Category: Books
Hayek and Modern Macroeconomics
David Warsh and Paul Krugman try to write Hayek out of the history of macroeconomics. Krugman writes:
Friedrich Hayek is not an important figure in the history of macroeconomics.
These days, you constantly see articles that make it seem as if there was a great debate in the 1930s between Keynes and Hayek, and that this debate has continued through the generations. As Warsh says, nothing like this happened. Hayek essentially made a fool of himself early in the Great Depression, and his ideas vanished from the professional discussion.
Warsh says much the same thing, adding, I am not making this up, a discussion of Hayek’s divorce. Neither Krugman nor Warsh attempt to argue for their positions, it’s all assertion. Both claim that Hayek is famous only because of the Road to Serfdom.
Let’s instead consider some of the reasons the Nobel committee awarded Hayek the Nobel:
Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929.
It is true that many of Hayek’s specific ideas about business cycles vanished from the mainstream discussion under the Keynesian juggernaut but what Krugman and Warsh miss is that Hayek’s vision of how to think about macroeconomics came back with a vengeance in the 1970s.
David Laidler exaggerated but he was much closer to the truth than Krugman or Warsh when he wrote in 1982 regarding new-classical macroeconomics:
… I prefer the adjective neo-Austrian… In their methodological individualism, their stress on the market mechanism as a device for disseminating information, and their insistence that the business-cycle is the central problem for macroeconomics, Robert E. Lucas Jr., Robert J. Barro, Thomas J. Sargent, and Neil Wallace, who are the most prominent contributors to this body of doctrine, place themselves firmly in the intellectual tradition pioneered by Ludwig von Mises and Friedrich von Hayek.
Thus, Hayek was an important inspiration in the modern program to build macroeconomics on microfoundations. The major connecting figure here is Lucas who cites Hayek in some of his key pieces and who long considered himself a kind of Austrian. (Indeed, to the great consternation of some of my colleagues, I once argued that Lucas was the greatest Austrian economist of the 20th century.)
One can also judge Krugman’s claim that “the Hayek thing is almost entirely about politics rather than economics” by looking at who other Nobel laureates in economics cite. Is Hayek ignored because he is just a political thinker? Not at all, in fact in an interesting exercise David Skarbek finds that Hayek is cited by other Nobel laureates in their Nobel talks more than any other Nobel laureate with the exception of Arrow. (The top six cite-getters are Arrow, Hayek, Samuelson and then tied in citations for fourth place are Friedman, Lucas and Phelps.)
Addendum: Here is Pete Boettke and Russ Roberts and David Henderson.
Tabarrok the Statist
Stephan Kinsella in reviewing Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes) for The Libertarian Standard says I am a liberty-hating statist! (Kinsella is upset that I did not come out as a patent abolitionist.) Bryan Caplan, however, says it is a gem that pushed him to extreme patent skepticism. In other mini-reviews, Aretae gives it “three thumbs up” (must be a transhumanist), Robin Hanson thinks I am too rational and Peter Gordon says “Read the book. Spread the word.”
*Reading my Father*
The author is Alexandra Styron, daughter of William, who is portrayed as manic depressive. I found this memoir compelling, and it has been making many “best of” lists. Here is one excerpt:
By all accounts, my sister was a cheerful baby, smart and pretty, with an easy manner. In short, an ideal firstborn. Daddy was enthralled. “Take a lesson from me and don’t get too interested in the child,” Irwin Shaw wrote in a congratulatory letter. “Since Adam’s first birthday, I’ve barely written a word, as it is much more interesting to watch all the subtle and terrible currents that run through a complex human being than to sit at a typewriter and battle with the comparatively flat and lifeless material of art. Dole the child out to yourself in small doses, for your career’s sake.”
You can buy it here.
Launching the Innovation Renaissance
Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes) my new e-book from TED books is now available! How can we increase innovation? I look at patents, prizes, education, immigration, regulation, trade and other levers of innovation policy. Here’s a brief description:
Unemployment, fear, and fitful growth tell us that the economy is stagnating. The recession, however, is just the tip of iceberg. We have deeper problems. Most importantly, the rate of innovation is down. Patents, which were designed to promote the progress of science and the useful arts, have instead become weapons in a war for competitive advantage with innovation as collateral damage. College, once a foundation for innovation, has been oversold. We have more students in college than ever before, for example, but fewer science majors. Regulations, passed with the best of intentions, have spread like kudzu and now impede progress to everyone’s detriment. Launching the Innovation Renaissance is a fast-paced look at the levers of innovation policy that explains why innovation has slowed and how we can accelerate innovation and build a 21st century economy.
Here is a blurb from Paul Romer (NYU):
Progress comes from improvements in both our technologies and our rules. Alex Tabarrok makes a compelling case that in the United States, our rules on patents, education, and immigration are holding us back. If you want to think clearly about policies that matter for growth, turn off the TV, stop surfing the web, and read this book!
I discuss prizes and education in Launching and so was especially pleased to get this endorsement from Tom Vander Ark, formerly the president of the X PRIZE Foundation and the Executive Director of Education for the Bill & Melinda Gates Foundation and now CEO of Open Education Solutions.
If you’re a fan of MarginalRevolution like I am, you’ll want to read Tabarrok’s latest book. If you’re interested in innovation like I am, you need to read Launching the Innovation Renaissance. Alex poses thought experiments from patents to prizes, from health to education to immigration. He skewers Soviet-style employment bargains and offers insightful alternatives to improve our educational system. Alex is occasionally snarky, often witty, always incisive. Read this on your next flight.
FYI, I began this book before I read a draft of Tyler’s book The Great Stagnation and was interested to see that although we share a few common themes that perhaps due to differences in personality Tyler focuses on describing problems while I am more excited to promote solutions!
*Destiny of the Republic*
The author is Candice Millard, the subtitle is A Tale of Madness, Medicine, and the Murder of a President, and the topic is James Garfield, with good bits on Alexander Graham Bell. Excerpt:
Garfield realized with a sinking heart that a large portion of his day, every day, would be devoured by office seekers. His calling hours were 10:30 a.m. to 1:30 p.m., Monday through Friday, and he faced about a hundred callers every day.
…Those who waited outside the White House, moreover, did not want simply to apply for a position. They wanted to make their case directly to Garfield himself. As the leader of a democratic nation, the president of the United States was expected to see everyone who wanted to see him.
And I had not known this:
To the astonishment of the members of Congress, Bliss [the doctor who cared for Garfield and possibly killed him] confidently presented them with a bill for $25,000 — more than half a million dollars in today’s currency…Congress agreed to pay Bliss $6,500, and not a penny more.
Recommended.
Muncie fact of the day
This is from 1891 to 1902, and that is Muncie, Indiana in case you do not know. Get this:
Horatio Alger was by far the most popular author: 5 percent of all books checked out were by him, despite librarians who frowned when boys and girls sought his rags-to-riches novels (some libraries refused to circulate Alger’s distressingly individualist books).
Our culture has changed. There is also this:
Louisa May Alcott is the only author who remains both popular and literary today (though her popularity is far less). “Little Women” was widely read, but its sequel “Little Men” even more so, perhaps because it was checked out by boys, too. The remaining authors at the top of the list — Charles Fosdick, Oliver Optic, Martha Finley, L. T. Meade and others — have vanished from memory. Francis Marion Crawford, whose novels were chiefly set in Italy and the Orient, was checked out 2,120 times, whereas Dickens, Walter Scott and Shakespeare circulated 672, 651 and 201 times respectively. Fiction was overwhelmingly preferred, accounting for 92 percent of books read in 1903.
The article is interesting throughout.
I forgot to put this one on my best non-fiction books of the year list
The New North: The World in 2050, by Laurence Smith.
*The Lives of the Novelists*
Here is a mini-review from today’s FT, from their best books of the year discussion:
Lives of the Novelists, by John Sutherland, Profile, RRP£30
The fruit of decades of reading and research, Sutherland’s quirky compendium offers selective mini-biographies of 294 English novelists including Jeffrey Archer but not, oddly, Lewis Carroll or PG Wodehouse. A witty and enjoyably wide-ranging work.
The book has a remarkable density of information, as virtually every sentence tries to teach you something. I have never read a book quite like it, definitely recommended.
Best non-fiction books of 2011
I’ve already covered best economics books, best fiction, and the very best books. General non-fiction remains missing. It’s been a very good year, and these are the other non-fiction books which I really liked, a stronger list than the year before:
Anatol Lieven, Pakistan: A Hard Country.
Daniel Treisman, The Return: Russia’s Journey from Gorbachev to Medvedev.
Frank Brady, Bobby Fischer’s Remarkable Rise and Fall — from America’s Brightest Prodigy to the Edge of Madness.
Javier Cercas, The Anatomy of a Moment: Thirty-Five Minutes in History and Imagination. In the waning of Franco’s time, how did Spain turn away from military rule and toward democracy? Can a mediocre man make a difference in history simply by retreating at the right moment? Can a political life boil down to a single response, under gunfire at that? Half of this book is brilliant writing, the other half is brilliant writing combined with obscure, hard-to-follow 1970s Spanish politics (does Adrian Bulli understand the life of John Connally? I don’t think so). Cercas is a novelist, intellect, and historian all rolled into one, and he is sadly underrated in the United States. There’s nothing quite like this book. On top of everything else, if you can wade through the thicket, it is an excellent public choice account of autocracy.
Hamid Dabashi, Shi’ism: Religion of Protest.
Jonathan Steinberg, Bismarck: A Life. This vivid biography brings its subject to life through the extensive use of correspondence and quotation. The reader gets an excellent feeling of how Bismarck’s government actually worked, his intensity and also his mediocrities, and also the importance of Bismarck in building up Germany as a European power. The story is as gripping as a good novel. Sadly, almost no attention is paid to the origins of the welfare state. Still, this has received rave reviews and rightly so.
Daniel Richter, Before the Revolution: America’s Ancient Pasts.
Jacques Pepin, The Origin of Aids.
Charles C. Mann, 1493: Uncovering the New World Columbus Created.
Mara Hvistendahl, Unnatural Selection: Choosing Boys over Girls, and the Consequences of a World Full of Men.
David Gilmour, The Pursuit of Italy: A History of a Land, its Peoples, and their Regions.
Joshua Foer, Moonwalking with Einstein: The Art and Science of Remembering Everything. Funny thing is, I read this on Kindle, didn’t have a physical copy to put in “my pile,” had no visual cue as to the continuing existence of the book, and thus I forget to cover it on MR. I enjoyed it very much.
John Gimlette, Wild Coast: Travels on South America’s Untamed Edge. This book covers Guyana, Suriname, and French Guiana. A revelation, I loved it. Could Gimlette be my favorite current travel writer?
Robert F. Moss, Barbecue: The History of an American Institution.
Anna Reid, Leningrad: The Epic Siege of World War II.
John Sutherland, Lives of the Novelists, A History of Fiction in 294 Lives. I’ll blog about this remarkable book soon.
What is striking is how many “big books” make this list, and that is exactly what you would expect in an age of Twitter, namely that a lot of shorter books are being outcompeted — aesthetically though not always economically — by on-line reading.
Here is the best “best books” list I’ve seen so far, apart from my lists of course.
*Currency Wars*
The author is James Rickards and the subtitle is The Making of the Next Global Crisis. This book is rapidly proving influential, though you will not see it reviewed in all of the major mainstream outlets. The so-called “Right” is walking away from “1990s WSJ Op-Ed CPI bias what’s so bad about poverty anyway?” narrative and looking for alternatives. This is one of them, excerpt:
In sum, Chaisson shows how highly complex systems such as civilizations require exponentially greater energy inputs to grow, while Tainter shows how those civilizations come to produce negative outputs in exchange for the inputs and eventually collapse. Money serves as an input-output measure applicable to a Chaisson model because it is a form of stored energy. Capital and currency markets are powerful complex systems nested within the larger Tainter model of civilization. As society becomes more complex, it requires exponentially greater amounts of money for support. At some point productivity and taxation can no longer sustain society, and elites attempt to cheat the input process with credit, leverage, debasement and other forms of pseudomoney that facilitate rent seeking over production. These methods work for a brief period before the illusion of debt-fueled pseudogrowth is overtaken by the reality of lost wealth amid growing income inequality.
I don’t understand the monetary theory lying behind this claim, nor do I agree with the fascination with gold. The more important point is that if you dismiss this book as “unlikely to be influential” you are not in touch with the broader intellectual currents of our time.
*Pacific Crucible*
The author is Ian W. Toll and the subtitle is War at Sea in the Pacific, 1941-1942. I loved this book and it should join my list of the very best books of the year. Every page was gripping and instructive. Here is an excerpt on “how to leave the dollar zone”:
The word HAWAII was overprinted on all paper currency — in the event of invasion the U.S. Treasury would declare the bills worthless.
I very much liked this passage:
Holmes added that a cryptanalyst “needs only time, patience, an infinite capacity for work, a mind that can focus on one problem to the exclusion of everything else, a photographic memory, the inability to drop an unsolved problem, and a large volume of traffic.”
I learned that Hawaii never interned its Japanese (with no problems), why the Japanese didn’t go after Australia and why they should have, and why the Japanese failed in the Battle of Midway. I had not known that MacArthur received a payment of $500,000 from the Philippine Treasury in 1942, and the U.S. knew about it and let him keep it.
Highly recommended, even if you don’t care about naval warfare per se. I am now ordering Toll’s other book.
*Making it in the Political Blogosphere*
The author is Tanni Haas and the subtitle is The World’s Political Bloggers Share the Secrets to Success. There are interviews with Arianna Huffington, Jane Hamsher, Nick Gillespie, Lew Rockwell, Juan Cole, Matt Yglesias, Kevin Drum, yours truly, and others. Here is a comment from Kevin Drum:
When I started out, there was much more of a tendency to engage with the other side. Liberals and conservatives would attack each other, but we’d also engage with each other in at least a moderately serious way. Today, you get almost none of that. There’s very little engagement between left and right. And what engagement there is tends to be pure attack. There’s no real conversation at all. That’s a difference that I think professionalization has brought about. The political blogosphere has become more tribal.
A good point, but I blame professionalization less than Kevin does. Maybe some of us are simply a bit sick of each other, and the accumulated slights and misunderstandings weigh more heavily on our emotional responses than does the feeling of generosity from working together in the same “office.” I predict that a given experienced blogger is likely to feel more sympathy for new bloggers, but on average I doubt if the new bloggers are better or more tolerant.
Which means we mostly have ourselves to blame.
Addendum: Nick Gillespie comments.
Sentences to ponder
It is estimated that up to 40 percent of prescriptions go unfilled…
That is from Ezekiel J. Emanuel, here is more. I read somewhere that Zeke has a memoir under contract somewhere, but now Google fails me. Can this be true?
*Enriching the Earth*
The author is Vaclav Smil and the subtitle is Fritz Haber, Carl Bosch, and the Transformation of World Food Production, excerpt:
…the single most important change affecting the world’s population — its expansion from 1.6 billion people in 1900 to today’s 6 billion — would not have been possible without the synthesis of ammonia.
…All the children to be seen running around or leading docile water buffaloes in China’s southern provinces, throughout the Nile Delta, or in the manicured landscapes of Java got their body proteins, via urea their parents spread on bunded fields, from the Haber-Bosch synthesis of ammonia.
Another wondrous discovery from late 19th century/turn of the century Germany, though on the other side of the balance Haber played a critical role in inventing the German poison gases used in World War I. Have I mentioned that Vaclav Smil is one of the most important thinkers/writers today, in any field? It is worth reading all of his books, and there are not many people (with many books that is!) you can say that about.
By the way, many people think that Clara Immerwahr (Fritz Haber’s first wife, and the first female PhD at the University of Breslau) looks like Taylor Swift:
*Race Against the Machine* and TGS, a comparison
Race Against the Machine is compared to TGS in this forthcoming Economist article, and see this earlier piece. Short bit:
Erik Brynjolfsson, an economist, and Andrew McAfee, a technology expert, argue in their new e-book, “Race Against the Machine”, that too much innovation is the bane of struggling workers. Progress in information and communication technology (ICT) may be occurring too fast for labour markets to keep up.
I agree a version of this is happening (though I wouldn’t use the phrase “too much”) and I don’t see my analysis as so different from theirs. Possibly the three of us could agree on these propositions:
1. IT has seen rapid innovation since the 1990s, and it has led to great gains, but not so much for ordinary workers.
2. Had innovation gains been much greater in non-IT sectors, median living standards would have gone up much more.
I’m not sure if Erik and Andrew would agree with my:
3. Innovation gains in non-IT sectors have been much slower than usual (by post 1870 standards) in the post 1973 period.
I would make a few other points which I suspect they would not agree with, or would wish to reframe:
4. IT productivity was highest in 1995-1998 and those were splendid years for wages and the labor market. That is one reason why I focus on the “glass half empty problem” (low non-IT innovation post 1973), rather than the “too much IT innovation for labor’s good” argument. I do think the “too much innovation for labor’s good” argument explains why the productivity statistics from 2001-2004 didn’t translate into significant real wage gains and that is an important phenomenon. But it’s at the side of my argument rather than central to it. It’s central to their argument.
5. The S&P 500 has been flat, in real terms, for well over a decade. I thus see a truly gloomy productivity picture post 1997-98 or so, weighing IT successes against other problems and slowdowns. (I see this as one issue for their account, since they are asserting good times for capital in recent years.) More generally, the productivity picture for the U.S. between 1995-1998 is quite good and IT-based, and 1973-1995 is poorly understood, highly mixed, but overall still quite inadequate with the 1970s and early 1990s having been worse than most people realize. Overall I see the bad productivity years as bad years for the workers, not vice versa. I also see the broader technological stagnation as setting in well before the IT boom of the 1990s.
6. The biggest employment problems, namely those of late, have come when output is low and/or falling, not rising. That is another reason why my agreement with some of their major propositions comes at the side of my argument rather than being central to it. I understand how the TGS argument fits into the cyclical story of 2007-2011 (excess confidence and overextension, Minsky moment, AD contraction, AS problems slow down the recovery), but I don’t understand how the Race Against the Machine story interacts with the cycle, or if it is even supposed to.
I had a long chat with Erik earlier in the week and found large areas of agreement on many matters (without wishing to speak for him in any formal sense, don’t attribute any of this to him!). We also have quite similar predictions about the future, and this blog post is solely about the past. These “side arguments” I am referring to are already in the process of becoming more central and they will shape our future. The story of a largely stagnant median will become progressively less important relative to the story of labor market polarization, and I suspect that over time Erik and I (I didn’t get to chat with Andrew as much) will agree increasingly.
Addendum: Arnold Kling comments.