“Pragmatic Inquiry” and Economics

At Understanding Society, Daniel Little has an excellent post about the different views towards pragmatism in intellectual circles.

Intellectuals are sometimes accused of being out of touch with the real world. But there is a strong thread of intellectual life that proceeds on the basis of a commitment to linking thought to action, theory to practical outcomes. Karl Marx and John Dewey had at least this in common: they both urged intellectuals to commit themselves to joining the intellectual realm with the solution of humanity’s challenges. This isn’t a universal view; […]

According to a pragmatic perspective, science is not a free-standing system for its own sake; rather, science serves humanity. There should be consequences that flow from research and inquiry that somehow or other lead to resolution of problems that we care about…

A second implication of “pragmatism” in research comes down to expectations about methodology and epistemology. A pragmatic conception of research defines the epistemic values of research results “practically.” A theory or set of measurements should be “good enough” for the needs of the problem, rather than aspiring to an abstract notion of perfect precision…

But there is a little bit of a paradox underlying these comments. We don’t generally know what kind of theoretical advance will be needed or constructive in application to a particular problem. Solving problems requires valid understandings of the mechanisms that give rise to these problems; but discovery of underlying mechanisms may proceed best from apparently unrelated theoretical research. So this seems to imply that the research community as a whole will be most pragmatically successful, if there is some division of labor within the community between “curiosity-driven researchers” and “problem-solver researchers.” (This seems to correspond roughly to the distinction between pure research and applied research.) […]

It is also interesting to realize that there is a parallel theme in Marx’s thought. Marx’s insistence on the unity of theory and practice falls in this general area, as does his eleventh thesis on Feuerbach: “The philosophers have sought only to understand the world; the point, however, is to change it” (link). Marx didn’t diminish the importance or value of theoretical research; but he insisted on the importance of keeping in mind the relationship between theory and practice, between knowledge and social improvement…

The Chicago sociologists regularly went back and forth between assessment of the current material and social problems that the city of Chicago was experiencing, and formulation of theories and analytical constructs that might assist in better understanding and addressing these problems…

So there is a coherent position to take concerning the relationship between intellectual inquiry and practical outcomes. We might say that one of the responsibilities of intellectuals is to assure that their work ultimately has value, and an important manifestation of value is “contribution to the solution of practical human problems.” However, it is also true that there are other ways in which intellectual work can have value; so the pragmatic approach cannot be considered to be an exclusive one.

Little provides an example of how this balance was struck with Chicago sociologists. Is a similar balance being struck in economics? In general, economics seems to value theoretical work over empirical work. Many Nobel Prize winners happen to be theoriticians (Paul Krugman is the most recent example, although his work is more grounded in practical questions). On the other hand, a number of recent John Bates Clark medalists have been empiricists, notably Steven Leavitt and Emmanuel Saez. I don’t think a discipline is best defined by what happens in the top strata, however. So, this is more of an open question: is economics as a whole putting too much emphasis on theoretical research that leads to little practical application?

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An Aid Skirmish

Last week, Mark Thoma had a roundup (can’t link the specific post because his page won’t load…) over a three-way heavyweight battle in the aid world (I love applying sports lingo to academia, by the way). It appears to have started when Jeff Sachs had an article in HuffPo called “Aid Ironies,” in which he sort of launched ad homimem attacks on two of the biggest critics of African aid, Dambisa Moyo and Bill Easterly.

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Rethinking Humanitarianism

Costas Douzinas has a lengthy (understatement) article in the Monthly Review that provides another take on humanitarianism and human rights. Weaving together moral philosophy, geopolitics, and much more, Douzinas offers a critique that would make Bono weep. I don’t feel nearly erudite enough to comment much more; you need to take 30 minutes out of your day to read it for yourself. Here are a couple key quotes:

The westerner used to carry the white man’s burden, the obligation to spread civilisation, reason, religion and law to the barbaric part of the world.  If the colonial prototypes were the missionary and the colonial administrator, the post-colonial are the human rights campaigner and the NGO operative. Humanity has replaced civilisation.  ‘The humanitarian empire is the new face of an old figure’ one of its supporters admits.  ‘It is held together by common elements of rhetoric and self-belief: the idea, if not the practice, of democracy; the idea, if not the practice, of human rights; the idea, if not the practice, of equality before the law.’ The postmodern philanthropist, on the other hand, does not need to go to far-flung places to build clinics and missions.  Globalisation has ensured that he can do that from his front room, watching TV images of desolation and atrocity and paying with his credit card.  As Upendra Baxi puts it, ‘human rights movements organise themselves in the image of markets’ turning ‘human suffering and human rights’ into commodities.

The stakes of humanitarian campaigns are high.  Positing the victim and/or savage other of humanitarianism we create humanity.  The perpetrator/victim is a reminder and revenant from our disavowed past.  He is the West’s imaginary double, someone who carries our own characteristics and fears albeit in a reversed impoverished sense.  Once the moral universe revolves around the recognition of evil, every project to combine people in the name of the good is itself condemned as evil.  Willing and pursuing the good inevitably turns into the nightmare of totalitarianism.  This is the reason why the price of human rights politics is conservatism.  The moralist conception both makes impossible and bars positive political visions and possibilities.  Human rights ethics legitimises what the West already possesses; evil is what we do not possess or enjoy.  But as Alain Badiou puts it, while the human is partly inhuman, she is also more than human. […]

We should reverse our ethical approach: it is not suffering and evil which define the good as the defence humanity puts up against its bad part.  It is our positive ability to do good, our welcoming of the potential to act and change the world that comes first and must denounce evil as the toleration or promotion of the existent, not the other way around.  In this sense, human rights are not what protects from suffering and inhumanity.  Radical humanitarianism aims to confront the existent with a transcendence found in history, to make the human, constantly told that suffering is humanity’s inescapable destiny, more than human.  We may need to sidestep rights in favour of right.

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Rethinking Keynes and the Neoclassical Synthesis

In a blog post at the Financial Times’ Economists’ Forum (h/t Mark Thoma), Roger Farmer, a professor of Economics at UCLA, discusses forthcoming work that offers a new interpretation of Keynes distinct from “sticky price” arguments. I think Farmer makes a couple of really good points about how Keynes is often interpreted in a way that limits the type of market intervention called for.

Keynes was a pragmatist first and a social scientist second and the General Theory is, to say the least, ambiguous. Economists have debated its meaning for more than half a century in an attempt to reconcile Keynes with microeconomic principles. The orthodox contender for this reconciliation is the ‘neo-classical synthesis’ which holds that the economy is Keynesian in the short-run because prices are `sticky’. It is classical in the long-run when prices have found their right level.

However, there was always an undercurrent of thought that rejected the neo-classical synthesis. UCLA economists such as Axel Leijonhufvud and Robert Clower and post-Keynesians including Paul Davidson and Hyman Minsky argued that Keynes did not rest his argument on sticky prices. But if Keynesian economics is not about sticky prices then how is one to reconcile the main message of the General Theory with the established body of microeconomic theory? […]

I explain there, how any unemployment rate can persist forever. The market does not provide participants with enough prices to allow them to decide if a given number of jobs should be filled by many unemployed workers chasing a small number of vacancies: Or by many vacancies chasing a small number of unemployed workers. In classical economics, the free market contains a self-correcting mechanism…In my interpretation of Keynesian economics, there are missing markets. As a consequence, any unemployment rate can persist forever as an equilibrium in which no firm makes excess profit. Each equilibrium is accompanied by a different value for the stock market…

Why is this important? The neo-classical synthesis implies that, to restore full employment, we simply need to realign nominal prices with nominal demand. This can be done either with monetary policy to stimulate private spending or with fiscal policy to replace private spending with public spending. But if income depends on wealth then fiscal policy may be less effective than the Keynesians claim…

Where does this leave us? Keynes was right about three key points. 1) High unemployment can persist forever because the market is not self-correcting. 2) Confidence matters. 3) Government can and should intervene to fix things. But the orthodox Keynesians are wrong: fiscal policy cannot provide a permanent fix to the problem of high unemployment. We need a new approach that directly attacks a lack of confidence in the asset markets by putting a floor and a ceiling on the value of the stock market through direct central bank intervention. That is the main message of my forthcoming books.

I think these 3 points are very important takeaways. Of course, I think that Farmer is probably too trusting in the idea of equilibrium, and that what he attributes to “missing markets” is probably better explained by Minsky’s financial instability hypothesis. Nevertheless, it’s always important to reevaluate the “popular” interpretation of a given economist (for a great example of this, see Gavin Kennedy’s blog, Adam Smith’s Lost Legacy, to which I’ve linked here before). In this case, it’s particularly important, because the neoclassical synthesis that has literally become our textbook macroeconomics is entirely reliant on orthodox Keynesianism.

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What’s Wrong with the Board

From The New Yorker:

When Citigroup and Bank of America held their annual meetings last month, shareholders were in an understandably surly mood. Even as the companies’ C.E.O.s apologized for past failures and vowed to do better, shareholders blasted the executives for their incompetence, and talked about the need for dramatic change. Yet, after all the venting and repenting was done, something weird happened: every member of each bank’s board of directors was reëlected to office. This may seem odd, but it was all too predictable. In the apportioning of blame for the financial crisis, corporate boards of directors have remained remarkably unscathed, even though they effectively approved the strategies that immolated so many companies.

[…]

This doesn’t mean that we should go back to the bad old days of boards made up of cronies and old white guys. But changing the way boards look matters less than changing the way they act. Directors are still part-time employees—the typical board meets just eight times a year—so it’s hard for them to devote enough time to make a meaningful difference. And they’re paid both too much and, paradoxically, not enough: too much in the sense that a directorship is often a cushy gig, which no one wants to endanger by challenging the boss; not enough in that their compensation isn’t sufficient for them to be hurt if the company flounders. Directors still rely heavily on the C.E.O. for information, and do little independent digging.

The proposed solution?:

Investors need to be able to play a much bigger role in determining who ends up on boards, nominating candidates themselves, instead of choosing among the C.E.O.’s picks.

What about the workers?

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Ecocomics

I’m not sure I like the title of this new blog (it seems to indicate environmentally/ecologically oriented comics), but I do like the content (h/t Ezra Klein). Incidentally, the latest entry is about Labor Unions on Krypton. Read it!

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Art and Urban Regeneration

“Post No Bills, Post Pretty ART”

As the impact of the current downturn in the global economy worsens, and more and more storefronts are being abandoned and boarded up, we expect to see more street art urban regeneration projects like ‘Post No Bills, Post Pretty ART’ in in downtown Edmonton, AB.

A group of local artists in Edmonton are encouraging other artists (local or international) to put up their work throughout the Summer. The project is being done without any grants, sponsorship or permission. The organizers explain –

“We feel the creation of the artwork free from these constraints allows a more honest and organic artistic expression. We decided to focus on this building as it’s on a busy intersection of downtown and it seemed absolutely appalling from a pedestrian and urban experience point of view to simply leave this building boarded up–essentially it is unused space that people scurry around to avoid like the plague. Thus, we put up some of our work and it was really nice to actually see people slow down and examine some of the pieces (the paint chip one really throws people in a bender!)–we think there’s a real appreciation for street art and what it can do for urban experience, it’s simply not vocalized as coherently due to its inherent lack of organization (which we think is a good thing!). People were coming up to us saying that it was about time this happened–and it was strange that, on an institutional level, no public art program had been implemented to address urban abandonment in our city. So, we think from a street art perspective, the speed at which we were able to address this issue and to act upon this need is what makes street art an incredible possibility and potent tool for guerilla urban regeneration.”

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Righteous Dopefiend

Philippe Bourgois and Jeff Schonberg’s latest ethnography gives an excellent portrayal of the construction and contestation of economic networks among the homeless in urban San Francisco.

This powerful study immerses the reader in the world of homelessness and drug addiction in the contemporary United States.

[…]

The result is a dispassionate chronicle of survival, loss, caring, and hope rooted in the addicts’ determination to hang on for one more day and one more “fix” through a “moral economy of sharing” that precariously balances mutual solidarity and interpersonal betrayal.”

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Living in Less

Home sizes are shrinking…

Though the square footage of new houses tends to dip modestly in recessions, the size of the American home has essentially increased since 1973. But that changed last year, when the size of the typical house suddenly shrunk by 11%. That appears to be faster than at any time since the 1970s.

“People are realizing, ‘Hey, I don’t need the Lexus anymore,’ ” said Wayne Eide of the Development Group, builder of the Terraces. ” ‘I can live with the Camry.’ ”

The National Assn. of Home Builders recently surveyed its members and found 90% of them are building smaller now. Developers cite many factors: increased energy consciousness, empty-nest baby boomers looking to downsize. But the strongest motivator is clearly the sagging economy.

[…]

“Families and lifestyles are changing,” said Bobbie Cooper, director of sales [for real estate company, The Development Group]. “In 2005 you couldn’t build it big enough. Now it’s all about getting back to the basics.”

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Crime and the Economy

From the LA Times:

The economy is a wreck, and crime is down. Does that mean hard times and lawbreaking aren’t linked?

[…]

As L.A.’s most recent crime data suggest, high unemployment doesn’t necessarily translate directly into high crime rates. But that’s because the specific economic pinch in itself is not the immediate cause of criminal activity. What does seem to translate into crime is long-term economic trouble. One theory holds that the motivation toward criminal acts increases with prolonged social strain. Strain is the pressure people feel between their goals and their means to achieve them. One consequence of unrelieved strain is that the desire to achieve one’s goals leads some to use illegitimate means to get where they want to go.

“Long-term material conditions are important,” UC Irvine criminologist Elliott Currie told me. “They can affect values and the belief in what kinds of conduct are acceptable or not. If you put people in really lousy conditions, they’ll begin to think differently about school, drugs or gangs.”

[…]

the discrepancy between what many of us want and what we can get will deepen, social strain will increase, and maybe not today, maybe not tomorrow, but someday, the other shoe will drop.  In the meantime, count your crime statistics blessings, but don’t fool yourself: Crime and hard times do go hand in hand.

A not completely unrelated piece of art (one of my favorites by Banksy in New Orleans):

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