Results for “best book”
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What I’ve been reading

1. Laurence M. Ball, Money, Banking, and Financial Markets.  A truly modern money and banking text; could this be the best money and banking text ever?  I don't yet see an Amazon link for it but presumably it will be out soon.  (Addendum: Link is now here.)

2. William Flesch, Comeuppance: Costly Signaling, Altruistic Punishment, and other Biological Components of Fiction.  An excellent book on why we find fiction and narrative so satisfying; the notion of vindication is central to the hypothesis.  Recommended.

3. David Post, In Search of Jefferson's Moose: Notes on the State of Cyberspace.  This book is written in the style of Jefferson in at least one way.  I mean that as praise.

4. Joel Kraemer, Maimonides: The Life and Times of One of Civilization's Greatest Minds.  Fills in many of the pieces about his life and work; it seems he lived part of his life as a practicing Muslim.

Keynes on consumption, chapters eight and nine

There are many lovely and insightful discussions in these two chapters; it should be enough to persuade anyone that the GT is fun to read.

For instance Keynes's discussion of the interest elasticity of savings on p.93 persuaded a whole generation of economists.  Or on p.95 he references theories of spending based on expectations about the future; only in their most extreme form will they render Keynesian results impossible.

Much of these chapters are dedicated to the simple idea that consumption does not rise indefinitely with income (and other influences).  The ultimate point is to establish how much aggregate demand relies on investment demand, which it turns out is, to Keynes, highly unstable.

Keynes's continuing allegiance to some elements of classical (!) economics pops up in chapter eight (e.g., pp.100, 105), specifically his view that a society can run out of profitable investment opportunities.  He feared secular stagnation and thought that government management of investment might be needed to stave off this possibility.  We hear all about Keynesian economics and the short run but in reality part of Keynes was still under the spell of Ricardo and Malthus and the idea of the classical stationary state (p.106).

For the same reason Keynes thought the private sector would run out of good investment opportunities, he also thought that by 2009 (what exactly was the date he gave?  Brad DeLong knows) the problem of scarcity might be largely overcome.  It hasn't worked out that way.

A number of commentators keep on bringing up Henry Hazlitt's book on Keynes in the comments section.  Hazlitt's book makes many good points and has many "gotchas" on Keynes's errors.  Still, Hazlitt cannot bring himself to see or admit there are conditions under which Keynes can be right and thus I don't regard it as a convincing critique.  The best critical approaches to the GT are those which figure out under which conditions it might be correct and then examine empirically whether those conditions in fact hold.

How to travel in the U.S.

Seth, a loyal MR reader, writes:

I thoroughly enjoyed your 'Discover Your Inner Economist Book' and I was particularly interested in your advice related to restaurants, and on how to read menus.

Perhaps it's a stretch, but I was wondering whether you have similar advice for traveling in the US?  If someone who has never previously visited the US asked you for five places they should visit in the US, what would be your advice?  Or perhaps more generally, what should  they look for in their destinations?  Assume they're driving, and budget isn't an issue, and that it's not a requirement to see the most popular tourist spots.  What's the best advice to properly see and experience the US, in all its diversity?

Most of all, drive as much as possible and do not shy away from a few days in the "boring" (yet wondrous) suburbs.  After that, here is my list of five:

1. Manhattan

2. Detroit and the Ford Rouge plant in Dearborn

3. Memphis and the Mississippi Delta

4. San Francisco

5. Grand Canyon and southern Utah

I feel bad about missing so much of "the new South," but how many stellar sights does it have?  Miami and New Orleans would make a top ten but each is too unique and insufficiently representative to make a top five.  Maybe Chicago should replace Detroit but the latter has greater shock value and isn't that half of what travel is about?  Los Angeles is too hard for most outsiders to grasp.  At least one of the Dakotas should make a top ten list.  Boston would please a European but not in a truly instructive way.  It is criminal to leave off Texas, which I love, but which single place can sum up the state?

The World Between the Wars, 1919-1939: An Economist’s Perspective

I don't know why this book, by Joseph C, Davis, isn't cited more often, as it's one of the best on this period.  Here is one small bit:

In the spring of 1933 a mock-trial of "the economists" was staged at the London School of Economics, Robert Boothby, M.P. representing "the state of the popular mind," charged the economists with "conspiring to spread mental fog," declaring that they "were unintelligible; that they had in general proved wrong; and that in any case they all disagreed."  Four men of high standing (Sir William Beveridge, Sir Arthur Salter, Professor T.E. Gregory, and Hubert Henderson) discussed Boothby's charges without wholly refuting them.  It was sagely observed: "Much of the public's distrust of economics arises from the fact that the economist is compelled to act both as physiologist and doctor at once."  In fact, economists had not been trained to be "economic doctors" or "social engineers," and very few persons had acquired such competence.

I wonder if anyone will restage such a trial today…

How financial economics should evolve, from this point onwards

I read this in Temple Grandin's new (and often quite interesting) Animals Make Us Human: Creating the Best Life for Animals:

She [Jane Pruetz] spent four years just habituating the chimpanzees to her presence before she could study them.  Then she spent three summers observing their lives.  She discovered that some of the chimpanzees make spears out of tree branches and use them to spear bush babies inside hollow trees.  Bush babies are small furry animals.  The chimpanzee breaks a branch off the tree, strips off the leaves, and sharpens one end to a point with its teeth.  Then it stabs the spear violently inside the hollowed trunk to kill any bush baby that might be inside.  This discovery is so revolutionary that it has caused a big controversy in the field of primate research, because it is the first documentation of an animal using a tool as a weapon for hunting.

But alas we are told:

Animal research is getting more and more what I call "abstractified."  Instead of people studying the real animals in their natural habitats, researchers use fancy statistical software to construct statistical models, and then they study the models.

The multiplier in wartime

Robert Barro writes:

What do the data show about multipliers? Because it is not easy to
separate movements in government purchases from overall business
fluctuations, the best evidence comes from large changes in military
purchases that are driven by shifts in war and peace. A particularly
good experiment is the massive expansion of U.S. defense expenditures
during World War II. The usual Keynesian view is that the World War II
fiscal expansion provided the stimulus that finally got us out of the
Great Depression. Thus, I think that most macroeconomists would regard
this case as a fair one for seeing whether a large multiplier ever
exists.

I have estimated that World War II raised U.S. defense expenditures
by $540 billion (1996 dollars) per year at the peak in 1943-44,
amounting to 44% of real GDP. I also estimated that the war raised real
GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8
(430/540). The other way to put this is that the war lowered components
of GDP aside from military purchases. The main declines were in private
investment, nonmilitary parts of government purchases, and net exports
— personal consumer expenditure changed little. Wartime production
siphoned off resources from other economic uses — there was a
dampener, rather than a multiplier.

We can consider similarly three other U.S. wartime experiences —
World War I, the Korean War, and the Vietnam War — although the
magnitudes of the added defense expenditures were much smaller in
comparison to GDP. Combining the evidence with that of World War II
(which gets a lot of the weight because the added government spending
is so large in that case) yields an overall estimate of the multiplier
of 0.8 — the same value as before. (These estimates were published
last year in my book, "Macroeconomics, a Modern Approach.")

There are reasons to believe that the war-based multiplier of 0.8
substantially overstates the multiplier that applies to peacetime
government purchases. For one thing, people would expect the added
wartime outlays to be partly temporary (so that consumer demand would
not fall a lot). Second, the use of the military draft in wartime has a
direct, coercive effect on total employment. Finally, the U.S. economy
was already growing rapidly after 1933 (aside from the 1938 recession),
and it is probably unfair to ascribe all of the rapid GDP growth from
1941 to 1945 to the added military outlays. In any event, when I
attempted to estimate directly the multiplier associated with peacetime
government purchases, I got a number insignificantly different from
zero.

I'm a little confused by his definition of the multiplier (how does it relate to "crowding out"?; what he calls a multiplier of zero I would call a multiplier of one), but I think you get the point.  By the way, I ran across this interesting short paper on fiscal policy and the fetishization of measured gdp, from Japan.

What I’ve been reading

1. The Aztec World, by Elizabeth Brumfiel and Gary Feinman.  Long-time MR readers will know Aztec history is a special interest of mine.  This book, a companion volume to the Aztec exhibit from Chicago’s Field Museum, is perhaps the best introduction to the Aztecs to date.

2. The Suspicions of Mr. Whicher: A Shocking Murder and the Undoing of a Great Victorian Detective. This achieved (justified) rave reviews in the UK but it has hardly made a dent in the U.S. market.  It is non-fiction but written in a hybrid form and often feels more like a novel.

3. The Overflowing Brain: Information Overload and the Limits of Working Memory, by Torkel Klingberg.  When push comes to shove, the author fails to establish his major thesis.  Still, this book is way above average for how seriously it treats the actual science behind its argument.  I learned a great deal from it.

4. Somewhere Towards the End, by Diana Athill.  A scary and effective memoir about how Athill, a famous editor, dealt with aging and the end of her sex life.

5. Not John Steinbeck.

Here are predicted hot reads for 2009

Law and Literature reading list, Spring 2009

The Five Books of Moses, edited and translated by Robert
Alter.

Billy Budd and Other Tales, by Hermann Melville.

The Metamorphosis, In the Penal Colony, and Other Stories,
by Franz Kafka.

Smilla’s Sense of Snow, by Peter Hoeg.

The Art of Political Murder: Who Killed the Bishop? By Francisco
Goldman.

In the Belly of the Beast, by Jack Henry Abbott.

Borges and the Eternal Orangutans, by Fernando Verrissimo.

Glaspell’s Trifles, available on-line.

Great Short Works of Leo Tolstoy, by Leo Tolstoy.

Sherlock Holmes, The Complete Novels and Stories, Sir Arthur
Conan Doyle, volume 1.

Out: A Novel, by Natsuo Kirino.

I, Robot, by Isaac Asimov.

Moby Dick, by Hermann Melville, excerpts, chapters 89 and 90.

Year’s Best SF 9, edited by David G. Hartwell and Kathryn
Cramer.

Pale Fire, Vladimir Nabokov.

Blindness, by Jose Saramago.

We also will view a small number of movies — most of all Sia — and perhaps I will add a Henning Mankell novel as well.

More Krugman-Bush captions


Sadly typepad is slow with some comments, I believe due to a switch of platforms (you’ll notice some funny formatting and spacing in some posts as well; our apologies).  Some of the Krugman-Bush photo captions are still not up but I wanted to pass along a few of my not-yet-published favorites.

Can you show me that ‘push on a string” trick again?

Paul, I did everything I could to make that book of yours,
The Return of Depression Economics, a bestseller.

Boy, did we put one over on those gullible Americans

“I’m glad this is almost over, he must not understand what I
said”

“They think we actually believe the $hit we say; pretty
funny, huh?”

My favorite is: “So Paul, ever been to Cuba before?”

If you think you can beat these, please let further suggestions in the comments on this post.

The Superorganism

The subtitle is The Beauty, Elegance, and Strangeness of Insect Societies and that is the new book by Bert Hölldobler and Edmund O. Wilson. 

This is another plausible candidate for best non-fiction book of the year.  I liked this paragraph:

Ants and other social insects are good at what they do, and they get better by means of cooperative labor.  Their behavior fulfills principles of ergonomic efficiency embodied in the Barlow-Proschan theorems.  When individual competence is low, the first theorem says, the reliability of a system of individuals acting together is lower than the summed competence of the individuals acting singly; but when individual competence is high, above a certain threshold level, the reliability of the system based on cooperation is greater.  According to the second theorem, one redundant system, whose parts that can be switched back and forth (as in colony members), is more reliable than two identical systems with no such backup parts.

Here is another good bit:

Whenever two kinds or organisms live in close mutualistic symbiosis, as is the case in leaf-cutting ants and their fungus, we should expect communication between the two mutualists.  The fungus may signal to its host ants its preference for particular vegetable substrates or the need for a change in diet to maintain nutritional diversity or even the presence of a harmful substrate.

Here is a New York Times review of the book.  The photos are wonderful too.  Here is a short paper on the work of Barlow and Proschan and the general topic of "reliability"; it has implications for the financial crisis as well.

Outliers

The book is getting snarky reviews but if it were by an unknown, rather than by the famous Malcolm Gladwell, many people would be saying how interesting it is.  The main point, in economic language, is that human talent is heterogeneous and that the talent of a particular person must mesh with the capital structure of his or her time if major success is to result.  The book is best read as a supplement to Ludwig Lachmann’s Capital and its Structure.  The main enduring insight of both Lachmann and Gladwell is simply how much we live in a world of complementarity rather than substitutability.

Nowhere in the book does the name Dean Keith Simonton (check out the headings to these links) appear nor does the phrase "multiplicative model of human success."  A lot of the content here has already been done with more rigor and empirical support and also in readable form I might add.  Everyone should read Simonton, noting that his hypotheses fare better in the arts than in politics.

If you ask too much from Outliers it will fall apart.  It is too easy to find contingency in the world and Gladwell doesn’t begin to look for a theory of which contingencies are interesting or not.  For instance arguably Ludwig van Beethoven would not have been a great composer if:

1. An extra butterfly had died two million years ago.

2. The outcome of the Thirty Years’ War had been different.

3. The Germany of his time had not had fortepianos.

4. His parents had conceived their child one second earlier.

5. Haydn had not paved the way.

#3 and #5 seem more interesting than #1 and #4 but that’s because some contingencies just don’t help us understand the world very much.  Gladwell never gives us enough theoretical structure to see why his contingencies are the relevant ones.  Simply showing the contingencies in personal histories is not, taken alone, very enlightening.

Gladwell’s contingency stories skid out of control.  At one point it seems the main claim is that the steady accumulation of advantages is what matters, but once you ask which advantages end up "counting," the claim collapses into tautology.

There is also a "PC" undercurrent in the book of "don’t write anyone off" but if everything is so contingent on so many factors, maybe writing people off isn’t such a big deal.  It could go either way.  It depends. 

Gladwell deliberately steers us away from the contingency of genetic endowment (even for a given set of parents, which sperm got through?), but if you hold everything else fixed you can assign a very high marginal product to the genetic factor if you wish, usually up to 100 percent of a person’s outcome.  That mental exercise is verboten but somehow it is OK to hold the genetic endowment constant and vary some other historical factor and regard that as a meaningful contingency.  See the discussion of Beethoven above, especially #4 on the list.

Gladwell descends into the swamp of contingency but he is unwilling to really live in it and take it seriously or, alternatively, to find a way out. 

In reality the complementarity concept is easier to work with and also more fruitful for thinking about policy implications or for that matter the implications for management or talent training.  Success is fragile but foster competing cultures based on clusters of talent motivated by rivalry and emulation.  Don’t filter out the eccentrics or the risk takers.  That’s about where David Hume ended up but Gladwell never gets anywhere close.

It’s still a good book and a fun book.  You can order it here.

Ben Bernanke on the New Deal

I’ve been rereading some of the essays in Ben Bernanke’s Essays on the Great Depression, which of course is self-recommending.  I thought this passage summed up some relevant truths:

Our [with Martin Parkinson] own view is that the New Deal is better characterized as having "cleared the way" for a natural recovery (for example, by ending deflation and rehabilitating the financial system), rather than as being the engine of recovery itself.

Bernanke notes that there were "remarkably strong" productivity gains throughout much of the 1930s, even though there was no capital deepening.  This is a central puzzle which any account of the New Deal, or New Deal recovery, must incorporate.  These gains seem to span more sectors than could be accounted for by New Deal policy alone, and note that most government interventions, even good ones, don’t bring productivity gains over such a short time horizon and in such a regular and sustained fashion. 

Bernanke does suggest that some of the gains came from forced unionization and "efficiency wage" effects and yes that would credit the New Deal.  But I doubt that is the best hypothesis and of course it contradicts the traditional account of profit-seeking behavior from businesses (why weren’t they paying the higher wages in the first place?).  Rick Szostak’s work suggests that the New Deal saw lots of labor-saving, process innovations, which meant both high productivity gains and pressure on labor markets at the same time.  In my view most of these gains were simply the result of working through the implications of the earlier fundamental breakthroughs of the preceding twenty years.

Whatever is the case (and we genuinely don’t know), these productivity gains are central to the story of New Deal recovery.  Roosevelt may deserve credit for some of them, or for allowing them to proceed, but don’t assume that the New Deal caused such gains just because you see them in the gross data. 

You can find different drafts of the relevant Bernanke-Parkinson paper here, with various forms of gating.

Europe Between the Oceans

Can you say longue durée?  If so (or if not), here’s the new book by Barry Cunliffe, with the subtitle 9000 B.C.-AD 1000 indicating a coverage of murky yet critical millennia.

It’s a history of Europe which blends economic geography and economic archaeology.  The underlying question is how Europe became so innovative and the answer has much to do with trade and migration.  Imagine a more balanced and grounded Braudel.  The explanation of the "Neolithic package" and its spread across Europe is stunning.  I loved it when the author broke away from a passage about Phoenician trade routes to explain some odd lines in Homer.  If you are wondering, Cunliffe is a moderate neo-migrationist.  The photography and the color plates of the art are lovely.  You can learn how to view the Roman Empire as an "interlude" and as a break from the major story and how to understand 800-1000 A.D. as a period of rebalancing.  And you get passages like this:

…the actual return in calorific value for the effort expended in collecting [shellfish] is comparatively small.  A single red deer would be worth fifty thousand oysters!  That said, the value of shellfish is that they are always available and can be substituted when other food sources run short.

If you enjoy early economic history, this is a must, noting that it does not have the titillating feel of a popular science book.  It is my pick for best non-fiction book of the year so far.

Here is the book’s home page.  Here is one short review.  Here is a Times review.  You can buy an excellent long review (LRB) here.

Buy the book here (at $26 the per page price is low) to learn why economic archaeology should win a Nobel Prize someday.