Review: Naked Economics, by Charles Wheelan

The stated goal of Naked Economics is to break through the drear of the undergraduate study, cast off the bowties of the professorial set, and present the field of economics as the exciting and intuitive subject it actually is. I am happy to report this effort a success. Wheelan's book is well-written and makes its points in plain, clear English that people outside of the field (including myself, and also my wife) can easily follow. He's got a cogent global picture of economic theory and a sensible framework for its applications, and even while name-dropping half a dozen Nobel Laureates, he managed to tell me everything I thought I already knew, and who doesn't appreciate that?

Wheelan uses the skills of a good lecturer, laying out a hierarchy for understanding, that is, helping the interested student to stress what, in the mass of dull explanation, is the underlying idea and which are the more illuminating and useful details, which is an especially handy tool when your input is not so much a dry textbook, but endless piles of magazine articles and blog posts of varying levels of crackpottery. As someone who's forced to bullshit his way into new fields with some regularity, I appreciate this sort of quality overview approach those rare times I actually find one. I have a long-standing complaint about the dearth of good intermediate-level texts in any subject at all, but Wheelan's fine for taking a basic view, and in economics, it's hard to be very quantitative anyway. Wheelan also performs a novelist's trick I love: he leaves hanging some obvious questions and objections in early parts of his text, but shows enough awareness of them, and enough promise of resolution, that I, the reader, plow into the next section to find out what he'll reveal.

Wheelan writes for The Economist, and appropriately to his audience, his economic spectrum spans a conservative American model all the way over to a conservative European one. He does take a digression to the developing world under that framework (which includes a curiously circumscribed discussion of root causes of the horrible economies, but we can say for now, and Wheelan would probably assert, that the systemic flaws he cites are meant to be considered independently of their origins to the extent possible), and he does talk about Communism, although it exists more as a counterpoint to his generalist aproach than as part of it. And allowing for these huge caveats, I don't think it's bad to be inclusive, and I do agree with him that the flow of capital does follow some predictable rules. I appreciated the dynamic he presented between government and the private sector. He acknowledges that the government creates a market in the first place, and provides services (of various levels of merit) in exchange for hobbling parts of the economy, which is an admirably neutral position. Wheelan is certainly sane enough to realize that there is any range of things that can be bought or commanded by the gang in charge, and many of them will have positive or negative economic or social consequences, but smart policy-minded people can argue calmly over what is involved in the better administration. My long list of objectionable points is mostly a disagreement on the specifics of what we should pay for, discomfort at Wheelan's embrace of uncertain authority, and disagreement on what is a smart incentive. Keep in mind that my sense of rightness is aided by the wisdom of the past six years, and this guy wrote his book in 2002.

Naked Economics, in short, gives you all the tools you need to read and enjoy op-eds. Wheelan does an excellent job of explaining the accepted economic viewpoints, and they're as reasonable, universal, and honest as those of the best policy-maker or paid commenter.

It was November fourth, I last held your hand

Last Friday, legions of teenage girls lined up in the rain in Saugus, Massachusetts hoping to get a glimpse of Robert Pattinson, erstwhile of the Harry Potter films, now the pretty young star of Twilight, soon to be relased. The movie is based on a series of young-reader books about vampires, the sort of PG-13 dark fantasy literature which has boomed in the last ten years, as evidenced by my occasional bookstore perusal of the teen section (intending to have some copy lying around if/when Junior ever gets into reading). Maybe they're anticipating the evolving Potter audience--Pattinson's star turn is appropriate--and certainly all these new series have been doing their damndest to capitalize on Rowling's success for a while now.

Twilight is about a young girl's attraction and relationship to a hundred-year-old vampire, conveniently stuck in the body of a seventeen-year-old boy. They find some common emotional ground. Against all traditions of the genre, this sort of teen vampirism is a big new thing. In addition to Twilight, HBO has been running True Blood based on another book series, where Rogue makes friends with the local Nosferatous Jeunes and they all try to fit into high school or something similarly insipid. I like a good fantasy now and again myself, but I this is not my brand. I'm not a teenage girl, for one thing, and for another, it's all just wrong, wrong, wrong.

It wasn't much better in my day, of course. The first inkling I had that vampires could be more compelling characters than Count Chocula came through that awful 1980s flick Fright Night, in which a teenage guy, with the help of a goofy old man, matches wits against the timeless specter who moves in next door. The kid wins out against the dark forces, but this generation of bad films didn't have it all wrong. Charlie's success is at the expense of his dignity (accurate: for teenagers, everything is at the expense of dignity), and the vampire sports a classy front, like he should. His bastard friend is the guy that inherits the curse and he was, let's face it, a whole lot cooler than Charlie Brewster. If your vampires must be young--and they do have to be new at some point--then they work better as outcasts and rebels. People who are already outsiders won't be have quite the same dorky constraints as, say, young Corey Haim. But then again, outcasts and rebels are Romance interests too, and I guess it was just a matter of time.

(Parenthetically, I see eighties cinema delivering a more powerful commentary on youthful lycanthropy. Werewolves fit into adolescence so much more perfectly. Teenagers know all about strange animal urges and the horror of sprouting hair in unexpected places.)

The popularity of vampires is enduring. They were early film stars, and maybe some aficionado can come along and tell me whether the image of a vampire as the charismatic seducer is an invention of Bram Stoker or Bela Lugosi. As folklore and cinematic convenience began to accrete around these creatures, certain character traits began to logically emerge. A nearly human creature that is immortal, confined to dark places, and yet must beguile its victims requires a certain temperment. Seduction requires a grasp (clinical or intuitive) of the desires of one's prey, and the pool of victims is selected from society's most gullible and dumb, just like a lion can spot the young and the sick in the herd. The vampire can't be expected to respect the passionate, transient emotional appeals of young humans. He's seen it all, anyway. The vampire has had centuries to accumulate style, and lifetimes to grow weary of the pleasures of the world, and it's no wonder they make such fine aristocrats. They may be attracted to innocence, and they may have private longings, but such a creature should know by now the inability of some young ingenue to fill their sophisticated emotional voids. The bloodsucker is wise of the world, good at manipulating people, and is possessed of a deep, well-earned cynicisim. He is, in other words, the polar opposite of an American teenager. He gets her easily, but it would take many years to get him. You're fooling yourself, Bella.

I'm all for messing with old stories--and nothing's been more messed-with than vampires--but it's good to respect the source material at least a little. Twilight just looks horrible in every way. I expect to see a copy in my daughter's hands any day now.

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Five More Thoughts: Socialism! Edition

I hate writing about economics. For one part, I'm a little dull on the subject (for multiple meanings of the word), and I distrust my opinions, which are too strong for their own good. My overheated skepticism is stoked by both the repeated assertion that the subject is as hard (harder!) than the physical sciences (even without all that "data" stuff), and the continued indignity of working in the corporate world and discovering the limitations of my human capital. But the worst part about these redundant screeds is that they're unpopular. It's not like I can hold them in--sometimes I release my inner babblings to paper because I have to.

My opinions here come primarily from the hastily scribbled objections to Charles Wheelan's easy book, Naked Economics. A favorable review is forthcoming, and while I agree with the usual Capitalist concepts as fine rules of thumb regarding the way the world works, I can't let go those few important places where the model looks like it's way the hell off, kept that way, it sometimes seems, for the purposes of semantic purity. One or two points are belated replies to other people's comments here and there. I fluffed the exercise up to five heretical, but not terribly original, thoughts. I'll try to remember to cite.

1. Why Don't They Use a Grand Unified Theory?

These deviations from fiscal orthodoxy worry me because they make me sound like a dirty Commie Socialist. Horrors. In the early part of Wheelan's book, he goes through the bad standup comic routine I've come to expect from any survey of western economics: Capitalism is all like this [nods soberly and pats his chest] and Communism is all like this, yo [drags knuckles on the ground and shrieks in a Russian accent]. Capitalism, we're told, allocates resources efficiently by price mechanisms, whereas Communism sorts them by diktat, which, of course is bad because it's Communism. But I'm not even sure there's really a difference of kind here.

Here's one problem: Capitalism also tends to allocate resources by decree. Get enough success in a capitalist system, and you can engineer the information available, engineer the alternatives available, and stick people with your product. Consumers don't purchase KFC because it's better, and not just because it's the more predictable alternative: we do so because it's presence is obvious, because it's low cost per calorie, and because our decisions are warped by the pervasive advertising of the PepsiCo. The thing about branding and marketing isn't just that it provides valuable information (as suggested in the Stiglitz chapter, which may or may not represent Stiglitz's theory accurately), it's that it supplies false information. Successful businesses suppress alternatives if they can, in order to engineer the landscape. We don't make choices, necessarily, to optimize our utility. We make choices from among the ones that are given to us.

The market, Wheelan says, is like gravity, and that's approximately how I think of it too. But that's just telling us the direction things roll and how quickly. It's the study of how human behavior responds to that downhill force generated by compulsively producing stuff, but that doesn't really say much about the governing philosophical "isms" at play. That would be more about the shape of the hill, which is controlled to an extent by the government, but also by captains of industry. There are little divots to the left and the right that the system can roll into on its way down the slope, and stay there until it's bumped out. There are banks to fall off of as well.

"Economics," of the sort they award Nobel prizes for anyway, appears to have been written by Capitalists to describe our rules, and if Wheelan (who writes for The Economist) fits in modern European-style Socialist into the theory too, Communism is still an adversarial outsider. That doesn't seem right. It's not as if "economists" pit themselves against some insane, slavering, equivalent Commie discipline. China doesn't have the exceptional awesomeness of the west, but it certainly has an economy.

2. Business and Government: Why Pretend It's an Exchange?

I'll add (again) that the extreme end states of successful Capitalism and Communism seem to look the same anyway, consisting of a poorer and badly controlled stratum that allocates resources in the textbook ways, combined with a behemoth of power that directs the overall drift of the thing, more or less, and concentrates most of the wealth to its chiefs. If China needed to develop the former to get there and the U.S. had to develop the latter, then, you know, whatever.

I'll certainly accept Wheelan's (paraphrasing Gary Becker's) point that small interests that can spread the cost over a large population will be the most effective at lobbying. His examples get as large as farm subsidies, as if the politicians were shopping for midwestern constituents, but it's a little more insidious than that. It's not just that business bargains with power, and it's not just that government economic policy affects industry and people in strange ways. To a large extent, big business is power; representing employees much like the republic represents citizens, and with about as many temptations and as much abuse. Agribusiness is huge not just thanks to the outright subsidies to get Iowans' vote (because really, how hard is that?); it's also huge because the green revolution was based on cheap fossil fuels. Government happily distributes the external costs of the oil-based economy (wars, highway infrastructure, and emissions), which allows those corn calories to be dirt cheap to produce. This low price, with it's deferred and obligatory tax support, influences the rest of us to eat the stuff. Flooding the market with cheap, crappy food is a tyranny of sorts.

But did profitable corn products give agribusiness big influence in Washington, or did their political influence make the market carry their product to near exclusion of everything else? Does the distinction really matter? There's a difference between economic and political will, but it's along a continuum, and the agents are many of the same people. To Becker's point, power is the small, moneymaking interest group that keeps soaking the rest of us. Corn's maybe not the ideal example here, although oil's a painfully clear one lately. Banking is another obvious seat of shared power. BTC News threw up a great old Harper's article about similar banking stimuli offered up during the Great Depression, the captains of industry were too big to fail then too. Military procurement is the example closest to me. I often work with prime DoD contractors, and even in the R&D world, it's a fuzzy line as to who's directing policy to whom.

3. Why are Collective Costs Considered Inefficient?

Speaking of the Great Depression, the staunch capitalist (at least the sort of smug little shit that follows the Megan McArdle's blog, e.g. this one, linked via) believes that FDR's federal resource allocation was axiomatically ineffective (Socialism: bad), and that it took the war to haul our ass out of that hole. Official Libertarians are supposed to make grudging exceptions for the collective need defense, but war is also something that the government is good at allocating resources for. The government has excelled at directing resources to killing people at least since the Industrial fucking Revolution. It's not called Socialism, but it's not like invading Afghanistan is some choice I made to maximize my personal utility either.

The lesson I take here is that a free market is good at allocating some resources, and maybe most resources. It's good for optimizing the price of eggs or cars or whatever. On the other hand, the collective is more efficient for a handful of things. It's certainly better at violence, but can the power of the economic state be harvested for good too? (Or at least something other than killing people?)

One of Megan's pet glibertarians sassily made the point (in the context of auto bailouts) that it doesn't matter how health insurance is allocated, because, like, someone still has to pay for it. Yeah, the money has to come from somewhere, but why cluster up the costs so that they take away from labor, which (a) are mostly the consumers of autos, and (b) makes them uncompetitive against foreign markets, which is, at a minimum, a dick move to the working class. If you accept that insurance models are a rational way to distribute health risks among some group (aren't businesses collectives too? fucking communists), then embiggening the pool is the obvious improvement. For universal health care, we collectively trade some economic drag on the general economy for freeing up some of the constraints on the poor bastards who are in the working world (not, Dr. Becker would note, a small group). It sounds logical, but does socialization allocate the costs effectively in practice? Well, judging by the rest of the First World, it beats the hell out of the half-socialized measure of private insurance.

4. Am I Better Off Than My Parents?

Wheelan throws around some amazing statistics in his book. Chickens cost eleven times as many hours worked in 1919 vs. 1997; the GDP per capita has doubled from 1970 to 2000. And, of course, poor people now can afford more consumer electronics.

Based on the limited pool of everyone I have ever met, the best indicator of financial success is still parents' financial success, or spouse's. There are impressive exceptions: it's wonderful that bootstrapping to the top is possible (and who doesn't respect the effort?), and polluting your life down to the gutter isn't off the table either, but the landscape of opportunities hasn't improved too much. (Well, not for white guys.) The idea that everyone can get their college degree, command productivity (usually while not actually producing much), and get ahead is oversold. Food's cheaper now than when my parents were my age (and the stuff that isn't cheaper is better), but that's not the whole of the cost of living. Energy is expensive, and so is housing. When my wife and I bought a house, we dropped a similar portion of my income into a mortgage as my father did at the same age, but unlike Dad, I have a PhD and our family has two earners. We're in about the same place, but it took a lot more investment in (presumed) human capital to get my family there. (Presumed: I think my job is less worthwhile than the skilled labor Dad did in the industrial sector, but if I followed the old man's path, it's unlikely I could have afforded this hovel at all.) If we add medical care into the mix, then it doesn't look like we're doing well at all, but we can do more with medicine these days. I probably need to wait another 25 years before those advancements really improve my (by then less vigorous) standard of living, however.

(The big increase in the average living standard over those 30 years has got to be information technology. Life before all these integrated communications sounds like the Dark Ages, and I'd hate to go back. I remain unimpressed, however, by economists and pundits measuring me up to my parents' television.)

For GDP to have really doubled per capita, then it's likely that a lot is being lost in the averaging. I'm aware that inequality has increased over that stretch, although I don't know if the measurements match wages and cost of living very accurately (and anyway, this isn't a hard science), but I could be swayed here with some data. It's not like that has improved since Wheelan wrote his book: wages, famously enough, have been stagnant since 2003 (and to compensate, credit has been bizarrely easy) while executive pay has skyrocketed that much more, a situation which would increase GDP per capita, and I suspect has.

5. "Scarcity" is Bullshit, Right?

As we all increase our human capital--the stuff we train ourselves to do--then the idea is that the whole economy grows, because everyone can do more fabulous shit. We movers and shakers will discover demand by making more exciting things with rented capital until some fraction of them is discovered to be wanted, and the economy grows overall and on average as more net production activity is added to it.

Now, I don't actually think "scarcity" is bullshit (it describes a condition where resources are more or less scarce is all), but that growing pie thing only goes so far. You can't go on producing things that aren't valuable, and there's some saturation point where even new, exciting, scarce things aren't really that important. Educating one of the local dimwits, SnollyG says the economy is demand-driven, and I agree. I prefer the phrase "demand-limited" actually, describing that when production is cheap, you can only productively make things when people want to consume them. (It's easy enough to imagine a supply-limited economy too, and it's no doubt been the more common historical mode.) In the U.S., we have a glut of supply of capital, which, absent sufficient demand, is so desperate to try to find the new thing, that it chases every spark, from housing, to the internet, to shady financial instruments, to the university system, investing futilely into the glut of human capital we're also suffering, pushing out ever more MBAs.

I mean, these financial bubbles keep happening because we have more capital than consumers, right? And it looks like our economic ball is rolling into a sink, as money and government ease the concentration of capital around a small number of investors, who can only do so much with it. Shouldn't that cash be heading back down to workers--to consumers--to get out of this demand-limited situation? By this reasoning, it looks like large inequality helps to create asset bubbles, and I think that sounds plausible.

So how about that bonus already, eh boss?

Review of The Dharma Bums by Jack Kerouac

Jack Kerouac came into into my literary purview over ten years ago, when I combined my meager estate with my wife's. I'm not sure which of her wannabe bohemian boyfriends had originally inspired the purchase, but I can't really begrudge the guy for ultimately adding to the library. On page twenty-five or so, I found the bookmark that I placed in this copy of The Dharma Bums in 1997, where I stopped reading it the first time. It seems like the sort of novel that wouldn't begrudge me for resuming it after so long an absence, and which would be happy to be accepted from some unknown former love interest. It's all good.

The Dharma Bums is more atmospheric and philosophical than it tensely plotted--it doesn't demand a breathless page-whipping race to the finale. It's a buddy story, and a travel novel, which does ramble from somewhere to somwhere else, but not with a particular urgency. Kerouac writes himself in as Ray Smith, and the story details his friendship and experiences with Japhy Ryder, together exploring Buddhist philosophy as well as the natural landscape of California and the Pacific northwest. Ryder is based on a real writer of Kerouac's acquaintance (who is still writing in fact), as, evidently, are all the other characters in the novel as well, not that it would have helped me to keep score. I liked most of the odd bastards, and if they weren't a particularly responsible bunch, they were benevolent, and they seemed like great fun to be around. Stuff happens, and the friendship evolves over time, but any given ten pages of this book give a similar satisfaction as any other ten, and it's a natural to limit the reading to an easy evening, pleasant to pick up and just as easy to put down. Which is probably what happened eleven years ago.

Self-discovery on the road is a time-worn storytelling approach, and in that respect, I hold Fear and Loathing in Las Vegas as a worthy companion read. I like even better to put these novels in broader arc, and the antecedant that leaps most immediately to mind is Jerome K. Jerome shipping friends around at the turn of the last century in different conveyances. (Were I more ambitious about these of reviews, I'd take on another of Mr. Jerome's for this series, but I happily managed to get through Three Men in a Boat in the same year I stalled on the Dharma Bums--there's only so much of that sort of thing I'm willing to take at a time.) Each has the same thinly fictionalized autobiography, presented with similar mixtures of escape, male bonding, comedy, and philosophical interjections. The escape is for the characters, and the hideout isn't so much the wilderness as it is civilization's fringe, not a matter of pitting brawn against the savage forces of nature, but rather a retreat to a place safe enough and independent enough to explore the world from the writer's own perspective. Over the arc of these novels, this required increasingly drastic measures for the getting away. Late Victoriana could be ditched in a comfortable outing down the Thames. Kerouac needed the deep woods and old weird America to hide himself in, and only thirteen years later, it took Hunter S. Thompson copious amounts of drugs. I also like imagining this progression for the delivered philosophies, which are poked in as wistful or wondering asides, and over the intertextual century, there is a growing refutation of the status quo: from ambivalent glimpses of the human condition, to an escape from Western philosophy, to, in Thompson's case, a horrified rebuke of it. Read the three of them together, perhaps, as commentary on how invasive society has become (and how quickly).

In The Dharma Bums, Kerouac's embrace of Zen Buddhism is a sort that reaffirms his own lifestyle, absent any spiritual effort that doesn't satisfy him. Not that it didn't take some personal effort, but it did often feel self-serving, and maybe even a little self-aggrandizing. I could see the author as that mild, friendly, half-baked, humbler-than-thou sort you sometimes find at parties. It's like a Bohemian slacker superstar version of, say, Deion Sanders glorifying Jesus with his touchdown-scoring awesomeness. Admittedly, I like Jack's sense of splendor a lot better, and his voice is nice enough too, moving along at an elemental groove, and able to summon as much child-like enthusiasm for immense natural wonders as for simple human pleasures. Although I distrusted the spirituality, and found the book a little skimpy on cerebral jollies, Kerouac is out to find and celebrate the things of the world that are still pure and good, and in his travels he always gets there, and it's nice to be along on the trek. The solitude and the friendship, the spirituality and the beauty, they all get through just fine.

I've got to pay more attention to those sell-by dates

Well, I voted, and I look forward to watching the returns from a boring hotel room in Ohio--if I'm lucky some of that exciting swing-state mania will rub off. I don't feel noble about my decisions or anything (I voted for John Kerry because one of his committees is actually fighting to protect my job, and anti-incumbent for the rest of it). On the other hand, who doesn't love a good pie fight? I'm looking forward to Stewart and Colbert making nonsense out of the nonsense.

I regret that the post that's been kept barely alive in my wallet as a tattered post-it note for the last two weeks isn't going to make it. Well, not really much regret: it consisted of some redundant observations about awful debating and crappy political reporting (I'd been processing even the reputable "journalism" with pretty much the same mental skills I use to spot the increasingly clever junk mail come-ons), and there are plenty of better places to get that sort of thing.

Book review tonight, probably. (Update: tomorrow night, probably.)