Book Review " The Firm, The Market and the Law

The Firm, the Market, and the Law by Ronald H. Coase

My rating: 5 of 5 stars


This book is written so well by a thinker who has clarity of thought and understands the principles of economics extremely well. Within its seven chapters, the author takes the reader through a very detailed explanation of the nature of the firm, discusses the limitations of the approach to Industrial Organization, the controversy of marginal costs in relation to utilities and tackles the locus classics, which is the "Problem of Social Cost", from which the Coase Theorem derives its name. The concluding chapter is an admonition of classical and Neo-classical economists for taking by faith that lighthouse services can only be provided by public institutions when his historical review shows that up to the mid-nineteenth century, there were private firms providing that service.

No need for spoilers but I find it useful to highlight that the book doesn't necessarily have to be read in the sequence in which the chapters are laid out. If one wanted to know the mind of Coase, then three chapters to read in a sequence are 3, 5 and seven. While the book was published much later, the claim that the study of industrial organization is "stunted" by the focus on firm concentration and monopoly analysis still stands true today. My view is that professional economists, despite having extremely powerful tools, have not developed theories that explain the distribution of market functions and resource allocations between governments and private firms.

In chapter 5, Coase demonstrates that despite its broad citation, some economists and laypeople do not understand the claims and implications of the reciprocal problem presented by externalities. The reciprocal nature of externalities is not self-evident and its counterintuitive implications trouble many people who are fixated with determining liability. It is the longest chapter in the book and fascinating because of the patience that the author shows by going through one claim and alternatives market arrangements to demonstrate the idea that pre-determination of liability is not the sound approach.

To my mind, Chapter 7 is a call for humility and caution by economists. In it, the author goes through a historical analysis to show the genesis of lighthouses in the United Kingdom and how a single firm came to have the exclusive rights to run. He ends the chapter, and the book, with the memorable statement' " In the meantime, economists wishing tom point to a service which is best provided by government should use an example which has a more solid backing".



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Book Review: We Were Eight Years in Power

This book is an amalgamation of the articles written by the author for The Atlantic Magazine. Its eight thematic articles covering an overarching argument of race and political leadership in the United States during the presidency of Barrack Obama. I considered myself a student of the history of democratic governments that included the United States but the eloquence and clarity of the author's arguments profoundly affected me. The author traces the rise of the various flavors black nationalism and what motivated their leaders, some of whom advised preposterously that "Negro" development was dependent on the acceptance of subservience.

I do not subscribe to the most aggressive interpretations about the deliberate design of the United States as a racial country but still, concede that the enduring effects of slavery subsist. But the most important lesson for me is that these approaches and assumptions about race capabilities and proclivities are embedded in discourse and state operations even today. I

In general, the author concludes that Obama was a special individual, undeniably capable and an outstandingly clean governor but had to consciously calibrate his utterances and screen against those that would offend racial groups, while being particularly stern in adressing black youth and men.

By far, the best chapter is when this writer makes a very detailed case for reparations in Chapter 6. I read the magazine version of the article but the reiteration here has impressed me even as a student of economics. The level of systematic predation against black families after the civil war extended to the second half of the new century and had devastating effects on black ability to build and transfer physical capital across generations. While the author doesn't resolve the question of the quantum but fairly records the discussion with President Obama who quickly and sensibly responded by highlighting difficulties in estimating quantum in addition to government distribution of that "entitlement" (my words).

I found this paragraph on page 200 profoundly provocative
    "To celebrate freedom and democracy while forgetting America's origins in a slavery economy is patriotism à la carte." Ta- Nehisi Coates
  

Book Review: Chronicles: On Our Political and Economic Crisis by Thomas Piketty


I have read the most famous book
 
Capital in the Twenty First Century by Thomas Piketty and a good number of his academic entries but this compendium of essays is a revelation into his mind. I think, it is difficult to disagree with the subject of the essays especially as these articles were published after the great recession of 2008. Understandably, most of the essays are about the failure of European bureaucrats to assess the situation correctly and apply the right policy responses. No doubt, Thomas Piketty is a very perceptive and the complex nexus of the politics and economic choices of the European Union.

The two main themes of the book relate to his argument for the mutualization of the debts of countries in the Eurozone on the one side, and the need for higher taxes on wealth to support the existing social safety nets in France and most of Europe. debt Debt mutualization is an imperative for Eurozone countries because a single currency means the interest rates on public debt should converge. the absence of this convergence leads to the dd situation where Greece and Spain face different rates than France and Germany.

The more controversial proposal is that which proposes that taxation of endowments and wealth should be raised because the existing fiscal policy favours passage of wealth to people who do not have to work, unlike those who are employed. Piketty argues that higher taxes on wealth would be ensured if countries collaborated on disclosures of wealth held by their citizens across borders. While the argument that society faces a trade off between taxation of labour and capital is real, I am less convinced by the implicit assumption that a large state is inherently preferable.

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David and Goliath: First Impressions

David and Goliath by Malcolm Gladwell
My rating: 5 of 5 stars

To my mind, while it is an easy read, this book represents the most complex idea that Malcolm Gladwell has attempted to communicate. The first chapter is written well and it makes it look like it will always be easy to apply the David and Goliath metaphor throughout. It is not easy and that may explain the harsh judgement of critics. As usual, the author uses a deceptively simple metaphor to explain phenomena starting from war, crime, education attainment and social change. Few authors are capable of making such a tactical tour de force and in pushing such a wide circle, it is possible that some claims will be incredulous. Still, hard earned money well spent if you one chooses to read this book.  


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Book Review: How the West Was Lost

I am not a tough grader of books because producing a sensible piece of work is very very difficult but found that the author here could have done better with her categories. The title of the book is so far removed from its content because it concentrates on some of the real economic policies blunders of successive US administrations but to add examples from Uk once in a while does not constitute what is known as "The West". I have no doubt about the author's credentials at all but would be cautious when the solutions proposed involved protectionism and closing up into a north American alliance.

Also startling for me is the neo-Malthusian argument that the world is running out of energy, land and food on account of growing populations. Now, this is an argument that is not only set against the grain of history but also requires far more sophistication to pull off than merely stating that it requires 9 kilogrammes of grain to produce an equivalent weight of beef and therefore that the world is doomed. On the same path is the argument made without evidence that conflict around resources such as water will shortly be normal without evidence for it.

In conclusion, I agree that david Ricardo's theory of comparative advantage has been questioned several times but just because China is a "Volume Maximizer" is not evidence that comparative advantage is obsolete. As it is, the simple mathematics of comparative advantage show that no country could hold an absolute advantage in every product imaginable. More recently China's labour costs have been rising and this alone means that Ms Moyo may need to update her arguments. Similarly, the fact that the US is close to being self sufficient in energy undercuts the argument that reliance upon energy imports harms its economy.  

Finally, I find that the book is a very good polemical work but ignores countries that have managed economies very well. In the entire publication, i am surprised that Canada was hardly mentioned except towards the end in the suggestion that the US should go into a North American alliance with its neighbor. In the end, the book puts up a lot of information on the misallocation of resources in the US but does not provide evidence to me that the US, leave alone the West, is really lost.

Pankaj Ghemawat on Globaloney

I am a member of a book club which nominated Pankaj Ghemawat's book, World 3.0 as the business and Economics book of last year. For the book club, it was a profound demonstration about how misinformation and hype about globalization exceeds the reality. In the blog post here soon after that reading, I stated that popular books have pushed ahead the idea that the world has attained such a high level of globalization that borders cease to matter. Well, the people who claim this only state this because they genuinely believe it but have not placed evidence to support that claim.

The TEd talk embedded to this page is the author's explanation of the lack of evidence for the "No borders effect". It is worthy of viewing again and again as part of alerting people that both those who are opposed to globalization and its cheerleaders are wrong about the facts. This demonstrates again that for all the benefits provided by the accessibility of information, there is still a great deal of conventional wisdom that will not stand scrutiny.





  

A Review of Ruchir Sharma's Breakout Nations

Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma
My rating: 5 of 5 stars

What is much better than a book that sensibly cautions against taking the conventional wisdom without regular review?. Ruchir Sharma has taken on the assumption that the BRICs are guaranteed to dominate world affairs (economic and political) for the medium term. That the BRICs have grown at an unprecedented scale is not in dispute but perhaps some caution should be taken in the assumption that the four have an easy and guaranteed path to the attainment of high income levels that would eventually dwarf the US and European economies.

History alone suggests that high growth as maintained by these countries tends to be episodic and is often difficult to maintain. Forecasts and claims that the BRICs story growth story of the early years of the millennium is bound to continue should be carried with more caution than analysts acknowledge. The primary claim is that all the BRICs benefited from a surfeit of cheap money from the more developed economies and may be unable to repeat their performance in the future.

More interesting is the author's finding that there are other countries whose prospects are far better than individual members of the BRICs group. Granted, not all of these Breakout Nations have large populations or huge internal markets but they have the basics right. In this group are Turkey, South Korea, Taiwan and Indonesia.

Among other profound conclusions, the author sensibly advises that it is more prudent to analyze the prospects of individual countries without relational on bogus quantification and indices that aggregate different countries.    

Pankaj Ghemawat's World is Not Flat

The orthodoxy today has it that the world is integrating at a furious pace on account of growing market influences and technology is making borders completely irrelevant. I have been surprised with the fact that this is taken as a given by businesses and even some politicians. That was until I read this book by Pankaj Ghemawat  and to my consternation realized that the flat world ideas that circulate are grossly overstated and misleading.

And it is relevant that this academic is not only highly regarded and qualified to address that subject but is keenly aware of the benefits that would issue from increased globalization. It is just that he is alert to the fact that having plucked the lowest hanging fruits, everyone seems to be taking the superficial level of integration as real. As the indicators that he adopts show, the world is far less globalized than even leaders of firms that operate on a global scale are aware of. In this interview with Leslie D'Monte, he observes that "there is social pressure to believe that the world is flat", and that has prevented dispassionate examination of the subject.

Untouchable: An Indian Classic

I was in the Indian City of New Delhi sometime last week for a formal meeting and because I arrived before the conference commenced, I made my way round the book stores on Janpath Road. I entered into a very small book store which had what I considered far too many workers for the size. While browsing from one side of the very small store to the other, I asked one of the attendants to point me to books that would teach something about India.  With minimum hesitation, he turned around to the opposite side of the store and grabbed the book that forms the title of my review here. He handed to me Untouchable by Mulk Raj Anand and added with confidence, "This is an Indian classic".

To start with, I have known for a while that India has a very highly developed publishing industry and has one of the lowest costs for publications among developing countries. Still, the degree of knowledge about titles that the store assistant showed is rare because I would certainly have left that store none the wiser if my attention had not been directed towards that book.

The book addresses the social and economic construction of stratification in Indian society in pre-independent India. In reading the book, I see the duality in the fight that this society faced in designated classes of people as untouchable and unclean. Contact with the low caste people known as sweepers would make one contaminated and require ritual baths to restore cleanliness. This novel is based on the life of the youthful Bakha whose family have been sweepers for time immemorial and who are condemned to living apart from higher caste Indians. Their isolation is aggravated by the fact that they have an exploitative relationship which requires the sweepers to take care of cleaning up toilets.

One cannot miss the contradiction that comes from the fact that the caste system in India as in other places, created bogus distinctions  that endured. At the same time that the priestly and warrior classes enjoyed superior status and avoided the contamination of sweepers, they depended greatly on these oppressed to accept their inferior station and thereby provide cheap labour for performance of the most unpleasant tasks in that society.

Bakha wonders through the day and is human in the fact that he gets hungry and angered, playful and serious and somehow wonders why his family must forever accept their inferior classification. He has three encounters that could provide a solution from three different people and the most convincing one for me is the technology solution. tThe author integrates history in this work of fiction by exploring the role of the Christian church, Gandhian philosophy and suggestions from educated Indians.  In an interesting twist, Bakha returns home in the evening convinced that Gandhi's call for Hindu compassion is part of the solution and wondering whether a flush system would complete lower caste emancipation.

For a book written in the 1930s, it describes from the eyes of an Indian, how injustice can endure when it is justified through religion and culture on the one hand together with an unmentioned but real economic basis.  It also reveals the quest for status that makes other lower caste groups such as washers and leather workers to act with derision towards the sweepers.  I recommend this reading for any person with an interest in the evolution of societies and to Llibertarians with interest in booting cultures that justify subjugation. Putting myself in the shoes (rare among sweepers) of Bakha, it may be debatable which was the more evil system between colonialism or the caste system. Just wondering!

Book cover Image from Amazon.com

The Intellectual And The Market Place

George Stigler is not only a first class economist but also a formidable polemicist who is not too deeply beholden to any philosophy. I have just read his collection essays in this rare book shows that the incentives faced by professors in the academy are not always conducive for maximum output in terms of teaching, research or promoting free thinking. An important and enduring issue tackled with a sense of humour that is uncharacteristic of an economist is on ensuring better economic literacy among common people. His views about why that elevated quest may be futile is by and itself worthy of a thesis in philosophy. The choice of the title comes from the final essay in the collection that contrasts the academy to the market place and wonders why these two are not natural allies.

Without doubt a superior book for introducing a lay and professional audience to the thinking on economics and the place of academies in the nation. Definitely deserving of five stars because of the due regard for Adam Smith, whose ideas are still profoundly correct in spite of the fact that he did not employ spreadsheet and high order mathematics.  

He makes the following profund statement in the title essay that is still demonstrably true almost half a century later: "I consider it shocking that more Americans have read The Affluent Society than The Wealth of Nations". Needless to mention, it is not only true of the US where a larger proportion of citizens have heard of Adam Smith than many other nations.

The Japanese Spirit

I came upon this oldish book by chance and think that I am educated about the way a Japanese scholar saw his country's history and currents that shaped it. Most interesting is the hypotheses for what makes the Japanese as seen by others. The most surprising part is the statement that Japanese people are not good at metaphysical thought and that this is related in some way to the Bushido. What I wonder is to what extent a book comprised of lectures given in the early 20th century could have confirmed or reinforced stereotypes about Japan and its people.

For those inclined to read through a very short book (available for free download in Kindle version) it may help to contemplate why the divine endowments to Japan's first emperor Jimmu were the mirror, the sword and the string of crescent-shaped jewels. Location 212-219

SuperFreakonomics: Guessing Factor X

Leaving aside the controversy that has arisen from the ideas on geoengineering that have been included in the new publication by S.Levitt and S. Dubner, I think that most of the stories and the applications of economics thinking are informative. So while Elizabeth Kolbert has gone at the authors with hammer and tongs, I am convinced that the authors make a simple and correct case by stating the fact that the menu of solutions ought to be expanded beyond the fixation with a reduction in carbon emissions. I still have not made up my mind whether SuperFreakonomics is really better than its predecessor. One only has to make the decision whether it is worthy of spending the cover price on. My view is that it is definitely worthy of the sum since I do not own a Kindle 2 yet.

To my mind, besides annoying the environmental activists who have reduced the issue to a near dogmatic one, the book has also bettered the first by posing a challenge to its readers. The best chapter is the one covering the forensic work conducted by one Ian Horsely and Steven Levitt in trying to identify individuals with connections to terrorism from a data-set of a financial services institution. By describing the variables considered in whittling down the numbers in order to focus on the most likely suspects, it makes the reader really peer into the minds of both men. They go ahead to justify why indicators such as the purchase of life insurance is a valuable one for the algorithm and why other factors are not particularly helpful. Having considered a number of metrics, the authors describe how a certain variable "X" dramatically sharpened the algorithm and led to a group of 30 individuals with a high probability of involvement in terrorist activity.

The only clue offered is that the variable "X" is a qualitative one that measures the intensity of a certain banking activity. I have spent time trying to think about what this variable is and have not convinced myself that I nailed it. As far as trivia go, this is one that would capture the attention of many book clubs. Its only a pity that unlike the trivia questions appearing on the Amazon site, this one cannot be confirmed by the authors. On the other hand, anyone who is bright enough to deduce what it is would probably draw algorithms that would be useful in other ways. So I will keep thinking and will post my guesses here with the reasoning behind it. No terrorists need fear yet!

The Consequences of Antony Fisher's Ideas

Antony Fisher Champion of Liberty by Gerald Frost

My review

rating: 5 of 5 stars
This book should be summed up thus: "Ideas have consequences".

Quite apart from the very interesting life that Antony Fisher led, it is significant that his most important creation is the think tank known as the Institute of Economic Affairs based in London. The book is not lengthy and speaks for itself both about the author and the big idea that led to the establishment of think tanks.

Needless to mention here was a Cambridge University trained engineer, WWII pilot, a poultry rearing businessman and the originator of the idea of the Think Tank. Later, Antony Fisher tried to rear turtles for food and lost a substantial part of his fortune but still did not fail to support transplantation of new think tanks in Europe and the north of America. Granted that the book is written by a real admirer, one does not get the impression that its subject is turned into an icon nor the details of his intellectual or business life exaggerated.

But most important is the manner in which as an entrepreneur of ideas, he made the IEA a success to the surprise of Frederich Von Hayek, who considered that such an idea would not be successful. the reasons for Von Hayek's skepticism are as important as the fact that Antony Fisher defied him. This coverage of the life of Antony Fisher is a far better illustration of the "entrepreneur as a super-hero" (sorry Libertarians) and to my mind, in a more convincing way that Ayn Rand's interesting books which tend to overstate the same facts. Truly, Ideas have consequences.