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Archive for April, 2009

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Guilty Purchases

The rich are thinking twice – and feeling a little guilty – about those luxury purchases:

More than half of affluent consumers say they feel “guilty” making luxury purchases in this economy, a survey of the most-moneyed Americans finds. Fewer this year also say they like to be labeled as “wealthy.”

[...]

Of course, far more than a guilty conscience is at play. More than half of those polled — 53% — said they worry they could actually run out of money.

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Starts at 2:15.

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Alternatives to the Firm

It is easy to critique capitalism. Probably too easy. Offering alternatives can be more difficult, but when they offered, they are immediately dismissed by many. Over the past few days, I have heard many times that the alternatives offered could never work, or they are unsustainable, or they could only work if everyone cared about one another and wanted to share, but then we would have to change human nature. Basically, alternatives to capitalism are unrealistic, especially for the United States. 

I am not sure why so many of my peers and elders are so closed to thinking about alternatives to capitalism. But I did find one person who was not: my roommate. And no, he is not an international student from Socialist Sweden. Right here in the United States, workers are taking control.

My roommate’s home in New Hampshire is supplied electricity by the New Hampshire Electric Co-op. NHEC is a member owned and controlled electric distributor serving approximately 80,000 members in 115 towns and cities.

We begin with respect for each other, our environment, and our communities. We commit to work together with integrity to create change and innovation for the betterment of the Cooperative and us as individuals. We will act courageously and decisively to create breakthrough change. The change we create will have a positive impact on our communities and result in the thriving (sustainability) of NHEC for the members’ benefit.

Nearby is the Littleton Food Co-op, a community owned market. As the mission statement describes:

The mission of the Littleton Food Co-op includes promoting local food production and environmental sustainability. While other markets focus primarily on the bottom line, the Co-op also works to enhance the local society and environment. The Co-op emphasizes fresh, local, organically grown foods; superior customer service and a knowledgeable staff; and a healthy lifestyle. Because the Co-op store is owned by its members, we provide what our members want, rather than what manufacturers want to sell.

 Decisions in the Littleton Food Co-op are made democratically by members, and membership is open and voluntary.

We do not need to go to New Harmony, Indiana in 1825 or down to Argentina to find viable examples of non-capitalist production. Nor do we need to change human nature. They exists here and now. All we need is a bit more open mindedness, and yes, maybe a new word. (Democratic workplace, cooperative, economic democracy. be creative.)

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Socialocentrism

Ok, this was a poor title for a blog post, I admit. The main topic of the professor dinner talk I mention below was “Capitalocentrism,” a term coined by the economic geographer(s) J.K. Gibson-Graham.  Capitalocentrism means that we understand everything to be capitalism, even if it’s non-capitalist, and this obviously distorts any attempts at envisioning alternatives to capitalism.

I missed most of the discussion on this specific topic, because again, I have the fatal weakness of being a sports fan. In addition, our “lecturer” preferred the role of discussant or interlocutor greatly, so the discussion I did participate in ranged far afield. I hope that the contributors to this blog who participated in the whole discussion can fill in the blanks for me, but I would like to add one thought:

From a political standpoint, I think socialocentrism is almost as important as capitalocentrism. When I say socialocentrism, it is the idea that any alternative to capitalism is deemed socialism and automatically dismissed by the mainstream. How can ideas like cooperatives gain hold when they are associated with a “dirty word?” This socialocentrism is not a new idea, at least I don’t think. However, it cannot be ignored by left economists who would like to present alternatives, as it changes how they can frame their ideas.

Note: thanks to Sean for some comments on my initial post, which had a number of errors resulting from too little sleep. I’m shamelessly scrubbing them in this updated post.

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Everyone seems to be talking about this article by Barry Eichengreen, whose main point (an optimistic one) is that,

In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time.

Mark Thoma does a good job excerpting this piece, if you want to read more (but not too much more).

Dani Rodrik agrees with another point by Eichengreen, that models were picked and chosen by economists based on their favorability.

One is that the problem with economists is not that we did not have the models and the tools needed to understand that the crisis was on its way, but that we focused excessively on the more benign models that we had…

And why did this happen?  Part of the reason is that economists are subject to all the same heuristic biases that behaviorists amongst us study in others–over-confidence, willingness to conform, tendency to discount contradictory evidence, and so on.  Part of it is that economists did not have the guts to speak out when financiers and policy makers engaged in cherry-picking their results–using those that were favorable to their cause to buttress their case, while disregarding others.

I think Rodrik’s point about cherry-picking reinforces that empirical economics is a positive direction for the discipline. The overemphasis on theoretical models has certainly helped get us into this current crisis. My concern, though, is if empirical economics will be able to fully satisfy the host of questions that economists and policymakers tend to have. The economy is very complex and relies on nearly infinite interactions. It is not the sum of individual decisions (which are not so easily predictable in their own right). This complexity leads to a desire for a simplified model, with idiotic assumptions, that soon become the orthodoxy. Much of the work in the last four decades has involved tweaking one of these assumptions at a time, which certainly leads to different conclusions (see Stiglitz’s work, among others). However, this work is still largely in the theoretical realm.

I think empiricism holds promise (if the discipline moves that way), but I wonder if eventually, unsatisfied economists will revert back to theory to explain things their data can’t capture. Or, perhaps, a new kind of empiricism can emerge, in which an overreliance on “scientific” data goes a way and an openness to ethnographies, etc. is seen.

These ideas, of course, are not my own. I had the pleasure of attending the final professor dinner of my college career last night (or at least the first half of it, before my Chicago Bulls required attention). Our “lecturer,” a Marxian economist, provoked a good deal of discussion about these very issues. One of the interesting threads was about behavioural economics.

One of the students there, who, as judged by the previous professor dinner, was somewhat conservative (in a very liberal audience), said that he held out hope for behavioural economics because it was empirical and rigorous and challenged assumptions. The Marxian responded to this by saying that behaivoural economics still revolved around “max U”, homo economicus, whatever you want to call it. He seemed to argue that without getting away from this (and economists would have a really hard time doing that), the field of vision in economics would still be very limited. I think I agree.

____

I’ll have another post on the half-dinner I attended last night later today.

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Andrew Leonard has a post (h/t Mark Thoma) about “the great crash of the ‘Chicago school’ of economics.” His post is motivated by the awarding of the Nobel to Paul Krugman and more recently, the JBC Medal going to Emmanuel Saez. Leonard writes,

It’s been a bad year for the University of Chicago Economics Department. And I’m not just talking about Alan Greenspan’s remark to Congress that he “made a mistake” about the ability of markets to self-regulate themselves…

For any other economics department, missing out on the big prizes wouldn’t be such a big deal. You can’t win ‘em all, you know; any economist knows that down to the marrow of his or her rationally-expecting bones…Still, for the University of Chicago, these awards have practically become a birthright. No other econ department has racked up nearly so many…

Does this year’s double-whiff mark the beginning of a trend? I’ll leave it to the quants to crunch the data. But here’s where it’s gets really embarrassing. It must have been a hard pill to swallow for the hard-core Chicago schoolers when Paul “John Maynard Keynes is my hero” Krugman won the Nobel Prize last year. Sure, everyone knows he is a brilliant economist who was always considered on the short-list, but to have the single most ferocious propagandist for government intervention in the economy get the highest approbation possible in the discipline has to be psychologically brutal for your average free market fundamentalist.

But to my mind, the news that U.C. Berkeley’s Emmanuel Saez won the John Bates Clark award should be even more of a nightmare for the heirs of Milton Friedman. David Warsh does a nice job of summing up his research here, but the gist is this: Saez has done more than any other economist to document and prove the steady growth of income inequality in the United States. I don’t know what Saez’s politics are like, but his research has been employed as devastating artillery in the ongoing economic policy wars fought between liberals and conservatives.

I’m not going to cut it too fine: I think you can very well blame the Chicago school for the fiasco of growing income inequality in the U.S.  Nice triumph for deregulated capitalism, boys! Ronald Reagan listened closely to Milton Friedman and the Chicago school godfather’s disciples have been rife in the Republican administrations that have dominated the White House ever since the Californian swept into Washington and started blaming government for our problems. Well guess what? It didn’t work so well. The rich got richer and then screwed the pooch.

About damn time other economics departments started getting the shiny medals.

Leonard is clearly pumped about this. I was, too, when I found out about each of these awards. At the same time, however, there is no guarantee that Stockholm will not revert back within 5 years and give another Nobel to the Chicago school. I think we need many more data points (and from other sources) before we can term this “the great crash.”

By the same token, I would certainly welcome this crash if it were to happen. Then, liberal-Keynesian economics can become the orthodoxy, potentially crowding in schools of thought currently viewed as heterodox. This crowding-in would likely have to begin with the post-Keynesians, who have a story about the crisis that is very palatable to the mainstream left (see Thomas Palley). Perhaps it could then extend to more radical political economy, even neo-Marxism. Now, it’s time to stop before I get over-excited.

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