Category: Books

The new Stiglitz book

Last night I read my newly-arrived copy of Joseph Stiglitz’s The Roaring Nineties: A New History of the World’s Most Prosperous Decade. As you might expect from Stiglitz, it is well-written and smart.

His key theme is that, although the nineties were a wonderful time economically, they also brought some dangerous trends. Most of all, the capital market ruled resource allocation, and economic policy, like never before. We misallocated resources on a tremendous scale, such as with the telecommunications boom and bust. Stiglitz also argues against the deregulation of the nineties, as too little was done to reign in corporate abuses, such as Enron. He also believes that the Clinton administration was too obsessed with balancing the budget.

My hesitations about this book are simple: We are never given much of a recipe for how things could have been better. Stiglitz opposes the repeal of Glass-Steagall, and the Clinton telecommunications reforms. To be sure, these policies were problematic in some regards, but they did not drive the excesses of the 90s. To what extent can government policy limit a dot.com or fiber optic boom? To what extent can government policy, as opposed to intra-firm institutional reforms, limit corporate conflicts of interest? We do not get much of an inkling on these critical issues.

Occasionally Stiglitz gets specific, but his examples do not help his case: “Would the bubble have been averted if only we had only supported better accounting of executive stock options? We will never know the answer.” But the answer is almost certainly “no,” most commentators regard the option accounting issue as a red herring, here is one treatment of many.

It is OK to write a pure critique, rather than a recipe for change, but the book promises “a coherent and convincing alternative.” That is precisely what we do not get. The final chapter “Toward a New Democratic Idealism” also does not move beyond the vague. It is not enough to say we had too much deregulation and forgot our concern with social justice.

Stiglitz also expresses concern that the Clinton administration pushed “market fundamentalism” on the poorer countries of the world, while rejecting it at home. I cannot agree here. Even if you take the Stiglitzian worldview as correct and given, the quality of government in the developed countries is much higher than in the developing world. Admittedly the quality of the market is often higher as well, but why promote a regulatory regime that will bring corruption and privilege? Most poorer countries simply cannot count on good and honest regulation, and they don’t have Joe Stiglitz as the main economic advisor to their Presidents.

The new Robert Putnam book

Robert Putnam has a new book out, with Lewis Feldstein, Better Together: Restoring the American Community. I started writing a short review of it, which ended up morphing into a look at Putnam’s oeuvre more generally, most of all his renowned Bowling Alone. The bottom line: I admire the quality of Putnam’s work, but am not convinced by his arguments that “bowling alone” is a growing problem. Click here to read my piece.

Amateur reviewers are conformists

Let’s say you just saw a movie and now you review it for a web site. Many reviewers will be influenced, albeit subconsciously in many cases, by the ratings already available for viewing. If a movie has many high ratings, you will be less likely to pan it, and vice versa. This occurs even when you see only the number of stars assigned by other people, and have no access to concrete information about the opinions of others, as you might get from a written review. Overall people end up losing trust in peer-driven reviewing systems, and it is plausible to assume that this applies to Amazon.com reviews as well. Thanks to Randall Parker for the original pointer to the research. Cass Sunstein’s new Why Societies Need Dissent explores the pressures for conformity in more detail. Here is a link to the relevant economics research.

Why does the middle class feel so poor?

I’ve just read The Two-Income Trap: Why Middle Class Mothers & Fathers are Going Broke, by Elizabeth Warren and Amelia Warren Tyagi. This book has received a good deal of popular press.

Having children is a big part of the financial burden, Americans have been spending less on appliances, food, and clothing. Housing prices are the real killer, especially if the family has children. Good schools and safety are becoming increasingly hard to buy. In real terms, families with children paid 79 percent more for housing, comparing 1983 to 1998.

Having just overpaid for a house, to put my stepdaughter into a good school district, I can sympathize with this argument. But I don’t understand the core logic as a more general claim. The authors claim that this financial predicament is affecting very large numbers of middle class Americans. At the same time we are told that good schools are increasingly hard to come by. Which is it? If there are a small number of homes with good schools, not too many people can be overpaying. If there are a large number of such homes, good schools cannot be that scarce, and the bidding war should not be so fierce.

I nonetheless recommend the book to stimulate your thoughts. It also argues for anti-usury laws, claiming that debt-ridden families will make rash decisions and overborrow at excess rates. You might recall Adam Smith made a similar claim over two centuries ago.

Style and Virginia Postrel

From time to time we will be posting book reviews on this site, until our software improves some of them will go on a separate web page, connected by a link. Many of you probably already know Virginia Postrel, she is a columnist for The New York Times, former editor of Reason magazine, and a well-known blogger. I was very taken by her recent book, The Substance of Style, about the rise of aesthetic value under capitalism, here is my review.

The value of a lone dissenter

People will often abandon their opinions to conform to what a group expects of them, but a lone voice of reason can save the day. Cass Sunstein’s new book, Why Societies Need Dissent, reports the following (see chapter one):

You can give people a problem and allow them to solve it. Also give them a group of confederates, who unanimously advocate the wrong answer to the same problem. One confederate, proclaiming the wrong answer, will have little influence on the problem solver. Two confederates increased errors to 13.6 percent. Using three confederates increased errors to 31.8 percent. Under some results, more than three confederates do not increase the error rate, although this is controversial. But putting one voice of sanity in the group, who knows and proclaims the right answer, makes a big difference. “Conformity errors” were reduced by an average of three quarters, even if a strong majority of the group leaned the other way. Sunstein draws upon the work of Robert Baron, at the University of Iowa.

Darwinian politics

Have you ever wondered if political failures might somehow be rooted in man’s nature as a biological being? Paul Rubin has just published a book, Darwinian Politics, Arts and Letters Daily offers this review and summary.

Rubin argues that humans have a long biological experience with constructing political alliances, and our inherited propensities continue to shape our politics. What else does he argue? We often view society as a zero-sum game because early competition for mates was in fact a zero-sum game. We carry this worldview with us. The desire for liberty springs from our early days in hunter-gathered societies, where we were relatively free in political terms. Sports are a reenactment of hunting and bonding rituals. Women are more risk averse than men. We have too much envy for the effective working of modern society, this springs from a tendency to wish to cut down the dominant males in groups. You will note that this is not a politically correct book.

Critics will make two charges. First, Rubin is not a professional biologist and the arguments are not based on his primary research. Second, the major arguments are “just-so” stories rather than the results of testable experiments. Both may be true, but I still would rather read a book that explores interesting and important topics.

Rubin admits his libertarian orientation, but he recognizes that the overall argument does not support libertarianism in every way. For instance he realizes that the desire for paternalism may be rooted very deeply. (Note that Peter Singer tries to ground left-wing ideas in Darwinian argument.) My view is that biological approaches, if you buy into them, strengthen the case for a conservative worldview, and I mean the word conservative in its literal rather than political sense. If politics is rooted in biology, political failures may be very hard to cure. This will support a mix of right-wing and left-wing policies, apologizing for institutional failures on both sides of the partisan spectrum, without necessarily making us feel better about them.

Thanks to Bryce Wilkinson for the pointer, note that readers are encouraged to write to us about bloggable material.

Little-known literary gatekeepers

Publishers Weekly, Kirkus, Library Journal, and Booklist are among the first reviewers of most new books. They are not widely read but often they are treated as gospel by the publishing trade. Their evaluations determine how seriously a book is taken by other reviewers, by media, by bookstores, and by filmmakers looking for new script sources. Read this Slate piece on how these outlets work, and why the Internet is decreasing their influence.

Paul Krugman’s latest

If you read blogs, you probably already have made up your mind about Paul Krugman. When perusing his new The Great Unraveling: Losing Our Way in the New Century, I found myself continually reminded how smart he is, what a good writer he is, and how often he is right. He led the way in publicizing the fiscal irresponsibility of the current Bush administration. I disagree with his politics, but his points have enough force to make me squirm.

If you are wondering, the book is basically his New York Times columns.

I like him best when he stays away from his pet hobby horses. Krugman gets through his essays on Robert Mundell, and the Swedish economic boom — both tight and thought-provoking pieces — without once attacking George W. Bush or calling the Republicans evil.

But these days I can never forget the other Paul Krugman, the one who keeps free market and right-wing bloggers so busy. The Krugman of self-righteousness, sloppiness with the facts, and ad hominem attacks. The Krugman Truth Squad remains. There are many examples of this other Krugman, I was struck by one particular example, taken from Donald Luskin:

Paul Krugman, September 2, 2003:

“I admire the virtues of free markets as much as anyone.”

Now this could make a great party game. Let’s see, where do I begin…? How about, Paul Krugman, June 20, 1999:

“The question of how to keep demand adequate to make use of the capacity has become crucial. Depression economics is back. …in a world where there is often not enough demand to go around, the case for free markets is a hard case to make.”

My take: Well, I guess it depends on what you mean by “as anyone.”

Addendum: Perusing the book more, I find Krugman (p.27) also writes: “I like the theory of efficient financial markets as much as anyone.” Four pages later, he writes, from a different column: “The more I look at the amazing rise of the U.S. stock market, the more I become convinced that we are looking at a mammoth psychological problem.” He also writes of “Seven Habits of Highly Defective Investors” (p.27) and calls them “an extremely dangerous flock of financial sheep.” (p.30)

Are book reviewers honest?

Cronyism appears to be a problem with book reviews. After all, why would a busy reviewer take on a project, if not to butter up a potential ally or score points against an enemy? Some reviewers simply love being part of the cultural conversation, but you can’t always trust their evaluations. Read Mary Gannon on www.aldaily.com. But is the problem growing worse? Oliver Goldsmith and Alexander Pope leveled the same charge against cliquish eighteenth century English literary circles (see my In Praise of Commercial Culture for more discussion).

For the fanatic

A familiar and useful source on American politics is back, the Almanac of American Politics, edited by Michael Barone, see the book’s web page, you get 1800 pages for your $60. It analyzes every American political district exhaustively, and has been accused of having a conservative political bias. The Chicago Tribune tells us that Barone is to politics as Bill James is to baseball. Recommended for researchers and political junkies.

Nathaniel Branden and Ayn Rand on Alan Greenspan

It is well-known that Alan Greenspan was an acolyte of Ayn Rand in his early years. Jerome Tuccille’s new book, Alan Shrugged offers juicy anecdotes about these times. Here is Branden and Rand speaking of Alan (p.53):

“He was tall and solidly built,” said Branden of Alan, “with black hair, dark horn-rim glasses, and a propensity for dark, funereal suits. He was somberness incarnate, looking chronically weary, resigned, and unhappy. He was twenty-six years old. Barbara, Ayn, Frank, and I once encountered him, with Joan, coming out of an elevator. ‘He looks like an undertaker,’ Ayn commented.”

For Alan on Rand, see my blog post at The Volokh Conspiracy.

How different is Canada?

I’ve been enjoying Globalization and the Meaning of Canadian Life, by William Watson. His main point is that globalization does not prevent countries from increasing the size of their governments, if they choose to.

As late as 1958, the U.S. and Canada had similar percentages for government spending and taxes. Canada then increased its size of government, although the two countries moved economically much closer over the same period of time.

The book is full of interesting facts, although they do not always fit together into the same picture. What are the ten most generous states or provinces in terms of welfare benefits, in the U.S. or Canada (p.146, note that the book is from 1997)? Surprise, all ten are in the U.S. They include New York and California, hardly small parts of the country. If you are curious, Quebec comes in at number 38 on the entire list. The author argues that Canadians are not always as different from Americans as they like to think.