Archive for December, 2009

Rick Wolff says that mainstream economics is ignoring one of the biggest casualties of the recession:

Capitalist crises, especially severe ones, are case studies in that system’s social costs.  Because the dutifully conservative economics profession rarely studies such cases, let’s do just that here by focusing on how the current capitalist crisis is damaging public education.  Deteriorating schools leave scars lasting for many years.  They undercut the quality of the skills and knowledge of the next generation in their individual capacities as workers, citizens, friends, parents, and so on…

Politicians concerned about their careers dare not seek extra state revenues from the corporations and the rich.  Instead they cut state services not favored by their patrons.  Since children of the rich increasingly attend private schools or certain elite public schools, politicians end up cutting chiefly the public education that serves everyone else.  As US corporations shift ever more skilled jobs overseas, they need fewer educated US workers…

Reacting to the economic crisis, both Bush’s and Obama’s administrations have allowed the state and local funding supports for public education to decline nationwide.  Educational opportunities shrink as educational inequality rises.  From coast to coast, most students’ job, income, and life prospects fall ever further behind those of children of the rich.  The US government’s response to economic crisis might well be ironically renamed as “leave no banker behind.”  Yet a collapsing public education system threatens society’s future no less than a collapsing credit market.  A president who campaigned on a program of hope presides over its evaporation for most children.

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In light of the Dean of Arts and Letters’ recommendation to the Academic Council to close ECOP, I have sent the following letter to him and the members of the Academic Council.

Dear Dean McGreevy,

I was saddened when I learned of your decision to recommend the closure of the Department of Economics and Policy Studies to the academic council. I’m sure you are familiar with the arguments I could make against this decision; they are well-documented on the blog to which I contribute (openeconomicsnd.wordpress.com), which I shared with you last spring, as well as in the petition that I signed along with over one thousand others this fall. We also discussed these issues at length during two private meetings while I was a student. Whatever the merits of my arguments, your recent decision has seemed inevitable for at least eighteen months, and the purpose of this letter is not to change your mind. Instead, I’m writing you today to express my belief that your execution of this decision does not fit the high standard of transparency and dialogue that your position demands and that the academic community at Notre Dame deserves.

It was encouraging that on two occasions, you opened the doors of your office to my peers and me so we could share the experiences of our economics education. At the time, I expressed how blessed I felt to take a diverse and stimulating course load that emphasized rigorous quantitative analysis as well as descriptive critical thinking. Although I did not know it then, it was this diverse skill set that helped me secure a job as a research assistant in the Africa Growth Initiative at Brookings Institution. On a daily basis, my job requires this whole skill set. As I pursue a career path, I am confident that Notre Dame has provided me the foundation to make a meaningful contribution in whatever field I choose to enter.

After meeting with you twice, my general sense was that you understood our feelings, and more encouragingly, you relished getting to know us and our stories. You demonstrated a desire for a degree of pluralism and openness, while cautioning the limits of your understanding of the divides within economics.  Although we were aware of the broader institutional pressures at work, it seemed to me that these stories, and the interests of the students that they represented, would affect your decisions about economics and the way in which you executed them.

It is for that reason that I now write to you with great dismay. The candor you demonstrated to my peers and me behind closed doors has been lacking in the last three months. Particularly disturbing is that you have declined to engage in a forum with economics students, requested at the behest of the Economics Club, to explain what the decision means and how it will impact them, as well as to answer lingering questions. By citing sensitivity and personnel issues as reasons to not engage, more accurately you have chosen to dodge potential bad publicity from the situation, and more importantly, missed a teachable moment. Since you are first and foremost an educator, it is hard to imagine a successful student-oriented decision process without your participation in such a forum, or a similar event organized on your own terms. The perception of this decision for some students will be that it occurred behind closed doors; more disconcertingly, a greater number will remain in ignorance because of your omissions.

Having thought very carefully about the issues facing the economics discipline, I can understand the erroneous thinking that led to your decision. I can understand the sociology of a profession in turmoil as well as the long-run socio-political causes and implications of this retreat from pluralism. Even with that understanding, I realize that it is not my place to judge your job performance; that is the job of your peers, some of whom will be engaged in the decision to close ECOP in the months to come. It is for that reason that I have chosen to include the members of the Academic Council on this letter as well, since I believe strongly that every decision, however major or minor, or however painful to think about, must be held to a high standard and a healthy dose of transparency. I believe that you have not only made a poor decision, but have failed to meet the expectations of the highest academic official in the College of Arts and Letters. I sincerely hope that the members of the Academic Council consider openly the merits of your recommendation and the way in which you have arrived at it.

The detriment of your decision to students present and future will not be obvious. Inevitably, Notre Dame’s standing among ‘peer institutions’ will increase in the field of economics, and the number of economics majors will continue to rise because of the great interest in the discipline. I’m sure your decision will be regarded as a bold and courageous one, and the results I mentioned above will continue to serve as proof of its merits.

Few students will know what they are missing; I know that I may never have been exposed to heterodox ideas under the proposed future arrangement. Indeed, the fact that much of this process has occurred in the shadows has ensured that ignorance of heterodox ideas will persist. However, as a shaper of young minds who will be our future leaders, I question how you can justify this result. In the context of social action, ignorance breeds inertia, and your decision and its execution will contribute to the maintenance of a status quo that we all agree is fundamentally unjust and unsustainable.

We live in troubling times indeed. As our economy continues to change, and another economic crisis comes and goes, it is inevitable that more discontented young intellectuals will thirst for a more critical approach to economics. Your decision makes it impossible for them to pursue this approach at Notre Dame. This hidden legacy of your decision will be the most deleterious and, I fear, the most lasting.


Nick Krafft

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The New York Times describes classes around the country, at universities such as Cornell, Columbia, and Vassar, that are probing the economic crisis. The approaches are diverse:

Steven Fraser, a professor of American studies at Columbia University, has taught the cultural history of Wall Street for years, usually bringing his students up to the 1990s. But this fall, with thefinancial crisis providing an irresistible new coda to the course, he extended the timeline to include the drama, intrigue and pain of the past two years…

“The class is struck by the similarities between today and the darker periods of Wall Street’s past, for example in the Gilded Age” …

Sidney Plotkin, a professor of political science at Vassar College, has taught “Power and Public Policy” in one iteration or another for more than 30 years. But last month he began a new section of the course by exploring the housing bubble and Bernard L. Madoff, consumer borrowing and federal bailouts — and shining a Marxist light on the whole morass.

“Marx is the uninvited guest in the discussion,” Dr. Plotkin told the group of undergraduates assembled in Rockefeller Hall. “By looking at the financial crisis through the lens of a Marxist analysis, we begin to see how the American debate about power is shaped by Marxism.”

As for the students?

For students, taking a class that probes the gyrations of the economy — even through the prism of Marx — forces them to keep up with current events…

Although students may be energized by the relevance and immediacy of the subject, Dr. Plotkin detects a growing cynicism as well.

Meanwhile, ND is deciding behind closed doors to evict Marx, Minksy, and any other non-mainstream economics from the classroom. Thus, a generation of students will miss out on alternative perspectives and for those who might pursue economics as their own career, will be pigeon-holed into the mainstream- truly a liberal arts approach.

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Closing Time at ND

Via David Ruccio, it appears that the decision to close ECOP will now be handed to the Academic Council. The request is to close the department after the 2010 spring semester. This announcement, apparently made earlier this week, signifies that the dean has chosen to ignore over 1,000 of you who disagreed. That he would make this request without granting the students’ request for an open forum about the implications of this decision is somewhat galling, but not particularly surprising. Despite the lip service that Dean John McGreevy has paid to pluralism and openness in education (to my face, twice, in fact), he’s attempting to make this process as quiet as possible. Although it’s hard to see a happy ending to all of this, we can at least hope that Academic Council exercises good sense. Again, I’m not holding my breath. Sad news.

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EconoSpeak has a post with some basic S/D diagrams that lay out the economic arguments for tax versus cap-and-trade, which in large part hinge on uncertainty. The basic takeaway is that given the uncertainty about the ‘demand’ for emitting carbon dioxide, we’re better off with cap-and-trade, as it eliminates quantity uncertainty. The argument for a tax, then, is that the economic cost, not the environmental cost, is what should be limited with certainty.

However, the Lohmann paper I approvingly posted on last week argues otherwise. Not all carbon emissions are the same, nor are all offsets:

it matters not only how much emissions are cut but also how they are cut…cap and trade is designed to treat emissions-reduction measures as equal, regardless of whether they are likely to contribute to unquantifiable but important positive global synergisms…

the fact that there can be no firm basis for offset accounting opens the way for unresolvable conflicts over estimates of carbon credits.

So, in fact, cap-and-trade does open the door for significant quantity uncertainty. In Lohmann’s view, carbon accounting creates a false sense of security about the true amount of emissions deferred by an offset. A good analogy is the false sense of certainty about risk that VAR gave many investment bankers in the buildup to the economic crisis.

The alternative, it seems, is a more flexible tax. As it turns out, one doesn’t have to believe that ‘markets are poison’ a la Lohmann to advocate a tax. Brookings’ Ted Gayer (whom I unknowingly sat next to at the Saez seminar I posted about), has testified to Congress in favor of a tax. He argues that the tax would help lower deficits for the US, reduce reliance on offsets (about whose integrity, he argues, there are real concerns), and avoid some of the disruptions from price volatility.

Problematically, “tax” is a dirty word. Of course, when Sarah Palin is taking over the WaPo op-ed pages referring to cap-and-trade as “cap-and-tax”, perhaps this issue should be less of a concern.

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I don’t normally do this, but I thought Tom Hickey’s comment on my last post was particularly salient. Quoting partially:

The fact of the matter, however, is that social sciences are always normative to a degree, because universes of discourse are bounded by norms, and method is also…

Because models are necessarily simplifications of what they model, the parameters determine what is in, what is out, and what the priorities are. In the social sciences, these parameters are based on assumptions, and it is often at the level of the assumptions that norms migrate from methodological to value-laden.

Progressive economists generally admit that their assumptions have a value-laden bias. However, conservative economists often do not, but act as if they are describing what is. As a result, they represent what they are doing as positive science even though it often is not, in that assumptions especially, and often data too, are not evidence-based…

The logic of justification looks at the norms that determine what is admitted and rejected, and how data is assessed and evaluated in terms of specific criteria. Then it examines criteria for assumptions and bias.

Most economists don’t bother with this critical procedure. They just assume what they learned is the way that economics is properly done, especially when a school of thought is dominant. This leads to a lot of unexamined assumptions and sloppy thinking posing as science. It also leads to dismissing opponents out of hand, or marginalizing them as out of touch with mainstream thought.

One of the biggest criticisms of neoliberalism, for example, is unrealistic assumptions, e.g., basing models on a single representative agent as a rational actor that always acts on self-interest, taking the future into full account. This is just not the way way the world is, as behavioral economists, psychologist, cognitive scientists, and sociologists point out. However, assumptions like this make the building of complex mathematical models possible, whereas assuming different types of agent would make modeling too complex to be tied up neatly…

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Before yesterday, I didn’t really think so. However, Emmanuel Saez changed my outlook a bit. I attended a seminar he gave on a paper that he’s working on concerning optimal US tax and transfer policy. I liked the general thrust of his presentation; he was concerned with both the effects that income elasticities for taxation have on revenue collection and the implications of some behavioral insights for administering a tax system.

Explicit in all of this is the idea that redistribution is a good thing. In other words, if we can soak the rich to maximize revenue that can be transferred to the poor, without the rich “going Galt” or the poor deciding not to work, then we should. The question of taxation then becomes the issue of finding the marginal tax rate where the “rich,” however we choose to define them (Saez likes top 1%, but also drills down intop 0.1% and 0.01%), pay as much revenue to the government as possible.

The questions he received throughout did not challenge his prior that redistribution is good (I think he got one about this topic really being welfare economics, but there was a murmuring consensus in the room that this wasn’t true). Instead, they focused on details such as, “how do you make the tax base neutral,” or “where does the estate tax play into this?” In other words, their analysis and critique of his arguments seemed to be positive, but the entire premise for his argument was normative. And they want along with it (“they” being a group of neoclassical economists from Brookings and Urban). What other priors ostensibly derived from “welfare economics” would neoclassical economists accept/reject?

Update (12:14 AM): I should mention the couple comments on this post are quite good- I’ve given one of them its own post.

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