Stephen Mihm's article on Roubini said:
"A recent study looked at “consensus forecasts” (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the ’90s: in 97 percent of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later."
Does anybody know the reference for this study?
Saturday, August 16, 2008
Friday, August 15, 2008
Away with Education!
Charles Murray has an incredible proposal in Wednesday's Wall Street Journal. He wants to do away with most undergraduate education. This idea seems quite popular at the time -- at least Murray's time. One of his colleagues, had a similar idea:
"Can there be any thing more ridiculous, than that a father should waste his own money, and his son's time, in setting him to learn the Roman language, when, at the same time, he designs him for a trade, wherein he, having no use of Latin, fails not to forget that little which he brought from school."
Locke, John. 1690. Some Thoughts Concerning Education in John Locke, The Works of John Locke in Ten Volumes (London): ix, pp. 1- 205, p. 153.
The core of Murray's idea is that the purpose of education is to compare people for the workplace. Employers would be better served if prospective employees would just take tests to prove their competency. Here is what Murray has to say:
"Outside a handful of majors -- engineering and some of the sciences -- a bachelor's degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance. Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses."
"The solution is not better degrees, but no degrees. Young people entering the job market should have a known, trusted measure of their qualifications they can carry into job interviews. That measure should express what they know, not where they learned it or how long it took them. They need a certification, not a degree."
I agree with Murray than many people are in college to earn a credential, which will have few benefits on the job. Some people with this kind of motivation will not get much out of college, but some will. And in the process, they might become richer (not necessarily in an economic sense), fuller people.
John Locke was correct that in education just restricted to Latin and Greek doesn't make sense. Many people during in the decades that followed Locke were leery of giving education to people without proper backgrounds, who might get too high an opinion of themselves -- or even become dangerous.
I certainly agree with Murray that college education has many deficiencies, a good number of which have to do with making education into providing business with good employees. Murray would certainly not appreciate that particular critique.
One measure of a decent educational system would be that the majority of graduates with be able to act as informed citizens with the result that they would get a government that would serve people's real needs.
By the way, whatever happened about the conservative demands to teach students about Shakespeare and great American literature?
"Can there be any thing more ridiculous, than that a father should waste his own money, and his son's time, in setting him to learn the Roman language, when, at the same time, he designs him for a trade, wherein he, having no use of Latin, fails not to forget that little which he brought from school."
Locke, John. 1690. Some Thoughts Concerning Education in John Locke, The Works of John Locke in Ten Volumes (London): ix, pp. 1- 205, p. 153.
The core of Murray's idea is that the purpose of education is to compare people for the workplace. Employers would be better served if prospective employees would just take tests to prove their competency. Here is what Murray has to say:
"Outside a handful of majors -- engineering and some of the sciences -- a bachelor's degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance. Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses."
"The solution is not better degrees, but no degrees. Young people entering the job market should have a known, trusted measure of their qualifications they can carry into job interviews. That measure should express what they know, not where they learned it or how long it took them. They need a certification, not a degree."
I agree with Murray than many people are in college to earn a credential, which will have few benefits on the job. Some people with this kind of motivation will not get much out of college, but some will. And in the process, they might become richer (not necessarily in an economic sense), fuller people.
John Locke was correct that in education just restricted to Latin and Greek doesn't make sense. Many people during in the decades that followed Locke were leery of giving education to people without proper backgrounds, who might get too high an opinion of themselves -- or even become dangerous.
I certainly agree with Murray that college education has many deficiencies, a good number of which have to do with making education into providing business with good employees. Murray would certainly not appreciate that particular critique.
One measure of a decent educational system would be that the majority of graduates with be able to act as informed citizens with the result that they would get a government that would serve people's real needs.
By the way, whatever happened about the conservative demands to teach students about Shakespeare and great American literature?
Traitors to the Cause
by the Sandwichman
The phrase, cited by Michael, "traitors to the cause of economics as a whole" has a farcical ring to it -- like "traitors to the cause of the phone company billing department" or "traitors to the noble cause of bureaucracy". No doubt the note of laconic derision was intentional on Card's part. But it captures the peculiarly regimental loyalty and zeal that clings to the latter-day proponents of price doctrine.
If the contemporary exorcism of labor from economics seems tragic, it needs to be remembered that it isn't the first time. Setting aside Marx as beyond-the-neoclassical-pale, there is the case of William Thomas Thornton's On Labour: it's wrongful claims and rightful dues its actual present and possible future. Thornton's critique of price doctrine hinged on the phenomenon of 'higgling' or what we might today call negotiation. As Michael V. White explained in "'That God-forgotten Thornton', Exorcising Higgling after On Labour." "With equilibrium thus assumed rather than explained, Thornton's critique was dissolved by exorcising higgling from the domain of the 'science of political economy'." (page 151)
Depending on one's theological vantage point (or cynicism), the liquidation of Thornton's critique looms as either the Original Sin or the Immaculate Conception of marginalist thought.
The phrase, cited by Michael, "traitors to the cause of economics as a whole" has a farcical ring to it -- like "traitors to the cause of the phone company billing department" or "traitors to the noble cause of bureaucracy". No doubt the note of laconic derision was intentional on Card's part. But it captures the peculiarly regimental loyalty and zeal that clings to the latter-day proponents of price doctrine.
If the contemporary exorcism of labor from economics seems tragic, it needs to be remembered that it isn't the first time. Setting aside Marx as beyond-the-neoclassical-pale, there is the case of William Thomas Thornton's On Labour: it's wrongful claims and rightful dues its actual present and possible future. Thornton's critique of price doctrine hinged on the phenomenon of 'higgling' or what we might today call negotiation. As Michael V. White explained in "'That God-forgotten Thornton', Exorcising Higgling after On Labour." "With equilibrium thus assumed rather than explained, Thornton's critique was dissolved by exorcising higgling from the domain of the 'science of political economy'." (page 151)
Depending on one's theological vantage point (or cynicism), the liquidation of Thornton's critique looms as either the Original Sin or the Immaculate Conception of marginalist thought.
Thursday, August 14, 2008
The Exclusion of Labor, cont.
Here is the last paragraph of what I posted earlier, plus some text that goes into more detail about the subject. Any suggestions would be appreciated.
Most economists are dismissive of any theory not built on what they consider to be solid micro-foundations -- economists' jargon for this patently unrealistic model. Mainstream economists feel threatened by the suggestion that work, workers, or working conditions could be a legitimate subject of economic inquiry. As a result, any challenges to their theoretical position get treated to a hostile reception.
In one famous case, in 1944 Richard Lester published an article questioning whether labor markets actually operated in the manner that mainstream economics suggested. Lester had extensive experience in industry after having recently served as chair of the Southern Textile Commission of the National War Labor Board. Using government data, as well as surveys of industry leaders, Lester found evidence at odds with the assumptions of mainstream economic theory (Lester 1944). For example, his results suggested that an increase in the minimum wage would have little or no effect on employment, a conclusion that infuriated major defenders of the faith, led by George Stigler, later a leader of the Chicago school of economics and a Nobel laureate (see Prasch 2007).
Exactly a half century later, using an entirely different approach, Alan Krueger of Princeton and David Card of the University of California, Berkeley walked back into the same hornet's nest (Card and Krueger 1994). As might be expected, they too met with hostile criticism from fellow economists, some sponsored by the fast food industry. Card and Krueger were both distinguished economists. In fact, Card had won the John Bates Clark award from the American Economic Association given to the outstanding economist under the age of 40. In the face of the controversy, Card eventually dropped this line of research because of the personal costs of challenging the discipline. He explained:
I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole. [Clement 2006]
Lester and Card did not fail to convince their fellow economists because of errors in their work. Economists either ignored their results or, worse yet, rejected them out of hand because they conflicted with economists cherished beliefs. As Stigler's colleague, Milton Friedman, once wrote: "Nothing is harder than for men to face facts that threaten to undermine strongly held beliefs, to change views arrived at over a long period. And there are no such things as unambiguous facts" (Friedman 1968, p. 14; cited in Diesing 1985, p. 61).
Yet, Chicago economics is famous for rejecting empirical evidence. Dierdre McCloskey, a former Chicago faculty member, recounts how people who used data that called the theory into question would "be met by choruses of "I can't believe it" or "It doesn't make sense." Milton Friedman's own Money Workshop at Chicago in the late 1960s and the early 1970s was a case in point" (McCloskey 1985, p. 140).
Melvin Reder, another Chicago faculty member, offered further insight in the way that Chicago refuses to give ground in the face of evidence that calls the micro-foundations into question:
Chicago economists tend strongly to appraise their own research and that of others by a standard that requires [inter alia] that the findings of empirical research be consistent with the implications of standard price theory .... The major objective is to convert non economists to their way of thinking .... However imaginative, answers that violate any maintained hypothesis of the paradigm, are penalized as evincing failure to absorb training. [Reder 1982, pp. 13, 18, and 19]
Economists regard this stubborn resistance to be good science. Predictably, the troubling questions raised by Lester and Card had no effect. Economists' beloved micro-foundations and their faith in market efficiency remained invulnerable -- so much so that economists today rarely even bother to publish research about the core of economic theory. In this environment, economists can continue to use their transaction-based theory without the inconvenience of dealing with work, workers, or working conditions. But by removing work, workers, and working conditions from their theory, economists blind themselves to the kind of inefficiencies that this book shows, especially in Chapter 9.
Most economists are dismissive of any theory not built on what they consider to be solid micro-foundations -- economists' jargon for this patently unrealistic model. Mainstream economists feel threatened by the suggestion that work, workers, or working conditions could be a legitimate subject of economic inquiry. As a result, any challenges to their theoretical position get treated to a hostile reception.
In one famous case, in 1944 Richard Lester published an article questioning whether labor markets actually operated in the manner that mainstream economics suggested. Lester had extensive experience in industry after having recently served as chair of the Southern Textile Commission of the National War Labor Board. Using government data, as well as surveys of industry leaders, Lester found evidence at odds with the assumptions of mainstream economic theory (Lester 1944). For example, his results suggested that an increase in the minimum wage would have little or no effect on employment, a conclusion that infuriated major defenders of the faith, led by George Stigler, later a leader of the Chicago school of economics and a Nobel laureate (see Prasch 2007).
Exactly a half century later, using an entirely different approach, Alan Krueger of Princeton and David Card of the University of California, Berkeley walked back into the same hornet's nest (Card and Krueger 1994). As might be expected, they too met with hostile criticism from fellow economists, some sponsored by the fast food industry. Card and Krueger were both distinguished economists. In fact, Card had won the John Bates Clark award from the American Economic Association given to the outstanding economist under the age of 40. In the face of the controversy, Card eventually dropped this line of research because of the personal costs of challenging the discipline. He explained:
I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole. [Clement 2006]
Lester and Card did not fail to convince their fellow economists because of errors in their work. Economists either ignored their results or, worse yet, rejected them out of hand because they conflicted with economists cherished beliefs. As Stigler's colleague, Milton Friedman, once wrote: "Nothing is harder than for men to face facts that threaten to undermine strongly held beliefs, to change views arrived at over a long period. And there are no such things as unambiguous facts" (Friedman 1968, p. 14; cited in Diesing 1985, p. 61).
Yet, Chicago economics is famous for rejecting empirical evidence. Dierdre McCloskey, a former Chicago faculty member, recounts how people who used data that called the theory into question would "be met by choruses of "I can't believe it" or "It doesn't make sense." Milton Friedman's own Money Workshop at Chicago in the late 1960s and the early 1970s was a case in point" (McCloskey 1985, p. 140).
Melvin Reder, another Chicago faculty member, offered further insight in the way that Chicago refuses to give ground in the face of evidence that calls the micro-foundations into question:
Chicago economists tend strongly to appraise their own research and that of others by a standard that requires [inter alia] that the findings of empirical research be consistent with the implications of standard price theory .... The major objective is to convert non economists to their way of thinking .... However imaginative, answers that violate any maintained hypothesis of the paradigm, are penalized as evincing failure to absorb training. [Reder 1982, pp. 13, 18, and 19]
Economists regard this stubborn resistance to be good science. Predictably, the troubling questions raised by Lester and Card had no effect. Economists' beloved micro-foundations and their faith in market efficiency remained invulnerable -- so much so that economists today rarely even bother to publish research about the core of economic theory. In this environment, economists can continue to use their transaction-based theory without the inconvenience of dealing with work, workers, or working conditions. But by removing work, workers, and working conditions from their theory, economists blind themselves to the kind of inefficiencies that this book shows, especially in Chapter 9.
Observations on Jena, former East Germany
So, last week I gave some lectures at the Max Planck Institute for Economics in Jena, a city in the Lander of Thuringia in the former East Germany. This city was touted in the latest Economist Country Survey of Germany as doing as well as any in this former nation. Its university is also very renowned. Founded in 1558, it had Goethe as an administrator and faculty that included Shiller, Hegel, Fichte, Herder, Haeckel, and Frege, with both Robert Schumann and Karl Marx as students. The major business in town (it is only about 90,000 population) is the Carl Zeiss Optical Works, which dates to the 19th century, and was one of the most successful of enterprises even during the period of socialist rule, and is doing well now, part of why The Economist could tout the place. Its unemployment rate is about the same as the German average, which is much better than most of the former East Germany, where some parts still have such rates exceeding 20%.
The city is a more extreme than usual example of mixing the old and the replacing bomb-damaged-new in Germany. The old Market Square, with its Rathaus dating to the 14th century survived bombing that hit the Eichplatz next to it. That area was rebuilt during the socialist period, partly with an open square, and partly with a tall and round skyscraper. This structure represented the "Kombinate" approach of the former East Germans, which involved lots of horizontal and vertical integration of activities, with, in this case. everything in Jena coming under a single administrative entity. This skyscraper effectively represented this approach, with much of the university on several of its floors in that era.
On the one hand life seems not too bad. Buildings look OK, and people do not look poor. Students seem to have adapted to the new regime, although they were completely unacquainted with Post Keynesian economics, which I lectured on in one of my talks. However, in talking to some of them, they do not see prospects as good there. Most plan to look for jobs in "the old states" (of the West) or even outside of Germany, these being economics grad students. I also observed very little construction going on, with some of what is going on still being fixups of WW II bomb damage.
A curious point is that while hard science faculty survived mostly the transition, all the social science faculties were purged at the time. The current economics profs are all from the West. None of them live in Jena permanently, having apartments there, but going back home to the West on the weekends, if not more frequently. One of them told me that he did move his family in the late 1990s to Weimar near Jena, but they moved back west after three years, there being too much hostility from the locals. However, the students say this is gradually dying out.
The city is a more extreme than usual example of mixing the old and the replacing bomb-damaged-new in Germany. The old Market Square, with its Rathaus dating to the 14th century survived bombing that hit the Eichplatz next to it. That area was rebuilt during the socialist period, partly with an open square, and partly with a tall and round skyscraper. This structure represented the "Kombinate" approach of the former East Germans, which involved lots of horizontal and vertical integration of activities, with, in this case. everything in Jena coming under a single administrative entity. This skyscraper effectively represented this approach, with much of the university on several of its floors in that era.
On the one hand life seems not too bad. Buildings look OK, and people do not look poor. Students seem to have adapted to the new regime, although they were completely unacquainted with Post Keynesian economics, which I lectured on in one of my talks. However, in talking to some of them, they do not see prospects as good there. Most plan to look for jobs in "the old states" (of the West) or even outside of Germany, these being economics grad students. I also observed very little construction going on, with some of what is going on still being fixups of WW II bomb damage.
A curious point is that while hard science faculty survived mostly the transition, all the social science faculties were purged at the time. The current economics profs are all from the West. None of them live in Jena permanently, having apartments there, but going back home to the West on the weekends, if not more frequently. One of them told me that he did move his family in the late 1990s to Weimar near Jena, but they moved back west after three years, there being too much hostility from the locals. However, the students say this is gradually dying out.
Wednesday, August 13, 2008
The US and the Former USSR Compared
In 1959 C Wright Mills wrote of the basic trend then apparent that was making the US and USSR increasingly alike. He mentioned quite a long list of observations to support his claim:
-- "each had amalgamated on a continental domain great varieties of peoples and cultures";
-- "both had expanded their territory and power significantly;"
-- the political order is enlarged and centralised (becoming less political and more bureuacratic). In neither are there any "nationally responsible parties" that "debate openly and clearly the issues which the world now so rigidly confronts. The two-party state is without programmatic focus and without organisational basis for it." Neither nation has a civil service independent of corporate interest (US) or party dictation (USSR). "The classic conditions of democracy and democratic institutions do not flourish" in their power structures. "History-making decisions and lack of decisions are virtually monopolised by elites."
-- the power of both depended on technological developments that had ben made into a "cultural and social fetish";
-- the organisation of all life is increasingly adapted to industrial technologies. (As it turns out life hasn't adapted that well after all!)
-- work is alienated from people and consumption is culturally exploitative;
-- education and religion tends to be shaped by major economic, military and political forces. "They do not originate. They adapt." Mass eduction has evolved to "educated illiteracy".
-- the media is one of mass distraction. "they do not often communicate; they do not connect public issues with private troubles...they trivialise issues.."
-- the goal of the "self-cultivating" person has declined. "It is the specialist who is ascendant in both Russia and America."
The list goes on. Perhaps the most telling line in Mill's essay is when he asks "to what extent [is] the continuation of freedom [in the US] due to the fact that it is not being exercised?"
I think that was answered about 10 years later when peaceful civil protest resulted in students being shot dead, the US Army began (and probably continues to) spy on its citizens, news reporters began to be jailed for failing to reveal their sources and numerous assassinations occurred against civilian leaders.
Not that things are (or were) that much different in Australia.
'The Decline of the Left'. Lecture on the British Broadcasting Company. 1959. From 'Power, Politics and People - the collected essays of C Wright Mills'. Edited by Irving Louis Horowitz. Oxford University Press. 1963.
-- "each had amalgamated on a continental domain great varieties of peoples and cultures";
-- "both had expanded their territory and power significantly;"
-- the political order is enlarged and centralised (becoming less political and more bureuacratic). In neither are there any "nationally responsible parties" that "debate openly and clearly the issues which the world now so rigidly confronts. The two-party state is without programmatic focus and without organisational basis for it." Neither nation has a civil service independent of corporate interest (US) or party dictation (USSR). "The classic conditions of democracy and democratic institutions do not flourish" in their power structures. "History-making decisions and lack of decisions are virtually monopolised by elites."
-- the power of both depended on technological developments that had ben made into a "cultural and social fetish";
-- the organisation of all life is increasingly adapted to industrial technologies. (As it turns out life hasn't adapted that well after all!)
-- work is alienated from people and consumption is culturally exploitative;
-- education and religion tends to be shaped by major economic, military and political forces. "They do not originate. They adapt." Mass eduction has evolved to "educated illiteracy".
-- the media is one of mass distraction. "they do not often communicate; they do not connect public issues with private troubles...they trivialise issues.."
-- the goal of the "self-cultivating" person has declined. "It is the specialist who is ascendant in both Russia and America."
The list goes on. Perhaps the most telling line in Mill's essay is when he asks "to what extent [is] the continuation of freedom [in the US] due to the fact that it is not being exercised?"
I think that was answered about 10 years later when peaceful civil protest resulted in students being shot dead, the US Army began (and probably continues to) spy on its citizens, news reporters began to be jailed for failing to reveal their sources and numerous assassinations occurred against civilian leaders.
Not that things are (or were) that much different in Australia.
'The Decline of the Left'. Lecture on the British Broadcasting Company. 1959. From 'Power, Politics and People - the collected essays of C Wright Mills'. Edited by Irving Louis Horowitz. Oxford University Press. 1963.
Tuesday, August 12, 2008
Is There a Middle Way Economic System: Janos Kornai Speaks
Among the things I did while out of town for the last two weeks was to interview the 80-year old, Janos Kornai, for a forthcoming book. For those who do not know who he is, he is probably the best known economist in Eastern Europe, and in my opinion deserves the Nobel Prize in economics, if for nothing else, for his development of the concept of the "soft budget constraint," originally to analyze the problems of market socialist economies, but which is clearly relevant to many economies, as the current problems of financial institutions and their relationships with governments in many countries during the past year indicate. Kornai has had a fascinating personal life as well as career, having barely survived the Nazi occupation of Hungary, then at least partly in reaction to that becoming a supporter of Stalinist socialism, which he turned against after Stalin's death as he learned of human rights abuses, then his involvement in the 1956 revolution and later turning to mathematical economics and linear programming, to become a critic of neoclassical economics in his book, Anti-Equilibrium from 1971, and then on to forecast the fall of socialism in Hungary with his later work and his broader analysis of the nature and history of the socialist economies. For those not wishing to wait for our interview to be published, his fascinating memoirs are available from MIT Press.
In any case, I wish to note an unresolved issue in our discussion. In the late 1980s Kornai argued that ultimately "there is no third way" between command socialism and market capitalism, that the soft budget constraint and related political issues would force every country either to go to a hard line command socialist position like North Korea's or move towards some form of market capitalism as did most of Eastern Europe eventually. During our discussion he brought up in a favorable way the late West German economist, Walter Eucken, who has been little translated into English. He was the inventor of the concept of the "social market economy," (sozialmarktwirtschaften), which has been the official ideology, more or less, of the Bundes Republik of Germany since the late 1940s, and which I think the social democracies of the Nordic countries are more or less examples of as well. Now it can be argued, and Kornai does, that these countries are all just special cases, if involving some "hybrid" elements, of market capitalism. And it is certainly true that they all have mostly private ownership of the means of production with little central planning. However, Sweden in particular has long advertised itself as representing a Middle Way, with its advanced welfare state and high environmental and other public goods concerns. I, for one, think that Kornai should be a bit more willing to grant such status to such economies.
In any case, I wish to note an unresolved issue in our discussion. In the late 1980s Kornai argued that ultimately "there is no third way" between command socialism and market capitalism, that the soft budget constraint and related political issues would force every country either to go to a hard line command socialist position like North Korea's or move towards some form of market capitalism as did most of Eastern Europe eventually. During our discussion he brought up in a favorable way the late West German economist, Walter Eucken, who has been little translated into English. He was the inventor of the concept of the "social market economy," (sozialmarktwirtschaften), which has been the official ideology, more or less, of the Bundes Republik of Germany since the late 1940s, and which I think the social democracies of the Nordic countries are more or less examples of as well. Now it can be argued, and Kornai does, that these countries are all just special cases, if involving some "hybrid" elements, of market capitalism. And it is certainly true that they all have mostly private ownership of the means of production with little central planning. However, Sweden in particular has long advertised itself as representing a Middle Way, with its advanced welfare state and high environmental and other public goods concerns. I, for one, think that Kornai should be a bit more willing to grant such status to such economies.
Monday, August 11, 2008
Speaking of Child Labor
If you want to hear what I have to say about child labor, here’s a link to Against the Grain, a KPFA (Berkeley) radio show that interviewed me today. CS, the show’s host, really does his homework; he’s great at cutting through the distractions and getting to the point. In another life I used to do what he does now (for WORT in Madison) and can appreciate what it takes to do it well.
Who Are the Ossetians?
The current war between Russia and Georgia is over South Ossetia, an autonomous region of Georgia that won de facto independence on the ground back in 1993, with some assistance from the Russians, who have had peacekeeper troops there since. There are some odd ironies to this war, including that one of the places most ferociously bombed in Georgia in the current campaign has been Gori, birthplace of Josef Dzhugashvilii, better known to the world as "Stalin." While he is usually thought of as being Georgian, and certainly mostly was, there has long been a rumor that he had Ossetian ancestry, even though during his rule, Osip Mandelstam was accused of "anti-Soviet slander" for mentioning this rumor (apparently initially spread by anti-Stalin Georgian nationalist emigres). The basis of it is that a paternal great grandfather apparently did come originally from a thoroughly Ossetian village, Geri. Of course it was Stalin who initially split Ossetia into two halves, making the northern part an autonomous region in the Republic of Russia and the southern one an autonomous region in the Republic of Georgia, within the broader Union of Soviet Socialist Republics.
Another matter of some controversy involves the origin and identify of the Ossetians, who would like to have their own country (and while Russia helps them in the south, there is now way that help will extend to the north). Their language is clearly of the Iranian branch of Indo-European, related to Farsi/Persian, as well as such languages as Kurdish, Peshto, and Tajik, among others. They are also clearly descended from the Alans, who ran a medieval kingdom in the region for several centuries, only coming to an end with the Mongol invasions of Chingiz Khan. The bigger controversy has to do with the origins of the Alans, with the official Soviet view being (and the most widely held one now) that they were either descended from or closely related to the ancient Scythians of the golden grave mounds. While this view became widely accepted after the beginning of the 19th century, it overturned a competing view that has had some recent advocates pushing for it that the Scythians were of Turkish origin. That view was originally expressed by Herodotus.
Another matter of some controversy involves the origin and identify of the Ossetians, who would like to have their own country (and while Russia helps them in the south, there is now way that help will extend to the north). Their language is clearly of the Iranian branch of Indo-European, related to Farsi/Persian, as well as such languages as Kurdish, Peshto, and Tajik, among others. They are also clearly descended from the Alans, who ran a medieval kingdom in the region for several centuries, only coming to an end with the Mongol invasions of Chingiz Khan. The bigger controversy has to do with the origins of the Alans, with the official Soviet view being (and the most widely held one now) that they were either descended from or closely related to the ancient Scythians of the golden grave mounds. While this view became widely accepted after the beginning of the 19th century, it overturned a competing view that has had some recent advocates pushing for it that the Scythians were of Turkish origin. That view was originally expressed by Herodotus.
Putin Shows Who is Boss in Russia
The Georgians made a bad mistake attempting to invade South Ossetia, given the clear interest of the Russians in it and especially on the eve of the Olympic games, a period traditionally when nations attempt to avoid fighting wars, or at least starting fresh ones. I can only hope that the US did not give them a "green light" given that we are not willing to support them, to busy trying to get Russia to help us out with Iran, although one never knows with this administration.
However, I must agree with the many who are upset with the over-the-top reaction by the Russians, continuing to bomb deep into Georgia proper even after the Georgians had retreated from South Ossetia. Although clearly there are various motives going on here, including consolidating in Abkhazia, scaring the Ukrainians, and messing with the Georgian oil pipeline, another would seem to be strictly an internal Russian political one. The Russian constitution currently says the Commander in Chief is the president, now Dmitri Medvedev. Stories have been coming out of Russia in recent weeks about Russian bureaucrats now knowing whose picture to hang on their office walls, with a trend to putting up ones that show both Putin and Medvedev side by side. So, Putin goes from Beijing, where he hugged with Bush, to Vladikavkaz, the capital of North Ossetia on the frontline (note: "Vladikavkaz" means "Victory in the Caucusus" in Russian), where he undoubtedly put into play this very strong reaction. I think the bottom line in Russia is that those pictures with both guys are going to come off the walls and the old ones with just Putin will be back in their places (and this means that Russia will now also be like Germany, Italy, and Israel with having a strong premier and a figurehead president).
However, I must agree with the many who are upset with the over-the-top reaction by the Russians, continuing to bomb deep into Georgia proper even after the Georgians had retreated from South Ossetia. Although clearly there are various motives going on here, including consolidating in Abkhazia, scaring the Ukrainians, and messing with the Georgian oil pipeline, another would seem to be strictly an internal Russian political one. The Russian constitution currently says the Commander in Chief is the president, now Dmitri Medvedev. Stories have been coming out of Russia in recent weeks about Russian bureaucrats now knowing whose picture to hang on their office walls, with a trend to putting up ones that show both Putin and Medvedev side by side. So, Putin goes from Beijing, where he hugged with Bush, to Vladikavkaz, the capital of North Ossetia on the frontline (note: "Vladikavkaz" means "Victory in the Caucusus" in Russian), where he undoubtedly put into play this very strong reaction. I think the bottom line in Russia is that those pictures with both guys are going to come off the walls and the old ones with just Putin will be back in their places (and this means that Russia will now also be like Germany, Italy, and Israel with having a strong premier and a figurehead president).
Sunday, August 10, 2008
NPR on Fighting Fair
I was listening in to NPR, hearing about what the powerful Russian airforce is doing to defenseless citizens in Georgia. What I did not hear was how similar Russian explanations for their actions and their tactics sound identical to those of the US military -- including taking out defense and communications facilities.
The Irrelevance of Workers In Economic Theory
Many of you know that I am finishing up a book manuscript regarding the exclusion of work, workers and working conditions from economic theory. This part jumps into the middle of a section. The meat of the post is really in the third and fourth paragraphs, where I do a JSTOR survey of the almost total exclusion from economics. Fans of Martin Feldstein may appreciate his contribution.
In short, the exclusion of work, workers, and working conditions was not simply an accidental oversight. First, it served an important purpose in defending the capitalism from the accusation of exploitation. Second, any analysis based on labor would call out for both impossible quantification and more difficult mathematics. Utility, however, seemed to permit economists to avoid the need for quantification, while seeming to simplify mathematical complexities. Finally, utility seemed to be capable of fitting in with the type of models that economists were using in their quest to emulate physics with its mathematics of maximization.
As Phil Mirowski noted, "Production, as conventionally understood, does not "fit" in neoclassical value theory" (Mirowski 1989, p. 284). In short, ideology, mathematical convenience, and scientific ambitions all combined to sweep work, workers, and working conditions under the rug.
The radical shift from labor to extreme subjectivity in which consumer's unmeasurable preferences became the center of economic analysis sealed labor's marginalization in the theoretical world of economic theory. Other fields, such as sociology, industrial relations, or psychology seriously explore questions of work, workers or working conditions, but economics does not.
An August 8, 2008 search of 73 economics journals collected electronically in the JSTOR database revealed how marginal work, workers, and working conditions has become in economic literature. Of the articles published since January 2004, the term "working conditions" appeared in only 12, not counting four more substantial articles in the Review of African Political Economy, a journal rarely cited by mainstream economists. Of the remaining articles, three concerned the problem of retention of teachers. Another had a footnote that observed that people can learn about working conditions from websites. One article noted that faculty members in colleges and universities join unions to improve working conditions. A book review considered whether globalization could improve working conditions. Two articles mentioned legislation that took working conditions into account. One article disputed that child labor abroad experienced hideous working conditions. Another cited a mid-nineteenth century British economist who said that factory working conditions were good.
My favorite entry was from Martin Feldstein, whose contempt for spiteful egalitarian was discussed earlier. This article was one of his many attacks on Social Security that proposed that good working conditions should be treated as taxable income (Feldstein 2005, p. 36). None of the articles offered any evidence of serious engagement with work, workers, or working conditions. In contrast, a search for sociologists' articles with the term "working conditions" that covered ten fewer journals, returned 107 articles.
At the same time as questions of labor were disappearing, economics began to elevate the status of investors' financial claims, insisting that owners of this form of property had rights equal to those of owners of real goods, such as land or factories. Even something as ephemeral as "good will" became recognized as property.
In short, the exclusion of work, workers, and working conditions was not simply an accidental oversight. First, it served an important purpose in defending the capitalism from the accusation of exploitation. Second, any analysis based on labor would call out for both impossible quantification and more difficult mathematics. Utility, however, seemed to permit economists to avoid the need for quantification, while seeming to simplify mathematical complexities. Finally, utility seemed to be capable of fitting in with the type of models that economists were using in their quest to emulate physics with its mathematics of maximization.
As Phil Mirowski noted, "Production, as conventionally understood, does not "fit" in neoclassical value theory" (Mirowski 1989, p. 284). In short, ideology, mathematical convenience, and scientific ambitions all combined to sweep work, workers, and working conditions under the rug.
The radical shift from labor to extreme subjectivity in which consumer's unmeasurable preferences became the center of economic analysis sealed labor's marginalization in the theoretical world of economic theory. Other fields, such as sociology, industrial relations, or psychology seriously explore questions of work, workers or working conditions, but economics does not.
An August 8, 2008 search of 73 economics journals collected electronically in the JSTOR database revealed how marginal work, workers, and working conditions has become in economic literature. Of the articles published since January 2004, the term "working conditions" appeared in only 12, not counting four more substantial articles in the Review of African Political Economy, a journal rarely cited by mainstream economists. Of the remaining articles, three concerned the problem of retention of teachers. Another had a footnote that observed that people can learn about working conditions from websites. One article noted that faculty members in colleges and universities join unions to improve working conditions. A book review considered whether globalization could improve working conditions. Two articles mentioned legislation that took working conditions into account. One article disputed that child labor abroad experienced hideous working conditions. Another cited a mid-nineteenth century British economist who said that factory working conditions were good.
My favorite entry was from Martin Feldstein, whose contempt for spiteful egalitarian was discussed earlier. This article was one of his many attacks on Social Security that proposed that good working conditions should be treated as taxable income (Feldstein 2005, p. 36). None of the articles offered any evidence of serious engagement with work, workers, or working conditions. In contrast, a search for sociologists' articles with the term "working conditions" that covered ten fewer journals, returned 107 articles.
At the same time as questions of labor were disappearing, economics began to elevate the status of investors' financial claims, insisting that owners of this form of property had rights equal to those of owners of real goods, such as land or factories. Even something as ephemeral as "good will" became recognized as property.
Friday, August 8, 2008
The Petro-Euro. Exchange Rate Warfare (continued)
I have been unable to post replies to blogs lately. I don't know why. So I continue the discussion on exchange rate warfare here.
YouNoSneaky has queried the very existence of an over-valued US dollar.
Discounting very recent declines, the US dollar has been over-valued for a long period of time. Probably (at least) since the early 1960s. That has got to do with the petro-dollar (1973) and global reserve currency (1948) arrangements.
"...At present, approximately two thirds of world trade is conducted in dollars and two thirds of central banks' currency reserves are held in the American currency which remains the sole currency used by international institutions such as the IMF. This confers on the US a major economic advantage: the ability to run a trade deficit year after year. It can do this because foreign countries need dollars to repay their debts to the IMF, to conduct international trade and to build up their currency reserves. The US provides the world with these dollars by buying goods and services produced by foreign countries, but since it does not have a corresponding need for foreign currency, it sells far fewer goods and services in return...." [1]
'Reason' correctly points out that Germany does not have a trade deficit. However Germany is the core of the Eurozone.
"...Getting a share of this economic free lunch has been one of the motivations, and perhaps the main motivation, behind setting up the euro2 . Were the euro to become a reserve currency equal to, or perhaps even instead of, the dollar, countries would reduce their dollar holdings while building up their euro savings. Another way of putting this would be to say that Eurozone countries would be able to reduce their subsidy to American consumption and would find that other countries were now subsidising Eurozone consumption instead...."[2]
The Eurozone does has a trade deficit.
World trade in today's context is dominated by (i) European and US multinational corporations (ii) these same multinationals enjoying monopoly market positions within nations and (ii) trading occuring within the same corporations (or networks of) across national boundaries. Given this, the question of global exchange rate wars between these two powerful camps - the Eurozone and the US - needs to be explored further.
Stefan Karlsson also points out that a net outflow of Foreign Direct Investment (FDI) from the US combined with a large inflow of foreign capital into the US is a very good deal for America [BR: or is it really for US multinatinals??], since this means that Americans can get money very cheaply from the Asian central banks and invest them in high-yielding investments in Asia. [This is] the mechanism behind the fact that America, despite the build-up of net foreign liabilities ..has had a surplus in net investment income of roughly $30 billion during 2004. The fact that foreigners have $11 trillion in U.S. assets versus U.S. holdings of only $8 trillion of assets outside America is thus more than compensated by the fact that U.S. investments offshore have a much higher average yield than foreign investments in America. It is not America who loses when the Asians lend money at low rates to Americans who can then invest it in high-yielding investments in Asia.”[3]
[1] 'Petrodollar or Petroeuro? A new source of global conflict.' By Cóilín Nunan. Accessed on 8th August 2008. http://www.feasta.org/documents/review2/nunan.htm
[2] 'Petrodollar or Petroeuro? A new source of global conflict.' By Cóilín Nunan. Accessed on 8th August 2008. http://www.feasta.org/documents/review2/nunan.htm
[3] What Are We to Make of the Trade Deficit?
Daily Article by Stefan Karlsson | Posted on 3/21/2005
http://mises.org/story/1762
YouNoSneaky has queried the very existence of an over-valued US dollar.
Discounting very recent declines, the US dollar has been over-valued for a long period of time. Probably (at least) since the early 1960s. That has got to do with the petro-dollar (1973) and global reserve currency (1948) arrangements.
"...At present, approximately two thirds of world trade is conducted in dollars and two thirds of central banks' currency reserves are held in the American currency which remains the sole currency used by international institutions such as the IMF. This confers on the US a major economic advantage: the ability to run a trade deficit year after year. It can do this because foreign countries need dollars to repay their debts to the IMF, to conduct international trade and to build up their currency reserves. The US provides the world with these dollars by buying goods and services produced by foreign countries, but since it does not have a corresponding need for foreign currency, it sells far fewer goods and services in return...." [1]
'Reason' correctly points out that Germany does not have a trade deficit. However Germany is the core of the Eurozone.
"...Getting a share of this economic free lunch has been one of the motivations, and perhaps the main motivation, behind setting up the euro2 . Were the euro to become a reserve currency equal to, or perhaps even instead of, the dollar, countries would reduce their dollar holdings while building up their euro savings. Another way of putting this would be to say that Eurozone countries would be able to reduce their subsidy to American consumption and would find that other countries were now subsidising Eurozone consumption instead...."[2]
The Eurozone does has a trade deficit.
World trade in today's context is dominated by (i) European and US multinational corporations (ii) these same multinationals enjoying monopoly market positions within nations and (ii) trading occuring within the same corporations (or networks of) across national boundaries. Given this, the question of global exchange rate wars between these two powerful camps - the Eurozone and the US - needs to be explored further.
Stefan Karlsson also points out that a net outflow of Foreign Direct Investment (FDI) from the US combined with a large inflow of foreign capital into the US is a very good deal for America [BR: or is it really for US multinatinals??], since this means that Americans can get money very cheaply from the Asian central banks and invest them in high-yielding investments in Asia. [This is] the mechanism behind the fact that America, despite the build-up of net foreign liabilities ..has had a surplus in net investment income of roughly $30 billion during 2004. The fact that foreigners have $11 trillion in U.S. assets versus U.S. holdings of only $8 trillion of assets outside America is thus more than compensated by the fact that U.S. investments offshore have a much higher average yield than foreign investments in America. It is not America who loses when the Asians lend money at low rates to Americans who can then invest it in high-yielding investments in Asia.”[3]
[1] 'Petrodollar or Petroeuro? A new source of global conflict.' By Cóilín Nunan. Accessed on 8th August 2008. http://www.feasta.org/documents/review2/nunan.htm
[2] 'Petrodollar or Petroeuro? A new source of global conflict.' By Cóilín Nunan. Accessed on 8th August 2008. http://www.feasta.org/documents/review2/nunan.htm
[3] What Are We to Make of the Trade Deficit?
Daily Article by Stefan Karlsson | Posted on 3/21/2005
http://mises.org/story/1762
Kvetching
I don't usually use the Internet to kvetch, but after 6 weeks of smoke that had me wearing a mask, I now am reduced to dialup. We lost on electricity on Tue. night because of the strongest thunderstorm I have ever witnessed. The walls on the house shook. Rapid lightening strikes eventually took out a transformer around the corner. I talked to some of the repairmen sitting in a truck. They could not do anything until someone came to tell them which transformer is out.
I told them that I could show it to them. It goes out frequently. 15 minutes later, they drove way. Finally, after continual promises that a fix was coming in 2 hours, we finally got electricity back on Wed. night, only to find out that our DSL was kaput.
AT&T has been giving us the same runaround as PG&E. One call promised that a technician would come by 8 tonight, but another said that we have our "appointment" between 8 am and 8 pm on Wed.
I told them that I could show it to them. It goes out frequently. 15 minutes later, they drove way. Finally, after continual promises that a fix was coming in 2 hours, we finally got electricity back on Wed. night, only to find out that our DSL was kaput.
AT&T has been giving us the same runaround as PG&E. One call promised that a technician would come by 8 tonight, but another said that we have our "appointment" between 8 am and 8 pm on Wed.
Exchange Rate Warfare
Perhaps readers may be able to help clarify the state of play for multinationals over the last few decades? I'm trying to piece together the jigsaw of international manoevres by the world's largest corporations.
It's interesting to observe that the nations with the largest deficits - the US, UK and Germany - are also the homes of the largest transnational corporations. Have their respective governments and reserve banks been:
(i) floating a lot of debt to these businesses at low interest rates;
(ii) maintaining artificially high exchange rates in order for their large MNCs to
(iii) accumulate assets relatively cheaply overseas and in order to facilitate
(iv) their cheap repayment of debt??
Now that these same corporations are caught in a recession with high levels of debt are we now seeing a taxpayer-funded bailout of these same MNCs?
It's interesting to observe that the nations with the largest deficits - the US, UK and Germany - are also the homes of the largest transnational corporations. Have their respective governments and reserve banks been:
(i) floating a lot of debt to these businesses at low interest rates;
(ii) maintaining artificially high exchange rates in order for their large MNCs to
(iii) accumulate assets relatively cheaply overseas and in order to facilitate
(iv) their cheap repayment of debt??
Now that these same corporations are caught in a recession with high levels of debt are we now seeing a taxpayer-funded bailout of these same MNCs?
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