details of how institutions differ–there is more in Solomon’s Knot, for example, on issues like relational finance, venture capital, joint-stock companies, contract law and bankruptcy law than in other books with a similar theme.
Here is one idea that I had not previously considered, should judges enforce contracts in the gray market?
…businessmen and workers must violate many regulations in order to get things done, especially in poor countries. Thus a builder in Cairo violates building restrictions, a worker and employer in Brazil evade employment taxes, and a manufacturer in Russia runs a factory without a permit to do business.
Throughout the world, much of the economy operates in the “grey market”…a survey of 145 countries estimated that gray
markets activities produce between 30% and 40% of GNP (gross domestic
product). The gray market’s share of total employment is even higher than its
share of GNP.
Judges in many countries will not enforce contracts in the gray market considering them null and void due to the extra-legality. Even when the contracts might be enforced, participants fear that they will be otherwise punished if they make use of the legal system. Cooter and and Schafer argue, however, that such contracts should be enforced and a strict separation be kept between law and regulation. They point to Germany as an example:
…Unlike many developing countries, German legal doctrine and practice avoid this
result. German regulatory violations seldom void contracts, and German
prosecutors seldom act on regulatory violations revealed in a civil trial. Thus a
gardener in the German gray market who does not pay taxes can sue an
employer for unpaid wages without fear of triggering regulatory prosecution.
And a customer who buys a restaurant meal at an hour when law requires the
closing of restaurants still has to pay his credit card bill. The same applies for a
construction contract that violates zoning regulations, or a credit contract that
violates banking regulations. Although seldom discussed in constitutional law,
separating the civil courts from the regulators and police is an important part of
the separation of powers, especially in countries with a large gray market.
The case for separation is strongest for gray markets because the underlying acts are not per se illegal but could the argument be extended even to black markets? Jeff Miron and Miron and Zweibel (JSTOR) argue that one reason that drug prohibition increases violence is that when courts are unavailable, violence becomes the least costly method of dispute resolution. What Cooter and Schafer suggest, however, is that it is at least conceivable to have a situation where the act remains illegal but the actors can resolve disputes in court. Imagine, for example, a drug user taking a dealer to court for cutting the product or a prostitute suing a john for not paying.
It seems naive to expect that we would enforce a rule not to use information from civil court to prosecute illegal behavior. Yet there is a precedent; if a police officer obtains evidence illegally, even without intent, then we throw such evidence out of court. A very strange incentive system. Nevertheless, if we can let murderers go free because the evidence against them was obtained illegally then perhaps we could also let drug dealers bring their contract disputes to court without on that basis prosecuting them for drug dealing.
Addendum: Here is a good interview of Cooter by Nick Schulz and an excerpt from the book.
Here is my essay from Washingtonian magazine, adapted from An Economist Gets Lunch, about what it is like to shop at a Chinese supermarket for a month. Here is one bit about search theory:
Then there’s getting your cart down the aisle. The main aisles fit two carts side by side, barely. It’s hard to get down the aisles, and that discourages browsing. My initial tendency was to search the empty aisles, if only because I knew I could get down them without much delay. This obviously isn’t the best strategy, and it led me to spend too much time looking at the highly durable items, which are purchased less frequently by other customers. Overall, I felt far less mobile than in an American supermarket. I started going later at night and avoiding the weekends to circumvent these problems.
It’s common to see a Great Wall customer spending a solid minute or two inspecting the quality of a pineapple, thereby blocking that portion of the aisle. The customers who seek green peas go through the bin pea by pea. One woman became entranced picking out the best garlic chives, and a man asked for sales help in selecting the best clams–by what standard he judged them I’m not sure. No one was much enamored of the scooping technique for filling a plastic bag.
A few times recently Paul Krugman has raised the issue of structural unemployment in the Great Depression, so I thought I would offer a look at what has been written on the topic. Here is Richard J. Jensen, from a survey article:
Economists agree that Keynesian stimuli would not have helped structural or hard-core unemployment, only cyclical unemployment. As Table 1 suggests, about half of the unemployment was cyclical from 1931 through 1933; it was then that stimulus was needed and might have worked. By 1933, the appearance of a large, new, structural/hard-core element raised the natural level of unemployment from the 5 to 6 percent range to 12 to 15 percent. If a Keynesian stimulus had been tried and it had eliminated cyclical unemployment, the remaining unemployment still would have been io to 15 percent. Further fiscal or monetary stimuli would have resulted in inflation.
Later he moves directly to the key question:
…we need to discover how the war cured hard-core unemployment permanently. On the supply side, the growth of high schools and colleges, the postwar draft, and Social Security retirements removed young and old from the labor force. Wartime training and experience, in industry and in the military, made workers more productive, and upgraded skills so that the supply of unskilled labor was much smaller. In terms of efficiency wages, employers reshaped jobs to suit the skills and increase the productivity of available workers. They had to use men (and women) whom they would not have dreamed of hiring a few years before.
Personnel management became even more important. The number of industrial-relations staff rose from 2.5 per 1ooo employees in 1937 to 8.o in 1948. They were charged with improving productivity despite the extraordinary shortage of manpower, the high quit rates, the government-imposed wage freeze, and the new strength of labor unions. They dropped categorical restrictions against the poorly educated, the unemployed, women, the old, the handicapped, and sometimes, in spite of intense resistance, blacks. Recruitment of new workers became an art form, with sound trucks blaring in the streets beseeching people to come to work and earn big money. Jobs were restructured so that fewer skills were needed. Intensive in-shop and in-school training programs reached millions. Anyone with a modicum of skill was rapidly promoted, even to the status of foreman or instructor. The results further justified the use of efficiency-wage procedures, but this time efforts were made to find the right niches for workers who had been “hopelessly unemployable” in the 1930s.
In other words, the path out of high unemployment involved much more than a mere reflation of nominal values. (By the way, when it comes to terminology I might not use the phrase “structural unemployment,” but it also is not “simple cyclical unemployment.” I would say that in some circumstances the traditional distinction between cyclical and structural unemployment breaks down, but note that in terms of its parent literature this piece is using the terms properly, even if they sound somewhat off in a 2012 blogosphere context.)
In any case, history suggests that stimulus policy has to take some very specific forms to reach those “called cyclically unemployed by some, structurally unemployed by others” unemployed workers and that is the practical upshot.
Another practical upshot is that you still can believe in labor market hysteresis, as presented by DeLong and Summers. Without some analysis like the above, the DeLong/Summers claims are otherwise contradicted by American post-Depression productivity once joblessness lifted. Where were the long-term scars? Well, they were fixed but it wasn’t easy. So the relevance of hysteresis can be saved, but we still are left with proper stimulus being very difficult to do, unemployment being quite sticky, and proper policy requiring lots of structural attention. The Great Depression is evidence for all of those views, not against them.
Here is one more bit, with a sad sting at the end:
The war, by removing millions of prime men from the labor market, by restructuring the work process, by subsidizing wages, and by massive retraining, finally gave the private sector the methods and the incentives to rehire the hard-core. Never since has hardcore unemployment affected more than one worker in a hundred.
Michael A. Bernstein’s book, The Great Depression: Delayed Recovery and Economic Change in America, 1929-1939, also considers the significant role of structural unemployment (don’t forget my taxonomic caveat) in the Great Depression.
It is important to learn from this literature rather than dismiss it.
The review is here, by Will Dean, the summary is here:
If you’re interested in how the food and restaurant industries work – and how to exploit those factors for your own good – then Cowen’s work is indispensable.
And:
All good advice. It has no recipes, few restaurant recommendations and no famous chef names, but An Economist Gets Lunch might be the most interesting book about food you read all year.
The subtitle is The Surprising Payoff of Trial-and-Error for Business, Politics, and Society, with an emphasis on RCT.
This is a truly stimulating book, about how methods of controlled experimentation will bring a new wave of business and social innovation. Here is an Eric Posner review. Here is a Kirkus review. There will be more. Kevin Drum offers good remarks.
That is one of Virginia Postrel’s best books, you can now buy it on Kindle for $2.99. Mine is the second Amazon review, Jerry Brito’s is first.
