Results for “piketty”
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Who are the most influential economists?

Everyone is up in arms over the list supplied by The Economist.  I won’t go through those debates.  Let me just note that for all the talk of wonk this, data that, and Generalized Method of Moments this that and the other, every now and then the best algorithm is simply Asking Tyler Cowen.  So here are, in no particular order, the most influential economists circa 2014:

1. Thomas Piketty

2. Paul Krugman

3. Joseph Stiglitz

4. Jeffrey Sachs

5. Amartya Sen

Basta.  Of course Yellen and Draghi are extremely influential as central bankers, but in the way Paul Volcker was, so that is a different list, albeit a more important one.

I would add several comments:

a. Piketty does very very well for marginal impact in 2014, but probably would/will do less well over broader time spans, even if you think his work will hold up.

b. Krugman is a clear winner for the United States.

c. Stiglitz, Sachs, and Sen have most of their influence outside of the United States.

d. Larry Summers is influential among economists and the intelligentsia and is one possible choice for number six, with Dani Rodrik as another, or maybe drum up the leading Islamic theorist on sukuk.  But Summers is not so influential with casual observers, which in some ways puts him as the opposite of Stiglitz (in his current incarnation).

e. There is no right-wing or center-right economist on the list.  See the EJW symposium on why there is no Milton Friedman today.  Krugman is probably the most politically conservative figure among the top five.

f. Behavioral economics as a whole is quite influential, but with no single dominant figure of influence.  In actuality Cass Sunstein (not formally an economist) and Richard Thaler might globally be #1 in the behavioral area, followed by Daniel Kahneman.

Assorted links

1. Capital controls for Belarus, and worse.

2. The word is that Doug Elmendorf will not be reappointed at CBO.  Doug has done a very good job and he deserves our plaudits.  And Kaiser on the Medicare spending slowdown.  Excellent piece, and if nothing else it shows what a fiscal conservative Elmendorf has been.

3. Interview with Piketty, more than just the usual, recommended, he also needs some PR training.

4. List of films that most frequently use the word “fuck” (yes, someone seems to have counted).

5. “Conspicuous authenticity”?

6. More women get gun gifts.

Assorted links

1. The political economy of Bitcoin.

2. Pizza Hut reads your mind.

3. Chris Rock won’t play colleges any more: “You can’t even be offensive on your way to being inoffensive.”

4. The economics of Seinfeld.

5. How much do different quintiles benefit from government?

6. Twitter-driven economic history reading list.  And more writers’ book picks from The Guardian.  And NYT’s 100 Notable Books of 2014.

7. “Watch two Japanese women fry shrimp with a “cooking detonation” cannon.”

8. Cochrane covers Deirdre McCloskey on Piketty.

9. Profile of Reihan Salam.

Economist cereal boxes

We are running a contest for MRU, and the goal is to figure out how economists ought to be put on cereal boxes.  Imagine that a famous economist would in fact be represented by a cereal and a cereal box.  For example there would be:

Thomas Piketty, Special K

Another possibility would be tweaking the cereal name slightly, so you would get:

Hyman Minsky, Captain Liquidity Crunch


John Bates Clark, Marginal Product 19

You could try:

Eugene Fama, Lucky Charms, though perhaps that is too subtle for some.

The winner of the contest gets…his or her suggestion actually realized.  Please enter your suggestions, and vote on the suggestions of others, here.  Or if you don’t want to enter the contest per se, there is always the MR comments section…

Best non-fiction books of 2014

First there are the economics books, including books by people I know, including Piketty, The Second Machine Age, Tim Harford’s wonderful macro explainer, Megan McArdle’s The Up Side of Down, Lane Kenworthy on social democracy, The Fourth Revolution by John Micklethwait and Adrian Woolridge, Daniel Drezner The System Worked, and Frank Buckley on why the Canadian system of government is better.  And Russ Roberts, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness.  We’ve already talked, written, and thought about those plenty, and they are not what this list is about, so I will set them aside.  Most of you are looking for excellent new books in addition to these, books you might not have heard about.

Here are the other non-fiction books of the year which took my fancy, mostly in the order I read them, noting that the link usually leads you to my previous review or comments:

Jürgen Osterhammel, The Transformation of the World: A Global History of the Nineteenth Century.  Long, exhausting, and wonderful.

Christopher Hale, Massacre in Malaya, a broader history than it at first sounds, fascinating from beginning to end.

Howard Eiland and Michael W. Jennings, Walter Benjamin: A Critical Life.

The Very Revd John Drury, Music at Midnight: The Life and Poetry of George Herbert.

John Keay, Midnight’s Descendants: A History of South Asia since Partition.  An excellent treatment of how much work remains to be done in the “nation building” enterprise in South Asia.

Alice Goffman, On the Run: Fugutive Life in an American City.  A sociology graduate student hangs out with lawbreakers and learns about police oppression, an excellent micro-study.  My column on her book is here.

Gendun Chopel, Grains of Gold: Tales of a Cosmopolitan Traveler, Tibetan scholar goes to India and records his impressions, unusual.

George Prochnik, The Impossible Exile: Stefan Zweig at the End of His World.  I loved this one.

I’ve only read the first half of the new Tom Holland translation of Herdotus’s Histories (I will get to the rest), but surely it deserves note.

Evan Osnos, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China.  This book won the National Book Award for non-fiction.

David Eimer, The Emperor Far Away: Travels at the Edge of China.  A look at China’s outermost regions and their ethnic minorities.  Just imagine that, we had two excellent popular China books in the same year.

The Falling Sky: Words of a Yanomami Shaman, by Davi Kopenawa.  Repetitious in parts, sometimes incoherent too, but it offers a smart and unique perspective you won’t get from any of the other books on this list or any other.

Jonathan Rottenberg, The Depths: The Evolutionary Origins of the Depression Epidemic.  This treatment stresses the (partial) cognitive advantages of having a tendency toward depression.

Edward Hirsch, A Poet’s Glossary, assorted facts and insights about the English language, you don’t have to feel like reading a book about poetry to find this worthwhile.

David Sterling, Yucatán: Recipes from a Culinary Expedition, huge, expensive, wonderful, more than just a cookbook though it is that too.  I’ve spent some of the last few weeks learning these recipes and what makes them tick.

Walter Isaacson, The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution.  A good overview of how some of the main pieces of today’s information technology world fell into place, starting with the invention of the computer and running up through the end of the 1990s.

Arthur M. Melzer, Philosophy Between the Lines: The Lost History of Esoteric Writing.

Andrew Roberts, Napoleon: A Life.

Jan Swafford, Beethoven: Anguish and Triumph.  As good or better than the classic biographies of the composer.

Stephen Kotkin, Stalin, vol. 1.  This one I have only read a part of (maybe 150 pp.?), it is very long and does not fit my current reading interests, but it seems very good and impressive and also has received strong reviews.  So I feel I should include it.

Hal Whitehead and Luke Rendell, The Cultural Lives of Whales and Dolphins.

So who wins?  If I had to pick a #1, it would be The Very Revd John Drury, Music at Midnight: The Life and Poetry of George Herbert, not the kind of book I would be expecting to coronate, which is a testament to the magnetic force it has exercised over my imagination.

Then I would pick Alice Goffman, On the Run: Fugutive Life in an American City and David Sterling, Yucatán: Recipes from a Culinary Expedition as the runners-up.

My fiction picks were here.  There are still some wonderful books to come out this year, and already-published books I will still read, especially after mining other “best of” lists, so around Dec.31 or so I’ll post an updated account of what I would add to this list.

Where is the external social value for marginal book reading?

Let’s assume books — at the margin of course — bring some external social value, perhaps by stimulating ideas production or by improving the quality of voting and citizenship.  If that were the case, at which margin should we look for this external benefit?  I can think of a few possibilities:

1. More books should be produced.  Yet this hardly seems plausible, as there are so many books produced right now and most of them are largely ignored.  In any case, Amazon clearly makes a larger number of books readily accessible, although its lower prices may discourage the number of books longer run.

2. Better books should be produced.  Arguably this is true by definition, but it is not a useful means of evaluating most proposed changes to the book market.  That said, Amazon creates an open forum for useful reviews.  That may improve long-run book quality, or at least lead to a more useful matching of readers with books.

3. Books should be cheaper and thus purchased and read more often.  Maybe so, but public libraries give books away for free — great books too — and their shelves are not stripped bare.  So making commercial books cheaper will get us only so far.  If all books were completely free, reading would go up by only so much, because time and attention would remain scarce.  In any case, with reference to the recent debates, Amazon does in fact make books cheaper.

4. Books should be more vivid in the minds of readers.  People would read more if the books meant more to them and that is a more effective lever than simply making books cheaper.  You will note of course that “buzz” can make books more vivid, and so Piketty’s Capital became a vivid book for a large number of people.  They bought it, though most of them did not read past page 26.  So even making books more vivid will not necessarily bring about the desired end of additional interested readership.  That said, Amazon does create various lists to try to boost the buzz around books, and Amazon tries to raise the relative status of reading and book-buying more generally.

It is in fact not so easy to specify how we might reap significant additional social benefits from the current book market.  The real externality, if there is one, lies in improving the humans not the books.

In the meantime, Amazon, in its current configuration, seems to be producing some marginal social benefits.

The French disease is not just hypochondria

From a Jean Tirole press conference:

French economist Jean Tirole advocated Scandinavian-style labour market policies and government reform as a way of preserving France’s social model.

Hours after he won the economics Nobel Prize, Tirole said he felt “sad” the French economy was experiencing difficulties despite having “a lot of assets”.

“We haven’t succeeded in France to undertake the labour market reforms that are similar to those in Germany, Scandinavia and so on,” he said in telephone interview from the French city of Toulouse, where he teaches.

France is plagued by record unemployment and Tirole described the French job market as “catastrophic” earlier on Monday, arguing that the excessive protection for employees had frozen the country’s job market.

“We haven’t succeeded also in downsizing the state, which is an issue because we have a social model that I approve of – I’m very much in favour of this social model – but it won’t be sustainable if the state is too big,” he added.

Tirole remarked that northern European countries, as well as Canada and Australia, had proven you could keep a welfare social model with smaller government. In contrast, he said France’s “big state” threatened its social policies because there will not be “enough money to pay for it in the long run”.

There is more here, hat tip goes to Alex.  And I very much liked this Appelbaum interview with Tirole,here is one bit:

There’s no easy line in summarizing my contribution and the contribution of my colleagues. It is industry-specific. The way you regulate payment cards has nothing to do with the way that you regulate intellectual property or railroads. There are lots of idiosyncratic factors. That’s what makes it all so interesting. It’s very rich.

It requires some understanding of how an industry works. And then the reasoning is very much based on game theory. Usually we don’t have a perfectly competitive market, so we use game theory, which describes situations with a small number of actors. And information economics, those are the tools. But then you go into the industries and try to think about the possible rules. It’s not a one-line thing.

I liked David Henderson’s piece, and this one too, Tirole on France and Canada.

The 2014 Nobel Laureate in economics is Jean Tirole

A theory prize!  A rigor prize!  I would say it is about principal-agent theory and the increasing mathematization of formal propositions as a way of understanding economics.  He has been a leading figure in formalizing propositions in many distinct areas of microeconomics, most of all industrial organization but also finance and financial regulation and behavioral economics and even some public choice too.  He is a broader economist than many of his fans realize.

Tirole is a Frenchman, he teaches at Toulouse, and his key papers start in the 1980s.  In industrial organization, you can think of him as extending the earlier work of Ronald Coase and Oliver Williamson with regard to opportunism and recontracting, but applying more sophisticated and more mathematical forms of game theory.  Tirole also has been a central figure in procurement theory and optimal contracts when there is asymmetric information about costs.  The idea of mechanism design runs throughout his papers in many different guises.  Many of his papers show “it’s complicated,” rather than presenting easily summarizable, intuitive solutions which make for good blog posts.  That is one reason why his ideas do not show up so often in blogs and the popular press, but they nonetheless have been extremely influential in the economics profession.  He has shown a remarkable breadth and depth over the course of the last thirty or so years.

His possible pick had been heralded for some numbers of years now, this award should not be considered a surprise at all.  You will note that the Swedes mention Jean-Jacques Laffont, who died a decade ago, and who co-authored many of the key papers in this area with Tirole.  Such a mention is considered a nod in the direction of implying that Laffont, had he lived, would have shared in the prize.

Here is Tirole’s home page.  Here is Tirole on Wikipedia.  Here is a short biography.  Here is Tirole on  Here is the press release.  Here is background from the Swedes.  Here is the 54-page document on why he won, one of the best places to start.  Here is the Twitter commentary.

One idea of Tirole’s I use frequently has to do with renegotiability.  Let’s say a regulator and a monopolist agree to a scheme of regulation and provision, creating some surplus for both parties.  As time passes, will each side of that bargain stick with the original agreement?  A simple example here is the defense contractor.  After a procurement contract is written, sometimes the supplier has the incentive to conduct a hold-up, to report that costs are higher than expected, and to ask for more money in return for timely fulfillment of the contract.  Of course this is a contract breach, but if no other supplier can step in and do the job, it may be optimal for the government to give in to these demands to some degree.  The question then is: how should the contract best be designed in advance, so as to prevent this problem from popping up later on?  Or should the renegotiation simply be allowed?  Anyone wishing to tackle these questions likely would start with the papers of Tirole on this topic.  For one thing, these papers help explain why a second-best optimal contract may offer some rents to agents and appear to give the agent “too good a deal.”

Some of his key papers focus on asymmetric information about costs.  Say a firm knows its costs and the regulator can only guess.  Ideally the regulator would likely to make the firm price at marginal cost, but the firm will pretend marginal cost is higher than it really is.  The regulator and the firm thus play a game.  Tirole figured out with rigor which principles govern how this game works and what a second-best regulatory solution might look like.  With Laffont, here is his key paper in that area.  David Baron made contributions to this area as well.  Again, there is a potential argument for an “agent rent,” to limit the incentive of the agent to lie too much about costs, for fear of losing that rent if the cooperative relationship breaks down.

Tirole, writing sometimes with Rey, wrote some important papers on vertical agreements and how they can be used to extend market power, for instance when can buying up parts of a supply chain help extend monopoly power?  His paper with Oliver Hart figures out some of the conditions under which vertical acquisitions can help foreclose a market.  With Rey, Tirole surveys the literature on vertical relations and foreclosure.

This early 1984 paper, with Drew Fudenberg, laid out the conditions when firms should overinvest in capacity to deter competitive entry, or when firms should instead look “lean and mean” for entry deterrence.  The underlying analysis has shaped many a business school discussion.

I am a fan of this 1996 paper on how we can think of firms as credible ways of carrying reputations in a collective sense.  For instance the existence of a firm called “Google” transmits real information about the qualities of the people you deal with when you are transacting with members of the Google firm.  This was an important addition to the usual Coasean vision of thinking of a firm in terms of economizing transaction costs.

He has written some key papers on financial intermediation, collateral, and the agency problems associated with lending, here is one well-cited paper by him and Holmstrom. Here is a non-gated version (pdf).  A key argument is that a decline in the value of the collateral in a lending relationship can lower efficiency and also output, and this can help explain some features of business cycles.  This 1997 paper was well ahead of its time and it remains one of Tirole’s most widely cited works.  Arguably it is relevant for recent financial crises.

He has a 1994 book with Mathias Dewatripont on the prudential regulation of banks and how to apply the proper incentives to make sure banks do not take too much risk at public expense.  Obviously this also has since become a much more important topic.  How many of you know his 1996 paper with Rochet on “Interbank Lending and Systemic Risk“?  They show the contradictions which can plague a “too big to fail” policy and the attempts of central banks to maintain a “creative ambiguity” about what kinds of bailouts will occur, using rigorous game theory of course.

With Rochet, he has a well-known paper on platform competition, laying out the basics of how these “two-sided” markets work.  Think of internet or payment portals which must get both sides of the market on board.  What are the efficiency properties of such markets and what are the game-theoretic issues?  In this setting, how do for-profits compare to non-profits?  Competition to monopoly?  Rochet and Tirole laid out some of the basics here, here is their survey piece on the field as a whole.  Alex’s post above has much more on these points, and Joshua Gans covers this area too, here is Vox.

In public choice economics, he and Laffont have an important paper on when regulatory capture is actually likely to occur.  I have yet to see the insights of this paper incorporated into the rest of the literature adequately.  His paper on the internal organization of government considers the relative appropriateness of high- vs. low-powered incentives as applied to government employees, among other matters.  His 1999 paper with Mathias Dewatripont, “Advocates,” shows in game-theoretic terms why something like the Anglo-American system of competing lawyers might make sense as the best way of discovering information and adjudicating the truth.  This paper shows how career concerns affect bureaucratic incentives and what is the optimal degree of specialization within a government bureaucracy.

He has thought very deeply about the nature of liquidity and what is the optimal degree of liquidity in a securities market.  There can be some side benefits to illiquidity, namely that it forces parties to stay committed to an economic relationship.  This must be weighed against the more obvious benefits of liquidity, which include having better benchmarks for measuring managerial performance, namely stock price (see this paper with Holmstrom).  This kind of analysis can be applied to the question of whether the shares of a firm should stay privately traded or be put on a public exchange.  This 1998 paper, with Holmstrom, is a key forerunner of the current view that the global economy does not have enough in the way of safe assets.

Here is his paper on vertical structure and collusion in bureaucracies (pdf).  Here is his very useful survey article, with Holmstrom, on the theory of the firm.

His textbook on Industrial Organization is a model of clarity and remains a landmark in the field, even though it came out almost thirty years ago.

He has written a book on telecommunications regulation (with Laffont) although I have never read that material.

In finance he wrote this key 1985 paper, deriving the conditions under which you can have an asset bubble in a market with rational expectations.  The problem of course is that the price of the asset tends to keep rising, relative to the size of the economy as a whole, and eventually it becomes impossible to keep on buying the asset.  This has to mean an eventual crash, unless the growth rate of the economy exceeds the general rate of return on assets.  This paper helped us think through some issues which recently have resurfaced with the work of Thomas Piketty.  His earlier 1982 paper on speculation is also relevant to this topic.  Most economists think of Tirole as game theory, finance, and industrial organization, but his contributions to finance are significant as well.

Just to show his breadth, here is his paper with Roland Benabou on incentives and when they undermine the intrinsic desire to do a good job.  For instance if you pay kids to get good grades, will that backfire and kill off their own reasons for wanting to do well?  Alex covers that paper in more detail.  This other paper with Benabou, “Self-Confidence and Personal Motivation,” is a great deal of fun.  It analyzes the benefits of overconfidence, namely greater motivation, and shows how to weigh those benefits against the possible costs, namely making more mistakes.  It shows Tirole dipping a foot into the waters of behavioral economics and again reflects his versatility in terms of fields.  I like this sentence from the abstract: “On the supply side, we develop a model of self-deception through endogenous memory that reconciles the motivated and rational features of human cognition.”  Again with Benabou, here is his paper on willpower and personal rules, very much in the vein of Thomas Schelling.

Here is Tirole on intellectual property and health in developing countries, with plenty on policy.

It’s an excellent and well-deserved pick.  One point is that some other economists, such as Oliver Hart and Bengt Holmstrom, may be disappointed they were not joint picks, this would have been the time to give them the prize too, so it seems their chances have gone down.

Overall I think of Tirole as in the tradition of French theorists starting with Cournot in 1838 (!) and Jules Dupuit in the 1840s, economics coming from a perspective with lots of math and maybe even some engineering.  I don’t know anything specific about his politics, but to my eye he reads very much like a French technocrat in terms of approach and orientation.

Jean Tirole is renowned as an excellent teacher and a very nice person.

Assorted links

1. Will it work for Norway to pay Liberia to stop deforestation?  Does the Coase theorem hold?

2. New York City food menus from one hundred years ago.

3. What does this Singaporean road sign mean?  Duh.

4. Those 538 guys missed what is actually the best taco (economies of scope).

5. How to best survive a black bear attack.

6. Videotape of Solow, DeLong, myself and Russ Roberts on Piketty.

Colombia extends its wealth tax

Colombia is one of the world’s most unequal societies. Last week, the government of Juan Manuel Santos, who began his second term as president in August, announced the extension of a wealth tax introduced in 2002 to pay for the mounting costs of the country’s 50 year drug-fuelled guerrilla war.

“In that sense, we are actually ahead of the curve of what Piketty proposes,” says Mr Cárdenas.

…“This touches only 50,000 Colombians out of the entire population” of 48m people, he says, “that is less than 1 per cent of the population.”

President Santos himself is a product of that 1 per cent. A US-educated economist and member of a wealthy family of the Colombian establishment, he heads up a centrist administration, not a Venezuela-style leftist regime.

Mr Santos has increased rates for various tranches of the levy, in some cases by 50 per cent. Those with a net worth of between $510,000 and $1.5m must pay a 0.4 per cent tax. The rate rises to 2.25 per cent for net worth above $4m. That applies to 45,000 businesses and about 1,000 individuals, Mr Cárdenas said.

Only about five percent of Columbians actually pay into the standard income tax system.  The FT piece by Andres Schipani is here.