31 Jan 2017

Economics: The User's Guide -- the review

I’m a fan of Ha-Joon Chang, a “heterodox” economist who has made a name for himself by pointing out the drawbacks to orthodox economics. Chang is not exactly an outsider (he’s a Reader — equivalent to an American associate professor — at Cambridge), but his critique of mainstream economics gives outsiders useful insights that might protect them from over reliance on overly formal (and thus mainly useless) models.

Peter Boettke claims (with cause) that “mainstream” economics left the path of “mainline” economics after World War II, when mathematical economics rose to dominate the field. This resort to “mathterbation” has, IMO, weakened the discipline by making most research both inaccessible to lay readers and inaccurate in terms of “findings” (read Skidelsky). Such weaknesses explain why experimental, behavioural and institutional economics have grown so quickly in the past 20-30 years — mainstream economics just doesn’t help with important questions or facts.

I downloaded this book on the prodding of one of my students as well as my own curiosity. I wanted to read a book that “gives us the tools we need to understand our increasingly global and interconnected world often driven by economics.”

The short answer is that it does not.

Chang's book is not going to be helpful to the average reader with little knowledge of economics as Chang’s method of listing many schools of economic thought (before discussing the pros and cons of each school) will leave most readers confused. Worse, in my opinion, is that Chang oversimplifies — often to the point of caricature — complex sets of ideas that few economists buy into 100 percent. Chang, in other words, is battling with paper tigers in front of an audience that may not know what a real tiger looks like, and without the realities that a real tiger-fighter might need to consider.

In my review of Freakonomics, I say that that book presents a series of entertaining “just so” stories that will be good for cocktail conversation but counterproductive to anyone seeking to understand how economists think. Chang’s book has the same problem but for different reasons. Freakonomics fails because it puts too much weight on case studies. Chang fails (in terms of educating readers) because he puts too much weight on theoretical quibbles.

My advice here is the same as there, i.e., that readers seeking to understand the economic way of thinking read Economics in One Lesson [free download].

Putting that heavy remark aside, I DO recommend this book to graduate students in economics seeking a quick and dirty overview of the various schools of thought and how they overlap and contradict with each other. I would advice they read it AFTER reading Heilbronner’s Worldly Philosophers because his “history of economic thought” explains how the current schools emerged. After reading these two books, it makes a lot of sense for those students to read primers or handbooks in each school as a counterpoint to the neoclassical (often more mathematical than useful) perspective they might get from Mas Colell, Whinston and Green — the doorstopper we used in graduate school that was as rigorous as it was useless.

I would NOT recommend this book for non-economics gradate students because they will walk away with the (mistaken) opinion that “economists can’t agree on anything, so I can ignore economic thinking and make up my own version of human behaviour.” For those students, I would recommend Heilbronner (to see the depth and evolution of economic thinking) in combination with a course in microeconomics (to understand why demand slopes down), with a finisher looking into the economics of non-market goods. (I’ll be reviewing Ostrom et al.’s book on common pool resources soon!)

For readers looking for more detailed criticisms, I’ll give only a few because I make over 70 notes in the text and don’t want to bore all of us with so many details.

Early on, Chang notes that Europe’s GDP grew by less between 1000 and 1500 than China’s did between 2002 and 2008, but this measure of “material progress” (growth) misses much of what people care about (development). I doubt that any historian would agree that Europe did less in 500 years as China did in six (read this).

Chang is a “macro guy” and Keynesian from South Korea, so he’s clearly got a different perspective from me (a micro guy and institutionalist from California), but I found myself constantly amazed by his oversimplified explanations for large scale events (e.g., how declining colonialism lead to World War I or that “Soviet industrialization was a big success… due to its ability to repel the Nazi advance”). In these cases — and many more — I had counter examples to his claims. That doesn’t matter in terms of who’s wrong or what school is right, but it indicates a deeper problem: Chang’s habit of oversimplifying in ways that cannot be generalized (the same problem that Freakonomics had). This may be my perspective as a “micro foundations” guy, but Chang is the one who needs to substantiate (or more carefully state) his claims, and his lack of caveat or rigour undermines both those claims and the rest of his “reasonable perspective.”

I would have loved to read more of Chang’s insights into South Korea’s development as an competitive exporting economy led by conglomerates under a military dictatorship, but that discussion was not in this book (perhaps it is in others). That said, his summary of economic policies in the Reagan years is a shallow and partial caricature that leaves out the importance of higher interest rates in reducing inflation and the role of trade (including imports of Korean cars!) in producing America’s Rust Belt. It was frustrating to miss so many important facts (and perhaps even economic policies!) in those discussions.

I could go on, but I’ll stop.

Bottom Line I give this book THREE STARS because it does not “explain how the global economy actually works--in real-world terms” (and so on), but instead offers a series of mini critiques on economic thought that would be useless — or misleading — to the average reader. I recommend that anyone interested in a quick and entertaining summary of Chang's main message watch this 11 minute RSA video.

For all my reviews, go here.

26 Jan 2017

Only connect.


Where will we go -- the review

This "book" is printed like a newspaper magazine, which lowers its cost without reducing its impact. I "read" it in less than an hour, as the main message is conveyed through photos from Greenland, Kiribati, Fiji, PNG, Bangladesh, Panama, the UK and the US.

A cemetery in Fiji is slowly flooded by rising sea levels.

Kadir van Lohuizen, the author and photographer, has seen the future of a climate-changed world (the subtitle of the book is "the human consequences of rising sea levels") in the changes hitting the most vulnerable places today. His photos will help you understand how your home -- and our planet -- is changing.

Bottom Line: I give this book FIVE STARS for its simple yet powerful portrait of people living at the sharp edge of climate change.
For all my reviews, go here.

24 Jan 2017

Like water? Like maps? Comment on these!

The Water Atlas has posted 40+ water-related maps for "peer review" (that means YOU!), so stop by and check them out for accuracy and design. Here are a few screenshots...

I watched Trump's inaugural address

...and it was pathetic on content (read this debrief) and delivery (repetitive), especially when compared to Obama's 2009 speech (let alone crowd size!) but go ahead and watch it (and read the comments from his fans. Oh my).

Just keep this handy for the next 4 years (if we make it that far):

The 14 points of Fascism (from here, based on this)

Powerful and Continuing Nationalism
Fascist regimes tend to make constant use of patriotic mottos, slogans, symbols, songs, and other paraphernalia. Flags are seen everywhere, as are flag symbols on clothing and in public displays.

Disdain for the Recognition of Human Rights
Because of fear of enemies and the need for security, the people in fascist regimes are persuaded that human rights can be ignored in certain cases because of "need." The people tend to look the other way or even approve of torture, summary executions, assassinations, long incarcerations of prisoners, etc.

Identification of Enemies/Scapegoats as a Unifying Cause
The people are rallied into a unifying patriotic frenzy over the need to eliminate a perceived common threat or foe: racial, ethnic or religious minorities; liberals; communists; socialists, terrorists, etc.

Supremacy of the Military
Even when there are widespread domestic problems, the military is given a disproportionate amount of government funding, and the domestic agenda is neglected. Soldiers and military service are glamorized.

Rampant Sexism
The governments of fascist nations tend to be almost exclusively male-dominated. Under fascist regimes, traditional gender roles are made more rigid. Opposition to abortion is high, as is homophobia and anti-gay legislation and national policy.

Controlled Mass Media
Sometimes the media is directly controlled by the government, but in other cases, the media is indirectly controlled by government regulation, or sympathetic media spokespeople and executives. Censorship, especially in war time, is very common.

Obsession with National Security
Fear is used as a motivational tool by the government over the masses.

Religion and Government are Intertwined
Governments in fascist nations tend to use the most common religion in the nation as a tool to manipulate public opinion. Religious rhetoric and terminology is common from government leaders, even when the major tenets of the religion are diametrically opposed to the government's policies or actions.

Corporate Power is Protected
The industrial and business aristocracy of a fascist nation often are the ones who put the government leaders into power, creating a mutually beneficial business/government relationship and power elite.

Labor Power is Suppressed
Because the organizing power of labor is the only real threat to a fascist government, labor unions are either eliminated entirely, or are severely suppressed.

Disdain for Intellectuals and the Arts
Fascist nations tend to promote and tolerate open hostility to higher education, and academia. It is not uncommon for professors and other academics to be censored or even arrested. Free expression in the arts is openly attacked, and governments often refuse to fund the arts.

Obsession with Crime and Punishment
Under fascist regimes, the police are given almost limitless power to enforce laws. The people are often willing to overlook police abuses and even forego civil liberties in the name of patriotism. There is often a national police force with virtually unlimited power in fascist nations.

Rampant Cronyism and Corruption
Fascist regimes almost always are governed by groups of friends and associates who appoint each other to government positions and use governmental power and authority to protect their friends from accountability. It is not uncommon in fascist regimes for national resources and even treasures to be appropriated or even outright stolen by government leaders.

Fraudulent Elections
Sometimes elections in fascist nations are a complete sham. Other times elections are manipulated by smear campaigns against or even assassination of opposition candidates, use of legislation to control voting numbers or political district boundaries, and manipulation of the media. Fascist nations also typically use their judiciaries to manipulate or control elections.

20 Jan 2017

Friday party!

This promo to study in Lisbon is obviously fake/scripted, but it gives you an idea of the increasing competition for students and the creative classes. (I was just in Lisbon, and it's surely interesting -- cheap, kind, cultural -- for folks who can work anywhere.)

19 Jan 2017

Having an opinion doesn't mean you're right

H/T to enviroecon

Note to readers: Someone said it was "a little annoying" that I sometimes point out when I'm right ("like an economist would"), but I only do this because I am constantly checking on myself, to see if I'm understanding how current trends will turn out or if people will gravitate towards a position or belief. I make claims or predictions in the same way as you might place a bet or buy shares. Those actions force you to face black and white changes in your wallet, which tend to percolate up to the brain. I also, of course, try to admit when I am wrong (help me out if I don't!) or when I've changed my mind. This is not just a useful lesson in humility; it's a good way to help people see that you're willing to face facts.

I talk about being right or wrong in public (and on the blog) because my professional/public intellectual reputation depends on (a) being right, (b) learning from mistakes and (c) separating opinion from fact.

I'm curious how you deal with being right or wrong -- or do you never take a side that loses?

17 Jan 2017

Water innovation lab in the Netherlands!

I participated at the last WIL in Scotland. It was really an exciting opportunity for "young leaders" and guest speakers (like me) to think big and different about how to address water problems around the world.

Here's my little Oct 2015 presentation of "What's a plausible 2060?" (3 min MP3 and PDF slide)

The WIL definitely got me thinking about topics that led to Life Plus 2 Meters.

I highly recommend this workshop for its great opportunities and low costs.

Deadline for applications is 26 Feb, but I'd apply TODAY!

Freakonomics -- the review

I’ve heard of this book for years, but never bothered to read it because I was already an economist and didn’t think I needed to read a popular summary of Steven Levitt’s work.[1] My impression was that the book summarized his work in a popular (non-academic) style that helped people understand what economists do. I though that the book was useful in this respect in helping people understand what I do. Indeed, the most common reaction I get from people when telling them that I am an economist is that they have read Freakonomics, which implies that they have at least seen some work similar to what I do at aguanomics.[2]

It turns out that I was mistaken in my initial beliefs.

I just read this 2004 book 2006 revision, and it's made me think a bit more about how we (economists) communicate with the general public, and I think that some ways are better than others. First, there are textbooks, which describe the tools that economists use to put their theories into practice. Many many people have told me “I didn’t learn anything in economics. All I remember was a lot of math and curves.” This depressing outcome results from lecturers who merely reproduce problems and equations on the blackboard, without helping students understand either why those theories are used or how they came to be so popular with economists.[3] Second, there are books that explain how economists think or how their thinking has evolved as they have tried to understand and summarize the people’s behaviour. These books, in my opinion, are the most interesting — and challenging — because they push people to revisit their assumptions and perspectives.[4] These are the books that I would recommend to people looking to “think like an economist” or, to be blunt, to think more accurately about how they and those around them actually behave. Third, there are books like mine [pdf] that try to explain how to improve failing policies using basic economic insights and incentives. Finally, there are books like Freakonomics that reproduce academic papers in a popular form. These books — like Economic Gangsters — give the public a limited vision of research without explaining the struggles of getting the right data or explaining the limitations of theories that are used (or not) in the final paper.

Freakonomics is therefore NOT the book that I would recommend to anyone interested in (a) learning economic theory, (b) learning about how economists think, or (c) understanding the world or thinking of ways to improve it.

This book with a memorable (but useless) name provides readers with just-so stories that are good for  cocktail conversations but not for understanding economics.[5]

For example,
  • Legalized abortion explains the drop in crime in the US. Not only do Steve and Steve back off from the main claims of the original paper (they add other factors), but this theory has been falsified by others (see this and this). What struck me is their ongoing attempts to hold onto at least some elements in the original claim in later blog posts in what I’d call a “my-ladydoth-protest-too-much” manner.
  • Real estate agents serve themselves better than they serve clients when selling their own homes. As a former real estate agent, I had to agree with their basic premise, but I thought their explanation too simplistic.[6] The most obvious problem is that agents have an entirely different understanding of themselves as sellers as well as of the markets. Surely that different information (and the resulting “patience” that gets them a higher price as sellers) matters?
Looking over their other chapters (on cheating sumo wrestlers, drug dealers who live with their moms, the KKK as a multilevel marketing organization, etc.), I agree that the chapters are interesting and thought provoking, but they do not provide “lessons on the hidden side of everything.” Instead, they read like a series of magazine articles whose quirky “insights” might contribute to your next cocktail conversation.

The authors say that they want you to ask more questions and see the world differently, but what tools have they given to you in this book?[7] I didn’t detect any reliable technique (except perhaps to collect a neat dataset and call Steve Levitt), and that’s where I was disappointed. Freakonomics does not really reveal the hidden side of everything. Indeed, it’s more likely to mislead you into thinking you’ve learned something, when you’ve only learned an interesting angle on a complex topic on which you may lack either the experience or methods needed to put it into a useful context.[8]

Take their example of the “underpaid” drug dealer who they say faces a higher risk of death than someone on Death Row in Texas (and thus must be overestimating the gains from their job). Does this statistical analysis mean that those street dealers are irrational? I don’t think so. As all economics students learn, you need to look at their opportunity cost (i.e., the costs and benefits of their potential other choices). In this case, street dealers are (a) NOT condemned to death, (b) not able to find other work with their experience, and (c) not aware of their statistical mortality as much as their potential wealth. Those street runners are “taking their chances” in the same way as Americans are “living the dream,” i.e., in ignorance of reality.[9]

Bottom Line: I give this book THREE STARS. Dubner and Levitt present interesting puzzles worthy of cocktail conversation, but they overstate their contributions and accuracy (“numbers don’t lie” but theory can be incomplete or just wrong). I suggest that anyone interested in understanding how economics works and applying those lessons to “the hidden side of everything” read Economics in One Lesson by Henry Hazlitt. It’s free to download and provides a really useful perspective that anyone can apply to any topic they care about.[10]

  1. I’ve met Steven Levitt. He's a fine person and excellent economist, but this book is too “pop” in its oversimplification of his work and hagiographic treatment of his insights. Yes, he brings interesting statistical tools to“freaky” questions, but he’s not a “rogue economist exploring the hidden side of everything.” He’s just a guy with a dataset and empirical theory who finds some strong correlations. As I explain later on, he does not deliver the last word on pretty much any topic in this book. (It's interesting to see the two authors pooh-poohing people's objections to their claims in this revised edition. I get the impression that their answer is "bestseller, bitch!" more than "hmmm..., maybe we claimed too much.") Also see note 8.
  2. I wrote on the human right to water and oil and water for their Freakonomics blog.
  3. I published an article [pdf] on how students don’t really understand the “downward sloping demand curve” because its form is based on advanced techniques they won’t see for a few more classes (meaning "never" for those who take one class or drop the major).
  4. Of those I have reviewed, I recommend Small is Beautiful, the Calculus of Consent, the Company of Strangers, Predictably Irrational, etc.
  5. "Freaky" anything sounds bad to me, and "freaky" economics -- unlike most economics -- isn't useful to most people. Even worse, there's nothing freaky to the stories in terms of the economics. I wish the authors had spent more time on the basic economics (making the book a useful learning experience) and less time defending empirical research that is interesting and provocative but not really wise.
  6. I corresponded with Levitt’s co-author on my objections to their working paper back in 2005. The main one was that their analysis missed the most important point: it’s better to have an agent than not to have an agent — an obvious insight that saved me about €10,000 when I bought a flat in Amsterdam. Going further, would an agent work harder for you if their commission was a flat rate rather than a percentage of the sales price? They harp about commissions as detrimental to the client’s interest due to the small share of the additional profits an agent gains from working harder on your behalf — e.g., 3% of another $10,000 is only $300, but why would an agent work any harder on a flat-rate commission? In my experience, agents love on referrals from old clients, which may explain why they work hard "despite the weak incentives."
  7. My definition of an expert is “someone who knows what’s missing.” As an example of this, I give a fourth reason why it’s NOT irrational to vote (they give three weak reasons in the blog post included in their revised edition), i.e., the benefits to an individual from study and engagement in a topic.
  8. My years of experience traveling in 100+ countries leads me to respect the diversity of beliefs and institutions that result in a variety of outcomes. Most academics need to exit the Ivory Tower and hit the road more often.
  9. On page 134, they write “The typical parenting expert, like experts in other fields, is prone to sound exceedingly sure of himself. An expert doesn’t so much argue the various sides of an issue as plant his flag firmly on one side. That’s because an expert whose argument reeks of restraint or nuance often doesn’t get much attention.” They need to apply the same critique to themselves. (They cite themselves in later chapters — p139 on abortion and crime — as if their earlier claims were facts.) As another example, take Dubner on page 199, who writes “that paper [on police officer counts and crime] was later disputed… a gradate student found an obvious mathematical mistake in it — but Levitt’s ingenuity was obvious.” I’m not sure I’d say the same about someone whose claims rested on logic with “obvious mathematical mistakes”!
  10. Hazlitt says "the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups," which he summarizes as "...and then what?" That's a good question, and it's how I can easily predict that cheap water prices will lead to failing infrastructure or water shortages, why climate change is arriving "too fast" (due to a lack of carbon taxes), and so on. I'd prefer people to ask "and then what?" more often and spend less time showing off their knowledge of cheating sumo wrestlers.

For all my reviews, go here.

16 Jan 2017

Monday funnies!

These hipster artisans are getting a little out of control.

13 Jan 2017

12 Jan 2017

Why are we so bad at managing water?

That's the title of a talk I gave last Sept in Amsterdam. I just got the video [deleted :(].

(I also discuss how I created Life Plus 2 Meters as a project to help us manage water.)

Here are my slides and the talk as a 28 min MP3.

9 Jan 2017

I'll be doing a Reddit AMA on Thursday!

I'm going onto Reddit for the 5th time, to answer questions related to climate change adaptation and promote the Life Plus 2 Meters project.

(Volume 1 is out, and I'm looking for funding to pay for prizes to the best writers submitting to volume 2.)

I'll also take questions on aguanomics, of course!

I plan to start around 15:00 Amsterdam time (get your local time here).

Here's the AMA

Can you help me be more effective in helping you?

I've been working on water-, environment- and community-related political economy for nearly 15 years now, and I've tried many things.

It's hard to know what works or doesn't, since I am not selling burgers or books but giving away ideas.

As a teacher, I know that ideas can lead to different changes in different people. Some people will adopt the idea 100 percent because they hadn't thought of it. Others will line up my ideas against their own experiences and beliefs, perhaps changing a little here and there to get closer to their vision of how the world works or should be. In some cases, ideas have a greater impact because people take them into their communities and change other peoples' ideas and opinions.

But I don't know what works for who or where. Sometimes people tell me that my ideas helped them. Usually, I don't hear anything even though my ideas (or funny jokes!) may have had an impact.

So this "known unknown" is why I am asking for your help -- just as I ask my students for their feedback or ideas for improving my teaching -- on any of my activities (aguanomics, Life Plus 2 Meters, my talks and outreach or my academic work).

So, please email me or leave comments on any of the following questions:
  1. What can I do to improve my current activities?
  2. What activities are not so useful (I should do less of them)?
  3. What new ideas, people or activities should I look into?
Please remember that I am only trying to help people help themselves, as water policy (and environmental policy and community resilience) are all determined by local people working together...

Bottom Line: I want to produce the most benefit for you, with the lest (wasted) effort from me!

Monday funnies

Think different.