Sunday, April 6, 2008

Latest Book Reviews

So here's what I've read lately:

1) White Man's Burden by Bill Easterly. This is another 'popular economics' book, written by one of my favorite academic economists. Easterly spent a long time with the World Bank assisting on development projects and now has moved on to academia and poking holes in the inflated balloon that is the foreign aid business. This book is essentially one long screed against the U.N., World Bank, USAID, Bono, the Pope (at least the last one), and pretty much anyone else who publishes "Action Plan for Millenium Development Goals 2008" or other such crap.

Easterly's point is essentially that foreign aid programs are top-down planners, and have no incentive to actually get anything done, or done right, at least. From an economists perspective, this is because the incentive structure has nothing to do with what poor people need, and more to do with what political figures in rich countries need (e.g. more photo ops with Bono).

In the end, the book is one of the better popular economics books out there, and it will be a big shock to you at how little good the last 50 years of foreign aid spending has done. (To get your head around the problem, imagine that your HMO was responsible for foreign aid dispersion).

2) The Big Problem of Small Change - If Easterly's book is an interesting popularization of some current economics debates, this is the mirror image. A yawn-inducing "complexification" of a stale old economic question: how and when did governments get a handle on the minting of small denominations of money (e.g. pennies). I like some obscure crap, but this is beyond even my capacity for historic minutiae. To really drive home the soul-crushing boredom of their work, the authors decide it would be best to lay out a full mathematical model of their thesis. Meaning that I would suggest this to no one but the idiot savant in your family.

3) China Shakes the World. A tour through modern China with a correspondant for the Financial Times who has been in China for about 20 years. He visits a variety of businesses and villages and relates some fascinating stories of people generating new thriving businesses out of the dregs of Communist society. The pace of growth he captures is bewildering; several of his subjects go from village farmers to millionaires over the course of about 20 years. Throughout, he highlights the lingering issues that China is attempting to manage as it transitions to a more free market economy. The closest example I can dream up is this: imagine that you are in a candy store with 20 four year olds, and your job is to keep them from eating so much they get sick.

That said, the author falls prey to a couple economic myths. The first is the 'limited resource' myth. He frets over where all the 'stuff' will come from as Chinese become more affluent. He indulges in some extrapolations of current trends that are typical of this myth. "At this pace, the Chinese will run out of air by 2050" is a paraphrase, but gives you the idea. This kind of reasoning drives economists up a wall because it ignores the one thing that actually has information on scarcity - prices. As prices go up, incentives change. And the reaction to those incentives are what alter consumption patterns, technology, and resource usage. Price information is the reason we didn't revert to the Stone Age when whale oil started to run low in the 19th century.

The second big myth he falls for is the "make-work" myth. That is, there are only so many jobs to be done in an economy. What do we do with all the extra Chinese people? There is no fixed set of jobs. Again, prices (in this case wages) provide information and economies react. Pressure on wages will continue to generate incentives to invest more in China and employ their population in an ever-more complicated progression of jobs. This will not happen overnight, but it will happen faster if the Chinese government allows for more flexibility by their citizenry.

Other than these two points I found distressing, the book is a rather fun read on the state of play in China these days.

4) The Gifts of Athena. True econo-history nerd fodder. I wouldn't recommend this to anyone except students of economic history, and even then I'd vote for Lever of Riches first. Lever of Riches is a fun history of the meaningful inventions of the Industrial Revolution and their origins and diffusion. Gifts of Athena ends up sounding too much like a rebuttal to the authors acadmic critics. Let's put it this way, even I got bored sometimes reading it.

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