Archive for July, 2011

Wealth Breeds Rage

John Githongo warns that in Africa, uneven economic growth can lead to a combustible situation when inequality festers and is not well managed [ht:cr]:

Across the world, as growth has spread and accelerated, so has inequality. It is clear that growth is often not enough to guarantee stable, cohesive societies. Rather than create a rising tide that lifts all boats, it can actually increase inequality in a society. And inequality, unlike poverty, is far more easily politicized, ethnicized and militarized, especially in African countries with heterogeneous populations and weak judicial and regulatory institutions. It is also far more combustible because it creates an identifiable enemy — a class that benefits disproportionately because of its unfair access to those who wield power. Mismanaging it can be catastrophic.

Steady economic growth and urbanization, combined with high levels of youth unemployment and conspicuous consumption on the part of the corrupt ruling elite, create a situation in which growth exacerbates political volatility instead of quelling it.

This story highlights the importance of a political economy of development that takes in to account changing socioeconomic conditions and respects local cultural institutions and social networks in order to promote a cohesive and stable society. Mainstream growth models, however, completely neglect any of these factors while only focusing on how to best promote the development of markets, which by definition will optimize growth for everyone. Githongo reminds us that a narrow approach to growth can lead to social unrest, outbreaks of violence, and the fragmentation of traditional social networks.

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You Are What you Eat

Photographer Mark Menjivar (h/t kms) has a great photo gallery exploring food issues at the most personal level- a person’s refrigerator. Mark writes,

An intense curiosity and questions about stewardship led me to begin to make these unconventional portraits. A refrigerator is both a private and a shared space.  One person likened the question, “May I photograph the interior of your fridge?” to asking someone to pose nude for the camera.

Each fridge is photographed “as is”.  Nothing added, nothing taken away.

These are portraits of the rich and the poor.  Vegetarians, Republicans, members of the NRA, those left out, the under appreciated, former soldiers in Hitler’s SS, dreamers, and so much more.  We never know the full story of one’s life.

My hope is that we will think deeply about how we care.

How we care for our bodies. How we care for others. And how we care for the land.

Go click through- among others, he features competitive food eaters, a single person on a low fixed income, and a bar tender.

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Despite the loud calls for Obama to appoint Elizabeth Warren to head the Consumer Financial Protection Bureau, she is now unfortunately on her way out. This is a huge loss for middle class Americans and another victory for Wall Street. Warren was the ideal leader of the CFPB, an concept which she helped inspire. There has been considerable evidence over the past few years that (1) Financial markets are inherently unstable in a Minskian sense and that (2) the regulated (financiers) are in a never ending race with the regulators; the CFPB was a truly creative and dynamic strategy with a real potential to protect Americans from economic volatility and financial frenzy.

I do hope that the CFPB is still able to fulfill its role, and indeed it still has the potential to be effective. But I remain convinced that it would have been most likely to have a real impact on our society with Elizabeth Warren behind the wheel. Passing her up was a mistake on Obama’s part.

Update: from David Corn which both sounds reasonable and makes me feel better:

The Sunday afternoon news that the White House would not be nominating Elizabeth Warren to head the Consumer Finance Protection Bureau (CFPB) certainly has the potential to trigger outrage from progressives who believe President Barack Obama too often declines to confront Republican extremism. Warren, the populist Harvard professor who birthed the idea for a government agency that would protect consumers from tricks and traps perpetrated by banks, mortgage firms, and credit card companies, was the right person for the job. So much so that congressional Republicans have been howling about the prospect of her leading the agency even before the bureau was created last year by the Wall Street reform legislation. Which is why Obama’s decision not to fight for her—and it would have been a titanic fight—may disappoint. But there’s an upside to the move: the possibility that Warren will end up in the US Senate. And there’s this: The fellow Obama picked for the position, Richard Cordray, can be expected to do a fine job pursuing abusive financial firms.

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Michael Shermer is promoting a new book, The Believing Brain: How we construct beliefs and reinforce them as truths. The argument is that our brains evolved to first determine beliefs, and then find the evidence to justify those beliefs. This is why people have strongly held convictions about religion and politics, despite the inability to determine what is the “true” religion or the “right” political position. Instead, according to Shermer, it is only science that can lead us to truth. Only science can distinguish between truth and belief.

In fact, though, Shermer’s argument is just another example of a dissembled belief posing as a truth. Most importantly, his image of how science works is misinformed. While the scientific method sounds nice, it is not an accurate description of how scientists actually go about doing their research because science is not done in a social vacuum. Were he to take the time to study how scientists did their work within a research community, he would realize the uselessness of trying to establish a demarcation criteria between “science” and “non-science.” And this is not to discredit science by any means, but only to point out the importance of remembering the limitations of what we know. Scientists have human brains too.

Another incorrect implicit assumption of the book is that there exists some independent “truth,” and that this truth is clearly distinguishable from belief. Rather, in science, a belief becomes a “truth” when a widespread consensus is reached. This “truth” can change when the question again becomes open for debate. In the words of C. S. Pearce, one of the most important (and yet little read) American philosophers, there is no truth but only the “fixation of belief”:

The sole object of inquiry is the settlement of opinion. We may fancy that this is not enough for us, and what we seek, not merely an opinion, but a true opinion. But put this fancy to the test, and it proves groundless; for as soon as a firm belief is reached we are entirely satisfied, whether the belief be true or false.         “The Fixation of Belief” (1877)

And this in 1877! You’d think we would have made progress since then, but people like Shermer are keeping our ideas about science stuck in the 19th century.

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Joseph Stiglitz has always seemed to me to be among the more reflective members of the profession. Here, he steps back to take a broader perspective on the relationship between economic theory and the economy:

Just a few years ago, a powerful ideology – the belief in free and unfettered markets – brought the world to the brink of ruin. Even in its hey-day, from the early 1980’s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest in the richest country of the world. Indeed, over the course of this ideology’s 30-year ascendance, most Americans saw their incomes decline or stagnate year after year.

Moreover, output growth in the United States was not economically sustainable. With so much of US national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.

I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case.

These arguments mirror his story in Freefall, which I maintain is one of the more reasonable accounts of the financial crisis. Stiglitz realizes that finance has been and will continue to be a race between the regulators and the regulated. Undermine the regulators and chaos ensues.

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Much post-crisis navel-gazing in economics has concluded something like, “economists treated economics as a science, even though it isn’t,” or, “it’s more like biology than physics.” The implicit assumption is that the hard sciences are science wrought certain and unassailable. In his book The Blind Spot, William Byers belies that notion by speaking to the uncertainties that scientists often miss in their own field. I think this book is important for students and scholars of economics to read, though, because many of the points Byers makes can be said even more truly of economics than mathematics and the physical sciences.

Byers begins by addressing these disciplines within his scope head-on, drawing on the history and philosophy of science to show that whatever the subject, many “results carry a family resemblance. There are limits to what we can know.” He then puts forth a dialectic of science as certainty versus science as wonder, arguing that “coherence results from acts of creativity…[and] transcends classical objectivity and subjectivity.” I wonder where economics fits into this dialectic- what is an economics of wonder? Economics, for all of its faults, is often practiced by genuinely creative people who want to model the world to answer interesting questions. Likely, though, the limits come as economists seek what Byers asperses- certainty; economists may too often fall short because they limit themselves to questions that can be answered with the data or methods at hand.

Much of the body of the book is filled with engaging vignettes of the history of science, as well as philosophical digressions that frame key issues in similar dialectics. I won’t belabor it, because I think this book is not easily treated in a simple blog review, but I think the key takeaways for science are just as easily said for economics. For example, Byers discusses how the jump from mathematical equations to real world applications of those equations is often fraught with peril. I was intrigued by an article by Wolfgang Dreschler in the same vain that spoke directly to economics: “mathematics might be easily yet erroneously taken as the real kind of connection between objects.” Indeed, the relationship between model, variable, and real world is one often glossed over in economics, and apparently in hard sciences as well.

Byers’ conclusion has a lot to say for economics too: “human judgment must be reclaimed from those theories, ideologies, and mechanical systems than can be so intimidating…the world is uncertain and the problems are difficult…[but] the world of the uncertain is the world of creative possibilites.” Economics, especially as it is practiced in the mainstream, does not have a sufficiently robust philosophy of itself to justify any comparison to the hard sciences. However, the main takeaway we can gather from Byers’ work is that “science” isn’t a goal for a given discipline; rather, the goal is to exhaust all methodologies as appropriate, embracing uncertainty, and attempting to answer questions that matter, no matter how seemingly intractable.

For too long, economics has approached the questions that seem observable, hoping to offer a ceteris paribus answer in all cases. Reading Byers’ account of science’s own struggles should be informative and sobering against this approach. Quite simply, uncertainty will not allow it approach to work; we will get some answers, but they won’t be answers that compel the real world to act just so. Economics needs to put away its delusions of scientific grandeur, and instead aim to be useful and creative, not authoritative or universal.

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If every family in the South Bend-Mishawaka metro area shifted just $10 of its monthly spending to locally-owned, independent businesses, over $9,958,301 would be directly returned to the community. That’s the calculation from Independent We Stand, an organization of independent business owners who are trying to inform their communities of the benefits and importance of local commerce [ht:cr]. Enter your location on the website to see the calculation for your area.

It’s a very intuitive and straightforward idea, that local purchases keep resources in the community, bolstering the local economy and promoting local economic development. It seems to be something very desirable for community members. Which I why I find it so intriguing that I have never heard any mainstream economist advocate for “buying local” or talk about aspects of local economics (such as farmers’ markets, community development, local currencies). It simply does not seem to fit in to their framework for thinking about “the economy.” All activity is considered either market activity, or government intervention. Economists have managed to vastly underestimate the power of small groups of determined people by leaving the “community” out of the economic analysis.

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