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Alicia H. Munnell and Steven A. Sass, Working Longer: The Solution to the Retirement Income Challenge — January 21, 2013

Alicia H. Munnell and Steven A. Sass, Working Longer: The Solution to the Retirement Income Challenge

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Here’s a quick bit about a book I despised. Munnell and Sass’s thesis is that since people are living longer, they logically have just 3 options: live on less per year of retirement, save more for every year they’re employed, or retire later. No problems up to here.

Living on less would be dangerous, say Munnell and Sass, and people aren’t saving enough (no arguments here, either); ergo, the only option (flashing DANGER lights) is working longer. So their first sin is one of omission: a better book would have looked at how to, e.g., shift more of society’s resources into providing a better retirement for everyone.

Their next sin is in acknowledging that life expectancies have risen the least for the poorest and least educated among us, and for African-Americans, without then proposing any solution that would actually solve their problem and while sticking to their retire-later guns. If you’re the sort of person whose basic moral alignment says to help the neediest first, this book will anger you. Indeed, I often thought that it should be retitled, [book: Throwing It Against The Wall: The Solution To This Book].

The solutions that they do come to are small-ball ones, like beefing up little job-retraining programs that they admit don’t really work. And they leave the reader with no confidence that employers will actually want to employ older workers. (Even larger solutions, like committing on G.I. Bill scale to college education, aren’t obviously going to solve the problem: give everyone a college degree, and you’ll still find that some people are better educated than others. It’s not clear that a college degree for everyone will solve a macroeconomic problem like retirement security.)

Munnell and Sass rule most of the interesting parts of the problem out of scope, for reasons that elude me. The basic problem, it seems to me, is that employers have no incentive to do what society acknowledges needs to be done, namely provide for the well-being of those who’ve spent their lives toiling. Employers aren’t charities, naturally, so this isn’t necessarily a knock on them. It is, however, a knock on a society that has structured much of worker security (401(k)s, before them pensions, and health insurance for current workers) around employers whose incentives push in exactly the opposite direction. We know that companies won’t do what we need them to do; other societies have taken the next logical step here and looked to government to provide what companies will not. Yet Munnell and Sass rule this out of bounds early on: literally their only question is how to get workers to work longer.

Workers don’t *want* to work longer. They end up retiring at 62, even though they say they want to work to 65. Here Munnell and Sass have a point: changes in the provision of Social Security benefits have caused people to lower their retirement age from 66 to 62; policy changes could just as easily return the retirement age to where it would have “naturally” landed on its own.

That said, real per-capita GDP has more than tripled since 1950, back when the U.S. economy was the envy of the world; if Americans were prosperous then, we must be really prosperous now. When people earn more money, they naturally decide to convert some of that money into increased leisure. And if they had greater income security (through Social Security, say), they’d likely convert more of that income into leisure. Munnell and Sass ask, essentially, how to convince people who are wealthier than ever to work longer. It’s bizarre tunnel vision.

I *anti*-recommend this book wholeheartedly.

Remembering Managerial Dilemmas — July 8, 2012

Remembering Managerial Dilemmas

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A conversation with a friend over brunch reminded me of a really thought-provoking book I reviewed a few years back, namely Gary Miller’s [book: Managerial Dilemmas: The Political Economy of Hierarchy].

The basic idea in Miller is that, if your organization (company, team, university, whatever) is judged on the basis of how it performs overall, then everyone has an incentive to slack and let everyone else do the work. But since everyone is subject to the same incentives, everyone slacks and the whole thing goes to shit (technically speaking).

Likewise, your company has every incentive to screw you and not, say, invest in educating you; after all, why pay for you to get a master’s degree if you’re just going to take their investment to another job?

Somehow both sides need to agree to disarm: the company needs to credibly (and in a certain sense irrationally) signal that it’s going to support its employees, even though it has no guarantee that they’ll reciprocate; and employees need to credibly (and in a certain sense irrationally) signal that they won’t slack, even though they have no guarantee that the company will reward them.

Turns out it’s a hard problem. I don’t recall Miller talking about this at all, but it seems clear to me that government has a role to play here: since companies can’t be trusted to supply me with a pension that will help me in my old age, let’s make Social Security really good. And since companies can’t be trusted to pay for my master’s degree, let’s have the government subsidize advanced degrees. There are obvious problems with this, but it’s not clear that they’re worse than the economy as she already works.

H.W. Brands, Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt — August 24, 2011

H.W. Brands, Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt

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Black-and-white (though maybe with some bluish tones in the background) photo of Roosevelt, his teeth clamped down on a cigarette holder with a cigarette in it. The book's title is in rather scripty blue. Subtitle is in white. Author's name is also in white.

Delightful read. My main concern when reading a book like this is that it’s going to be fawning, and will subscribe to the retrospective superhero status that its subject has attained. Brands couldn’t avoid that entirely here, of course (he chose to write about FDR, so I have to imagine he doesn’t loathe the man), but he’s just about as forthright about the man as he could be.

Most everyone knows the FDR story by now, but maybe it’s worthwhile to briefly reveal the highlights. Scion of the Roosevelt clan, Teddy Roosevelt his fifth cousin. Assistant secretary of the navy during World War I. Crippled below the waist by polio and confined to a wheelchair for much of his life. Governorship of New York. Elected president in 1932 in the depths of the Great Depression after booting Hoover from office. Took the country off the gold standard. Closed the country’s banks during his first week in office. First 100 days created the New Deal. Domestic program foundered on his court-packing scheme, though it may have eventually helped him by holding a gun up to the Supreme Court’s head. Then Pearl Harbor, World War II, re-elected 3 times, and dead just months before the end of the war.

What a book like this brings to its subject is style, rather than much new information. Brands’s style is to let the subjects speak mostly for themselves: the ratio of quoted words to narrated words must be north of 1:1. Yet Brands stitches the quotes together effortlessly; it’s as though the characters themselves, and not Brands, were walking me through their lives.

Far from being fawning, I felt like Brands’s take on FDR’s leadership was slightly ambiguous. On many occasions — particularly whether to invade Europe through the north of France or the south of Italy first — it felt as though FDR sat quietly and hemmed and hawed until forced to make a decision. Sometimes his dithering may have served a strategic point: wait for someone else to make the first move, but steer their move so that they feel like they had more choice in the matter than they actually did. Other times he really did seem indecisive.

FDR left behind so little writing (in contrast to Churchill) that Brands often has to scrape around to describe the man’s inner life or his relations with others. The scraping occasionally goes too far, as when Brands describes what “must have” gone through FDR’s head. No one knows what must have gone through his head. No harm in speculation, but it’s just that.

Perhaps others already knew about Eleanor and Franklin Roosevelt’s relationship. I did not. In fact, I didn’t know a thing about Eleanor. She’s a thread weaving throughout the biography of FDR, of course, in spite of FDR’s best efforts. He cheated on her from early on with Lucy Mercer, who was actually with him on the day he died and slipped away before the press could find out; Mercer may well have been the love of FDR’s life. His and Eleanor’s union was a loveless marriage of convenience that would have ended in divorce soon after she discovered the Mercer affair, had Eleanor not known that divorce would end Franklin’s career. So they stayed together, under the stipulation (whether this is a known fact or just a strong suspicion of Brands’s, I don’t remember) that they would never have sex again, and that essentially they would lead two separate lives. FDR continued his rise to the presidency, and Eleanor slowly escaped from the painful shyness that had enveloped her throughout her youth. By the end of Franklin’s life, Eleanor was a powerful public figure in her own right. FDR dominates the book as a world-historical figure, of course, but Eleanor is the more captivating person.

The title suggests that the book has more focus than it does. [book: Traitor to His Class] doesn’t answer — or even come very close to answering — why a man from such exalted beginnings would care about the little people whom capitalism had steamrolled. It’s not clear that the book even tried to answer this — unlike, say, Robert Caro’s biography of Lyndon Johnson, whose organizing question is: why did a man who was so famous as a power-hungry political ball-buster do so much for people who could do nothing to aid his rise, *particularly* after he’d reached the summit? [book: Traitor to His Class] isn’t like that; it’s a straightforward, and straightforwardly enjoyable, biography of one of the 20th century’s greatest men.

Catching up on reviews — August 21, 2011

Catching up on reviews

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Rather brilliant white background. Book title and author's name in gold. Vivid blue subtitle at the top right. A ball of string with the globe painted on it at the left. There's a bit of the string hanging off the ball, running off the right side of the cover.
The page is divided in two. In the top half is an ornate-looking map of the world, with some kind of navigation device laid on top, as though someone is plotting a trip. In the bottom half is a photo of palm trees. The book's title and subtitle are overlaid on the bottom half, and the author's name is in a capsule at the intersection of the two halves.
Farewell to Alms cover: a pleading hand reaching out from a black box in the middle of the cover
Pieces of string knotted intricately (and beautifully) together at the bottom-left side of the page. A green string goes up the vertical axis from there; a purple string goes out the horizontal axis; and a yellow string follows the y=x line.
Black-and-white painting (photo?) of the Iron Chancellor in his rather old age: all jowly and sunken-eyed.
Brilliant blue sky in the background, extraordinary compact city-on-a-hill in the foreground. Supposed to look like the famous painting of Babel.
The most boring imaginable cover: beige background, 'Visible Hand' in red text, 'The Managerial Revolution in American Business' in black text, and the author's name in white text. The end
Red box at the top right, containing the book's title and the author's name in white type; yellow stars circle the red box. Everything is set atop a blue field. The book cover is supposed to resemble the EU flag.
A deep rich green background. An old-time map (of the world, one supposes) is watermarked into the background. At the bottom of the page, at the center, is a black box surrounded by a broken red line. The title of the book, and its authors' names, are in the black box. At the very bottom of the box is the top of what looks like another old-time map, printed in the same shade of red as the broken line.

(Attention conservation notice: 4000+ words, spread across reviews of eight books [9th forthcoming] that I’ve neglected to review over the last four months.)

I’ve been remarkably derelict in my book-reviewing duties of late, as the long row of book covers up above will suggest. Work, and life, and going on vacation without my computer, all have gotten in the way of writing here. So let’s see what we can do to remedy that, eh?

First, I must apologize a little: it’s been weeks or months since I’ve read these books, so I’m likely going to be remembering things incorrectly. I hope I convey the essences correctly.

Clark’s, Easterly’s, and Banerjee’s/Duflo’s books need to be described as a group, I think, both because I read them in the sequence listed; and because that sequence, coincidentally, was a really good order in which to read them.

  • Gregory Clark, [book: A Farewell to Alms: A Brief Economic History of the World].

Clark’s goal is noble and grand. He’s trying to explain, first of all, that the Industrial Revolution really was an astonishing break with the rest of history up to that moment. Here’s the money chart from near the beginning of the book:

Graph of per-capita income from 1000 BC to the present. 1800's per-capita income is set to 1. By that measure, humanity's per-capita income hovered around 1 for ALL OF TIME up to 1800. At that moment, there was a sudden break, where parts of the world skyrocketed off to 12 on that scale, and others (in the developing world) remained in the Malthusian trap: doomed to increase their population whenever income increased a little bit.

Something decisive and quite extraordinary happened in 1800. Some nations took off and escaped the ‘Malthusian trap’; others didn’t. Explaining why this ‘great divergence’ (to use the phrase that Clark borrows from Pomeranz) happened is the book’s main project.

What is this ‘Malthusian trap’? It’s what happens to many families when they get a little more money: they have more kids. Those kids are supposed to work on the farm with their families. But there they run into the law of diminishing returns: each additional person trying to work the same fixed amount of land will generate less output than the previous person. The first person working a field may not have enough brawn to tend to all of it, so he’ll focus on the parts that get him the maximum return for his labor. Maybe he marries and his wife helps out; even if she’s as strong as he is, she’s unlikely to extract any more from the land than he did (if he could have extracted more, why wasn’t he already doing so?). And so forth: each additional laborer extracts less. But now there are more people to feed. So the total amount of food per capita has now gone down. The Malthusian trap is the tendency, among pre-industrial societies, to wipe out any gains from increased income by having more kids.

This leads Clark down the road that led economics to be called, centuries ago, the “dismal science”: the best thing that happened to pre-industrial societies, according to Clark, was for their population to be wiped out by the plague. This is why the world loves economists.

How did parts of the world get out of the Malthusian trap? Sheer dumb luck, according to Clark, as well as — and here’s where I found the book highly distasteful — genetics. The dumb luck part was an influx of resources from the new colonies abroad, like the United States. But that doesn’t explain all the difference, says Clark. He claims that the only available explanation is that the British, by 1800, had ruthlessly selected for the bourgeois virtues. That is, their superiority was genetic. Over the preceding hundreds of years, in Britain more than elsewhere, the wealthy had had more kids than the poor. By contrast, the wealthy everywhere else had been — and continued to be — subject to the Malthusian trap: the children of the wealthy tended to become less wealthy than their parents. In Britain around 1800, the wealthy had also inherited various behaviors that the poor had not. The wealthy, for instance, saved for a rainy day, and were ready to invest when investment opportunities arose. The poor had been selected against, and those who remained did what they needed to inherit the earth.

Clark has many, many charts to back this up. They come from obscure corners of British historical recordkeeping, and the data-analytic work he did here is certainly worthy of great respect. I imagine him spending many, many hours in the basements of old British churches, carefully turning through brittle yellow pages to determine the birth rate among, say, medieval British landowners and early-industrial-era textile-plant owners.

That said, you know that old line about the drunk guy fumbling around underneath the lamppost looking for his keys? A passerby asks him why he thinks his keys are there, and the drunk man replies that they’re not there, but that beneath the lamppost is the only place where he can see? Clark’s book is a lot like that. Only here it’s Anglophone recordkeeping rather than a lamppost, and an explanation for the Industrial Revolution rather than keys.

Given where he ends up — that white people in Britain c. 1800 had been bred to be the perfect bourgeois — it’s hard for me to escape the conclusion that the data didn’t lead him there. I’m pretty sure that’s where he wanted to end up.

A book like this is never a pure historical exercise, because it leads inevitably to the question: when some countries escape from the Malthusian trap in the modern era and others don’t, why is that? What did Japan do? What did the Soviet Union do? Korea? Hong Kong? China? How about countries that haven’t done so well — Nigeria, say, or Kenya or Haiti. I’ll say up front that I’ve not engaged with the data on these countries in the way that Clark has with Britain’s. But these are not trivial counterexamples. If the “they inherited bourgeois instincts from their parents’ good genes” story doesn’t hold for them, then it’s not much of a story. At that point it becomes a story that worked for one small island at one point in history but doesn’t hold up for most of the interesting cases.

So at best, I’m willing to put [book: A Farewell to Alms] on the “lots of people have lots of stories about how the world works” pile.

  • William Easterly, [book: The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics].

Easterly’s scope is more narrow: why has aid to poor countries done so little good? His big theme is that people respond to incentives, and that most aid creates exactly the wrong incentives. In the era right after World War II, rich countries thought that poor countries needed infusions of capital to get past the Malthusian trap: they get the capital, they build factories, and then they leave behind their pasts as centers of extractive industry. The amount of capital they received in aid was proportional to just how poor they were: the poorer you are, the more aid you receive. This gives poor countries no incentive to get out of their poverty traps: the wealthier they get, the less aid they get. The results were predictable.

The next story, according to Easterly, was that education was the thing: if only people could get educated, they’d dig their way out of their slough and all will be well. That also turned out not to be true.

Well, so what’s the issue? What’s actually holding poor countries back? Again Easterly returns to incentives, this time in a different form. Suppose you’re in a society weakened by official corruption: in order to get anything done, you need to bribe someone. Any one person who tries to buck the system by not paying bribes will be defeated, and the system will continue as it was. Or on the other, more hopeful side, consider a country having trouble attracting investment. It gets a little investment, which funds something like a new factory; now there are a few people in the poor country who know about how to run factories. Their knowledge spreads to those around them, and now there’s the potential for still more investment. Negative social structures lead to vicious cycles; positive developments lead to virtuous ones. There exist poverty traps, in other words. The existence of such traps is the fundamental problem. Easterly is extremely skeptical about the ability of (even well-run) foreign aid to fix the problem.

One thing he doesn’t discuss, though I’m sure it’s occurred to him, is the possibility that the best thing wealthy countries could do for poor ones is allow more immigration from poor countries. As Ed Glaeser says, the point should be not to help poor places, but rather help poor people. If people believe it’s in their best interests to move to the United States, that might be the very best thing we could do for them. Though there’s an exit and voice problem that we might cause, in that case: the most motivated, most intelligent people in a country might choose to leave; those people are the very ones who stand the best chance of helping the poor country out of its morass.

  • Abhijit V. Banerjee and Esther Duflo, [book: Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty].

This was a breath of fresh air after the previous two books. Recall that the first book in the triumvirate was about how certain nations might be genetically predisposed to remain poor for all time; the second was about how foreign aid doesn’t work because nations are stuck in poverty traps. Banerjee and Duflo instead get right down in the muck and ask what, specifically, works and what doesn’t to make individual people’s lives — not the life of a whole country, necessarily; just the lives of individual people — better. With the realization that no one person can make a government less corrupt or make the incentives for investment any stronger, how do we improve the lives of poor people? [book: Poor Economics] is a long collection of results that the authors have accumulated over decades of working on the ground in many foreign countries. This is work for which Duflo recently won the prestigious John Bates Clark medal in economics. How much should we charge for anti-malarial nets around beds, for instance? Does giving such nets away for free make people use them less (because the nets’ costlessness makes them seem valueless)? How, specifically, can we get people to use such nets more? How can we encourage people to use condoms? How do we improve individual schools in individual countries? The answers are unlikely to be one-size-fits-all: what works in India may well not work in Brazil.

Banerjee’s and Duflo’s main innovation is their method for answering these questions: the randomized controlled trial. I would have thought that this was already a standard tool within the international-aid community, but apparently it’s not. RCTs are the gold standard of experimental work within science, and now Banerjee and Duflo are bringing them to international aid. Their catalog of RCT results, in [book: Poor Economics], is tremendously interesting and vibrantly written. Highly recommended.

  • Martin W. Lewis and Kären E. Wigen, [book: The Myth of Continents: A Critique of Metageography].

You may have noticed that there’s no real reason why Europe ought to be called a continent. As a landmass, there’s virtually nothing to distinguish it from Asia. You can walk from Africa to Europe. For that matter, what about the artificial North America/South America divide? If we’re dividing up the world on the basis of geography (as opposed to culture, language, etc.), there ought to be one thing called “Eurafricasia” and another called “America.”

We might, however, decide that cultural divisions are legitimate ways to cut up the world. Fine, then, so where does European culture end and Asian culture begin? Greece has always straddled the boundary. Turkey wants to be part of the European Union, but it’s more Ottoman than Western European. The dividing line between Eastern Europe and western Asia is essentially arbitrary.

Spend enough time reviewing all the exceptions and mis-categorizations, and you come to realize just how senseless a lot of these divisions are. Spend enough time with Lewis and Wigen, and you realize that not only are the distinctions arbitrary; they also change over time depending upon ideological and political need.

I’ve heard this sort of approach described as “deconstruction”: the demonstration that any system of categorization is essentially arbitrary. The authors don’t intend to be nihilist; they would just like a better way of dividing up the world that reflects natural divisions rather than ideological priors. They’re rather more successful dismantling the old system than replacing it with a new one, but the book is mostly intended to get the discussion going: how should we teach geography so that students don’t believe, for instance, that there’s a concept called “Africa,” when North Africa and sub-Saharan Africa have, historically, had very little contact? One profitable way of dividing up the world would be by historical lineage and cultural connection; if we did it this way, then North America would be connected with Western Europe, and Muslim countries the world over (North Africa, the “Middle East” [a very new concept], Indonesia, …) would count as a single unit.

The book is terribly fascinating, eye-opening, and educational, if a bit too academic. Even the title: bless their hearts, someone should have told the authors that if they wanted to at least double their sales, they could have dispensed with a word like “metageography” and replaced it with something that gets the idea across more clearly. “Geographic categories,” maybe. Better yet, how about “mental maps”?

Still, it’s definitely worth a read. I hope their project succeeds.

  • Alfred D. Chandler, Jr., [book: The Visible Hand: The Managerial Revolution in American Business].

This book is canonical by now. It’s an explanation of how U.S. business evolved from the start of the Republic until the final evolution into Big Business. To radically condense the book, the story goes like this: when the country was founded, the idea of a “corporation” as we think of it today didn’t exist. If people wanted to build a bridge, they chartered a partnership, built the bridge, and disbanded the partnership. Then the railroads came. (I’ve only realized in the last year or so that railroads changed everything.) Suddenly coordination on a large scale was necessary: if you want to connect your tracks to my tracks, we need to make awfully sure that your trains and my trains don’t occupy the same spot of track at the same time. This required coordination on a national scale. It required precisely constructed timetables. It required staffs that mastered the finer points of scheduling, spare parts, repairs, and so forth. It required a vast quantity of capital that couldn’t be assembled by the old partnership method; access to the great New York City capital markets was indispensable.

As [book: Nature’s Metropolis] laid out so brilliantly, the railroad allowed an unprecedented degree of centralization. Rather than buying meat from your local butcher, cows were now slaughtered, eviscerated, and prepared for sale in Chicago, then packed on ice-filled trains and shipped east. Great factories were assembled for the slaughter and shipment of meat. Likewise for oats and wheat.

Now the economic problem facing modern man was not what it had been since the dawn of time; rather than a problem of limited supply trying to feed too many mouths, it was a problem of too much supply and not enough demand. Markets had to be created. The whole concept of breakfast cereal came about as a way to create demand for the output of the great grain-processing factories. Marketing became essential.

Now who would do the marketing? Specialized marketing firms didn’t have the same incentives as the grain manufacturers; they didn’t have the fire in the belly to get cereal out the door. So corporations took marketing in-house. In this way the makers of primary commodities moved closer to the consumer. At the same time, their factories’ need for constant production required a steady supply of raw ingredients. Companies moved to control the flow of goods, all the way from crops to customers, in order to keep production running smoothly.

And this is where we are today: in a world of massive, vertically integrated corporations — the Procter & Gambles, the Dow Chemicals, the General Millses — that control the flow of goods from field to mouth. Chandler documents this evolution grippingly, if at times in excessive detail. But that’s fine: his book is the first and last word on the evolution of American business, and it will remain a monument as long as people still care about that subject.

  • Diane Coyle, [book: The Economics of Enough: How to Run the Economy As If The Future Matters].

Oh how I hated this book. The margins are filled with my yelling at the author. Please don’t buy it.

There are a number of unconnected ideas in this book. We’re in a “weightless economy,” she says, where we increasingly are buying electronic goods or things like movie tickets that don’t correspond to any tangible thing. This premise is not demonstrated; it’s just asserted. There are entire pages (I’m thinking of pp. 197-198 in particular — probably my least favorite two pages in a nonfiction book ever) given over to anecdata, which is the closest she gets to coherently arguing anything.

Sorry, I’m getting off track. It’s going to be hard for me to calmly lay out the structure of the book without reliving the pain of reading it. So anyway, we’re in a weightless economy now. It’s been revolutionized by information technologies. This is asserted rather than argued. (A good case could be made, by a better author, that shipping containers were the real revolution.) The new world of information technology allows for longer supply chains (paths from component parts to the ultimate consumer). This is asserted rather than argued. (She would need to argue that supply chains are longer than they used to be, and that they’re longer because of information technologies. She does neither.) These longer supply chains mean that we need to trust everyone more. This is plausible but not argued.

Meanwhile, we have some big long-term economic problems. We have commitments to retirees that we’re unlikely, she says, to meet. Why this might be so is unclear, and she doesn’t argue it: the United States is very wealthy, and our tax burden is low. Eliminating the cap on Social Security payroll taxes would entirely close the funding gap.

I think that’s what gets me the most about this book: the depth of her analysis is no greater than that of a blog, but instead I had to slog through a book-length padded-out argument that doesn’t even make sense. She spends entire pages dishing out anecdata that don’t even begin to constitute an argument.

The argument that does make sense is that we have long-term problems like global warming, and that these require global institutions to coordinate responses to them. That could make sense: maybe nations will be unwilling to lower their CO2 emissions unless other nations do, too; and since every nation feels the same way, no nation moves to reduce its emissions. This needn’t necessarily be the case: maybe a world of lower CO2 emissions will be a world where we shift our resources into new technologies, new industries, new lifestyles that make the world better for everybody. Maybe a country that moves first into inventing these new industries will get an important leg up on every other nation. This isn’t a possibility that Coyle covers.

She’s compelled to turn everything into a Big Problem. Social Security couldn’t possibly be made solvent by eliminating the cap on income subject to the payroll tax; if it could be, her book would be very short indeed. All of [book: The Economics of Enough] is like that: someone who thinks like an engineer, with an eye to actually solving problems (like Esther Duflo, above) wouldn’t write a book like this.

The final irony on all of this is that I have absolutely no idea what “The Economics of Enough” means after reading this book. Does it mean “the era when we need to stop economic growth to keep our lifestyle sustainable”? No, it pretty manifestly does not mean that; Coyle establishes early on that increased wealth does make people happier, and that we’d be, if nothing else, politically in the wrong to demand of developing countries that they not experience the prosperity that the West has long enjoyed. I have no idea what we’re supposed to have “Enough” of.

To borrow a line from Roger Ebert, [book: The Economics of Enough] should be cut into free ukelele picks for the poor.

  • Jonathan Steinberg, [book: Bismarck: A Life].

This is a very good personal portrait of the Iron Chancellor — the man responsible for uniting Germany. This is the man famous for his theory of [foreign: realpolitik]: an amoral foreign policy that seeks what’s best for his nation, paying no heed to scruples along the way.

As Steinberg tells it, Bismarck succeeded because he always had the ear of the king; when he lost his royal sponsor, upon the ascension of Wilhelm II to the throne of the German Empire, he lost his job. Steinberg makes much of Bismarck’s relations with his own mother and father, and how those relations led quite directly to his father-son-style relations with the various German kings. Bismarck continually threatened to resign, and when he did he would be overtaken with endless physical ailments. Steinberg spends rather more time on Bismarck’s psychology than I would have preferred.

The book I want to read, I think, would actually start before Bismarck and end after. It would start with Europe after Napoléon has been decisively defeated and exiled to St. Helena, as the continent strove to rebuild a new political order on the shattered remnants of the old; this era, up to Bismarck and thereabouts, is covered quite brilliantly, and in exactly the style I want, in Henry Kissinger’s Ph.D. thesis, [book: A World Restored]. The book I’m envisioning would situate Bismarck within his post-Napoleonic century and follow post-unification Germany all the way to World War I and possibly World War II. I’m looking for a portrait of modern Germany, I guess.

Steinberg does situate Bismarck within a larger context, but that context is the Junker landowning class into which Bismarck was born. He has less to say about the detailed politics and foreign relations among German states in the wake of Napoleon, as the major European states sought to create a true conservative balance of powers. Steinberg is more interested in Bismarck the man, with his stress-induced facial neuralgias and frequent taking of healing waters.

It’s hard to leave this book with positive feelings toward Bismarck. He was clearly a vain, easily wounded, egomaniacal man, but nonetheless a world-historically brilliant one. Steinberg makes me want to read more about him and about the country he created, but Steinberg’s own book is not the final word.

(For what it’s worth, Henry Kissinger himself, who surely knows more about Germany and [foreign: realpolitik] than I do, calls Steinberg’s book “the best study of its subject in the English language.”)

P.S. (September 5, 2011): Looks like the book I want is Iron Kingdom: The Rise and Downfall of Prussia, 1600-1947

  • John McCormick, [book: Understanding the European Union: A Concise Introduction].

Having read this, I feel like I understand in broad outline the way that the EU works. I understand why EU regulation seems to cover such tiny details: in order to lower transaction costs between nations, bring greater unity, and not unfairly disadvantage any one country, the Union must regulate in great detail. I understand that the EU is engaging in valiant efforts to bring the poorer countries up to the standards of the wealthiest countries. The ultimate goal of all of this is, or was, to prevent war between nations from tearing Europe apart, as it did twice in the 20th century. Treat every European nation (whatever “Europe” means — this book and [book: The Myth of Continents] cover some of the same ground) as part of the same family, and prevent one nation from coveting another’s wealth, and maybe you prevent war. Maybe. I also understand from this book that European regulators have had a very hard time explaining to their countries what the EU does. I still don’t get the precise boundaries of the institutions, though McCormick did his best.

This was basically the first promising book I found through one Google search or another, so that I could understand what exactly is going on right now in Europe. Various countries are bailing out various other countries, and various bloggers have been writing that European monetary policy is “one size fits none”: it’s not even the right fit for the German economy. I had to assume that when Europe went on the single currency, its planners knew that something like this could happen. I hoped that McCormick could explain how Europeans envisioned a crisis resolving itself.

Unfortunately I didn’t really get an explanation of that topic — which is unfortunate, because that must be what most Americans want to know about Europe right now. The book came out in 1999 and was updated in 2002, so it was far away from the current day’s crisis. Time to look for another book that explains the origins of the current European mess.

  • Dani Rodrik, [book: The Globalization Paradox: Democracy and the Future of the World Economy].

[Will add this soon.]

Book-review capsules, April 18, 2011 edition — April 18, 2011

Book-review capsules, April 18, 2011 edition

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__Attention conservation notice__: reviews of a few books I’ve read recently, in lieu of the full reviews that they all deserve.

* __Nicholas Riasanovsky and Mark Steinberg, [book: A History of Russia], 7th edition__. Covers the entirety of Russian history, from the cloudy origins of Kievan Rus’ up to Vladimir Putin’s rule, and I gather that the eighth edition has even more on post-Communist Russia. Given the immense swath that this spans — Kiev, the rise of the Muscovite state, Peter the Great, Catherine the Great, all the Romanovs, the state-furthered immiseration of the serfs, the Revolution of 1917, war Communism, the 5-year plans, Stalin’s insanity, the mid-20th-century stalling of Communism under Khruschev and Brezhnev, Gorbachev, Yeltsin, and Putin — it is amazing that Riasanovsky and Steinberg can pack it all into 600-odd pages.

The book tries very hard to address all the scholarly controversy around every disputed tale of Russian history. The result is that it’s incredibly balanced, but that less-settled bits of the history are surrounded by equivocations and quantities of nuance that most of us just don’t need to know. Since the parts of Russian history that are most in doubt are the earliest parts (simply because there’s less documentation), the most boring parts of [book: A History of Russia] are at the very beginning. If you can make it through the first 150 pages or so, I think you’ll find the rest of it quite captivating. Skim if you need to.

Riasanovsky and Steinberg also, for some reason, don’t believe in footnotes. There are maybe two footnotes in the entire work, and they come at the very end; I suspect that Steinberg’s addition to the newer editions (maybe the fifth and later) led to a little bit of modernization. The lack of footnotes isn’t a huge deal, given the lengthy bibliography at the end. That bibliography could stand to be narrated, but I assume they only put the choicest works back there.

In short, this is a terrific single-volume introduction to the history of Russia, and I intend to turn it into a jumping-off point for more-focused histories.

* __William Cronon, [book: Nature’s Metropolis: Chicago and the Great West]__. I mentioned a little while ago that I found it hard to express the majesty of this book. I’m still having trouble doing so, but I’ll give it a go.

Essentially William Cronon is trying to understand the connection between the city and the country. As a young tyke he always thought of the city — and Chicago was The City — as this gross agglomeration of steel and smoke and confusion, standing over the pristine, unspoiled wilderness that he and his family were driving to for vacation. Suffice to say that [book: Nature’s Metropolis] is a prolonged rebuttal of that viewpoint.

It’s more than the obvious observation that the country does the work that the city asks it to do and that the city wouldn’t eat without the country. It’s that the very way in which we understand the world, and the very means by which we eat, were transformed utterly by the city — by Chicago in particular.

Let’s look at meat in particular; it’s one of three main commodities within [book: Nature’s Metropolis], the others being wood and wheat. Imagine the era before the railroad and before refrigeration. This was the era when ranchers would raise cows in Texas and the cowboys of myth would bring them north to be slaughtered. They had to be slaughtered near to where they were eaten, because meat spoils quickly and there was no fast way to carry the meat long distances.

The train changed all that, as it changed so much besides. Now cows could be loaded on trains and shipped north within a few days. Capitalist logic soon enough changed one part of this: it’s quite inefficient, if you’re treating a cow as a mobile store of meat, to load the entire animal on a train. Much more efficient to remove the bones and skin and eyes and load only the beef. But it would still be difficult, if not impossible, to carry a train full of beef long distances — Chicago to New York, say — without its rotting.

Hence the refrigerated train car: keep the beef cold; now you can concentrate all your meat production in one central place that can destroy animals at a vast scale, and can ship them from there to the rest of the country. This is how Chicago became meatpacker to the world; it would have been impossible without railroads. It also would have been impossible without the network of ice-refilling stations that sprang up alongside railroad tracks throughout the east. Refrigerated train cars and their ice-filling stations are associated with the names Armour and Swift.

A drastic change like this, from eating meat that your neighborhood butcher slaughtered to buying “dressed beef” destroyed thousands of miles away, doesn’t happen naturally. It took marketing and tough competition to turn Armour into a powerhouse among slaughterhouses. It required them to squeeze into new towns, undercut the existing butchers using prices that only massive capitalist enterprises could afford, and play hardball. But within a couple decades, the work had been done: we were eating meat that had been killed far away and brought to us by rail car.

The railroads, and capitalist enterprise, transformed nature and transformed farmland. Bison, you may remember, used to roam the Great West. Then the white man came. And then the railroads came; shooting bison from the train (I envision Sarah Palin, hunting from the air) became sport, and their pelts clothed women back east. There were so many bison that thousands and millions of them went to waste: the tourists would shoot them and leave their corpses to rot as the trains continued off into the hinterland. Soon enough there were no bison left, and cows came to roam the land. There’s nothing ‘natural’ about cows there; their presence is purely manmade. Or more precisely: the cow occupies what philosophers (going back to Aristotle, I believe) have called ‘second nature’. Humanity has always built its own nature atop the first, fundamental nature. (Where first nature ends is hard to pin down. Maybe all we can say is that sunlight striking earth is first nature. It’s certainly possible that everything nowadays from sunlight up to the factory is second nature.)

Capitalism utterly transforms nature in ways that would have previously been inconceivable. The train radically contracts space. The market for grain futures destroys time, in a way that’s more amazing than I would have understood before reading Cronon: grain starts as, say, “Andy’s Wheat From Indiana.” But capitalism — specifically the railroad — demands that wheat be dumped into trains in bulk. (Here I say “demands” as a shorthand for “rewards with low prices”.) So grain starts getting treated as a big, bulk, fungible fluid that gets loaded onto trains as an undifferentiated mass. Now we can talk about “wheat,” and we can ship, say, No. 1 Summer Wheat from Chicago to New York. Then we knock up the abstraction one level: we trade contracts to buy and sell wheat six months or a year from today, which is *a good that doesn’t even exist yet*, and not only that, it’s *an abstraction of a physical thing that started as Andy’s wheat*. The wheat future isn’t first nature; it at least second nature.

I’ve hardly even scratched the surface of what [book: Nature’s Metropolis] covers. It’s engaging history. It understands capitalism in the large. But at the same time, Cronon plays with noisy data from midwestern bankruptcies and funerals, because bankruptcy and death are two of the only times that people have to reveal whom they owe their debts to. And by mapping out the pattern of debts, you can learn the shape of Chicago’s hinterland. And I don’t want to slight style for a moment: William Cronon is a very, very talented writer; few people could tell such a grand story at such detail so engagingly.

[book: Nature’s Metropolis] is six different kinds of landmark. Read it now.

* __Tom Standage, [book: The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-line Pioneers]__. A light read, which I think I took care of in a couple hours. It’s a fun story about where the telegraph came from, with plenty of enjoyable stories along the way. For instance, the message tubes that we’re familiar with from various movies ([film: Brazil], say) came about to help speed up telegram delivery: the plurality of telegrams arrived in the central-London dispatching station and went to the stock exchange, so for a time the telegraph companies hired runners (young boys, mostly) to ferry the telegrams a few blocks. Eventually they replaced these with suction tubes, which allowed for greater throughput (as we’d call it today).

I didn’t actually know much about telegrams before I read this book. I didn’t know, for instance, that people typed them up on one side, and that people were involved in retyping the telegrams at every leg of its journey (British hinterlands to one floor of the London central exchange, relayed to a second floor of the exchange, retyped and sent along to the U.S., say). I sort of expected, without really thinking about it, that telegrams were relayed just like Internet packets are now: from the source to a router nearer the destination, to another still-nearer router, and so forth until it arrived where it was supposed to. But no; it was humans all the way, for at least a few decades.

Standage’s particular twist on the story is to view the telegraph as a forerunner in many ways of the modern Internet — even down to the particular social conventions that telegraph operators adopted. Telegraph operators of the mid-19th century were like BBS operators of the late 20th.

Having come from [book: Nature’s Metropolis], I was expecting somewhat more out of [book: The Victorian Internet], especially because Krugman recommended both [book: NM] and [book: TVI] in the same breath. They’re quite different books. [book: Nature’s Metropolis] wants to understand all of capitalism through the lens of a transformative technology; [book: The Victorian Internet] mostly just wants to understand the telegraph. It does so vibrantly; highly recommended.

* __Bethany McLean and Joe Nocera, [book: All the Devils Are Here: The Hidden History of the Financial Crisis]__. There will surely be many books trying to understand how the financial crisis happened. This one’s angle is that the crisis of 2008-? started when the U.S. adopted the 30-year mortgage, which is to say when FDR established Fannie Mae and Freddie Mac in the 30s to create a liquid market in mortgages.

“Liquidity” is a simple word that gets widely deployed, but I’m not sure that everyone’s clear on what it means. The idea is just that — as we saw in the recent crisis — sometimes everyone in a market gets scared of everyone else in a market, and gets convinced that no one is going to pay back his debts. When that happens, the market is “illiquid”; we heard that the markets had “seized up” in late 2008. You can imagine that 30-year mortgages would be particularly illiquid: you *really* need to trust the person you’re loaning money to if you’re going to loan him money for 30 years. There’s the risk that he’ll default on the mortgage. There’s the risk that you’ll loan money to him at 4%, but that inflation will be consistently at 5+% over the next 30 years, and that you’ll thereby lose money on this particular mortgage. There’s the risk that the U.S. will turn into Weimar Germany over the next 30 years, and that mortgages won’t be worth the paper they’re written on.

So the 30-year fixed-rate mortgage is an entirely unnatural creature. There would be no liquid market in 30-year fixed-rate mortgages if the government didn’t intervene. McLean and Nocera tell us that, before FDR intervened, the mortgage market was entirely local: you go to your local bank, you put down 30%, and your local banker — after sizing up your character (“A man I do not trust could not get money from me on all the bonds in Christendom”) — gives you the loan. You surely couldn’t get a loan from some bank thousands of miles away on the basis of some forms you fill out. Fannie Mae and Freddie Mac agreed to buy up mortgages from local banks, so long as those mortgages met certain standards (20% downpayment, etc.). They made the market for these mortgages “liquid.” Mortgages that Fannie and Freddie were willing to buy were called “conforming loans.”

Then in the 70s came the revolution that we’re all, in one way or another, familiar with today: bankers turned all manner of financial instruments into securities. You could now buy a part of a mortgage, which would encapsulate (among other things) a bet about the borrower’s ability to pay. You could assemble many such mortgages into a security called a Collateralized Debt Obligation (or CDO). You could take out something like insurance on the CDO, which would pay you money if the mortgagee defaulted; this was called a Credit Default Swap. You could divide the mortgages within the CDO into groups called “tranches” according to how likely you thought it was that each mortgage would be paid off. And so forth. We’re unfortunately very familiar with how all of this works.

McLean and Nocera map in gruesome and depressing detail what happened next: a market in “non-conforming” loans developed, and over time it took on a life of its own. As someone said, subprime loans weren’t bought, they were sold. The story of the junk salesmen gets more and more insane, and just when you think “this thing I’m reading about is The Bubble,” it turns out that The Bubble is a second round of insanity that carried out the final [foreign: coup de grâce] on the world economy.

No one escapes from the story unscathed. McLean and Nocera show that every financier — most especially including Alan Greenspan — who said that the financial crisis was unforeseeable was not only dead wrong, but must also have been willfully deaf to what his advisors were telling him.

For an intro to the book, I highly recommend listening to McLean and Nocera on a few recent Planet Money episodes (
1,
2,
3). In fact, I recommend listening to everything Planet Money puts out; you should subscribe to the podcast.

__P.S.__: James Kwak at The Baseline Scenario expresses some doubts about the argument that a liquid national private mortgage market wouldn’t exist without government intervention.

William Cronon, Nature’s Metropolis: Chicago and the Great West — March 29, 2011

William Cronon, Nature’s Metropolis: Chicago and the Great West

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An old painting of Chicago from a bird's-eye view. Lake Michigan is in the near field, and the grid runs off into the distance. The Chicago River cuts the city top to bottom. Somewhere, a child cries.
I spent two hours on Sunday trying to explain what makes this book as amazing as it is. I failed. I will try again soon. Until then, I’d just strongly advise you to go read it. It’s one of the few best books that I’ve read in the last five years. And it’s not at the top of the list only because I’ve read books like [book: The Power Broker] and [book: Common Ground] that are such landmarks. It’s definitely in the top five, though. So please, go read it.

(Current events coincidence: Cronon has been in the news lately for his investigations into the Republican legislation machine. I happened to read Cronon’s book on Krugman’s few-months-old suggestion, but otherwise this is just a coincidence.)

Marc Levinson, The Box: How The Shipping Container Made The World Smaller And The World Economy Bigger — March 13, 2011

Marc Levinson, The Box: How The Shipping Container Made The World Smaller And The World Economy Bigger

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Cover of _The Box_: blueprint of a shipping container.
(Attention conservation notice: 2100 words about a book that will make you jealous: [book: The Box] is a terrific read about shipping containers, of all things. It’s like if you spent every day using your Honda Civic’s gear shift, then one day found that someone had written [book: The Lowly Honda Civic Gear Shift and How It Will Change Everything] and made millions off it. “I should have written that!” you say. But you didn’t write it. Marc Levinson did, and he did it better than you (or I) would. He did it incredibly well, in fact.)

Why do cities form where they do? Why do they grow to the sizes they do? One popular answer has to do with companies’ desire to be near their customers and near their suppliers. Much of Krugman et al.’s [foreign: magnum opus], for instance, is based around this idea. The idea, in turn, depends critically upon transportation costs. Imagine instead that you could get products to your customers, and components from your suppliers, via a teleportation machine that magically conveyed them at no cost to you. Would you still need to locate your company near your customers? It seems unlikely. You might still put your company near where your suppliers are, so that you could draw on a pool of specialized talent when it came time to hire. But that teleportation machine would radically change your business.

We may have arrived at the teleportation era. As Glaeser and Kohlhase put it, “it is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process.”

Imagine the steps involved in moving a dishwasher from Maytag in Newton, Iowa to somewhere in the French countryside 40 to 50 years ago. It might be loaded on a train in Iowa, conveyed to the Port of New York, unloaded from the train by a burly longshoreman, loaded onto a ship, carried across the ocean, unloaded by another burly longshoreman on the Brittany coast, loaded manually into a train, brought to a major French city, then loaded onto a truck and brought to the countryside. Maytag would typically hire a cargo-forwarding company to handle all these details. The shipping costs in many cases were a double-digit percentage of the final cost of the product.

One of the main reasons why these costs were so high is that the process was so labor-intensive. As Marc Levinson lays out in [book: The Box], stevedores would fit miscellaneous bits of cargo in every available nook and cranny of a ship: bags of coffee alongside televisions alongside containers of solvent. They’d have to be laboriously packed and unpacked whenever the shift from ships to trains or trains to ships or trains to trucks happened. The more-than-occasional crate of whiskey or bag of coffee or box of electronics would go missing.

In retrospect the solution seems obvious: find some way to get machines to do this for us. Put everything in uniform containers. Then get cranes to pull the containers off ships and drop them on the backs of trucks. Cut humans out of the process altogether (apart from operating the cranes). Radically reduce the labor-intensity of the process. Do what capitalism does best: replace humans with machines.

To fully exploit the benefits of the process, there must be standardization, and the standardization must extend from ships to trucks to trains. The more specific rules people must remember (“this 30-foot container has a special coupling to clamp it to a 20-foot container, and of course the 20-foot container must sit atop the 30-foot one …”), the harder it is to scale. With standardization, machines can grab the containers, shift them off trains, shift them onto trucks, and keep moving without thinking. (A.N. Whitehead:
“It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they are making speeches, that we should cultivate the habit of thinking of what we are doing. The precise opposite is the case. Civilisation advances by extending the number of operations we can perform without thinking about them.”)

How else might we keep pushing costs down? Well, if I’m a shipping company that sends a 20-foot container from Iowa to France, I need that container to come back to me somehow. I could just ask the ship to turn around after it deposits its goods in France and bring empty containers back to me, but that’s a ship that’s making no money — it’s just transporting empty boxes. To make back my costs, I need to charge customers for the outbound trip and the empty-box return trip. If I want to minimize idle shipping time, and thereby lower what I can charge customers, and thereby get more customers, I need to fill up that ship on the way back. This is easier when the trade gap between the two trading countries is near zero. Imagine, instead, that this is a ship traveling from China to L.A. The U.S. current-account deficit to China is quite large, meaning that there’s a lot of stuff coming from China and not a lot going back. So if a ship is going to make the circuit from the U.S. to China, it maybe will want to take a side trip from the U.S. to Japan before returning to China.

To lower prices, we’ll also want to put more boxes on board each boat. But here we run into problems: not all ports can handle monstrous ships carrying thousands of boxes. The Port of New York, as it turns out, was designed for the earlier era when stevedores manually unloaded cargo; they were caught completely unawares by the “containerization revolution.” Elizabeth, New Jersey invested many millions in containerizing their port, and they’re now the busiest port in the United States. New York is history.

Imagine the ships growing larger and larger. As Levinson says at the end of [book: The Box], there will someday soon be ships larger than “Malacca-max,” which is the largest size of ship that can fit through the Strait of Malacca. (Should such a ship ever sink, it would take with it a billion dollars in cargo.) As these ships grow larger, and the cost per ton of goods thereby shrinks, it may become cost-effective to centralize shipping to a single port, say, on the East Coast of the United States, even though the goods would then have to travel a much longer distance by train. Levinson discusses the possibility of building a port on rather remote islands north of Scotland and shipping the goods to London from there; again, all of this becomes possible as the ships become larger.

All is not roses and sunshine and cheap iPhones, however. Throughout [book: The Box], we see the longshoremen’s unions fighting tooth and nail against the mechanization of their jobs. I’ve been unable to find numbers on a quick scan, but Levinson suggests that stevedores have lost their jobs in droves. (What’s unclear to me is whether the increased volume of shipping has made up for decreased per-unit labor costs.)

Now that transportation costs are negligible, manufacturers will choose to locate their factories where labor costs are lowest, rather than locating them, say, in New York or Chicago or L.A. I don’t know enough economics to judge whether this is better for the world overall. It’s certainly brought jobs to China, whose suffering throughout the 20th century was the stuff of legend (“Finish what’s on your plate; there are kids starving in China.”)

As Karl Polanyi taught us, mechanization of everything is part and parcel of capitalism, and it is always and everywhere destructive. This may be “creative destruction,” as Joseph Alois Schumpeter put it, but it’s destruction nonetheless, and every capitalist society has done what it could to slow that destruction. I say “slow,” not “stop,” because it’s likely impossible to slow technological adoption. Stevedores seemed to know that they were eventually going to be automated out of jobs, so they negotiated contracts wherein shipping companies paid some of their savings from containerization into a fund for their employees. In the long term, I don’t know how well this worked out for stevedores — how many of them got help transitioning into new jobs, versus how many became decided to leave the labor force early, versus how many took jobs as supermarket checkout clerks because that was the best job they could find given their age and skill set. This mechanization of jobs happens continuously under capitalism, and we can expect it to continue. Librarians may lose their jobs because of Google and e-books; secretaries may lose them because of Microsoft Word and email. Many of these people have spent their lives doing exactly what we teach them that they’re supposed to do: train to become experts at their jobs and spend a lifetime working hard to gain mastery. They reach age 50 or 55, they get automated out of a job, and now what? A just society helps them either transition with dignity to a new job, or, when that seems impossible (for instance, because they’re too old to retrain), it helps them retire with a decent pension. And a decent society provides a high level of general education to everyone, so that it’s easier to transition from one job to another.

You could imagine a fantasy scenario wherein a perfectly rational, perfect omniscient corporation sees, 40 years in advance, that its business model is going to be rendered irrelevant. Better yet, corporations as a whole might, after centuries of watching the same pattern over and over, see that creative destruction is entirely predictable, and they might plan for it to protect their employees. But you can also very easily imagine the opposite (e.g., companies increasingly don’t expect their employees to stick around for more than five years, so there’s an equilibrium wherein companies don’t invest in their employees for the long term). And the opposite is much easier to imagine than the fantasy. Long story short, I don’t see any institution other than the government that’s in a position to guarantee workers job security or a dignified retirement. And given the GOP’s perennial desire to gut Social Security, I have my doubts even that the government is in a reliable position here.

Another classic capitalist pattern is the race to the bottom among state and national governments, and we see it in the shipping context as well. Ports invest millions and billions of dollars to accommodate larger and larger boats, and they take on the risk that no one will use them — or that some other port, likewise investing billions, will steal away all their business. As soon as it’s economically sensible for a shipping company to move to a cheaper port somewhere further down the coast, it will do so, leaving billions of dollars of wasted port investment.

There’s a concern, when reading a book like [book: The Box], that you’ll get a monomaniacal focus on one single cause: that the author, having spent a decade researching shipping containers, will attribute everything in the modern world to that one cause. The big questions we’d want to ask are:

  • how much international trade moves by ship?
  • how much has the cost of final goods declined because the costs of shipping declined? How much has the cost of final goods declined for other reasons (like, for instance, because cheap manufacturing labor has become available in China)?
  • how much did it cost for a given parcel to move, door-to-door, before and after the containerization revolution?
  • how much did the increase in international trade have to do with containerization, and how much had to do with the rise of the Asian Tigers?

Levinson is not really in a position to answer these questions, both because they’re not his book’s focus and because the data aren’t available to answer many of them. It turns out to be hard to count total shipping costs, door to door, when large companies often got under-the-table discounts for bulk shipments. Levinson’s focus on containers sometimes makes him credit them when other causes seem just as likely — for instance, his assertion that Korean exports trebled thanks to the containerization of their ports. It seems just as likely to me that the rapid rise of the Korean economy, the Korean government’s support for domestic manufacturers (particularly export industries?), and massive capital investments had a lot to do with the rise of Korean exports. I don’t know one way or the other, but Levinson doesn’t address these other possibilities; his book leaves little room for that.

[book: The Box] is a terrific book indeed, and I think in no small part that’s because of his monomania. It’s a tautly told tale about the men who built up their container businesses before the world even knew that standardization would change everything, and at the same time it presents a flood of data in a highly readable way. It’s one of the few books I’ve read that manages to tell a good story and deliver data well. You’ll love it.

Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier — February 26, 2011

Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier

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A view of Chicago from the air, only some of the buildings have been hyper-stretched so that they're very large indeed.

It took me a while to understand why an economist was exactly the right person to write this book. It’s not that economists are the only people who can understand certain busted aspects of how the government subsidizes places to live; lots of people think about that. Hardly a week goes by, for instance, when Matt Yglesias doesn’t mention the insanity of American land-use policy. Rather, it’s that economists are specially trained to spot cases when what we think we’re doing is exactly the opposite of what we’re actually doing. And they’re trained to look at that sort of reversal in the context of large groups of people.

Take, for instance, everyone’s desire to live in bucolic wilderness. Everyone heads out to be among the trees in, say, Long Island. (Read Caro’s [book: The Power Broker] to hear what Long Island was like before Robert Moses made it what we know and don’t really love.) Soon enough there are highways leading out to where everyone wants to go. Soon after that, Dunkin’ Donutses and Fuddruckerses form along the highways that cater to the automobiles that brought people to their bucolic paradise. And by this point Long Island is no longer bucolic. The end.

That’s a commonplace sort of observation in the crowds I travel in: those desiring suburban living, away from the grittiness of the city, destroy the thing they were chasing. Observations like it are lurking beneath most of [book: Triumph of the City], and at the start I found it a bit of a yawn for that reason. Surely everyone already knows this.

But everyone *doesn’t* already know this, and I don’t know many popular books that make the point. It would be better if everyone *did* know this. A harsher, more-direct way to put the point is that those who live in the supposedly dirty city among the asphalt and concrete are the real environmentalists; those driving their cars off into the hinterlands to find nature are thereby destroying it.

This sort of paradox of individual behavior leading to collective destruction is the stock-in-trade of economists, and Glaeser deploys many arguments of this sort. The most surprising, for me, was Glaeser’s observation that environmental-impact statements are flawed because they’re not wide-ranging enough: when a building gets rejected in temperate San Francisco Bay, whose residents drive relatively little and rarely need to use heating or air conditioning, that building will eventually get built — in a different, less-green city, like Vegas or Houston or Phoenix, that has more-flexible land-use policies. Which is to say that good regulation needs to focus not only on the immediate environmental devastation (or ruined lines of sight from nearby small buildings, say), but on the big economic picture. Rejecting a building because of its environmental impact may, again paradoxically, be worse for the global environment than allowing it.

The other main reason you want an economist to look at housing problems is that those problems are fundamentally about supply and demand. If you think it’s too expensive for a middle-class person to own a house in Boston (which it is), you need to increase the supply of houses. Raising supply, for a given level of demand, means lower prices. But cities like Boston and New York are basically full: there are no more parcels of land to build on. So the only option to increase supply is to build *up* rather than *out*. In many cases this will mean demolishing an old building that has some historical appeal for those around it, and replacing it with a taller building that houses more people. But as the decades have gone along, Glaeser tells us, regulation has made it harder and harder for cities to modify old neighborhoods. The inevitable outcome is that supply doesn’t increase as rapidly as demand, and housing prices rise. When housing prices rise, many people decide they’d rather live somewhere where they can own a bit of land without sacrificing their firstborn children. And the Sun Belt boom is born.

People *do* continue to move into Boston and New York City. The combined population of Middlesex and Suffolk counties in Massachusetts — containing two of the Commonwealth’s two most populous cities and many of Boston’s suburbs — rose by a healthy 4.7% from 2000 to 2009. People moved here despite the high home prices, because cities offer them something they can’t get anywhere else: dynamism and excitement that can only come from putting a lot of people near one another and watching the combustion that results.

That’s Glaeser’s central argument: that there is fundamentally no replacement for cities, because no other institution humanity has constructed is as good at harnessing our creative energies. The world continues to urbanize, and all indications are that the pace of urbanization will only increase as China and India move to their great cities. In many cases (think of Rio’s [foreign: favelas]) they crowd into slums, and that may look terrible to us, but they’re moving into seemingly terrible slums *because the rural lifestyle they’re leaving was so much worse*. People’s own behavior indicates that urban life, for all its gritty lack of charm, is humanity’s best hope for a better life.

When does people’s own behavior *not* reflect their natural evaluation of what’s best for them? When government policy shifts their choices in a different direction, and when the prices they pay for their choices don’t reflect the true social cost of those choices. Americans live in the suburbs, for instance, for some natural reasons and some less-natural ones. Among the natural ones: schools are often better in the suburbs, their kids have a bit of lawn to play on, and homes are cheaper. Among the less-natural ones: the government subsidizes the Interstate Highway System, and encourages (via the mortgage-interest deduction) homeownership over renting.

Plus the price we pay for gas doesn’t cover the damage we do when we belch smoke into the atmosphere. Glaeser tosses out some numbers toward the end of [book: Triumph of the City] suggesting that American gas taxes ($1 or so per gallon) don’t nearly cover the social cost of burning gasoline, while European taxes (averaging $2.30 per gallon) may be too high.

(I’d want to read the research backing this. A lot depends upon how you model the environmental cost of a pound of carbon. If the greenhouse effect’s response to an additional pound of atmospheric carbon is highly nonlinear — if we eventually cross a point of no return — then this would strongly encourage us to *stay away from that point*. If, instead, the response is very smooth — if increasing carbon by a little increases damage by a little — then that would seem to make policymaking somewhat easier. Or rather, would make the required policies less drastic.

We should add another important angle to this, namely how our policies should react in the face of our ignorance. What if our models of how the greenhouse effect responds to an additional pound of carbon are wrong? If the atmosphere is more fragile than our models predict, then undertaxing carbon is really, really bad. If the atmosphere is *less* fragile, on the other hand, is it really so bad to overtax carbon? This isn’t just technical noodling: if the point is to charge people the actual cost of the pollution they’re causing, you’d better figure out what “actual cost” means.

[book: Triumph of the City] doesn’t pursue this sort of direction. The book as it stands is about lightly exercising our intuitions about cities to lead us to surprising conclusions. It’s not about running off into the weeds with technical details. If you want those, the book is very well-footnoted.)

If anything, Glaeser is too conservative in his lambasting of American anti-urban policy. The true cost of gasoline includes the cost of invading foreign countries whenever our supply of oil is threatened. And surely those who buy and sell crude-oil futures know that the supply of Middle East oil is unlikely to drop so long as the U.S. government stands ready to secure it with guns. So a true accounting of the price of oil would include much of the cost of maintaining the U.S. military *even in peacetime*.

Glaeser doesn’t mention this sort of detail. It must be because he’s aiming his book at people quite unlike me — people who are starting from an anti-urbanist background. The main battleground he’s chronicling in [book: Triumph of the City] is urban v. rural rather than urban v. suburban. In part that’s to avoid charges of hypocrisy: to get better schools and a lawn, he and his wife and kids moved a few years back to MetroWest, while he continues to commute into Cambridge via Interstate 90 to work at Harvard.

That commute indicates probably the more important reason that Glaeser doesn’t hate suburbs: the suburb is still within reach of the city, and therefore makes it part of the engine of economic dynamism that he lauds. People are still near enough that they can sit down face to face (after a short drive, perhaps) and build the great works that cities produce. The point is human interaction, which is not available to nearly the same extent within rural areas.

What about the Internet, then? Doesn’t the Internet make physical proximity obsolete? This is clearly the major difficulty that Glaeser is going to encounter with his thesis, and I don’t think he really resolves it. He asserts that the Internet makes person-to-person interaction *more* valuable, and that certain work just needs a handshake and two people sitting together hashing something out. I certainly agree, but this doesn’t have the same rigorous economic grounding that he brings to the rest of his book.

The bulk of the book is organized around some axioms of economic thinking. Let people choose whatever they want to choose — if they want to live in suburbs, fine; if they want to live in cities, fine — but make them pay for their choices. Let the supply of housing rise to meet its demand. And bring some economic discipline to the way we educate our kids: let poor schools fail, let poor teachers lose their jobs, and let great teachers be paid well. With the market allowed to work the way it should, Glaeser has no doubt that cities will continue to be vibrant centers of innovation. If you’d like a rather breezy yet informative take on cities, [book: Triumph of the City] is a good use of a few hours of your time.

Returning to the blog on a down note — January 13, 2011

Returning to the blog on a down note

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I hate to return to the blog, after such a long silence, on this note, but I find it impossible to read Ezra Klein today — frustrated at the cheap sentimentality in one part of President Obama’s Arizona speech — without thinking of this passage from [book: The Brothers Karamazov]:

> Listen! I took the case of children only to make my case clearer. Of the other tears of humanity with which the earth is soaked from its crust to its center, I will say nothing. I have narrowed my subject on purpose. I am a bug, and I recognize in all humility that I cannot understand why the world is arranged as it is. Men are themselves to blame, I suppose; they were given paradise, they wanted freedom, and stole fire from heaven, though they knew they would become unhappy, so there is no need to pity them. With my pitiful, earthly, Euclidian understanding, all I know is that there is suffering and that there are none guilty; that cause follows effect, simply and directly; that everything flows and finds its levelbut that’s only Euclidian nonsense, I know that, and I can’t consent to live by it! What comfort is it to me that there are none guilty and that cause follows effect simply and directly, and that I know it?I must have justice, or I will destroy myself. And not justice in some remote infinite time and space, but here on earth, and that I could see myself. I have believed in it. I want to see it, and if I am dead by then, let me rise again, for if it all happens without me, it will be too unfair. Surely I haven’t suffered, simply that I, my crimes and my sufferings, may manure the soil of the future harmony for somebody else. I want to see with my own eyes the hind lie down with the lion and the victim rise up and embrace his murderer. I want to be there when every one suddenly understands [pg 268] what it has all been for. All the religions of the world are built on this longing, and I am a believer. But then there are the children, and what am I to do about them? That’s a question I can’t answer. For the hundredth time I repeat, there are numbers of questions, but I’ve only taken the children, because in their case what I mean is so unanswerably clear. Listen! If all must suffer to pay for the eternal harmony, what have children to do with it, tell me, please? It’s beyond all comprehension why they should suffer, and why they should pay for the harmony. Why should they, too, furnish material to enrich the soil for the harmony of the future? I understand solidarity in sin among men. I understand solidarity in retribution, too; but there can be no such solidarity with children. And if it is really true that they must share responsibility for all their fathers’ crimes, such a truth is not of this world and is beyond my comprehension. Some jester will say, perhaps, that the child would have grown up and have sinned, but you see he didn’t grow up, he was torn to pieces by the dogs, at eight years old. Oh, Alyosha, I am not blaspheming! I understand, of course, what an upheaval of the universe it will be, when everything in heaven and earth blends in one hymn of praise and everything that lives and has lived cries aloud: Thou art just, O Lord, for Thy ways are revealed. When the mother embraces the fiend who threw her child to the dogs, and all three cry aloud with tears, Thou art just, O Lord! then, of course, the crown of knowledge will be reached and all will be made clear. But what pulls me up here is that I can’t accept that harmony. And while I am on earth, I make haste to take my own measures. You see, Alyosha, perhaps it really may happen that if I live to that moment, or rise again to see it, I, too, perhaps, may cry aloud with the rest, looking at the mother embracing the child’s torturer, Thou art just, O Lord! but I don’t want to cry aloud then. While there is still time, I hasten to protect myself, and so I renounce the higher harmony altogether. It’s not worth the tears of that one tortured child who beat itself on the breast with its little fist and prayed in its stinking outhouse, with its unexpiated tears to dear, kind God! It’s not worth it, because those tears are unatoned for. They must be atoned for, or there can be no harmony. But how? How are you going to atone for them? Is it possible? By their being avenged? But what do I care for avenging [pg 269] them? What do I care for a hell for oppressors? What good can hell do, since those children have already been tortured? And what becomes of harmony, if there is hell? I want to forgive. I want to embrace. I don’t want more suffering. And if the sufferings of children go to swell the sum of sufferings which was necessary to pay for truth, then I protest that the truth is not worth such a price. I don’t want the mother to embrace the oppressor who threw her son to the dogs! She dare not forgive him! Let her forgive him for herself, if she will, let her forgive the torturer for the immeasurable suffering of her mother’s heart. But the sufferings of her tortured child she has no right to forgive; she dare not forgive the torturer, even if the child were to forgive him! And if that is so, if they dare not forgive, what becomes of harmony? Is there in the whole world a being who would have the right to forgive and could forgive? I don’t want harmony. From love for humanity I don’t want it. I would rather be left with the unavenged suffering. I would rather remain with my unavenged suffering and unsatisfied indignation, even if I were wrong. Besides, too high a price is asked for harmony; it’s beyond our means to pay so much to enter on it. And so I hasten to give back my entrance ticket, and if I am an honest man I am bound to give it back as soon as possible. And that I am doing. It’s not God that I don’t accept, Alyosha, only I most respectfully return Him the ticket.
>
> That’s rebellion, murmured Alyosha, looking down.
>
> Rebellion? I am sorry you call it that, said Ivan earnestly. One can hardly live in rebellion, and I want to live. Tell me yourself, I challenge youanswer. Imagine that you are creating a fabric of human destiny with the object of making men happy in the end, giving them peace and rest at last, but that it was essential and inevitable to torture to death only one tiny creaturethat baby beating its breast with its fist, for instanceand to found that edifice on its unavenged tears, would you consent to be the architect on those conditions? Tell me, and tell the truth.

The Adam Smith book club starts Monday — November 13, 2010

The Adam Smith book club starts Monday

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As promised a month ago, the Adam Smith reading starts Monday. I was late, myself, to buy the books, so I only discovered a few days ago that the editions I mentioned before — Modern Library for [book: Wealth of Nations], Great Minds for [book: Theory of Moral Sentiments] — are hard to come by. They don’t look hard to come by on Amazon, but my favorite bookseller — from which I buy all my books, if I can help it — tell me that it would be hard for you fine people to find them in your own favorite local retailers.

So. What I have here next to me is the University of Chicago Press edition, which is a reprint of the apparently canonical Cannan edition. This one is unabridged, five books long, and about 1200 pages.

I hope this new edition doesn’t screw people up. I was aiming for unabridged editions before, and this is an unabridged edition. So whatever edition you have won’t be too far from what I have.

I’ve got my best people at the Harvard Book Store working ’round the clock to find me the proper edition of [book: Theory of Moral Sentiments]. When I have that one in hand, I’ll mention it here as well. But we have our hands full with [book: Wealth of Nations] for a little while.