Archive for July, 2010

Ownership Society

Stephen Colbert offers a lucid explanation of trickle-down economic theory.

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Dissenting Economists

This post is an indirect reply to the previous post. Without a doubt, mainstream economics is a very narrow discipline. Many smart people realize this, and that is why there does exist a long tradition of dissenting economists. Editors Philip Arestes and Malcolm Sawyer collect many of these biographies in their  book, “A Biographical Dictionary of Dissenting Economists” (2000). The editors are sympathetic to the project of undermining neoclassical hegemony, and so the biographers are free to express their unrestrained views. A short overview from a book review by Robert Prasch of Middlebury College:
In light of the interests of the editors, the post-Keynesian (Davidson, Eichner, Kalecki, Keynes, Minsky, Robinson), Marxist (Baran, Dobb, Hilferding, Sweezy) and neo-Ricardian (Garegnani, Pasinetti, Sraffa) schools are prominently featured. It was also a pleasure to find some of the more interesting figures who have worked in development economics over the years (Amin, Frank, Furtado, Prebisch, Singer), along with several important figures who contributed to the Institutionalist school (Ayers, Commons, Galbraith, Means, Samuels). In addition, many of the people associated with the founding years of the Union for Radical Political Economics (URPE) are featured here (Bowles, Gordon, Gintis, Reich, Weisskopf).
Although it is biased towards the left-leaning dissenters, this bibliographic dictionary still seems to be a valuable resources to those interested in learning about modern economists who have sought to broaden the economic conversation.

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Today, I attended an informal discussion with a senior scholar at the think tank where I work. The discussion was for other junior staff like myself, so we could learn about how that scholar came to be where he is, what his research was about, etc. Towards the end of the discussion, I asked him, “What value is there in understanding the history of economic thought?” He thought about this for a second, and then talked about his training at the University of Chicago.

Not too long before he got there (this would’ve been during the 80s), they decided to remove history of economic thought from the core curriculum, which was pretty grueling at that point. George Stigler had taught the course for years, and thought this class was extremely important to give students some perspective. However, he decided that there was a high opportunity cost of class time in the 2 year core curriculum, and that the classes giving young economists necessary tools were more important. Perspective would come with time, as immersion in the field would force an academic to read the historical literature. The scholar himself also seemed divided on this issue, but said that ultimately, he did get the needed perspective in the years to come.

I chose not to press him on these questions, as other RAs were eager with some more practical questions. I suppose I should have asked him how an economist gets the historical thought perspectives not directly related to the subfield, or even those that have not won in the battlefield of ideas but may still hold insights. In any case, this particular scholar seems relatively pleased with the toolkit that economics offers, and the process by which insights are made and formed into policy recommendations. Perhaps for his subfield of international finance, this is more or less true. For economics as a whole, though, it could be that a loss of perspective is leading to narrow sets of questions being asked.

In any case, this brief seminar seemed to further alienate me from wanting to be an economist. Even after the crisis, it seems the focus is on figuring out the next unifying idea (e.g. systemic risk), rather than taking a step back and reconsidering the discipline’s inherent biases. Learning history of economic thought is not a cure-all, but forcing one’s self to have some perspective early on will undoubtedly lead to better critical thinking, even if one’s toolkit is a little slower in developing (of course, the toolkit should probably be vastly changed as well). I then ask myself, is this discipline one that I really want to enter?

Whither economic thought, whither my very short career? These are the questions plaguing me…

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“The Hunters”

A friend sent this to me- some excellent long-form friday reading on oil drilling, BP, and society.

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I’ve written before about the movement to reduce meat consumption as a way of reducing greenhouse gas emissions. Reading the UN’s 2008 livestock report was what prompted me to drastically reduce my meat intake (I still have chicken 2-3 times a week, the occasional deli meat sandwich, and beef once or twice a month). Anyways, I was surprised when I saw this article by Bob Holmes in the New Scientist, which, by the headline, argues that cutting society’s meat intake may not be so green after all.

A meat-free world, then, would be greener in many ways: less cropland, more forest and, presumably, more biodiversity; lower greenhouse gas emissions; less agricultural pollution; less demand for fresh water – the list goes on…

But wait. If everyone opted to give up meat there would be significant costs, too. It is true that most livestock today are fed grain that people could otherwise eat, but it doesn’t have to be so. For most of human history, cattle, sheep and goats grazed on land that wasn’t suitable for ploughing, and in doing so they converted inedible grass into edible meat and milk…

Fed in this way, livestock represent a net gain of calories and protein in the human diet while dealing with some of the estimated 30 to 50 per cent of food that goes to waste…

Another downside would be the disappearance of animal by-products.

This case seems flimsy at best, and doesn’t convincingly show the counter-factual of emissions/unit of nutrition under the less-meat scenario. Holmes also confuses things by making statements like,

There is another alternative, though: treat livestock as part of the ecosystem. Garnett envisions returning animals to their original role as waste-disposal units, eating food leftovers and grazing on land not suitable for crops. “In that context,” she says, “methane emissions per animal will be higher, but overall emissions would be less because there would be fewer animals.”

And then, towards the conclusion of the article, Holmes says,

Given the deforestation, soil erosion, water pollution and greenhouse gas emissions that will result if worldwide meat production continues to rise, some people are already choosing to eat less meat. And the message is definitely less, not none. For best results, meat should be medium-rare.

Thus, most of the article makes the case that eating less meat is greener. Statements that temper this sentiment are equivocal at best. Holmes also omits the fact that grain-fed cattle reduce world grain supply’s, as it takes 10 pounds of grain to make one pound of meat.

And of course, the headline is pretty dishonest- “why eating green won’t save the planet.” I’m going to stick to my new diet, thanks, and hope that others join me, and that the when we someday get a carbon price, it includes the environmental costs of meat. In the meantime, scientists should study the general equilibirum effects of a broad reduction in meat consumption on greenhouse gases, so we don’t have confused half-statements like this article.

Update: I meant to include “Not” in the title of this post.

Update 2: My brain must be a friday mush. I changed the title back.

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Let’s take a look at today’s Financial Times headlines (and I’m aware columnists don’t always write the headlines, but these are representative):

Martin Feldstein: “A double dip is a price worth paying”

Jean Claue-Trichet: “Stimulate no more- it is now time to tighten”

“Fed to shift policy if recovery stalls”- of course, only if financial conditions worsen. Stagnant employment isn’t stalling, I guess.

OK, they do have some responses from Brad DeLong and others in the “austerity debate.” When did the pain caucus gain this intellectual credibility, though?

Google news search for those headlines to read the articles, if you can stand it.

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Hotel Workers Rising

Today is the nationwide hotel worker civil disobedience for fair contracts, affordable health insurance, and respect [ht:sm]. From the Hotel Workers Rising! website:

On July 22, nearly 1000 workers in cities across North America are prepared to take arrest in non-violent civil disobedience demonstrations. We invite you to join thousands of supporters to witness these brave and historic actions.

The rich take unfair advantage of everything . . . even a recession. We’ve endured staff cuts, reduced hours, and excessive injury rates. Meanwhile, the Pritzker Family—one of the wealthiest and most politically influential families in America—banked over $900 million in one day when Hyatt became a publicly traded company in November 2009. Still, Hyatt wants to take more away and lock us into recession contracts even as the economy rebounds.

Now thousands of Hotel Workers are doing what every American and Canadian should be doing . . . standing up to people like the wealthy Pritzker Family who run Hyatt—those who are taking unfair advantage.

Standing together on July 22: Vancouver, Honolulu, Chicago, San Francisco, San Diego, Santa Clara, Miami, Pittsburgh, Long Beach, Indianapolis, San Antonio, Los Angeles, Toronto, Rosemont, Boston, and Sacramento

Hotel workers have struggled for dignity in the workplace for some time now, and like many industries, it has been especially hard hit by the current recession. If traveling, you can use their guide to union hotels and hotel boycott list.

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The Hedgehog Review

The Summer 2010 issue of the Hedgehog Review looks at the world of economic culture and includes a delightful essay by Philip Mirowski, “The Great Mortification: Economists’ Responses to the Crisis of 2007-(and counting).” Apart from characterizing the responses to the crisis, Mirowski offers five lessons that have emerged from this most recent meltdown.

Instead of block quoting the entire essay, I will only encourage a reading of the essay in full. And the issue contains other excellent work on economic culture that is worth checking out. Enjoy.

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Given the confused political debates surrounding the financial reform bill, one thing is clear: more people should read Yves Smith’s ECONned. I highly recommend it to any reader interested in the crisis. The book includes an excellent description of the shadow banking system, the environment that allowed it to flourish, and the role it played in causing the crisis. And she provides something of an international perspective, which is completely lacking from the vast majority of descriptions I have read.

But most important and impressive is how she evinces the role that neoclassical theory and financial economics played in causing the crisis. Through examples, she makes a strong case that markets (especially financial) do not necessarily have a propensity towards equilibrium. This, of course, strikes at the heart of mainstream economic theory.

The only deficiency with making this argument is that economists pride themselves on the mathematical nature of their work, and so advocating a non-mathematical alternative (whether better or not) will likely fall on deaf ears within the profession. It seems that the best alternative for those of us who want to build an alternative economic theory is to still use math, but in a different way or a different type of math, to acheive a more useful alternative.

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Quick Hits

Like links, but more spontaneous and with more block-quoting…

Nancy Folbre writes that another economics is possible:

But I think conventional economics also plays a role, reinforcing cynical views of human nature and discouraging efforts to develop cooperative enterprises.

Textbook economics treats individuals as selfish optimizers, unconcerned about the welfare of others. Only recently have economists begun to explore the importance of fairness, reciprocity and altruism, and to consider the possibility that incentives to behave selfishly can undermine both moral norms and altruistic preferences.

Textbook economics also largely ignores worker-owned businesses and consumer cooperatives, although these are geographically widespread in the United States.

Steven Greenhouse reports on a worker-friendly garment factory in DR.

Industry experts say it is a pioneer in the developing world because it pays a “living wage” — in this case, three times the average pay of the country’s apparel workers — and allows workers to join a union without a fight.

“We never had the opportunity to make wages like this before,” says Ms. Castillo, a soft-spoken woman who earns $500 a month. “I feel blessed.”

The factory is a high-minded experiment, a response to appeals from myriad university officials and student activists that the garment industry stop using poverty-wage sweatshops.

Great, but wouldn’t it also be nice if the workers just owned the place?

Richard Green says that economics deserves more credit for teaching skepticism.

We worry about mis-measurement of variables, omitted variables, selection, reverse causality, and distributions all the time. We think hard about things we don’t observe–in my context, when I think about measuring house prices, I worry about the fact that we only observe houses that actually sell.

Maxine Udall rightly says in the comments:

I think the problem Taleb may be alluding to is some of the above combined with an absence of theoretical skepticism which is exacerbated by an absence of grounding in the history of economic thought. It causes well-trained economists to misunderstand metaphors like the invisible hand (which in turn produces a near religious faith among some in markets’ abilities to discipline the immoral and amoral). It also causes some to ignore or minimize the likely impacts of moral sentiments on market transactions and economic policies, particularly as they relate to fairness. And it may be why a few have recently confused accounting identities with causal relationships.

Indeed- it’s about asking the right questions, too.

And, finally-

I read Karl Marx, and I liked iiit (h/t DR):

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