Archive for May, 2011

The Awl has a good article about how Wikipedia, and Web 2.0 in general, have changed the way that knowledge is generated and accessed. Maria Bustillos fleshes out the implications of Wikipedia quite well, and as I will explain below, economics can benefit from open knowledge:

By empowering readers and observers with transparent access to the means by which conclusions are reached, rather than assembling them in an audience to hear the Authorities deliver the catechism from on high, we are all of us becoming scientists in this way, entering into a democracy of the intellect that is already bearing spectacular fruit, not just at Wikipedia but through any number of collaborative projects, from the Gutenberg Project to Tor to Linux…

Experts, geniuses, authorities, “authors”—we were taught to believe that these should be questioned, but until now have not often been given a way to do so, to seek out and test for ourselves the exact means by which they reached their conclusions. So long as we believe that there is such a thing as an expert rather than a fellow-investigator, then that person’s views just by magic will be worth more than our own, no matter how much or how often actual events have shown this not to be the case. For us to have this magic thinking about “individualism” then is pernicious politically, intellectually, in every way. That is not to say that we don’t value those who can lead the conversation. We’ll need them more and more, those “who are able to marshal the wisdom of the network,” to use Bob Stein’s words. But they might be more like DJs, assembling new ways of looking at things from a huge variety of elements, than like than judges whose processes are secret, and whose opinions are sacred.

I read this article last evening, about 12 hours after I happily signed up for the new initiative known as the World Economics Association, or WEA. As we know, economics needs to be opened up and pluralized badly (heck, this blog is named Open Economics for a reason). The WEA’s manifesto names a number of goals that are perfectly in line with out open-sourced knowledge operates- plurality, competence, relevance, and openness, to name a few. This new association, which will operate through free online journals and open web conferences, might be the first step towards wikifying economics. Already, the Real World Economics Review and its blog have raised the level of heterodox economic discourse and brought a solid platform. WEA aims to go a step further in terms of size, scope, and real discourse.

Now, there may seem to be a dissonance with the paragraphs I quoted from Bustillos and the fact that the WEA’s inception was ushered in with a letter from 141 founding members, all of them experts, and many of them true leaders in their fields. However, there is a vast difference between a neoclassical expert who seeks to promote his/her ideas above all others and an expert who wants to raise the level of discourse and bring in as many perspectives as possible. The WEA, unlike other professional associations in economics, explicitly welcomes non-economists (which include myself, I suppose). And, as Bustillos points out, these leaders in their fields will still play the role of the DJ, spinning the different ideas coming from all corners.

Pluralizing economics has been a goal of this blog from day one, and the benefits of this pluralism have been proven beyond a doubt through remarkable initiative like Wikipedia. Without hesitation, I encourage anyone reading this to join the WEA, get involved in the heterodox discourse, and help agitate economic knowledge for the better.

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I tend to believe that most people prefer to avoid making consumption choices that lead to environmental degradation, exploitation of laborers, or financial crisis. The problem is that we often do so without knowing it, and thus entire genres of investigative journalism come about to expose these situations. The list is literally endless.

The problem is that market transactions convey very little information other than price. It is hard to know about production practices or conditions under which the goods we consume are produced. And it is one of the fallacies of free market economics that the equilibrium price will ever reflect all relevant information regarding the good. Thus, market transactions put consumers in a bind where it is difficult to gain much information other than price even if one wanted to. This leads to purchases of clothing that are produced in sweatshops overseas, food that is produced using unsustainable environmental practices, and financing that involves trading CDOs (pools of mortgages) for profits without any knowledge of the local housing market, which was what sparked the current financial crisis.

Efforts to provide more information to consumers has been well intentioned but thus far unsatisfactory. The best example is the certification of organic foods, which was an attempt to provide more information about production methods; once the government took control of term, the lobbying forces in Washington whittled down the organic standards to the point where it is now a nearly meaningless certification (according to Michael Pollan, Twinkies could meet the criteria for an organic certification). Government regulation of labor through OSHA has similarly been defunded and made less effective.

A more effective way to provide information down the distribution chain seems to be to keep economies local. When food is produced at a nearby farm, or even better when each household knows their farmer, consumers are better equipped to make socially desirable decisions. There exists the possibility to literally see how food is produced. I imagine that we would not have any Concentrated Animal Feeding Operations if they were in our backyards. Nor sweatshops. Similarly, mortgages kept at a local level would not have engendered the financial catastrophe that we saw in 2007, where investment banks were pooling mortgages from across the country, slicing, dicing, selling, and re-pooling them, over and over to make profits without actually knowing what they were. Keeping the lending local, and encouraging more intimate knowledge of the conditions under which the loans were made and to whom, would certainly have mitigated the euphoria and speculation that led to the 2007 collapse of the subprime mortgage sector.

Certainly, not everything can be locally produced. I know that Wisconsinites appreciate Florida citrus in the winter months. There is undoubtedly a role for trade. But also, there are a great deal more things that can be produced locally that currently are not. Giving consumers the relevant information to make better informed decisions will allow their transactions to reflect more honest valuations than are currently made in market transactions with long distances between production and consumption.

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Mark Thoma posts the following chart (via Derek Thompson) to show that folks are “forgetting about the unemployed”:

Chris Hayes quips, “well, there you have it: unemployment’s over.”

What’s striking, though, is that even in January of 2010, when unemployment was over 10%, deficits received equal mention as unemployment. The media is certainly culpable here, but I’m guessing that their headlines are driven by the political discussion, which since the passage of the stimulus has been entirely warped. Goes to show that our political leaders, and the media by extension, will never give unemployment the attention it deserves.

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Faulty Towers

William Deresiewicz provides the best review of literature and issues concerning the crisis in American higher education that I have ever read. His article includes an analysis of the economics of higher education, which he argues is mirroring the broader American economy with a shrinking middle class and increasingly wealthy upper class. He discusses the importance of tenure and academic freedom, the unmaking of public universities, and how narrow self-interest is causing an oversupply of new PhD’s while undermining the university’s mission to serve the country and produce thoughtful citizens.

Anyone who writes on American higher education, or even in Europe, realizes there is a crisis. However, most solutions boil down to the increased efficiency through the developments of new technology, or the market as the solution. Deresiewicz, however, poses that online courses and distancing learning might undermine the higher education we are trying to improve, and that selling a university education on a free market means universities would cater to the self-identified needs of high school seniors.

I appreciate the more thoughtful approach that this article takes. Also, the shoutout to Notre Dame’s Fr. Ted Hesburgh:

Once, there were academic leaders who put themselves forward as champions of social progress: people like Woodrow Wilson at Princeton in the 1900s; James Conant at Harvard in the 1940s; and Kingman Brewster at Yale, Clark Kerr at the University of California and Theodore Hesburgh at Notre Dame in the 1960s. What a statement it would make if the Ivy League presidents got together and announced that they were going to take an immediate 75 percent pay cut. What a way to restore academia’s moral prestige and demonstrate some leadership again.

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About 6 months ago, Wal-Mart announced plans to open up 4 stores in my current place of residence, the District of Columbia. My immediate inclination was that this was problematic- Wal-Mart would certainly create jobs, but it would also destroy others. Absent good data on whether the creation would exceed the destruction, I surmised, it was necessary that the city impose some conditions on this big box store’s entry, such as a living wage and project labor agreements for store construction. This concept is not novel- Chicago activists fought for a living wage 5 years ago when Wal-Mart was coming to town, and the mayor vetoing it under the rationale that he would rather have low-paying jobs than no jobs at all. Activists in DC are seeking these conditions and many others now, and the debate will undoubtedly ramp up in the coming weeks and months.

It is essential that as the DC political leadership considers Wal-Mart’s entry, they look to examples like Chicago for the economic ripple effects that Wal-Mart will bring. A recent op-ed in the Washington Post summarized research done by several academics in Chicago. Their findings are stark:

In our initial survey, we identified 306 businesses within four miles of Wal-Mart that sold competing goods. Two years later, 82 of those businesses had closed. We found that businesses closer to Wal-Mart were significantly more likely to close than similar businesses farther away. Although we won’t go so far as to blame the closures on Wal-Mart, our evidence suggests that the new store hastened the decline of some of its competitors…

Based on the disproportionate number of business closures close to Wal-Mart, we concluded that, after two years, the number of jobs lost by Wal-Mart’s nearby retail competitors essentially offset the number of jobs created at the new Wal-Mart. With this data, we were not able to directly study Wal-Mart’s impact on new businesses, but Wal-Mart may also have influenced new business openings. The affected competitors had offered relatively limited benefits and offered wages only slightly above the minimum wage. Thus, the wages and benefits of the lost jobs were probably quite similar to the wages and benefits at the new Wal-Mart. From the point of view of workers, Wal-Mart’s opening was close to a wash…

In considering whether to encourage or oppose Wal-Mart’s entry into the District, our results suggest that job creation should not be an overriding factor. Consumers who shop at Wal-Mart certainly feel they benefit from its availability. However, others may feel that a highly profitable national retailer could adopt more generous labor standards and make a serious effort to preserve neighborhood identity. An open and vigorous debate about these trade-offs is worth having.

Inevitably, pro-business politicians will cite the job benefits of Wal-Mart as far outweighing the costs, most of which are borne outside the jurisdiction. However, if there are no job benefits, then why not make a large and profitable employer like Wal-Mart provide good wages and benefits? In that scenario, at very least both workers and consumers can benefit from Wal-Mart’s arrival. Otherwise, it’s just a race to the bottom, as Chicago has learned.

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