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Archive for June, 2012

Andrew Revkin‘s post reminds me of my time at Notre Dame. He quotes Michael Sandmel, who is graduating this year from NYU:

We had around 140 attendees from universities around the country.  Many of us study in mainstream neoclassical economics departments where interdisciplinary ecological-economics, and the questioning of G.D.P. growth as a primary (or, depending on who you ask, desirable) objective, is still very much fringe thinking.  I don’t attempt to speak for all of my peers, but I know that many of us share an enormous frustration with the way in which our supposedly leading institutions teach us about the economy in a way that is myopic, ahistorical, and devoid of nearly any critical conversation about sustainability or human well being.

This is particularly troubling as we regularly see our schools accredit future leaders in business, finance, and government, sending them into a world of 21st century problems with a 20th century toolkit.

Well said!

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Violence is again swallowing Ciudad Juarez, according to the NYTimes. Just across the border from each other, El Paso, TX and Ciudad Juarez provide a stark contrast of how two different political environments, legal structures, court systems, and police forces can lead to drastically different economic and social outcomes; Acemoglu and Robinson regularly conduct this important institutional analysis across borders on Why Nations Fail

Yet we must also remember that the violence in Mexico is not solely a Mexican problem, in need of a Mexican solution. The decisions we make in the United States play a huge role around this porous border. Los Zetas and the Sinaloa Cartel are largely funded by U.S. drug consumption, with marijuana likely being the most profitable drug. And many of the weapons that end up in the gangs’ hands come from Arizona, with its lax gun control laws and regulations.

Acemoglu and Robinson are right to look at the different institutional structures across the border: there are reasons why the violence takes place  in Mexico and not as much in El Paso. And a long term, stable improvement will require that we develop institutions in Mexico that are more like those that we find in the United States. But recognizing the porous border also alerts us to the role that Americans play, and opens up some policy options to decrease the violence: (1) ban the sale of assault weapons in the U.S. (2) end the failed “War on Drugs” (3) decriminalize marijuana (and possibly other drugs trafficked through Latin America) in order to regulate the markets and divert funds from going to violent gangs.

However, these policy options are not even part of the political discussion in the United States. The problem is that we make political decisions on issues that we do not feel the consequences; there would be huge social benefits, but not to those who vote, so these discussions do not emerge. One might refer to this situation as a political externality, where actions are not taken on certain issues because their worst (or best) consequences are not felt within our borders.

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An interview with Amartya Sen:

I think a lot of economists were deeply impressed by the elegance of their models. These models describe an imagined economy where the markets functioned perfectly. In such an environment, the market achieves very good results and does not need any kind of state intervention. That’s a very elegant model. It was something which Adam Smith did discuss, but he discussed it along with all the limitations that must be borne in mind. Other early economists who used simplified models of this kind also stressed the importance of noting that the world isn’t anything like that. Edgeworth did that, Walras did that, Wicksell did that. Many modern economists take their simplified models too seriously.

In which ways do you think new economic thinking is necessary and how should it look like?

I think we need a bigger, more integrated view that economists tended to look for, in the past. We have to see the totality of the concerns that make human beings want a good economy. The kind of economic thinking that I would like to see pays a lot more attention to issues of human freedom. What I have in mind is real freedom, not just formal liberties but also what kind of lives people manage to achieve, what they can do with their lives, and what help of the state they need for more substantive freedom. The basic question economists should ask themselves is: What can we do to have a decent society where people get much more freedom to live the kind of lives of which they would have reason to be proud and happy.

You make a lot of references to old economic thinkers like Smith, Keynes and so on. However, if you look at the current economic research that is published in the journals and taught at universities, the history of economic thought does not play a big role anymore…

Yes, absolutely. The history of economic thought has been woefully neglected by the profession in the last decades. This has been one of the major mistakes of the profession. One of the earliest reminders that we are going in the wrong direction has come from Kenneth Arrow about 30 years ago when he said: These days, I get surprised when I find the students don’t seem to know any economics that was written 25 or 30 years ago.

Is there any hope that this trend can be reversed?

Yes, I’m quite optimistic in this regard. I get the impression that this seems to be getting corrected right now. I’m particularly delighted that the corrective has come to a great extent from student interest. I’m very struck by the fact that at the university where I teach – Harvard – the demand for more history of economic thought has mostly come from students. As a result there is a lot more attempt by the department of economics as well as history and government to look for the history of political economy. Last year, along with my wife Emma Rothschild, I offered a course on Adam Smith’s philosophy and political economy. It drew a lot of interest and we got some of the finest students at Harvard.

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And, regarding my post about unions, I later saw this post from a labor unionist, Rich Yeselson- he describes the plight of unions quite well:

The real underlying story is that unions are losing their institutional legitimacy in modern America. The problem isn’t that most people hate unions. The problem for unions is that most people don’t care about them, or think about them, at all.

For those of you unconvinced by my review of Hayes’ book that it is a must-read, check out this long read-sized version he has in the Nation. Here is a brief excerpt:

This is evidence that the Iron Law of Meritocracy is, in fact, exerting itself on our social order. And we might ask what a society that has been corrupted entirely by the Iron Law of Meritocracy would look like. It would be a society with extremely high and rising inequality yet little circulation of elites. A society in which the pillar institutions were populated and presided over by a group of hyper-educated, ambitious overachievers who enjoyed tremendous monetary rewards as well as unparalleled political power and prestige, and yet who managed to insulate themselves from sanction, competition and accountability; a group of people who could more or less rest assured that now that they have achieved their status, now that they have scaled to the top of the pyramid, they, their peers and their progeny will stay there.

 

Such a ruling class would have all the competitive ferocity inculcated by the ceaseless jockeying within the institutions that produce meritocratic elites, but face no actual sanctions for failing at their duties or succumbing to the temptations of corruption. It would reflexively protect its worst members; it would operate with a wide gulf between performance and reward; and it would be shot through with corruption, rule-breaking and self-dealing, as those on top pursued the outsized rewards promised for superstars. In the same way the bailouts combined the worst aspects of capitalism and socialism, such a social order would fuse the worst aspects of meritocracy and bureaucracy.

 

It would, in other words, look a lot like the American elite in the first years of the twenty-first century.

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Over a year ago, I wrote:

But it will backfire. It didn’t take long for the opinion polling to demonstrate clearly that Scott Walker’s overreach would earn him ill repute in a state with a proud history of labor rights. Walker and his GOP lackies chose to plow ahead, amid ceaseless protests in the Capitol (which have only grown tonight, of course). Now it’s time for the reckoning. This anti-worker bill will be used in every coming election, both in Wisconsin and around the country, as a way to show that the GOP has gone too far.

I was wondering when the tipping point would come; my economics training taught me about social structure of accumulation theory, in which an economic downturn can resolidify support for various policies that will restore economic balance. We didn’t quite get that in 2008, because of politics. Instead, we got a half-baked stimulus and a dead-on-arrival Employee Free Choice Act. We got a weakened health care bill that was a Phyrric victory and has been a political football since the minute of its passage. We got a climate change bill that passed only one house, again, dead-on-arrival in the Senate.

Social structure of accumulation theory, as I wrote in an assignment in November 2008, would predict that we’d have many restorative policies by now. Instead, somehow, the pendulum swung a little left, and then was dragged way right by shrill voices with the worst of intentions. With this anti-worker bill, I think, the pendulum will swing back. We needed a tipping point to restore sanity (not just the Jon Stewart kind) in this country. We needed a wake-up call to show moderates that Republicans don’t care about fiscal rectitude- instead, they are out for their own political gain and for the economic gain of the well-heeled. This short-term success spells long-term doom for the GOP.

Or so I hope.

Oops- I guess in the short run, I got that wrong. And ultimately, I think mainstream liberal commentators like Ezra Kleinare much more likely to be right, than are those who think unions will miraculously resurge (like me in 2011):

Wisconsin’s new law won’t, on its own, radically change the power of public-sector unions. But Walker’s ability to withstand the recall will likely spur other governors to follow suit, and likely drain the enthusiasm of the opposition in other states. And even if it doesn’t, labor’s inability to win the recall is more evidence of their inability to reverse their own structural decline. They’re not winning on worksites, as the share of the labor force that’s unionized has been dropping for decades, and they’re not winning at the ballot box.

Let’s rewind to 2008- at the time, the talk of the labor left was the Employee Free Choice Act, which would have made organizing unions much easier. The economy collapsed, Obama and the Democrats achieved a supermajority, and it still couldn’t become law. Indeed, with that example in mind, it’s hard to imagine how labor can make a comeback. I don’t know what progressive institution, if any, can fill the void. But either way, here I am in 2012, eating crow and searching for answers.

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