Knowledge that Transforms

This paper discusses the nature, and magnitude, of externalities associated with automobile use, including local and global pollution, oil dependence, traffic congestion and traffic accidents. It then discusses current federal policies affecting these externalities, including fuel taxes, fuel economy and emissions standards, and alternative fuel policies, summarizing, insofar as possible, the welfare effects of those policies. Finally, we discuss emerging pricing policies, including congestion tolls, and insurance reform, and summarize the appropriate combination of policies to address automobile externalities.

In Fair Trade for All: How Trade Can Promote Development, Stiglitz and Charlton prescribe what a multilateral trade agreement—that promotes development and is fair for all—would include. This review appraises their prescriptions and offers some alternatives. Many of their ideas about what developed countries should do (opening markets, especially of labor intensive goods and services and cutting farm subsidies) are quite familiar and sensible. More controversially, however, they propose that all WTO members (both developed and developing) completely open their markets to all developing countries poorer and smaller than themselves. They also stress the importance of preserving domestic policy space, dropping intellectual property rules from the WTO and keeping restrictive rules off the agenda. Among its criticisms of the book, the review points out that the liberalization proposal contradicts their own arguments favoring individually tailored policies in developing countries and is likely to maximize trade diversion. In addition, their prescriptions for more policy space neglects the more desirable possibility of a WTO in which members accept differentiated commitments.

Written by Maurice Obstfeld and Alan Taylor, Global Capital Markets: Integration, Crisis, and Growth was a much-needed book that will be cited extensively by those with interests in the long run evolution of the world financial capital market. The book does not simply assess changes in the efficiency of global capital markets over the past 150 years, but rather adds significantly to debates about instability and crisis, asymmetry between rich and poor countries in the costs of going open, the Lucas Paradox, the connections between foreign exchange and financial capital market regimes, and much more. The book makes far better use of the comparative evidence generated by the three epochs since 1850—the first global century before 1914, the second global century after 1950, and the autarchy in between—than do competitors that focus solely on one regime, whether the gold standard, post–World War II Breton Woods, or the float since. In addition, while the financial literature rarely assesses in any useful empirical way the connection between financial markets and the real economy, this book makes that connection absolutely clear. Global Capital Markets is a stimulating book with a very wide and deep reach.

The categories listed below are used to classify books, book reviews, journal articles, and dissertations indexed in JEL, JEL on CD, EconLit, and www.e-JEL.org . New changes to the classification system appear as soon as possible on www.econlit.org . The JEL classification system may be used freely for scholarly purposes. We suggest the following format: “JEL: A10, B10, etc.”

Policy driven social science research intended to influence the future of the U.S. welfare state has, during the past decade, emphasized improving the life-chances of children, particularly children disadvantaged at birth by the socioeconomic status of their parents. This essay samples that literature, discussing in detail the contents and implications of two recent largely synthetic volumes from this genre.

Freakonomics is more about “entertainment” than it is a serious attempt at popularization. Consequently, rather than conduct a comprehensive fact check, I use the book as a springboard for a broader inquiry into social science research and take issue with the book's surprising premise that “Economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions.” Using examples from Freakonomics, I argue that some of the questions the book addresses are “uninteresting” because it is impossible to even imagine what a good answer would look like. I conclude with some thoughts about the role of economic theory in generating interesting questions and/or answers.

Unemployment: Macroeconomic Performance and the Labour Market by Richard Layard, Stephen Nickell, and Richard Jackman (Oxford University Press 2005) is the second edition of a book first published in 1991. The second edition is identical to the first except for a long introduction, which reviews the conclusions of the first edition in the light of the following fifteen years. I basically agree with the authors that the book's framework and conclusions have withstood the test of time very well. I then assess progress since 1991 and point to a number of directions in which progress needs to be achieved.

Richard Posner's Catastrophe: Risk and Response (Oxford University Press, 2004) examines four risks whose worst cases could end advanced human civilization or worse: asteroid impacts, a catastrophic chain reaction initiated in high-energy particle accelerators, global climate change, and bioterrorism. He argues that these all warrant more thought and response than they are receiving, and that they can usefully be assessed using a simple analytic framework based on cost–benefit analysis. This essay reviews knowledge of these risks and critically examines Posner's claims for a consistent analytic approach. While the conclusions that each risk merits more thought and effort appear persuasive, these rely on ad hoc arguments specific to each risk. The general analytic claims do not hold up well, as Posner develops his proposed framework thinly and applies it unevenly. Applying such a framework consistently to catastrophic risks would require engaging some fundamental problems that Posner does not address. The book's major contributions are to identify and describe these risks, highlight the inadequate attention they are receiving, and advance a persuasive argument for their more serious examination.

In this review, the author reflects on the heated debates around views about Russia's postcommunist transition expressed in essays collected in new Andrei Shleifer's book, A Normal Country: Russia after Communism (Harvard University Press, 2005), which were initially published at different times during transition. She focuses on the three questions that have been in the center of the debate among academics and policymakers: What should the sequencing and the speed of reforms be? Should a country have political centralization for fiscal decentralization to be efficient? Is Russia normal? The author argues that Russia's most recent history provides convincing evidence in support of the logic of political and economic transformation as it was understood by Shleifer as early as the beginning of the 1990s.

Avner Greif's Institutions and the Path to the Modern Economy: Lessons from Medieval Trade (Cambridge University Press, 2006) is a major work in the ongoing project of many economists and economic historians to show that institutions are the fundamental driver of all economic history and of all contemporary differences in economic performance. This review outlines the contribution of this book to the project and the general status of this long standing ambition.