Archive for August, 2009

Via Mark Thoma, Miller-McCune has a nice writeup of some research done by psychologists and published in Psychological Science. The results of their study explain the seeming “irrationality” of people who stayed behind in New Orleans during and after Hurricane Katrina (this might be of interest to Sean and his recent Big Easy blogging at Economies in Cultural Perspective). I think these results actually shed some light on shortcomings of even behavioral economics. First, some excerpts:

According to new study by a group of psychologists, to think of it as an active decision betrays a particular model of human agency, an individual-centered one held by mainstream American culture, in which people both have resources and generally enjoy a high degree of personal efficacy…

The psychologists framed the study around a distinction between two models of human agency — the disjoint and the conjoint — in order to understand what happened in New Orleans and why.

The disjoint model is built on assumptions of independence. It assumes that individuals have opportunities, make choices to influence their environment and that their choices are a reflection of their goals and preferences. This is the model that dominates mainstream American discourse and culture, and the model of agency held by many of the people who did leave.

The conjoint model, on the other hand, is built on assumptions of interdependence. Here, human agency is primarily about adapting one’s self to the world (rather than trying to change the environment), often through faith and spirituality, and decisions are more community-oriented. Though the conjoint model might seem more familiar to many middle-class observers as an East Asian philosophy, the authors argue that these attitudes are also prevalent in working-class Americans.

That’s because many working-class folks lack the resources to engage in individualistic, independent behaviors. And this particular lived experience leads them to adapt by developing a sense of personal agency in which they make the most of their lives, given the challenges they face in exerting meaningful control over their environment. This is something that is often very difficult for outsiders to get.

I find the conjoint/disjoint distinction very interesting, and it adds a meaningful dimension to our thinking about human behavior. As the authors recognize, it has ramifications for social science as well:

“All of the social sciences are using one and the same model of the person,” Markus said. “And that’s a particular model that comes out of the middle-class American context in particular. It’s the rational actor of economics, the reasonable person of the law.

“But as far as it goes,” Markus added, “it’s really right for about 5 percent of the world’s population. When it comes down to it, when we say ‘people,’ we’re talking only about North American, middle-class people with a reasonably high level of education and resources. … This model is an historical and philosophical product, but it’s not the way people naturally are. There are other ways to be an agent that deserve study.”

So social science is dominated by a paradigm that explains five percent of humans’ behavior. Can behavioral economics do better? Psychological studies like this seem to indicate yes. However, my guess would be that even this fairly nuanced view of human behavior (the ‘joint’ model), a fair amount of behavioral will remain unexplained. How deep can behavioral economics dig, even aided by high quality psychological studies like this one? At some point, we may have to admit that human behavior is actually unpredictably irrational, as we find other dimensions of irrationality and even interactions smog those dimensions.

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Anyone who reads this blog knows that we like to take swings at the mainstream from the heterodox corner. Naturally, I was interested when I saw that Mark Thoma asked Barkley Rosser at EconoSpeak to respond to his claim that heterodox economists did not predict the crisis any better. Rosser points out some problems with even approaching this question:

It involves not only identifying “who called it,” (preferably publicly) and who did not, as well as this sticky wicket of “who is heterodox” and who is not (having just pointed out that it is unclear whether I count or not, and I called a lot of it, and there is question about whether Dean Baker is heterodox, who certainly called a lot of it and very early).

What certainly is clear that the clearly orthodox, and here I would say those who accepted (and many still accept) rational expectations and some sort of equilibrium associated with that, have been very wrong, with basically none of them “calling it.”

Rosser produces a list of 11 “heterodox economists” who predicted the crisis, and with the help of Australian economist Steven Keen classifies them as follows:

5 as Post Keynesian (Baker, Godley, Hudson, Keen, Sorenson), 2 as Austrian (Richebacher, Schiff), 2 as “from neoclassical backgrounds,” but “mavericks” (Roubini, Shiller), one sort of a combination of Austrian and Post Keynesian (Janszen), and one unclear (Harrison).

No Marxians on the list- interesting. Didn’t Richard Wolff predict the crisis (having trouble finding a link- can anyone help out the in the comments?)

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Rick Wolff on wages, productivity, capactiy utilization, and capitalist exploitation:

Two particular sets of August economic data reveal the deepening economic divide behind the “recovery” talk.

The first set of numbers came from the US Department of Labor’s Bureau of Labor Statistics.  They showed some remarkable facts about (1) US workers’ productivity — the physical quantity of goods and services produced per employed worker, (2) the compensation paid to US workers, and (3) the hours they actually worked.  These numbers showed how the economy had changed from the first quarter (January-March) to the second (April-June) of 2009.  The average number of paid hours worked per employee fell by 7.6 per cent, but the total output fell only 1.7 per cent.  That was because the workers who had not (yet) lost their jobs were fearful, so they worked harder and faster doing some of the jobs previously done by laid-off workers.  With fewer employed workers doing more, the BLS reported a gain of 6.4 per cent in the productivity of US labor.

For their harder, faster, and thus 6.4 per cent more productive labor, those still employed saw their money wages rise by only 0.2 percent from the first to the second quarter of 2009.  When the BLS took into account the rising prices workers had to pay, their real wages (the goods and services they could actually buy) fell by 1.1 per cent.  Taken together, these numbers show that employers got a huge increase in output from each employee, while what they paid to their employees imposed on them a decrease in the goods and services they could afford.

No wonder the second quarter of 2009 was celebrated as a “recovery” by business and thus politicians and the media; the workers only watched and worried.

Yet the productivity numbers tell us more.  They show a widening of the inequality between employers and employees in the US…

Employers’ responses to the current economic crisis (lay-offs and speed-up) thus worsen the gap in incomes and standards of living between employers and employees…

Rising inequality in the distribution of income between employers and employees usually widens political and cultural inequalities, too…

Rising inequality also threatens any “economic recovery” that might actually begin.  This is because employers generally save more and spend less of their incomes than their employees do…

The second set of numbers was collected and published by the US Federal Reserve; that set concerns “capacity utilization.” Roughly, these numbers measure the proportion of the nation’s capacity to produce that is actually being used for production.  In July 2009, the US capacity utilization proportion in all manufacturing was 65.4, or roughly two thirds.  Over one third of the tools, machines, equipment, factory and office space, etc. in manufacturing was idle…

Consider the meaning of this waste.  Side by side with today’s 15 million unemployed people (not to speak of the underemployed), we have one third of our industrial capacity unemployed as well…

The vast majority of people live and work (or don’t) in that “other” national economy not experiencing the “recovery” we are supposed to applaud.

None of these points are particularly unique to a Marxian critique, but they can certainly be cast that way. I’m pretty sure I’ve seen a similar argument on Krugman’s blog (though I can’t find the link). Nevertheless, Wolff’s conclusions from these points will undoubtedly be drastically different from Krugman’s.

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Big Business in Organic Foods

The consolidation of the organic food industry, from Contexts


Click here for larger image

And a more recent post on the complex politics of corporate food marketing.

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Back to School


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Go read Sean’s post at Economies in Cultural Perspectives. I meant to post on this article today (and I apologize for the ultra-lite blogging- I’m transitioning to a new city). Sean seems to hit on the main points and possible concern that I would raise.

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“Feral Houses”

Detroit photographer James D. Griffioen (h/t SusanG@DK) has a photo gallery of what happens when humans abandon structures and nature takes them back. Here’s my favorite:

I always enjoy the thought experiment of what would happen to our structures if humans vanished and nature took over. How long would the Willis (f.k.a Sears) Tower remain standing? How long would it take for birds to break through the windows?

I did a walking tour of Harlem about a month ago, and one of the buildings we spent a significant amount of time in front of was a community center that used to host large black entertainment events, basketball games, and the like. It has since gone to shambles and the community is trying to decide what to do with it. The real headscratcher was realizing that a tree was growing out of the roof. Anyways, it’s always humbling to remember that no structure is going to last forever, and that social factors will play a significant role in the physical landscape of the earth.

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Via Paul Kedrosky, the trailer is out for Michael Moore’s new movie, to be released October 2nd, Capitalism: A Love Story. It’s hard for me to not enjoy a trailer that involves MIA’s Paper Planes.

On a related note, I’m genuinely surprised how seriously Michael Moore is taken at this point in time. I don’t say that from a moderate perspective, because I really enjoy his work. I just think that it’s unusual for an agitator to gain so much currency in the mainstream. Even people in the center will talk about Sicko with regards to health care reform. That said, I’m hoping this movie is well done.

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I recently found an interesting textbook, Reintroducing Macroeconomics: A Critical Approach by Steven Mark Cohn. It came it out in December 2006.

This lively introduction to heterodox economics provides a balanced critique of the standard introductory macroeconomic curriculum. In clear and accessible prose, it explains many of the key principles that underlie a variety of alternative theoretical perspectives (including institutionalist economics, radical economics, Post Keynesian economics, feminist economics, ecological economics, Marxist economics, social economics, and socioeconomics). Because the book’s structure parallels the chapters and subject matter presented in a typical introductory macroeconomics textbook, Reintroducing Macroeconomics provides readers with a running commentary on the standard approach, while simultaneously introducing them to a broader range of ideas about the causes and appropriate policy responses to a wide range of common economic problems.

Just briefly scanning the Google Book preview, I noticed that it even included quite a bit on the auctioneer, that critical guarantor of market equilibrium who so few of us ever meet in our economics education. Using this book as a companion to the mainstream textbook would certainly have made macroeconomics much more interesting and we might have actually had some discussion or debate during class.

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There may be no such thing as a free lunch, according to neoclassical economists, but now there are free textbooks.  And, ironically enough, many of them are for Principles of Economics courses.  From Epicenter:

What did you do this summer? Flat World Knowledge stayed busy on campus and now has 40 times as many students and more than 10 times the colleges using their freemium, open-source digital textbooks. And they did it the old-fashioned way — one professor at a time.

After a sort of beta earlier this year, Flat World is set to announce on Thursday that over 40,000 college students at more than 400 colleges are going to be using their digital, DRM-free textbooks in the Fall semester, up from 1,000 in 30 colleges in the Spring.

More on Flat World Knowledge and free textbooks here and here, with a little bit on the economics of the textbook industry:

In a nutshell, there is a huge, inelastic demand for college texts, even though textbook prices are high. Because of this there is a lot of piracy and a robust secondary market for textbooks — but not for long, because they are updated every couple of years, rendering old editions virtually worthless.

It’ll be interesting to watch this trend unfold…

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