Book Review: The World Is Flat: A Brief History of the Twenty-first Century by Thomas L. Friedman
It’s subtitle is almost accurate, but it would be more accurate to say it’s a verbose history of a brief part of the 21st century.
I didn’t learn very much from this book, but people who haven’t been paying much attention to the news might. I normally expect reporters to be much more superficial than authors with more substantive specialties who write about what they know, and this book only weakens that expectation a tiny bit.
He does an eloquent job of disputing the notion that offshoring means sweatshops by reporting evidence that Asian workers are doing well enough that Americans should be worried more about being outcompeted on skill and motivation than on low wages. “[Bill] Gates is recognized everywhere he goes in China. Young people there hang from the rafters and scalp tickets just to hear him speak.”
He’s less eloquent at describing how offshoring affects the U.S. For a good, concise analysis, I recommend The Armchair Economist’s chapter on the Iowa car crop (how farmers grow cars by sending food to Japan).
He doesn’t do much to anticipate new effects of globalization. For instance, his advice on what jobs won’t be outsourced suggests specialized lawyers, brain surgeons, robot operators, nurses, etc. Many of those only require modest advances in communications infrastructure to be offshorable, the rest would require some improvements in robotics to be offshorable. And he ignores the possibility that most offshorable jobs will be replaced by more intelligent software in a decade or two.
His descriptions of the large companies that are playing interesting roles in flattening the world tends toward acting as their PR agents. For example, he reports that Google has had an equalizing effect (e.g. Colin Powell used to rely on aides to do better research than I could afford, now he uses Google routinely for research that typical users can do just as easily), but neglects to notice the risks of having so much of the world’s access to information go through one company in one political jurisdiction.
He says “If President Bush made energy independence his moon shot, in one fell swoop he would dry up revenue for terrorism”. It’s somewhat unlikely that jihadists would otherwise get much money from oil. It’s wildly implausible that the U.S. government is as good at affordable mass production as it was at solving a prestigious problem by throwing money at it. And the amount of money that investors have poured into photovoltaics companies in the past few months leaves me wondering why we should think there are opportunities that will be overlooked if the government fails to throw money at energy problems.
But he makes up for that with occasional gems such as this quote from Bill Gates: “Someone estimated that the cost of saving a life in the U.S. is $5 or $6 million – that is how much our society is willing to spend. You can save a life outside the U.S. for less than $100.” I suspect that $100 is a bit misleading because it ignores the time needed to inform yourself about whether the money is going to be spend productively, but the double standard is quite real.
Archive for January, 2006
Book Review: The World Is Flat: A Brief History of the Twenty-first Century by Thomas L. Friedman
In the past few months I’ve heard from both Eric Drexler and from Thomas Friedman’s The World is Flat that the Chinese government is run by engineers. This sounds important enough that I checked for confirmation on the web.
this page says “Every member of the Politburo in China is an engineer.”
An article titled Made in China: The Revenge of the Nerds reinforces the point.
This must imply some interesting things about the policies of the Chinese government. I wish I could predict whether this is the result of forces that will persist for a significant time or whether (as this page hints) it was a one-time result of Deng Xiaoping’s personality.
Book Review: The Armchair Economist: Economics And Everyday Experience by Steven Landsburg
This short and eloquent book does a mostly excellent job of explaining to non-economists how economic reasoning works in a wide variety of mostly non-financial areas. But it’s frustrating how he can get so much right but still demonstrate many annoying oversimplifications that economists’ biases make them prone to.
For example, on page 145 he claims that a trash collection company could cheaply prohibit Styrofoam peanuts in the trash by checking everyone’s trash once a year and fining violators $100,000. But anyone who thinks about the economics of such fines will be able to imagine massive costs from people disputing who is responsible for peanuts in the trash. Maybe there are cultures in which such fines would ensure negligible violations, but there are probably as many cultures in which disputes over people putting peanuts in someone else’s trash cans would produce more waste than the peanuts do.
His suggestion of applying antitrust laws to politicians is almost right, but ignores the public choice problems of ensuring that laws marketed as antitrust laws do anything to prevent monopoly. The details of antitrust laws are complex and boring enough that few people other than special interests pay attention to them, so special interests are able to twist the details to turn the laws into forces that protect monopolies.
On page 183 he says “Flood the economy with money and the nominal interest rate goes up in lockstep with inflation”. Given a sufficiently long-term perspective, this is an arguably decent approximation. But he’s disputing the common sense of a typical reporter who is more interested in a short-term perspective under which those changes clearly do not happen in lockstep (on page 216 he provides hints at a theory of why there’s a delayed reaction).
He makes some good points about the similarities between environmentalism and religion, but it seems these points blind him to non-religious motives behind environmentalism. He says on page 227 about relocating polluting industries: “To most economists, this is a self-evident opportunity to make not just Americans but everybody better off.” Maybe if he included a payoff to the U.S. workers whose jobs went overseas, this conclusion would be plausible. But it’s hard enough to figure out how such a payoff should be determined that I suspect he simply ignored that problem.
I recall reading that the President of Exxon was forecasting oil prices much lower than the futures markets and thinking that if he believes his own forecast, then he should put his company up for sale.
I think there’s a genuine inconsistency between Exxon’s talk and its actions, but selling the company isn’t the optimum response. We don’t know that Exxon’s stock price currently reflects the prices forecast by the futures market (I decided 6 months ago that energy-related companies were underpriced relative to the futures market and sold my last 2009 futures contract while keeping a large position in energy-related companies) or that the market for large oil companies is liquid enough for Exxon to be sold at a good price. It makes more sense for Exxon to hedge larger fractions of its production by selling more futures contracts.
Maybe the long-date futures markets are illiquid enough that prices would approach what Exxon’s president thinks they should be, in which case Exxon would make slightly more money than under its current policies (assuming the resulting prices are right, which Exxon ought to assume is the best available guess). Or maybe the markets have enough liquidity that Exxon would hedge a large fraction of its production at prices near $60/barrel, which would help Exxon dramatically if Exxon’s president is right, and forgo big profits if he’s wrong. It’s fairly clear the market doesn’t have the liquidity to keep long-dated futures prices over $60/barrel if Exxon tries to make big hedges overnight, but if Exxon were fairly patient about building up the hedge positions, I don’t think we can know what would happen without performing the experiment. There are lots of people out there who think that betting against Exxon would be a good deal. Their confidence in their beliefs remains untested.
The government has all sorts of subsidies for alternative energy. However, the most efficient subsidy would be to buy oil futures contracts. If we must have an energy policy, it should consist solely of strategic futures market purchases.
Buying oil futures contracts would be the least wasteful way to subsidize the solar energy market, where there are many designs that are close to providing competitive mass-produced products. But financial markets are pouring enough money into that market that there’s little reason to think government subsidies are valuable.
Buying oil futures won’t provide the kind of subsidy that, say, fusion advocates would want. If markets are inadequately funding fusion research and government is benevolent enough to do better (a suspicious pair of assumptions, but without assumptions of that nature the popular demand for a government energy policy is a mistake), then oil futures markets won’t solve the problem because the problem is something like markets having inadequate information to target the right research or patents not providing inventors with the optimum fraction of the social benefits of their inventions.
Last week in a ski lift line I overheard a college-aged guy bragging about how he was making money in the Florida housing market before going to college.
This kind of anecdotal evidence is not as reliable as I would like, but market bubbles rarely have conclusive evidence, so I feel a need to make use of all evidence. If housing market peaks are much like stock market peaks, this is definitely evidence that we are near at least a short-term peak in the housing market.