Tag: The Origin of Wealth

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Society

[1430] Of trust between individuals and institutions

As I was racing toward the final pages of Beinhocker’s The Origin of Wealth, among the public, there was a growing distrust against the judiciary in Malaysia. Coincidentally, the final chapter of The Origin of Wealth discusses how trust is an important component in building a successful society. Trust is one of many important ingredients toward cooperation and greater economic activities between individuals.

Beinhocker states that a society of trustworthy individuals encourages cooperation. He strengthens his assertion with a correlation between trust level of societies and level of gross national product or roughly in layman’s term, wealth of societies; the correlation is positive. The rationale is quite logical.

In any dealing, especially under which past dealings are considered, many would try to avoid entering into any agreement with those of low reputation or untrustworthy. This scenario could easily be illustrated by a repeated game with players utilizing adapted tit-for-tat as a strategy. In this scenario, bad reputation or untrustworthiness leads to uncooperative behavior by the cheated player. The behavior acts as a punishment by the cheated onto the cheating player.

Although Beinhocker is referring to trust between individuals in his book, his conclusion could be adapted to accommodate relationship between individuals and institutions.

Referring to the alleged corruption of the Malaysian judiciary, the players in the game could easily be comprehended as civil society and the judiciary. When the judiciary exhibits actions which lower its reputation, the civil society has little reason to trust with the judiciary.

The judiciary is the arbitrator of conflict between individuals and the perception of neutrality is important to convince relevant individuals of the trustworthiness of the judiciary. Without neutrality, there is little reason for individuals to trust and approach the arbitrator to solve any conflict. If such outcome which the perception of neutrality is absence is repeated overtime, individuals, who may initially grant the arbitrator their trust, will update their expectation and become distrustful of the arbitrator. The final result will be a complete disregard and dismissal of the arbitrator.

The lack of trustworthy judiciary takes away a reliable neutral arbitrator from the society. Without a good institution to govern relationships between individuals, transactions between individuals will fall in volume, as each individual now becomes wary of being cheated by the other without recourse to justice. Economic activities will decrease, making the society as a whole worse off.

Distrust against the judiciary may even lower the possibility of peaceful resolution to any conflict. When the law through the judiciary is unable to dispense justice, one will take justice into his own hands. This among others would give way to the rise of vigilantism. If vigilantes patrol the street, then it will challenge the state’s monopoly to legitimate use of force.

The integrity of the state itself is at stake, adversely affecting stability and in turn hurt economic growth in compounding manner.

Categories
Books & printed materials Economics

[1409] Of complexity economics is unconvincing

This is embarrassing to admit but it is only after 10 months that I was able to set my eyes on the last page of Eric D. Beinhocker’s Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics. The book is one of those literatures that add new perspectives and challenge pre-existing worldview. That, the slightly technical arguments as the author works toward the punch line — hence, slightly dry — and my typical busy-and-lazy excuse are the reasons why I took so much time. In fact, amid Origin of Wealth, I took a pause and began reading Paul Michel Munoz’s excellent Early Kingdoms of the Indonesian Archipelago and the Malay Peninsula. But I am done with Origin of Wealth now. While Mr. Beinhocker’s work is enlightening, I am not quite convinced of the extent of a revolution inside economics, as suggested by the author.

In the book, the author asserts that the field of economics is rapidly looking up to biology, disfavoring physics. Specifically, it calls for a migration from the idea of equilibrium in physics to the biological concept of evolution. This is not the first time such idea has been conveyed. While this is the first time I am exposed to the idea, the wanting to switch track has been out there in public consciousness for at least a decade. It perhaps popularly cumulated to Paul Krugman’s The Power of Biobabble which harshly criticizes “bionomics” as pseudoscience. In the Origin of Wealth, instead of bionomics, Mr. Beinhocker referred to it as complexity economics.

The book starts with an overview of economic history, started from Leon Walras. While Adam Smith popularized the idea of free market, it was Walras, as one of few pioneers of marginalism movement that later led to neoclassical school within economics, whom introduced rigorous mathematics into economics; economics is science because of Walras, and a few fellow early marginalist economists. More importantly, it was Walras that placed economics as parallel to physics with his idea of equilibrium.

From then on, the author starts to criticize mainstream economics, which he refers to as traditional economics; the concepts of equilibrium and homo economicus are his favorite punching bags. He explains how in the real world, mainstream economics fails to describe various phenomena due to its reliance on the ideas of equilibrium and complete rationality.

One criticism that rings in my head even before I picked up the book is the static-dynamic dichotomy. Mainstream models are notorious for its assumptions of static to explain the dynamic real world and the author derides the mainstream for unrealistic assumption. While it is true that mainstream models are static, I do not see how his alternative could replace what he attacks. While I may not be deeply educated in economics as I would like to be, my reading tells me that many of Mr. Beinhocker’s points are being addressed in economics. The author cites a number of economists working seemingly working to dismantle mainstream economics. In truth, those cited, as least the more well-known figures are the ones that are widening and improving our understanding of economics.

He further describes how typical mainstream economics models are simplistic in nature. But models are supposed to simplify the real world, while eliminating irrelevant noise. If one wishes for it to be as complex as the real world, the only model would be the real world and that would be utterly hard, if not unhelpful. Besides, the models are static for comparison purposes. It is static to aid decision making. One would have a hard time comparing dynamics.

Still, those two criticisms are valid.

What I disagree most with his book is the alternative that he offers: a move to complexity economics. The alternative is not convincing at all and it involves a mish-mash of various findings that criticizes the ideas of static models and perfect rationality. There is no concrete “new economics” to migrate to. At best, the new economics might be what Krugman had described a decade ago: biobabble, pseudoscience. Mr. Beinhocker might realize the lack of concrete alternative to mainstream, or rather traditional, economics when he said complexity economics is still evolving and it is hard to see where the movement is going.

Still, there are interesting and enticing points presented in the book. What I like most are the experimental model on inequality and the importance of trust in economic development. This resonates well especially when the question of Malaysian judiciary credibility was first raised recently. Then again, trust is the message put forward by a branch of mainstream economics called game theory. Therefore, it is nothing new. On inequality, it tries to argue that deterministic factors do affect wealth; that I agree. Further, the author writes that the development path is dependent on culture and not on just endogenous trends and factors coupled with exogenous shocks like technological progress. This may violate the idea of political correctness but here, I am in the opinion that political correctness comes second in search for truth.

In all in, Origin of Wealth is a good read through I would advise reading the book in front of a tablespoon of salt and frequent independent reference to the current state of economics. Mainstream economics may have its weaknesses but complexity economics as forwarded by Mr. Beinhocker does not quite offer a solution to that weaknesses. Mainstream and other heterodox economics do a better job in making economics as a whole worth our effort.

If there is at all any serious effort to dump mainstream economics in favor of complexity economics, I would certainly prefer to wait for a proper definition of the latter to be understood first. At the moment, to me, complexity economics is what bionomics is to Krugman.

Categories
Books & printed materials History & heritage

[1097] Of purchasing books liberally

It is Chinese New Year and I got myself more books. I did not mean to purchase anything in the first place. The act was impulsive especially when I have yet to finish up the previous books that I bought earlier. In fact, I am still reading The Origin of Wealth. Furthermore, I have not even started on Clinton’s My Life and Dawkins’ The God Delusion. Yet, here I am, supporting the economy by spending.

At first, since I was in the vicinity of Kinokuniya under the majestic Petronas Twin Towers, I thought I could do with a browse. Alas, temptation got the best of me.

I found myself in the history section. For some reason, I wanted to read more about Srivijaya. It was kind of hard to find a book on the ancient Malay kingdom which in my opinion is greater than the Malay Sultanate of Malacca. If the Malays wanted to look for something to build their pride on, they should look beyond Malacca and embrace the Srivijayan. At the very least, acknowledge Srivijaya as a kingdom as great as Malacca.

Despite the size of the store, its collection is limited. I could not find a specific book on Srivijaya.

Nevertheless, Hugh Clifford’s Farther India looked promising. For those that score F for history without fail, Clifford was one of the more important colonial administrators of British Malaya. He was also one of those foreign administrators that fell in love with the Malays and Malaya, just like Frank Swettenham. At Cambridge Journals, the phrase “doyen of the colonial service” is attributed to Clifford.

The synopsis describes Farther India as one of the most important publications on Southeast Asian history. Yet, it seems to me that the book is concentrating on mainland Southeast Asia and talks about European explorations and discoveries of old Southeast Asian civilizations. I suspect the book does not talk much about Srivijaya. So, when I saw Paul Michel Munoz’s Early Kingdoms of the Indonesian Archipelago and the Malay Peninsula, it placed Clifford’s back on the shelf and grabbed Munoz’s instead.

While on my way out of the history section, I stumbled upon a book entitled British Malaya. That book directly reminded of an article at Wikipedia of the same name that I have been working on for more than a year. I thought this particular book might help me finish up what I started. So, book number two.

While on my way out of the store, somehow, Sophie’s World came across my mind; I made it as my third book.

And so, right now, five books await the completion of The Origin of Wealth. The pressure is now on me.

Ah… the curse of purchasing books liberally.

Categories
Books & printed materials Economics History & heritage Liberty

[1032] Of dismal science: it mocks liberalism, not economics

I managed to finish up a book on new year’s eve. It might be an odd way to celebrate the eve to you yappies but I am not to blame for that. Eid fell on Sunday and so, though I had the free will not to, I decided to tag along with my family to visit my grandma in Malacca.

Finishing up a book on new year’s eve allowed me to start reading a new one on January 1 itself. I bought three new titles into my collection earlier; of the three, I decided to start with Beinhocker’s The Origin of Wealth. Initially, I thought it would be dry but the first chapter truly attracts me. It starts with a history of economics.

This is what I learn from the first chapter: economics is called a dismal science by Peter Carlyle not because the discipline is all about doom and gloom. Specifically, as it is commonly thought, the term was a reaction to Malthusian theory which suggests that with exponential population growth vis-à-vis geometric food production growth, population would collapse sooner or later.

As mentioned in the notes of The Origin of Wealth, the term “dismal science” was coined by Carlyle in his work, Occasional Discourse on the Negro Question, to mock the “alliance of economists and abolitionists”. Carlyle was a proponent of slavery while liberal economists were standing on the other side of the river, fighting for abolition of slavery. It really has nothing to do about economics having a pessimistic worldview.

On Wikipedia:

Developing a deliberately paradoxical position, Carlyle argued that slavery was actually morally superior to the market forces of supply and demand promoted by economists, since, in his view, the freeing up of the labor market by the liberation of slaves had actually led to a moral and economic decline in the lives of the former slaves themselves.

So, next time, be careful on how you use the term “dismal science”. It might not mean what you meant within the original context it was used.

Categories
Books & printed materials Personal

[1016] Of drunk and sobering again

I suffered temporary madness just a few hours ago. Or maybe, I was just a little drunk.

It was Friday and merely a few days before Christmas. With having nothing to do, I decided to give Kinokuniya a visit. With me running out of books to read, I felt it was the perfect time for me to go on book shopping.

Initially, I had a specific title in mind and probably one or two other titles I would decide once I actually saw them. For that one specific book, I was looking for Francis Fukuyama’s The End of History and the Last of Man. I thought, I have never read Fukuyama despite being familiar with his ideas. At the book store, I went straight to the counter, asked for Fukuyama’s and got it. One thing though, Kinokuniya placed The End of History at the history section…

The girl at the counter was cute though.

Then, the random walk amid the racks began.

First was The Undercover Economist. It was right beside Freakonomics. And yes, I admit, I haven’t read Freakonomics. I know it’s pop-econ but I feel I know enough economics that I wouldn’t feel too astounded to the facts in the wildly popular book. What’s more, I actually had read some of its content and while entertaining, I could say I’m familiar with it. Besides, I prefer not to read what most others read. As with The Da Vinci’s Code, I only read it after a friend incessantly told me I should read it day in day out. I read Da Vinci’s just to shut her up. Digression aside, I picked that book.

The third book was Amartya Sen’s The Argumentative Indian. I don’t know why I picked it up but I suspect it was because Nik Nazmi mentioned it earlier in his blog. For all I know, Nik Nazmi probably run a subliminal message that would sound like “read Sen. read Sen.” And The Argumentative Indian became the third book I picked up.

I thought I would stop at three books but soon, I spotted Richard Dawkins’ The God Delusion. I remember Dawkins from an article on New York Times. Furthermore, the title was on Kunikoniya’s top ten non-fiction list. I picked that one up too. So much for “don’t really like reading what most people like to read“, eh?

The fifth book was The Affluent Society by John Kenneth Galbraith, one of the more prominent economists in our times. I have great respect for him, despite the fact that some of his ideas aren’t too friendly to libertarianism.

The sixth was The Origin of Wealth by Eric D. Beinhocker. The reason I picked up this book is pure curiousity. At the back of its jacket, it writes “There is a revolution underway in economics and you need to know about it.” Call me a sucker but I really wanted to know about the revolution. And judging from the selection of the books, you could probably guess which section I was lingering at.

Bill Clinton’s My Life was next. People — well, my democrats-friendly friends actually — told me how great the book is. They might be biased but I do think Bill Clinton is a great President. So, one more.

The last one was History the Malay Kingdom of Patani by Ibrahim Syukri. Why I picked this one up? I thought, hey, maybe I could read this and then contribute to Wikipedia!

After all the madness, I started to sober up. The cause of the awakening was the increasingly heavy burden I was carrying. Yes, the burden was the books. And all those books probably would have burned a hole through my wallet if I hadn’t sober up.

I inspected price tags and I said to myself, “whoa!”. The whole thing cost more than RM 500. In fact, it was more like RM 800!

I didn’t plan to spend RM 800 as recklessly as I had picked up the book and so, with heavy hearts, I had to filter them out.

The first victim was The Undercover Economist. Second was The Argumentative Indian.

Then, it was History of Patani. This book in particular is priced in the most irrational way. It’s a relatively thin book but priced nearly RM 50. Clinton’s My Life is about five times as thick and cost just RM 65. Maybe, I could blame it on economies of scale!

The fourth unfortunate victim of the unwanted culling was The Affluent Society.

Ironically, the scourge cost the book that I came in the first place. Yes, I threw away The End of History.

So, in the end, I was left with My Life, The Origin of Wealth and The God Delusion.

While I’m currently happy with two titles, I’m not so sure with The Origin of Wealth though. When I got home, I immediately opened by New Years’ present and took a sneak peak of what to come. Naughty me.

The Origin of Wealth unfortunately looks like an economics thesis instead of something one could read for leisure. The appendices itself could be made into a book by itself. That’s how thick it is. Maybe I should just return and trade it for Fukuyama’s instead.

And great. I forgot that I wanted to get Sophie’s World.

Regardless, these three titles ought to keep my busy for weeks.