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Archive for June, 2009

Nate Silver (of election projection fame) has an excellent post demonstrating the shortsightedness of harping on GDP numbers, in this case with regards to climate change. He takes to task Jim Manzi, whose argument is that even pessimistic assumptions point to a 5% reduction in GDP from global warming down the road. Silver endeavors to demonstrate that a 5% reduction in GDP can have extraordinary human costs, by taking low-GDP countries off the map. He manages to wipe out 43% of the Earth’s population.

I think Silver’s point provides a much needed dose of realism in looking at economic data. If someone told you upfront that global warming will kill upwards of 2 billion people, rather than reduce GDP by 5%, they would be much more apt to take action. Or, if we relied on a measure like Green GDP in our national accounts, and learned that GGDP would actually decrease by, say, 30% if we didn’t act on climate change, then again, we would be more ready for action.

GDP seems like a nice idea as an all-encompassing (and seemingly neutral) means of measuring the value of all the goods and services that people buy. However, when it comes to climate change, informal economies, and a host of other issues, GDP comes up woefully short.

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It’s been too long since I’ve been meaning to post this…

A devoted reader of this blog emailed me two articles recently; the first (pdf), by Therese Grijalva and Clifford Nowell, was published last year in the Southern Economic Journal. It endeavors to rank PhD programs in economics overall and by field. They essentially assign a productivity number to each faculty member based on the number of journal articles published and the quality of the journal in which they publish them.

The quality scores are based on two different methodologies, but ulimately boil down to citations. Their results aren’t earth-shattering, with many of the usualy suspects atop the list. A number of more marginal schools earn high marks in various subfields. My alma mater, the University of Notre Dame, is ranked 88th overall and misses the top 20 in all 18 subfields.

The second article, which is still in draft form (and I don’t know if I’m at liberty to publish it on this website), attempts to address the bias towards neoclassical economics in analyses like Grijalva and Nowell’s. They aim towards a “quality-equality” measure of economic programs, while still taking the bibliometric approach seen in other papers. They directly address G & N’s approach and write,

Instead our concerns are with two interrelated issues:  the assumption that in economics, scientific knowledge is homogeneous to which any quality index can be unambiguously applied and the limited coverage and partiality of the SSCI impact factor scores even when restricted to North American, Western European and English language journals.  Economics is about explaining the provisioning process, the real economic activities that connect the individual with goods and services, or more succinctly, economics is defined as the science of the provisioning process. As a field or discipline of scientific study, it consists of two distinctly different theoretical approaches to analyzing and delineating the provisioning process:  neoclassical or mainstream economics and heterodox economics (Lee, 2009a, 2009b).  Although they contest each other’s theoretical analysis, both mainstream and heterodox economics adhere to the discipline’s goal of producing scientific knowledge regarding the provisioning process.  But what constitutes scientific knowledge and its quality is determined by the scientific practices within the two sub-disciplines in economics.  Therefore, a quality index utilized for mainstream economics is not necessarily appropriate for identifying quality research in heterodox economics. Consequently, for a quality index to be used in an even handed way to rank departments in terms of the quality of research, it needs to be a synthesis of the separate ‘indexes’ used in the two sub-disciplines.

Of course, this concern is a direct affront to many neoclassical economists, who don’t consider much of the work of heterodox economists to be as rigorous as their own.

The other concern is that the citation-based quality ranking excludes six of the eleven well known heterodox journals, reducing productivity values for departments with faculty who publish in them. Thus, the authors create a heterodox quality index and combine it with the G & N quality index at parity.

Their approach, not surprisingly, gives the largest boost to heterodox programs like UMass Amherst and UMKC. What is interesting is that the big dogs, like Harvard, Chicago, etc. are still the top departments in their metric. UMass Amherst makes it up to 33.

In discussing the relevance of their findings, however, they choose to bring up Notre Dame and its department split. They observe that the ND department, in their ranking, is 92, while the exiled department, ECOP, is actually 74. Further, when adjusting for size instead of aggregate productivity, the exiled department actually is ranked 25 overall. Thus, they say,

In this case, the claims of the Dean and the chair are not at all supported and their decision to exile the heterodox economists essentially dismantled a better department and replaced it with one of a lesser rank…

The Notre Dame case dramatically illustrates how bibliometric (and peer review) based methods can be misused to silence dissenting voices and to render invisible heterodox ideas and departments in a contested discipline such as economics.  This paper does not disagree with the use of bibliometric methods to rank departments (and journals); but what is objected to is their misuse in the name of science and objectivity….  It is not that doctoral programs with a heterodox presence are better than programs without, but they are also not inferior to them—just different but equal.

This sort of argument isn’t what neoclassical crusaders want to hear. Nevertheless, a more open and rigorous debate is needed about what is and is not economics, so valid approaches are not unfairly crowded out.

___
Update: While electing not to provide the text of the draft article I discuss, I forgot to provide the title and authors. The title is “Ranking Economics Departments In A Contested Discipline:  A Bibliometric Approach To Quality Equality Among Theoretically Distinct Sub-Disciplines”.

Two of this second paper’s authors wrote the first article, Therese Grijalva and Clifford Nowell. The third author is Frederic Lee. This may clear up some confusion, as I seemed to pit the two against one another. It’s important to keep in mind, though, that the bibliometric style approach is consistent in both.

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From Richard Wolff

The greatest tragedies among many in the collapse and bankruptcy of General Motors concern what is not happening.  There are those solutions to GM’s problems not being considered by Obama’s administration.  There are the solutions not being demanded by the United Auto Workers Union (UAW).  There are all the solutions not even being discussed by most left commentators on the disaster.  Finally there are crucial aspects of GM’s demise not getting the attention they deserve.

Let’s start with an example of the last.  For 50 years, the world market for automobiles has grown spectacularly.  The company best positioned to have ridden that rising tide to success was GM, the global market leader for most of that time.  Instead, GM failed catastrophically.  Those responsible, who planned, adjusted, and competed poorly, have a name.  They are the corporation’s Board of Directors: the handful of individuals chosen by and responsible to the handful of major GM shareholders.  That Board and those shareholders proved across decades that they lacked the understanding, vision, and flexibility to succeed.  A rising tide is supposed to lift all boats, but GM’s captains managed to sink its boat.

Click the link above for the rest…

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Save Our CEOs

“Now, I know what you’re thinking, ‘I already gave at the bailout,’ and I know you did. But even if you’ve given in the past, give some more. It’ll make you feel good.”

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From Wired:

Bill Gates once derided open source advocates with the worst epithet a capitalist can muster. These folks, he said, were a “new modern-day sort of communists,” a malevolent force bent on destroying the monopolistic incentive that helps support the American dream. Gates was wrong: Open source zealots are more likely to be libertarians than commie pinkos. Yet there is some truth to his allegation. The frantic global rush to connect everyone to everyone, all the time, is quietly giving rise to a revised version of socialism. [...]

The more we benefit from such collaboration, the more open we become to socialist institutions in government. The coercive, soul-smashing system of North Korea is dead; the future is a hybrid that takes cues from both Wikipedia and the moderate socialism of Sweden. How close to a noncapitalistic, open source, peer-production society can this movement take us? Every time that question has been asked, the answer has been: closer than we thought.

[...]

A similar thing happened with free markets over the past century. Every day, someone asked: What can’t markets do? We took a long list of problems that seemed to require rational planning or paternal government and instead applied marketplace logic. In most cases, the market solution worked significantly better. Much of the prosperity in recent decades was gained by unleashing market forces on social problems.

Now we’re trying the same trick with collaborative social technology, applying digital socialism to a growing list of wishes—and occasionally to problems that the free market couldn’t solve—to see if it works. So far, the results have been startling. At nearly every turn, the power of sharing, cooperation, collaboration, openness, free pricing, and transparency has proven to be more practical than we capitalists thought possible. Each time we try it, we find that the power of the new socialism is bigger than we imagined.

Read the whole thing.

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Poor Still Poor

Op-Ed from Barbara Ehrenreich:

The human side of the recession, in the new media genre that’s been called “recession porn,” is the story of an incremental descent from excess to frugality, from ease to austerity. The super-rich give up their personal jets; the upper middle class cut back on private Pilates classes; the merely middle class forgo vacations and evenings at Applebee’s. In some accounts, the recession is even described as the “great leveler,” smudging the dizzying levels of inequality that characterized the last couple of decades and squeezing everyone into a single great class, the Nouveau Poor, in which we will all drive tiny fuel-efficient cars and grow tomatoes on our porches.

But the outlook is not so cozy when we look at the effects of the recession on a group generally omitted from all the vivid narratives of downward mobility — the already poor, the estimated 20 percent to 30 percent of the population who struggle to get by in the best of times. This demographic, the working poor, have already been living in an economic depression of their own. From their point of view “the economy,” as a shared condition, is a fiction.

frontcover

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Via himself, Mark Thoma has an interview with the Kaufmann Foundation about blogging. Thoma’s blog is the first one I read religiously, and he is still my go-to-guy for links, etc. I think his thoughts on blogging are pretty interesting, so this video is worth a watch.

Edit: having trouble embedding, watch it over at the link. It’s worth the 8 minutes and the trip over, I promise.

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From the NYTimes:

“What is co-housing?”The Cohousing Association of the United States has been answering that question quite frequently as more people sign up for its tours: The communities consist of individual houses whose residents share some common space, a few communal dinners a week and a commitment to green living.

The movement has been gaining momentum here since it first arrived from Denmark two decades ago. But passengers on the bus tours describe the general climate of uncertainty as setting off more urgent waves of reappraisal: Is this how I want to raise my family? Spend my remaining years? Is there a better option — a more stable community?

[...]

In some cases, the closeness of these communities offers bulwarks against a lousy economy. Residents speak of lending money to one another when necessary or, say, pitching in to build a wheelchair ramp when insurance might not cover it. Then there is the savings associated with a more efficiently designed home, and shared upkeep costs. But strictly speaking, a home in a co-housing community doesn’t necessarily cost less than a traditional home. As advocates describe it, the benefits are of the added-value variety.

“You just get more bang for your buck,” said Laura Fitch, a 15-year co-houser who led a recent tour in Massachusetts. “You can have entertainment next door rather than going to the movies, and if you’re a parent, you don’t have to drive to all those play dates, or even buy as many toys because your kids are more entertained.”

She added that the price of co-housing often included a common house with guest rooms, a party space, a children’s play area and the security of people watching out for one another.

[...]

“My grandparents’ community got through the Depression by being very close-knit,” Mr. Reichert said, “with one family knowing how to farm, for example, and another knowing how to raise poultry. We’ve lost that. But co-housing is accomplishing something similar.”

Craig Ragland, the executive director of the Cohousing Association, said: “Some people are looking at these communities as a lifeboat. The thinking is, if I’m surrounded by people who care about me, I’m less likely to crash and burn.”

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From the 2009 Reith Lectures:

We live in a time of financial crisis and economic hardship – everybody knows that – but we also live in a time of great hope for moral and civic renewal…Whatever reforms may emerge, one thing is clear: the better kind of politics we need is a politics oriented less to the pursuit of individual self-interest and more to the pursuit of the common good. That at least is the case I shall try to make in these lectures.  A new politics of the common good isn’t only about finding more scrupulous politicians. It also requires a more demanding idea of what it means to be a citizen, and it requires a more robust public discourse – one that engages more directly with moral and even spiritual questions.

[...]

We’re living with the economic fallout of the financial crisis and we’re struggling to make sense of it. One way of understanding what’s happened is to see that we’re at the end of an era, an era of market triumphalism. The last three decades were a heady, reckless time of market mania and deregulation. We had the free market fundamentalism of the Reagan-Thatcher years and then we had the market friendly Neo-Liberalism of the Clinton and Blair years, which moderated but also consolidated the faith that markets are the primary mechanism for achieving the public good. Today that faith is in doubt. Market triumphalism has given way to a new market scepticism. Almost everybody agrees that we need to improve regulation, but this moment is about more than devising new regulations. It’s also a time, or so it seems to me, to rethink the role of markets in achieving the public good.

Full text here

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Robert Skidlesky has an opinion piece in the Financial Times (h/t Mark Thoma) in which he injects the insight of Keynes and the notion of intellectual battles into current debates. Skidelsky is an important scholar of Keynes, and wrote an award-winning three-volume biography about his life and work.

Skidlesky begins by distinguishing economics from the natural sciences:

In the social sciences, the situation is different. There have been famous battles galore, but no decisive victories. Indeed, it is characteristic of the social sciences that their battles are interminable, temporary defeats being followed by the regrouping of the defeated forces for a renewed assault.That economics is not a natural science is clear from the inconclusive engagements that have punctuated its own history.

A hundred years ago the classical theory reigned supreme…

Then along came the Great Depression of 1929-32 and John Maynard Keynes. Keynes “proved” that markets had no automatic tendency to full employment…

For 30 years or so Keynesianism ruled the roost of economics – and economic policy. Harvard was queen, Chicago was nowhere. But Chicago was merely licking its wounds. In the 1960s it counter-attacked. The new assault was led by Milton Friedman and followed up by a galaxy of clever young disciples…

No policymaker understood the maths, but they got the message: markets were good, governments bad.

He then contextualizes a current debate, between Niall Ferguson and Paul Krugman, in these intellectual battles. While ultimately siding with Krugman, I think he makes an extremely important point:

In this particular debate, I am on Prof Krugman’s side, but I do not agree that Prof Ferguson’s position represents a retreat to a phlogiston state of economics. This is to take economics to be like a natural science, which Keynes never believed it was, because he thought its subject matter was much too variable over time.Keynes’s view was that we need different economic models at different times. The beauty of his General Theory of Employment, Interest and Money was that it was general enough to accommodate a variety of models applicable to different conditions. Markets could behave in ways described by the classical and New Classical theories, but they need not. So it was important to take precautions against bad behaviour. Ultimately, the Keynesian revolution was a triumph not of good science over bad science, but of good judgment over bad judgment.

Judgment is something often overlooked as extremely important in economics and in finance. This morning, I listened to the This American Life podcast from last week, which looked at the regulatory failures leading up to the current crisis from both the government and rating agency points of view. When talking with people from the ratings agencies in particular, it was clear that there was an utter refusal to exercise judgment. The equations were the equations. So what if the data might seem logically unapplicable? The future will reflect the past, etc.

So, the question of the day is, given all we now know about the causes of this economic crisis, what sort of judgment will be applied, both in academia and in the policy world? What factors will people in power choose to ignore? Sadly, I think the wage-stagnation/class-based argument, which has been well-outlined by Richard Wolff, will probably be ignored.

Is there a new Keynes for this generation, who will restore “good judgment” to the dominant economic paradigm? Perhaps Keynes will be the new Keynes. I think these are important open questions as the discipline’s introspection continues.

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