Jul 2, 2012

Book reviews: “The price of everything” and “Zombie Economics”

I recently discovered the basement at Blackwell’s in Oxford and the surprisingly large economics section (ht: von Bel!)… The good thing about hanging out in a bookstore is that you buy stuff you’re not necessarily looking for, hence you broaden your horizon… or not… anyway, I bought two books I hadn’t heard of. The first one is “The price of everything” by Eduardo Porter, a journalist at the NY Times, who also worked at the Wall Street Journal. I’m not sure what to think of this book. The comments on the cover suggest the book is enthralling, enlightening, and full of freakonomicsy nuggets… I wouldn’t go that far. It starts off with a chapter on how humans make decisions following subconscious cost-benefit analyses, as if the journalist had just discovered economics and found it so powerful. He then devotes chapters to the economics of happiness, climate change, intellectual property, always explaining why all these concepts can be valued using a dollar number. He’s quite good at vulgarizing research, but by doing so he oversells the results quite a bit… His concluding chapter covers the financial collapse, warning that prices often fail… Weird for a book which point seem to have been to put a price on everything…
The second book is Zombie economics by John Quiggin, an econ professor in Australia. This book deserves some merit just for the marketing, comparing dangerous conservative ideas, such as trickle-down economics, privatization, of the efficient market hypothesis, to zombies that just won’t die and still walk among us. But it turns out to be a bit boring.  Maybe this is because since 2010, when it was first published, many people have been repeating the same thing about the uselessness of modern macroeconomics. . No DSGE economists had anything to contribute to the policy debate. His quote of Gregory Clark is quite a good summary:
“The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1.  What is the multiplier from government spending?  Does government spending crowd out private spending?  How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.  The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s.  There has essentially been no advance in our knowledge in 80 years.”
Despite the great cover art, the book is not so good at vulgarizing economic concepts such as DSGE models. So while it becomes clear to the reader that DSGE models were useless in helping policymakers act during the crisis, it is not no clear why so many economists like them so much, apart from their elegance. It is nonetheless a good overview of the history of economic thought in the last century. A new chapter offers straight-up Keynesianism and warns of the dangers of austerity during a recession. He then concludes that macro should include more behavioural stuff like loss aversion and that welfare states are the best way to manage economic fluctuations... Sounds quite obvious nowadays, maybe it wasn’t when he was writing the book. 

May 10, 2012

New econ dept. ranking based on research output

Actually an update of this Tilburg-based ranking, based on research produced between 2007 and 2011.


May 8, 2012

Book review: An economist gets lunch, by Tyler Cowen

Tyler Cowen gets it when it comes to food. He wants to eat tasty stuff at every meal. He knows there is good food everywhere, if you know where to look. And he understands the economic forces that shape food consumption.

His latest book is "An economist gets lunch: New Rules for Everyday Foodies". The two best chapters of the book are “How to find a good place to eat” and “Why does food taste different in the US and Mexico”. The rest is too random, i.e. a chapter about barbecue variations across states, a chapter about which kitchen technology he uses. What?

So why is food different in El Paso and Ciudad Juarez, despite the same population, same geography, and same history? Food-safety regulation, much stricter north of the border, leads to refrigerated but less tasty meat and vegetables, a different selection of cheese, and make it harder to dig a hole for a traditional barbecue.

How to find a good place to eat? Well, he makes many good points without structuring them and convincing us about each of them but here are some rule-of-thumbs. Food is best where labour is cheap, ingredients are fresh, and consumers are informed. Sounds obvious? Maybe, but would you have realized it explains why food in Mahajanga , on the west coast of Madagascar, is much better than in Paris? The fresh seafood, the 5 maids cooking, the shredded green mango, the cucumber salad. As simple as that!

These principles can somehow explain the English food revival as England imports tons of cheap labour from France, Poland, Italy, and Spain that ends up working in restaurants, allowing for affordable labour-intensive delicacies.

Having lived and travelled to a bunch of places I agree with much of his statements, while he may be a bit too quick to generalize from his random observations across Europe. He definitely knows where to eat the best ethnic food in the US, and having had the best Thai of my life from a street cart in Denver, some amazing ceviche in a strip mall in Virginia, and amazing tostadas in the streets of Panajachel, I’m happy to see that such an enlightened thinker validates my impressions.  He understands why a street hot dog in Copenhagen is better than a dinner in a random 4-star hotel.

While all his arguments are good, he doesn’t spend enough time structuring them for a more convincing effect. When reading his book, I get the impression he sat, wrote, and the publisher printed. He seems to want to get it out too fast like a blog post. Some mistakes here and there get irritating. For example, he writes about tacos del pastor, rather than tacos al pastor, or mention food from the Reunion islands. The Reunion is only one island. He translates “sous vide” as slow vacuum, but there is no mention of speed in “sous vide”.

And while he definitely makes it clear that there is an abundant supply or amazing food around the world, the greatest puzzle remains. Why does taste disappear with development? Cheap labour and fresh ingredients disappear (unless cheap migrants come in like in the US or the UK, but then these will disappear with development). As I noted on Rigotnomics two years ago, I never eaten as well as in Madagascar, where zebu carpaccio and mango foie gras are ubiquitous and extremely cheap. In rich countries such as Switzerland, service is boring at its best, food, even in the most expensive places, is ordinary. Now that is a question to address.

Apr 27, 2012

How poor is Japan?

The Economist has a Daily Chart about Japan being overtaken by Asian Tigers in terms of living standards. As it writes, "most economists reckon that the best way to compare living standards is to take GDP per person measured at purchasing-power parity (PPP)". In other words, the Japanese are now able to consume less stuff then the Tigers, including South Korea in a near future. That is indeed remarkable, when one thinks about where South Korea started in 1980.

But what is also remarkable is that when GDP per capita is measured at market exchange rates, Japan is still the richest (Taiwan is not in the graph below due to Chinese interference).

Is this because the yen is worth too much, boosting Japan's GDP per capita at market exchange rates? The yen has indeed been appreciating quite a lot against the dollar since 1980. Or is it because goods are too expensive in Japan, reducing people's purchasing power? Maybe goods are too expensive because Japan is too protectionist, not allowing cheap Chinese goods to flow in. Or maybe its goods are of higher quality, something PPP exchange rates capture rather imperfectly. 

So here's what's weird. When the Japanese travel to the US, there are much richer than the Koreans. But back home, they both live as comfortably. Do they really?

Apr 17, 2012

Heading the World Bank

The debate around who had to become the new head of the World Bank has been quite fierce, on blogs and on twitter. Now yesterday it was just revealed (surprise surprise) that Jim, the US's choice, was to become the new boss. Many are angry because this is a continuation of a political arrangement between Europe and the US, rather than a transparent selection process. But having Jim head the bank is certainly gonna be interesting, mostly because he comes as a complete outsider. The Economist had strongly backed the Nigerian candidate, stating that she was by far more qualified. Yet as I outlined in a letter to the editor, it wasn't so clear:

Your leader on who is to head the World Bank is somewhat contradictory. On one hand you say that development is not something rich countries do to poor ones. On the other you claim that an experienced economist should head the Bank because the Bank is about bringing development.
In any case it seems to me the mandate of the Bank goes against recent advances in development economics. One the one hand the randomistas argue that small and targeted aid projects in health and education do have a positive impact on the treated. On the other macroeconomists like Acemoglu and Robinson argue that growth cannot come through outside help. As Easterly reviews their recent book, "Why Nations Fail", he puts it simply: “experts cannot engineer prosperity with the right advice to rulers on policies and institutions. Rulers "get it wrong not by mistake or ignorance but on purpose."”
Has the World Bank helped poor countries by suggesting the right policies? Nope. Can it? Of course not. Why stick to a failed model? Better stick to assistance projects that can actually make a difference. And for that Jim Yong Kim may be the right candidate. For sure it makes no sense to have Obama decide who is to head the Bank. But this doesn’t mean this is an obvious choice. There is no doubt that Ngozi Okonjo-Iweala is one of the world’s best hopes for development. Yet the main advantage of having Jim head the Bank is that Ngozi avoids useless meetings in DC and remains where she can change the world, i.e. in Nigeria.

And a few days later Acemoglu and Robinson said the same thing on their blog:

Perhaps the Bank could focus on doing a few things such as investing in health infrastructure, hospitals, perhaps some educational facilities targeted for the most disadvantaged populations in only the parts of the world that are most in need... perhaps this year offers another historic opportunity: to change the vision and structure of the World Bank.

Apr 11, 2012


Rigotnomics is now on RePec:

The Federal Reserve Bank of St. Louis is lauching a blog aggregator,  EconomicAcademics.org, to highlight and promote the discussion of  economics research. Your blog is part of this effort. This email explains  why and how you can help promote the discussion of economic research in  the blogosphere. 
EconAcademics.org aggregates blog  posts that discuss economic research. The aggregator looks through blog  posts for a link to some research indexed on a RePEc service... IDEAS then also links back from the abstract  page to the blog posts... 
This blog aggregator is provided by the Federal Reserve Bank of St.  Louis, which also offers with FRED database and graphing tool as a useful  resources for bloggers. Feel free to use the graphs on your blog, best  done by embedding them so that readers can click on them to get more  details about the data....
Also, ... if you have a topical blog, you can have the  latest papers in your field featured in an RSS widget. See  http://nep.repec.org/. If you have suggestions, comments, or questions, do not hesitate to  contact me.
Christian Zimmermann

Apr 10, 2012

Rodrik on UNCTAD

Rich countries want to reduce UNCTAD's work on macro/finance. Pity since UNCTAD reports are far more value-for-money than World Bank WDRs. -- Dani Rodrik (@rodrikdani)