Finance & Development, June 2018

Abstract

Finance & Development, June 2018

Happiness When Growth Is Weak

The Infinite Desire for Growth

Princeton University Press, Princeton, NJ, 2018, 184 pp., $24.95

WEALTH DOES NOT bring happiness, according to the Easterlin Paradox. Rapid economic growth allows people to think this might be so, but when growth turns weak and wealth decreases for many, the illusion is shattered. The Infinite Desire for Growth, by renowned French economist Daniel Cohen, aims to offer an alternative to this outcome.

In the first part of his book, Cohen examines the origin of growth in terms of millennia rather than centuries or decades. In a creative but somewhat speculative way, he associates the origin of growth with the beginning of agriculture in far apart geographic locations and with the population expansions that followed as a result. A watershed moment occurred at the turn of the 17th century as the scientific revolution began to replace religion with the idea of material progress, generating modern economic growth through the industrial revolution. This event Cohen associates implicitly with the emergence of a permanent desire for rapid growth.

The most innovative and thought-provoking segment of the book is its middle. Titled “The Future, the Future!” it presents a coherent argument for weak growth in the future. Starting from an overview of forthcoming technological advances, it raises the possibility of perpetual growth. Yet a cloud hangs over this paradise: the possible elimination of middle-class jobs.

A cloud hangs over this paradise: the possible elimination of middle-class jobs.

Rain begins to fall through a thorough discussion of Robert Gordon’s questioning of the depth of modern inventions’ effect on mass welfare. It intensifies with a mechanical display of how a very productive, fully automated goods-producing sector alongside a highly inefficient services sector yields lower growth and rising inequality for the economy as a whole. This abstraction is broadly consistent with some features of developed economies in theories advanced by such prominent economists as William Baumol, Thomas Piketty, and Lawrence Summers. The segment concludes by arguing that the failure—because of collective action problems—to halt global warming will prevent rapidly growing developing economies from doing anything about the weak economic growth generated by advanced economies.

The last part of the book is an unconvincing attempt at dealing with weak economic growth’s implications for well-being. Cohen argues that an acceptable level of happiness is achievable only if societies hit by weak economic growth are transformed. This transformation would have to be profound as it requires new attitudes toward material progress, work, and hierarchy.

Furthermore, key arguments are based on data from the United Nations World Happiness Report, which implies reliance on a relative measurement of happiness to draw conclusions about absolute levels of well-being. The French may on average score low on happiness, but it is hard to convince me that their well-being is the same as that of people in most African or Central American and Caribbean countries—even if their average happiness scores are the same or similar.

I found the initial part of the book interesting and the middle part excellent and enjoyable to read, whether or not I agreed with its arguments. The book’s final section, by contrast, was a letdown. FD

ROGER R. BETANCOURT, professor emeritus of economics, University of Maryland

The Importance of Data

STATISTICS AND DATA are often seen as important but dry subjects. William Deringer’s book on the use of calculated values in late 17th and 18th century Britain challenges this image with a story of remarkable events in which data plays a central role.

The “Glorious Revolution” of 1688 brought William of Orange to the English throne. The subsequent increased authority of Parliament over budgetary measures, the development of a two-party system, and the freeing of the press created an environment in which politically motivated individuals (dubbed “calculators” by Deringer) used calculated values to publicly hold the government and government-supported companies to account. The public use of data in this way distinguished Britain at the time. Calculators competed and challenged each other’s calculations to prove political points. By the 1720s, the government under Robert Walpole increasingly relied on calculators to support policy decisions.

Calculated Values: Finance, Politics, and the Quantitative Age

Harvard University Press, Cambridge, MA, 2018, 440 pp., $45

The book focuses on the early 18th century, with its increasingly vitriolic debates over government expenditure, taxation, and debt as well as the trade balance. As the century wore on, the role and authority of data widened from financial and economic affairs to social and geographic settings, including in the British colonies. Indeed, the author considers that the period left its greatest legacy in the United States, with its heavy reliance on quantitative modes of accounting, evaluation, and decision-making.

The book highlights the use of a number of emerging statistical techniques. The South Sea Bubble—a story of asymmetric information, misaligned incentives, and misled investors in a period of financial innovation—showcases the use of plausibility analysis to depict the absurdity of the share price at its height. The story of the “Equivalence” exemplifies the use of present value techniques to make a precise estimate of England’s payment to Scotland at the time of their unification. There are also examples of scenario building, early forms of regression analysis, and the introduction of actuarial calculations. Measures of social happiness emerged.

Data can often be a tool for generating debate.

The competitive nature of the calculators highlighted measurement issues, some of which remain to this day. The measurement of bilateral trade between England and France in a mercantile environment of winners and losers raised issues, as it does today, regarding the recording of reexports, the reliability of reported customs data, and the valuation of goods. Partisan debate over the size of government debt and whether it was increasing or decreasing raised the efficacy of using market value. The calculators also drew attention to the importance of identifying the hidden assumptions behind calculations.

Deringer tells these vivid stories with a richness of research that brings to life not only the events surrounding them but also the many famous characters involved. We can learn from the 18th century debate, he says, by promoting new and diverse computational approaches to stimulate public debate and offset what he fears is growing anti-quantitative sentiment. As Deringer notes, data can often be a tool for generating debate as much as for providing definitive answers. FD

ROBERT HEATH, former deputy director of the IMF’s Statistics Department

An Indonesian Story

Resurgent Indonesia: From Crisis to Confidence

Straits Times Press Books, Singapore, 2018, 248 pp., $35

THE COVER OF Vasuki Shastry’s Resurgent Indonesia shows a Phoenix rising from the ashes—an apt metaphor for Indonesia’s remarkable transformation since its catastrophic financial, economic, and political crisis in 1997–98. The book’s release coincides with a gathering of the world’s financial elite at the IMF–World Bank Annual Meetings in Bali later this year. It will serve as a useful reminder of how far Indonesia has traveled from the dark depths of the crisis to a stable, democratic, and decentralized country with a vibrant economy.

The book’s broad sweep of Indonesia’s spectacular crash and subsequent rise is really an account of three crises—financial, agricultural, and political—that serendipitously occurred at about the same time and interacted in complex ways. A journalist by training, Shastry uses anecdotes, personal reflections, and interviews to illuminate the complicated causes and consequences of the crisis and the factors behind the country’s resurgence.

The first half of the book examines the unfolding of the 1998 crisis. Shastry’s account makes vivid how a multitude of interests intersected to shape events during that fateful period: those of international and Indonesian technocrats with little understanding of the political ramifications of their policies; the political, military, and commercial elites intent on defending their interests; and ordinary workers, peasants, and students who bore the brunt of the crisis and demanded a change in the status quo, including a greater voice in government. Over just one week in May 1998, the crisis came to a sudden and unexpected climax with riots in the streets, the killing of four students at Trisakti University, and the eventual departure of President Suharto.

The second half of the book focuses on the noisy, often chaotic post-Suharto transition toward democracy, a free press, and increased emphasis on human rights and the rule of law. Shastry rightly points to the pivotal role of Habibie’s 18-month presidency during which he trimmed the powers of the presidency, enhanced the role of local governments, restored basic freedoms, and allowed the East Timorese to vote for independence—all the while protecting the country’s key institutions and the interests of the elites.

Unfortunately, the book gives scant attention to the next three presidents—Abdurrahman Wahid (Gus Dur), Megawati, and Susilo Bambang Yudhoyono (SBY)—but gives a glowing account of President Joko Widodo (Jokowi)’s meteoric rise. Disregarding SBY’s 10-year administration (2004–14) is particularly unfortunate, as it would have helped explain why Jokowi inherited a country with rampant corruption, a large infrastructure deficit, unsustainable fuel subsidies, and growing intolerance toward minorities.

Shastry, a self-confessed optimist, correctly describes Indonesia as “an archipelago of possibilities,” but in doing so glides over the country’s many deep social, economic, spatial, and religious fault lines. To compound matters, the book’s discursive style is often as choppy and turbulent as the events it describes, and periodic digressions describing the challenges of other countries, especially India and China, do not help.

Its shortcomings notwithstanding, Resurgent Indonesia is a useful addition to the literature on an important country during a critical part of its history. FD

VIKRAM NEHRU, distinguished practitioner-in-residence, School of Advanced International Studies, Johns Hopkins University