Category: Books
Is Sarkozy wrong on the Euro?
Free Exchange reports:
Defending the central bank’s independence, European finance ministers warned Nicolas Sarkozy, the incoming French president, not to blame the ECB for France’s economic woe. While electioneering, Sarkozy suggested the ECB’s policy objective be amended from achieving price stability within the Euro Zone to focus on job creation and growth.
Sarkozy is, in my view, correct to think that a bit more inflation would improve the French macroeconomy. France has about the stickiest nominal wages on Planet Earth. A little extra inflation would boost the labor market by allowing real wages to fall. Some inflation might also spur exports in the short run. Do note that the latter effect is, in the first best, cancelled by the inferior French command over non-Euro-denominated imports. Still the job gains might offer some second best benefits in this context, such as alleviating social tensions.
That said, two very important qualifiers are required:
1. It is not useful for a French politician to make ECB policy a political issue in front of the public. If the ECB gives in to French politicians at their whim, it is not long for this world.
2. The Euro probably requires a lower rate of price inflation than does the dollar, even though European wages are stickier. "Price stability" is focal, more or less. "Three percent inflation" is not. There are now 13 countries in the Eurozone, maybe someday 25. Zero is a good number to agree upon, perhaps it is the only number they can agree upon.
This all reflects a very real tension behind European monetary policy. It is much harder to have monetary discretion when many nations belong to the currency union and have an ultimate voice in what happens. I view the current structure of the ECB as somewhat of a contraption. France and Germany had favored strong ECB independence and a price stability mandate and they more or less forced everyone else in Europe to play that game, whether they liked it or not. Can Portugal and Italy really today make such a stink about tight monetary policy? No. But Germany can’t do the enforcing all on its own. Sarkozy needs to not only give in to Merkel, he needs to signal that he will return France to its previous role as partial enforcer of tight monetary policy. Is he up to so much humbling so soon?
Sarkozy is still right on the economics, so I wonder if he’ll be able to see his way past that. Three percent inflation would be better for France over the next five years. It would not be better for Europe over the next thirty.
What are the best novels for teaching economics?
Ezra Klein asks me:
What do you think the best fiction books are for understanding economics? Left and right? From my perspective on the spectrum, I’d go with Steinbeck’s Grapes of Wrath, but I’d be interested to hear your favorites…
Some will cite Harrison Bergeron, the Vonnegut anti-egalitarian short story. Others would nominate Ayn Rand, anarcho-capitalist science fiction, and of course there are the fictional-economic creations of Russ Roberts. But what are the Western classics that — policy polemics aside — teach one how to think like an economist?
My attention is usually drawn to 1660-1775 in British fiction, starting with Defoe and continuing through Swift, Boswell, and just about everyone else. To my eye they all thought like rational choice economists, albeit strange ones with a focus on approbation, self-deception, and the perverse social consequences of individual action (see my In Praise of Commercial Culture, the chapter on literature, for more detail). They are the true roots of Smith’s TMS. Dickens and Balzac are contenders, but I find them a bit too one-note, as is Harriet Martineau. Nonetheless the eighteenth century works remain ahead of their time and they certainly don’t teach basic economics or help one think much about policy.
What are your picks?
What’s the optimal number of book reviews?
Virginia Postrel writes:
As an author, I want more book reviews; quantity matters more than
quality when you’re going for sheer exposure. But as a reader, I only
want more interesting reviews, particularly of books I’m not likely to
learn about otherwise.
Newspaper book reviews, of course, are declining in number. Here is New York Times coverage of the phenomenon.
I can think of three functions for book reviews:
1. They help people learn about good books. If this is true, we should expect a market optimum.
2. No one much uses book reviews, but they make newspapers feel like more prestigious products. In this case book reviews would be an inefficient form of product differentiation by making The New York Times appear more different from The New York Post than readers ideally would like. There would be too many book reviews.
3. People use book reviews as a substitute for reading the books themselves. I call this "book reviews as signaling." Abolish the reviews and either a) people will have to go read the books (an even more wasteful form of signalling), or b) people will forget about literary matters altogether, which lowers signalling costs.
I use book reviews as I would use ads for books and blurbs for books. I just want the bottom line. I would be happier if newspapers published many more one-paragraph book reviews, but with very clear and definite evaluations. Entertainment Weekly does just this, although I find their taste in books unreliable. Nonetheless I am not alone in my preference, and I believe that few people read long book reviews. That makes me think there is something to #2.
Poverty and discrimination
Kevin Lang’s Poverty and Discrimination is marketed as a text but it is far more. Imagine a first-rate labor economist sitting down to tell us what he knows about the topics at hand. This includes who is poor, does economic growth still eliminate poverty, how much does family structure matter, does changing neighborhoods help a family, what have been the effects of welfare reform, how strong is labor market race discrimination, and many others. Lang’s discussions are consistently smart and insightful. While Lang does not offer much of his own ideas and research, only an original researcher such as Lang could produce a survey of this quality and depth.
Why isn’t there a book like this on every topic?
I do have a few quibbles. For my tastes there is too much talk about identification problems and not enough about data quality. Some topics are undercovered, such as the link between mental illness and poverty. I would have added much more on poverty as a behavioral phenomenon of dysfunctional psychology and high time preferences. The old scolding conservative account of poverty has much truth to it, but you wouldn’t know that from reading this book.
This book is academic substance, beginning to end, and for that reason it won’t be a fun read to everybody. But with that caveat, and noting the $60.00 purchase price, it joins my list (Sacred Games, The Savage Detectives, Prophet of Innovation) of must-reads for the year.
Here is the book’s home page. Here is Arnold Kling on the book.
Travel book panic
As the weeks before a trip approach, I assemble piles of books on the dining room table. Each pile is constructed with care. There is a travel guide pile, a fiction pile, a "needed for work" pile, and a "maybe I won’t take this one at all" pile. The most important is the "I’ll probably read this one before the trip comes along" pile.
The books take on a life of their own. At times I lose track of the planned trip and I think of it as little more than a chance to read, free of the usual interruptions.
The excitement mounts. I frequently visit the piles and think about how it will be to experience those books.
But the day or two before the trip, panic sets in. The piles seem totally inadequate. Totally inadequate for my reading. Totally inadequate for my development as a human being. Most of all, totally inadequate for the trip.
I rush to Borders and buy a whole new set of books.
Hrak!
What I’ve been reading
1. House of Leaves, by Mark Danielewski. This experimental novel, written with varying typefaces, page layouts, and interjected footnotes, is a fun mock of the academization of literature. It has a large cult following but can be enjoyed by the general reader. Don’t be intimidated by the heft, a third of the pages are essentially blank. It felt great making so much progress so quickly.
2. The Grid: A Journey Through the Heart of Our Electrified World, by Phillip F. Schewe. Better than no book at all, but this important topic still awaits its definitive treatment.
3. The Triumph of the Thriller: How Cops, Crooks, and Cannibals Captured Popular Fiction, by Patrick Anderson. A good guide and overview, the author argues that Raymond Chandler is overrated relative to say Macdonald or Kehane.
4. Vasily Grossman, Life and Fate. This Soviet-era masterpiece, which covers the Battle of Stalingrad, bored me. I have no complaint about its quality, I simply felt the time in my life is past to further digest those themes in an emotionally meaningful way.
5. Michael Chabon, The Yiddish Policemen’s Union: A Novel. This comic detective story is based on an alternative reality in which Israel loses the 1948 war and the surviving Jews settle in Alaska. It’s the first book of his I’ve liked, though I don’t think it has much substance.
6. Don Boudreaux recommends ten books.
Schumpeter revealed
Here is my review of Thomas McCraw’s new Schumpeter biography. Excerpt:
Prophet of Innovation is so splendid because it succeeds on so
many different levels. If the book were simply an account of the
Harvard economics department, it would stand as a lasting and
significant contribution to the history of economic thought.
Alternatively, it is one of the best treatments of what it was like for
European intellectuals to migrate to the United States. Or are you
interested in why Austria fell apart during the 1920s, and how someone
with as little real world experience as Schumpeter became Minister of
Finance? The book is also a love story, and an account of how a
possibly dysfunctional man can nonetheless find romantic happiness
after repeated failures and tragedies.
Halflife
The Lighthouse Keeper
My ear, a shell on the pillow;
the down, the sea from which his mouth arrived
Strange to live in a wet world, then wake in the desert.
The cactus on whom milky needles grow.
Let me live offshore, where the water is low.
Strange, and then so much less so.
I was seventeen. Do you want
to know what I didn’t know?
I do.
That is from the new book of poetry by Meghan O’Rourke, columnist and culture editor at Slate.com. Here are five more poems from the book. Here is a page on the book. Here is an interview. Here is a rave New York Times review.
What’s wrong with long books?
“I am guilty of never having read Anna Karenina, because it’s just so long. I’d much rather read two 300-page books than one 600-page book.”
Here is the link, which details the recent publishing attempt to mutilate Moby Dick and other classics. Of course I’ve yet to read Terra Nostra (785 big pp.) by Carlos Fuentes. Why not? No one is doubting that many long books are good books. Doesn’t the Modigliani-Miller theorem teach us that nominal variables are irrelevant? Can’t you, on your own, turn Anna Karenina into a larger number of shorter books? Just a few months ago I bought a collection of five Eric Ambler novels, in one volume, and ripped it into five separate, easy to transport pieces.
As usual, I can think of a few hypotheses:
1. The detachable book is in fact the wave of the future, we just haven’t seen it yet.
2. The blog post is the detachable book.
3. What people enjoy is finishing books, and the resulting feeling of satisfaction, not reading them.
4. What people enjoy is starting books, not reading them. Starting books is a bit like going shopping, but after the actual reading starts ennui soon sets in. The books of the future (present?) will allow readers to feel they are starting a new product every chapter. (Is the real secret of blogs simply that readers always enjoy the promise of starting something new? How many of you spend hours with the MR archives, still highly relevant and of course always stellar in quality?)
Here is a meditation on reading Pynchon, commentary here. I’m now pawing through Against the Day — slowly — and so far enjoying it.
Here is my earlier post on this topic, I believe that today I am contradicting my earlier self. Of course that is obvious to anyone who has read through the archives.
Harry Potter and the Mystery of Inequality
J.K. Rowling is the first author in the history of the world to earn a billion dollars. I do not disparage Rowling when I say that talent is not the explanation for her monetary success. Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening’s entertainment. Shakespeare did a little better. The Globe theater could hold 3000 and unlike Homer, Shakespeare didn’t have to be at the theater to earn. Shakespeare’s words were leveraged.
Tolkien’s words were leveraged further. By selling books Tolkien could sell to hundreds of thousands, even millions of buyers in a year – more than have ever seen a Shakespeare play in 400 years. And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare (Shakespeare incidentally also owned shares in the Globe.)
Rowling has the leverage of the book but also the movie, the video game, and the toy. And globalization, both economic and cultural, means that Rowling’s words, images, and products are translated, transmitted and transported everywhere – this is the real magic of Ha-li Bo-te.
Rowling’s success brings with it inequality. Time is limited and people want to read the same books that their friends are reading so book publishing has a winner-take all component. Thus, greater leverage brings greater inequality. The average writer’s income hasn’t gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires. The top pulls away from the median.
The same forces that have generated greater inequality in writing – the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization – are at work throughout the economy. Thus, if you really want to understand inequality today you must first understand Harry Potter.
What I’ve been reading
1. Ghosts of Spain: Travels Through Spain and its Secret Past, by Giles Tremlett. An engaging survey of contemporary Spain.
2. Untapped: The Scramble for Africa’s Oil, by John Ghazvinian. Why Africa is even more messed up than you think; this book has lots of good economics.
3. Roberto Bolaño, The Savage Detectives. I’ve gone on about him before, but this newly translated work (the translation gets an A+) is one of the major Latin American novels of the twentieth century.
4. It’s enough to think you are exercising.
6. Thomas McNamee, Alice Waters and Chez Panisse. A good history of the restaurant, plus it makes you wonder what percent of the female population is motivated primarily by ***ual desire.
The Myth of the Rational Voter, by Bryan Caplan
Buy it here. Just like everyone else is doing.
Reviewing Landsburg’s Errors
In the Armchair Economist, Steven Landsburg argues that the people who read his book are likely to find that it wasn’t as good as they expected. The logic is impeccable – people who over-estimate the value of the Armchair Economist are more likely to buy it and thus discover their over-estimation (sadly, under-estimators never learn of their mistake). Nevertheless, despite the logic, I and many others discovered that Landsburg was wrong. The Armchair Economist and every Landsburg book exceed expectations.
Landsburg is back with More S-ex is Safer S-ex, and another error. This time Landsburg suggests that writing his book was socially destructive. Again, the logic is impeccable – a good book creates a lot less value than its price because to a large extent it displaces the second best book which was almost as good. Authors however are paid based on price and not on social value and thus write too many books. And yet, I must again disagree for Landsburg’s new book is a treasure. There is something to learn on almost every page.
Here’s one idea I learned. In the debate over the economics of global warming the correct discount rate to apply to future generations is a key variable with those arguing that we should do something now, implicitly (and explicitly) arguing for a low discount rate. But if we count future generations highly we ought also to be in favor of reforming social security. Investing social security in the stock market "royally screws" current retirees but increases the savings rate which will be benefit future generations. Thus, a low discount rate ought to weigh in favor of doing something about global warming and investing social security funds in the stock market. Not many people come out consistent on these grounds (I think Brad DeLong is one of the few.) I know, I don’t but Landsburg has got me thinking.
Books favored by British bookstore employees
Here goes, via Kevin Drum. It has some obvious losers on it, but it’s a good place to start if you are looking to read contemporary fiction.
Steve Landsburg’s new book
If I write the title MR will be blocked again by those services which sweep for prurient web sites and talk of naughty stuff. But you can buy it here, I can assure you it is pure economics and very safe for work.