Eleventh Dimensional Chess for Beginners

Jared Bernstein at Post Everything:

At the heart of the president’s new plan is the closure of a big loophole that benefits the wealthy and inefficiently skews the tax code. When an asset (like a stock) you own appreciates, that income is known as capital gains (what’s that? you depend on your paycheck, not your cap gains? that’s kinda the point…read on). If you sell that asset, you’re taxed, and taxed at a preferential rate, on the so-called “realized” gains. 

But if you hold onto that asset you pay no tax on the “unrealized” gains. That income currently escapes taxation, even when—get ready because here comes the loophole, one the White House says is “the largest capital gains loophole – perhaps the largest single loophole in the entire individual income tax code”—you check out of this crazy thing called life, i.e., you die, and you turn those appreciated assets over to an heir.

As Jared notes,  "progressive policy makers have decided that 'can we get this through the current Congress?' is not a useful question for crafting the necessarily [sic] policy agenda in our age of inequality." Well, yeah, but... sounds like a good idea with populist appeal. I mean, what a scam sweetheart deal for the .01%. So why didn't the Democrats propose this and campaign HARD on it in last November's midterm elections?

Kapp-and-Trade Unions

In her essay, "On Working Class Environmentalism," Stefania Barca highlighted the formative contribution of K. William Kapp to a conceptual framework of social costs that integrates occupational, environmental and public health research. In his The Social Costs of Private Enterprise  (1950), Kapp advanced the thesis later summarized by Joan Martinez-Alier that, from a business perspective, "externalities are not so much market failures as cost-shifting successes." As Barca explained:

The core idea of the book was that social costs are produced by the internal logic of private business, that is the principle of investment for profit at the individual unit level. In order to maximize profit on a given investment, entrepreneurs need to minimize relative costs: in the existing legal and political structure of the US economy, Kapp observed, entrepreneurs found it possible and profitable to shift the real cost of human and environmental health and safety on third parties, namely the workers and society as a whole.

Barca described Kapp as a "non-orthodox economist." It is useful to pay close attention to precisely which orthodox premises Kapp was deviating from. In  Environmental Disruption and Social Costs: A Challenge to Economics," objected to the treatment by economic theory of "allocation, production, exchange and distribution as if they occurred in an essentially closed and autonomous 'economic' sphere with only minor effects on man’s natural and social environment." Introducing the the concept of "externalities" as an after-thought to this fundamentally flawed analytical framework only serves to create a "false impression that the theory has adequately incorporated the interdependencies at work.":

In short, simplifying assumptions and empty terms create the impression of adequacy but do not solve the problem. They will give us empty conclusions such as that rational allocation and optimal efficiency will be the outcome provided that important external diseconomies (and economies) are absent. Neither the assumptions nor the concepts nor the conclusions can lay claim to any of the virtues of which neo-classical and 'positive' economics have traditionally boasted. They are neither neutral nor objective; they are misleading and apologetic if not consciously so at any rate in effect. Such assumptions and concepts do not reveal but conceal what is actually happening. Moreover, they distract our attention from what is really important and what needs to be investigated. Thus they are preventing us from formulating the problem in an adequate fashion and hence from developing adequate criteria of action and appropriate methods of control.

This ad hoc treatment of social costs as incidental to the feature attractions of economic production, exchange and distribution is only aggravated by the Coasean abstractions of zero transaction costs and comprehensive assignment of property rights. Social costs appear "external" to market exchange precisely because they involve intractable transaction costs and assets for which it difficult or impossible to assign property rights. Wishes are not horses and prisoners do not have angels' wings. Calling a tail a leg doesn't make it one.

It would be easy, though, to overstate Kapp's deviation from orthodoxy and arguable that he does so in the above excerpt. Alfred Marshall was himself critical of the over-reliance on and misuse of static analysis. At the time Kapp's Social Costs of Private Enterprise was published in 1950, Institutionalist and Keynesian economists where influential both academically and in policy. Kapp's notion of cost-shifting was adopted from John Maurice Clark, who considered himself "enough of an 'institutionalist' (whatever that may mean) to have more than a lurking distrust of formulas and equations. But not enough of an institutionalist to ignore their importance..." Clark was the son of John Bates Clark, one of the pioneers of the "orthodox" marginal productivity theory.

In the years since Clark and Kapp were writing the lurking distrust has dissipated and the orthodoxy has become more rigid (in the name of "rigor"). Formerly, Robert Prasch has pointed out, the "divergence between the firm's and society's perspectives on the cost of labor was once widely understood and discussed in the economics literature." Today, however, "economists have simply dropped the concept of labor's social cost." Under idealized assumptions of perfect information, completely defined property rights and costless transactions "cost-shifting without compensation can not readily occur." In short, Kapp's caricature of the orthodoxy has become a reality.

The collective-bargaining implications of the social cost of labor are profound and far reaching. If only the wages, benefits and working conditions of currently-employed workers are on the bargaining table, then social costs and cost-shifting are expressly excluded. On the other hand, bargaining with a single employer over social cost shifting threatens to undermine that employer's competitiveness. This would appear to raise the necessity for some form of sectoral bargaining that addresses environmental and social justice issues.

I Told You So On Oil Prices

Yes, yes, eventually I shall be wrong.  But a week ago here I called a bottom to the oil price decline before anybody else in the world did, and it has held, with the price fluctuating between $44 per barrel and $51 per barrel. My post simply reminded the world what most of it had paid no attention to that the Saudis had publicly stated that they were planning their budget on the basis of a world oil price between $45 and $50 per barrel (minor note that Brent is about 75 cents above West Texas, a near convergence after a long period in which they were unaccustomably quite a few dollars apart)for .

So, in that post I declared "You saw it here first," and this is certainly the case.  Looks increasingly like the price is going to stay within the range that the Saudis want it to be for the near term.

In terms of details, for 8 hours a few days ago, the price went below $45, finally hitting bottom at $44, but after it rebounded it surged to $51, only to fall sharply.  The market seems for the moment to believe the Saudis, and the latest closing price was a bit over $48.  Deal with it and enjoy.

Barkley Rosser

Breaking: Milton Friedman Wins Debate!

"Don't know much about history." -- Sam Cooke 

"Milton Friedman won the debate, and John Kenneth Galbraith lost." -- Nick Rowe

Actually the military-industrial complex won the "debate" in 1950 but had to keep it secret. Friedman was just some guy with a broom sweeping up the droppings after the parade.

Members Only Unionism

While doing some background research on non-majority collective bargaining for the labour studies class I teach I discovered there was a conference just yesterday in Washington at which Catherine Fisk presented,  "In Defense of Members-Only Unionism." In Canada, Roy Adams has written about collective bargaining as a human right, outside of the administrative union certification model. The canonical source in the U.S. is Charles Morris's The Blue Eagle at Work: Reclaiming Democratic Rights in the American Workplace.  John True offered the following useful summary in his review of Morris's book:

The fundamental principle animating the Wagner Act is that working people are supposed to be able to act in democratic concert, to get together, to talk with each other about the issues that concern them on the job, and to engage their employers in some constructive pushing and shoving about those issues. This right given to workers to combine, so the theory goes, will produce fairness and justice in the workplace by counteracting the innate strength of capital. Workers' institutions were supposed to prosper, to integrate themselves into the political fabric of the nation and to provide a counterweight in the market and in political discourse that was to inure to the benefit of society as a whole. 

The NLRA also contemplates that employers -- though they have a First Amendment-based right to push and shove back against these workers' institutions -- are to permit, indeed respect, their workers' collective activities. Not only that, they are affirmatively obliged to respond in good faith to -- to bargain over -- their employees' proposals. The Wagner Act, modeled explicitly on the concepts underlying American representative democracy itself, requires nothing less than that workers be given the basic right to participate in discussions about the terms and conditions of their employment. 

Why, then, does this almost never happen anymore? Why does the American labor movement-with union membership plunging below ten percent of the private-sector workforce-seem more and more "flat on its back" every time we look at it? Union leaders, members, supporters and activists ask themselves these questions incessantly, of course, and Professor Charles J. Morris is one of several eminent labor scholars among those doing so. His latest inquiry, The Blue Eagle At Work: Reclaiming Democratic Rights in the American Workplace, slaps down a dramatic and provocative challenge in the middle of this discourse. Charting a new approach (that is not so new), he proposes that democratic rights have atrophied in the workplace because unions have fallen into self-defeating, addictive reliance on elections conducted by the NLRB as the way to organize workers. They have forgotten the remarkably broad promise set out in Section 7 of the Act: that all employees -- not just those who work for an employer where a union has won an election -- have the right "to bargain collectively through representatives of their own choosing." 

Ignoring the elegant simplicity of this proposition, unions have swallowed the intoxicating potion contained in the election/certification procedures provided for in Section 9 of the Act. Under its influence, they have opted to confront employers only when and if they become the certified or recognized representatives of a majority of those in "appropriate" bargaining units. Though this "all or nothing" approach led the union movement to spectacular successes in its early days, it has resulted more recently in increasingly futile attempts to win the hearts and minds of workers in situations where the odds are impossibly long. The annals of the union movement in the late twentieth century are full of bitter stories of struggle and defeat in National Labor Relations Board (NLRB)-supervised, set-piece battles in which employers hold all or most of the power.

In other news: Earth Still Global!

2014 Hottest Year on Record

Great Minds Thinking Alike Department: Public Venture Capital

I see that Dani Rodrik has made a proposal that echoes mine: he would have a publicly owned and administered fund that provides startup capital to entrepreneurs and gives workers a share in the returns; I would have coops contribute to a venture capital fund that helps new coops form and provides the higher-risk, higher-return portion of a balanced coop portfolio.  Same idea, different venues.

As a means to fundamentally reset the distributional structure of modern capitalism, public venture capital depends on the numbers.  How much capital are we talking about?  How large would be the individual worker’s expected revenue stream?  And how would the volatility of such a fund, even on a society-wide basis (think dotcom), be buffered through other shared assets?

Moreover, while defenders of an egalitarian capitalism, like Rodrik, have always looked to expanded participation in ownership, this strategy can only go so far.  My real world benchmark is Germany, where the majority of assets in the financial system are already held in public and cooperative institutions.  On its own, this is an achievement, one worth defending (from Brussels especially).  But many other institutions exist there to embed capital in a wider social matrix, including co-management and other worker representation channels, public-private coordination on industrial policy, which includes an extensive role for public education, and even industry associations which, while devoutly capitalist, provide public goods and are relatively transparent.  Nevertheless, even such a system is seriously biased in terms of wealth and power.  There is a compact capitalist class in Germany that wields extensive power, and income inequality is a serious problem that’s growing worse.  The moral is that, if you want to really transform capitalism, you have to do as much as Germany and then do more.  (I leave aside the large problem that Germany, as a surplus country,  exports some of its problems, like credit risk, to its trading partners and basks in an ideology according to which this state of affairs proves Germany’s virtue and its partners’ vice.)

But let’s not be negative.  Public capital in many forms, decentralized and even competitive, is the way to go.  Venture capital is, as they used to say, part of this nutritious breakfast.  If there’s still a political left out there, the core of its strategy should be socializing capital.

Profit Sharing on the Plantation and the Social Cost of Slavery

Following up on my previous post, the thought occurred to me:  what if someone proposed that instead of abolishing slavery (which would be detrimental to GDP growth), a system of profit-sharing should be introduced to enable the slaves to buy their freedom? The profit-sharing plan would be optimized by gradually ramping up the profit share over the span of, say, fifty years, given a discount rate of "x" determined by the projected GDP growth rate.

Then some Stanford researchers come along and point out that the social cost of slavery is actually six times as high as estimated by the standard models and that a much more stringent slavery mitigation policy is warranted.

Would it be too moralistic of me to point out that the quantitative casuistry is obscene? John Brown's body lies a mouldering in the grave.

Circular Social Cost of Carbon Reference

Frances Moore and Delavane Diaz's nature climate change letter, "Temperature impacts on economic growth warrant stringent mitigation policy" rightly points to the static nature of the standard assumptions of climate change Integrated Assessment Models, which capture only the transient effects of climate change on the economy. They point out that such assumptions leave total factor productivity (TFP) unchanged and thus ignore cumulative impacts on GDP growth rates.

They then go on to tweak the model to produce alternative estimates. They probably had to do this kind of thing to get any attention to their critique of the standard model. But the problem with the model is more fundamental than can be fixed by inputting better assumptions. The model is a colossal tinker-toy of indices, some of which are aggregates of disparate outputs expressed in money units and others of which are formulas that refer to the results of formulas that depend on the original formula's value: circular references.

Deeply embedded within the mare's nest of unacknowledged, unrecognized assumptions is an 86-year old "simplification" introduced to enable the calculation of otherwise indeterminate returns to factors of production. Eighty-six years is a long, long time in simplification shelf-lives but I suppose that if you don't know which direction your destination is, it doesn't matter how long it takes to get there. This missing link is "the economic effects of variations of hours of labour."

If we assume that there is some average length of the working day (week or year) that maximizes output, then variation above or below that optimum will reduce total output. Technological progress and changes in climate are also likely to effect the optimum length. Furthermore, changes in income effect preferences for leisure and consequently labour supply. It doesn't help that this indeterminate labour supply is both the denominator and an input into the numerator of the ratio that is supposed to determine the rate at which the ratio's numerator grows... Not to mention the social cost of labour.

It's a Rube Goldberg contraption with feedback loops.

Update: The "point" is that there is no basis for assuming that the given hours of labor maximize output. There is no basis for assuming  that the hours that maximize labor output would maximize utility of the workers. There is no basis for assuming that the hours that maximize output today would maximize output 50 years in the future or that the hours that maximize worker utility would maximize utility 50 years in the future. There are plenty of reasons for assuming that the answer to each of those questions is "indeterminate." In short, the interactions here are "so ramifying, involved and conjectural" as to render omniscience a prerequisite for making quantitative projections.

Spend&Spend and Borrow&Borrow

OK – now that the latest nonsense from Robert No Relationship to Paul Samuelson has been thoroughly debunked, let’s turn our attention back to the long standing fiscal policy debate which Ronald Reagan once quipped something about “tax& tax and spend&spend". Yes, we got the 1981 tax cut for high income groups but we also got continued spending including an increase in defense spending. Brad DeLong described the policy discussions back in 1982 as follows:

As I understood it then and understand it now, five things were happening: (1) Paul Volcker was trying back in 1982 to do what Alan Greenspan did in 1993–to condition a lower interest-rate policy on the administration’s taking the first step and committing to long-term deficit reduction, and the Reagan administration was stonewalling. (2) Ronald Reagan’s Treasury Department was engaged in a quiet and seeking a public administration-wide Reagan-led campaign to convince the Federal Reserve to lower interest rates. (3) Ronald Reagan’s communications staff was engaged in a quiet campaign to convince the Federal Reserve to lower interest rates, but was opposed to any public Reagan-led pressure as bad for Reagan’s image as a man in control of the government. (4) Reagan’s Council of Economic Advisors was on Paul Volcker’s side. (5) Reagan’s own personal papers are singularly unilluminating as to what he thought and was trying to do.

Brad notes several New York Times discussions from 1982 including this one:

After being warned today by Republican Congressional leaders that his budget could not be approved in its present form, President Reagan said that he wanted to give Congress ''running room'' to cut the budget to reduce the deficit. But he said that he was not ready to compromise on his plans to reduce income taxes and increase military spending.

Of course if one is not willing to cut defense spending or raise taxes – then how serious can one be about fiscal responsibility? The 1993 accord between the Greenspan FED and the Clinton White House was mainly accomplished on the fiscal side by a combination of tax increases and the “peace dividend”. And as I watch the coverage surrounding the movie Selma, I am reminded of certain CEA discussions with Lyndon Johnson on fiscal policy in 1966. We had seen a tax cut in 1964 followed by government spending for both the War on Poverty as well as the Vietnam War. His CEA warned President Johnson that if he could not reverse this fiscal stimulus, the FED would have to choose between higher interest rates versus letting inflation accelerate. Via Mark Thoma, we see this from Bruce Bartlett:

Just as an aside, I would note that Norman had been on the JEC staff in the 1960s, where he functioned as staff economist for Wilbur Mills while he was chairman of the House Ways & Means Committee. It was Mills who really got Kennedy to propose a cut in marginal tax rates in 1963, based on Ture's ideas. Since Norman was also deeply involved in the development of the Kemp-Roth bill, he was a bridge to both major tax-cutting episodes.

Norman Ture indeed was the original supply-sider who basically told Chairman Mills to ignore the CEA’s recommendations for fiscal restraint in 1966. We now know the unfortunate history of politics not heeding the advice of sensible economists. And yes – the supply-siders once again pushed for fiscal stimulus in 1981. How did that work out? I bring this up today in light of the fact that Mitt Romney is once again running for President. The last time he did so, he advocated large tax cuts without any serious consideration of how to pay for them. I’m sure Romney will have plenty of supply-side enablers once again.

Siphoning Off the Increment to Pay for More Excrement

Paul Krugman rightly excoriates the "carbonized Keynesianism" of the Republican rationale for the Keystone XL pipeline. As I replied to Barkley a few days ago, however, calling it "Keynesianism" is a misnomer. Kalecki had another name for it. I would prefer "Keyserlingering."

Sandwichman has been connecting the dots between Keystone pipe dreams, dynamic scoring of tax cuts and the genesis of pseudo-Keynesian multiplier aberrations in the top secret Cold War doctrine of NSC-68.

1950 was a watershed year for the alchemy of "transmuting excrement into increment." Academic economists, Paul Samuelson and John Maurice Clark said it couldn't (or shouldn't) be done. But the chairman of President Truman's Council of Economic Advisers, Leon Keyserling, had other ideas:

...if a dynamic expansion of the economy were achieved, the necessary build-up could be accomplished without a decrease in the national standard of living because the required resources could be obtained by siphoning off a part of the annual increment in the gross national product.

In his article on "Evaluation of Real National Income" Samuelson had explained that including "such wasteful output as war goods" in the calculation of national income served only to indicate the potential for producing "useful things... in better times." NSC-68 contrived counting wasteful output as a direct contribution to maintaining the standard of living. This is the logic the Republicans employ when they extol the job-creating magic of Keystone. But, more subtly, it is also the logic William Nordhaus employs when discounting the net present value of the future costs and benefits of climate regulation.

Exorcising the weaponized, carbonized, dynamically-scored Republican pipe dreams will take more than pointing out the meagerness and hypocrisy of their job-creation claims. It requires a ruthless critique of the lingering Cold War growthmanship that is deeply embedded in the economic conventional wisdom across the political spectrum.

"F" is for Formula; "M" is for Magic

Formula n. 1. fixed form of words as definition; statement prescribed for use on ceremonial occasion; rule unintelligently followed; infant's food made up from recipe.

In Magic, Science and Religion, anthropologist Bronisław Malinowski discussed the interplay between the systematic rational knowledge and the magical pseudo-science of the Trobriand Islanders, observing that "even with all their systematic knowledge, methodically applied, they are still at the mercy of powerful and incalculable tides, sudden gales during the monsoon season and unknown reefs."

It is in dealing with these formidable uncertainties that magic comes into play. "Science," Malinowski explained, "is founded on the conviction that experience, effort, and reason are valid; magic on the belief that hope cannot fail nor desire deceive." In contrast to the reliance of science on "observation, fixed by reason," the domain of magical pseudo-science is "hedged round by observances, mysteries and taboos."

The "mainstream/heterodox" distinction in economics is otiose (and odious). The demarcation that matters is between observation of economic regularities, which is limited, and the proliferation and persistence of economic pseudo-science in the face of "powerful and incalculable tides" and "sudden gales." "Theorists have a natural urge toward precise and determinate theorems or laws," John Maurice Clark wrote 65 years ago. "But..." he continued:

"...the facts of economic life show little consideration for this urge, and remain, to a large extent, perversely and persistently indeterminate. This is the skeleton in the closet of economic theory. What is a proper attitude for a would-be science, forced to deal with such refractory material? One thing economists do is to construct hypothetical simplified 'models.' These can be used in two ways: as an approach to reality or as an escape from it. My problem is how to promote the first kind of use and set up safeguards against the second." 

Would Clark's attitude toward this "skeleton in the closet of economic theory" make him "heterodox"? How has the bureaucratically-imposed conventional cost-benefit analysis and the Kaldor-Hicks criterion that justifies it achieved its canonical status? How about the notion of shirking in New Keynesian models of sticky wages? The ritual invocation of the lump-of-labor fallacy claim? Ceteris paribus? General equilibrium?

The urge for formulas in economic analysis is strong, especially from official "deciders" who yearn for guidelines, criteria or rules-of-thumb that will immunize their decisions from criticism for favoritism, arbitrariness or bias (all the more convenient if favoritism and bias are non-transparently built-in to the formula!). In an article also published in 1950, Paul Samuelson wrote:

"Improved measurement of national income has been one of the outstanding features of recent progress in economics. But the theoretical interpretation of such aggregate data has been sadly neglected, so that we hardly know how to define real income even in simple cases where statistical data are perfect and where problems of capital formation and government expenditure do not arise."

In his article, Samuelson warned that "the last word on the subject will not be uttered for a long time." Not that anyone would still be listening when that proverbial "last word" (or even the next word) was uttered. Hedged in by observances of bureaucratic standards and procedures, mysteries of discounted net present value and taboos on interpersonal comparisons of utilities, the aggregate data of national income came to ritually stand in for its own interpretation.

Usage and custom have shifted the burden of proof from the believers in economic magic to the skeptics. Disproving the magic is impossible. As Malinowski explained:

First of all, magic is surrounded by strict conditions: exact remembrance of a spell, unimpeachable performance of the rite, unswerving adhesion to the taboos and observances which shackle the magician. If any one of these is neglected, failure of magic follows. And then, even if magic be done in the most perfect manner, its effects can be equally well undone: for against every magic there can be also counter-magic [ceteris paribus]. 

Robert Samuelson Credits Reagan for the Volcker Disinflation

Paul Krugman has some fun with the latest from Robert (no relationship to Paul) Samuelson:

My point was that the legend of Reaganomics — that supply-side tax cuts produced a disinflation that confounded Keynesians — is not at all what happened in the 1980s. What happened instead was that harshly restrictive monetary policies created a deep recession, and a period of very high unemployment broke the wage-price spiral.

This narrative went completely unchallenged by Samuelson in his strange attack on Krugman. So what was Samuelson’s beef?

From 1960 to 1980, inflation — the general rise of retail prices — marched relentlessly upward. It went from 1.4 percent in 1960 to 5.9 percent in 1969 to 13.3 percent in 1979.

I guess Samuelson forgot that Nixon listened to Milton Friedman for his first couple of years as well as those Ford WIN buttons. And Volcker’s first monetary restraint occurred during Carter’s years in office. But let’s move on:

What Reagan provided was political protection. The Fed’s previous failures to stifle inflation reflected its unwillingness to maintain tight-money policies long enough to purge inflationary psychology.

Paul questions whether the Reagan Administration was totally behind Volcker’s tight monetary policy:

As it happens, I don’t agree on the political story either; based in part on what I saw during my year in government (1982-3), Reagan’s inner circle didn’t even understand that monetary policy was what was going on.

But we can go back to a 1986 discussion from Tom Redburn:

President Reagan's four appointees as governors of the Federal Reserve Board prodded Fed Chairman Paul A. Volcker toward a less restrictive monetary policy when they outvoted him last month on a cut in a key interest rate charged to financial institutions, sources said Tuesday.

The people that President Reagan was appointing to the Federal Reserve did not agree with the Volcker majority and eventually garnered enough influence to force a less restrictive monetary policy. I offer this not as a criticism of President Reagan as some of us loathed the severity of Volcker’s tight monetary policy. But people like Samuelson heart both Reagan and tight monetary policies. Faced with the inconsistency of these two positions – they decide to rewrite history. Update: Dean Baker has more on this including a nice graph of inflation that undermines this line from Samuelson:

Worse, government seemed powerless to defeat it.

Never mind that Dean’s graph shows inflation fell when the FED did tight money under Nixon and again fell after Gerald Ford started up with those damn WIN buttons.

On The Origin of Ecological Economics

There are two questions here to be answered, one of which has a new answer.  The first is the origin of the concepts that make up modern ecological economics.  The second, which has a new answer, is who first neologized the label:"ecological economics"?

Let me answer the second first.  The term became widely know after the journal of that name, Ecological Economics, was founded in 1989 by the ecologist, Robert Costanza.  Very briefly speaking, it has contrasted itself with "environmental economics," which is viewed as being based on conventional mainstream neoclassical economics, studying how to internalize externalities and also how to properly provide environmental public goods as studied in the "market failure" approach of economics.  The general stance of ecological economics, which has numerous sub-branches that squabble much with each other (and which I am not going to get into here and now) views this as insufficient.  It emphasizes needing to more clearly and explicitly incorporate both insights from and the modeling of ecology in connection with economics to emphasize and focus on the ecological foundations of economies, that real world economies are ultimately embedded within ecosystems, which are duly impacted by feedback from those economies.  The journal has from the beginning claimed to take a "transdisciplinary" approach.

So, initially Costanza and those around him who founded the journal claimed to have coined the term, with it unclear which of that group initially did so, it more or less emerging from ongoing discussions.  Some of those included Ann Marie Jansson (some have pointed to her as the originator), Carl Folke, Cutler Cleveland, and the more senior and well-known Herman Daly, among others.  It supposedly arose around then, in the late 80s.  But, I long knew they were wrong because I had been using the term for years prior to that period of time (the only one of those people I knew prior to then was Daly).  But, I did not coin it and never have claimed to have done so.

Where did I get it?  From the regional scientist, Walter Isard, who had served on the thesis committee at Penn of my major professor, Eugene Smolensky (with whom I studied at University of Wisconsin-Madison).  In 1972, he published a book with four otherwise completely obscure coauthors whom I shall not list entitled _Ecologic-Economic Analysis for Regional Development_, New York: Free Press, which I bought a copy of at the time and read thoroughly.  He proposed using an old standby of the old regional science, input-output analysis, to do this.  The crucial idea was that in the I-O matrix one could essentially break it into four broad sub-matrices: an economy to economy one, an economy to  ecology one (think pollution), an ecology to ecology one (Eugene Odum was already conceptualizing ecosystems as I-O systems, which species consumes which species), and ecology to economy (lots of stuff).  Each sub-part could have lots of detail.  I am not sure the precise phrase "ecological economics" appeared in that book, but it was pretty much there in the title, and from reading that book on, I thought in such terms.

The new news is that the term was used even earlier.  A new paper in Ecological Economics, the December 2014 issue to be precise, by Qi Feng Lin, "Aldo Leopold's unrealized proposals to rethink economics," 108, pp. 104-114, identifies the famous forestry ecologist, professor of game and wildlife management, and father of the "land ethic" from the University of Wisconsin, which he coined in his most famous work (published posthumously in 1949), _A Sand County Almanac_ (for those in Madison, Leopold was also the father of the UW-Arboretum.). It turns out that at the very end of his life, when he was writing A Sand County Almanac, Leopold was indeed doing a broader rethinking of economics from a strongly ecological orientation, including drawing a diagram that looks like Quesnay's Tableau Economique could have done it of "food chains" that go from the natural world to the economic world.  However, the bottom line on the phrase itself is that he wrote a memo to the University of Wisconsin administration in 1947 in which he proposed that there be a position created at the UW in, yes, "Ecological Economics."  Given his untimely death not too long after, there was no action on this, and Leopold's memo remained obscure and unknown as near as I can tell until unearthed now by Lin.

So, what about the origins of the ideas of modern ecological economics?  Well, I think the key here is in fact in what we see in Isard and Leopold, input-output analysis and its relatives.  Indeed, the second paper in the journal, Ecological Economics in 1989, was a paper by Paul Christensen, "Historical roots for ecological economics - biophysical versus allocative approaches," 1(1), pp.17-36.  Rather than going to the usual suspect, Malthus, he went to Quesnay and the physiocrats, with his Tableau Econoimique long being viewed as the fountainhead of input-output analysis, and certainly emphasizing land and nature as the foundation of the economy.  That is probably the fundamental source, although most economists of that era and earlier wrote much about agriculture and its ecological foundations, with an even earlier candidate possibly being William Petty.  As it is, I note that Herman Daly's first important publication was in the JPE  (of all places) in 1973, a year after Isard et al's book, "Economics as a Life Science," essentially followed him by proposing at the aggregate level the quadripartite I-O approach that Isard and crew had already laid out the previous year.  In any case, as sort of the older godfather of the Costanza group, Daly provides the crucial link between these earlier appearances of the concept and its full emergence at the end of the 1980s.

Barkley Rosser

To Kick Off 2015: Hippie Punching

The econ blogosphere has its fleeting obsessions, and the first of the new year seems to be whether heterodox economists have anything meaningful to say about the mainstream.  Simon Wren-Lewis confronted this head on, while Noah Smith broached it as an appeal to symmetry.  (The right tries to hijack economics and so does the left; we steer a middle course, etc.)

Well, there is an element of truth here.  Lots of heterodox criticisms of the mainstream are rooted in ignorance.  An even larger proportion of out-on-the-street leftwing criticism attacks a straw man, not economics as it actually is.  A meme can gain currency and no amount of rebuttal seems to do any good.  Remember “the problem with trade theory is that it is based on Ricardo, who assumed that capital doesn’t flow across borders”?  I still hear this one all the time.  You’d think that people might pick up an international trade textbook at some point just to see if it was true.

And many heteros blithely assume a strict correspondence between how much mainstream economics you accept and where you stand on a left-right spectrum.  There is a lot of ideology packed into econo-thinking, but it’s not as simple as that.  For instance, mainstream econ recognizes lots of market failure (as SW-L points out), and this might be construed as left-friendly.  On the other hand, the benchmark against which we measure solutions is how the economy would have performed if this failure hadn’t existed, and markets had been complete and frictionless.  That leans in the other direction.  If you think rough equality of leaning means objectivity, you are in Noah’s camp.  Me, I think ideological significance has to be tracked down in the particular domains where it appears and considered on its own terms.  (Yeah, that’s extremely abstract, but a lot of my posts over the years have been about those domains, in econometrics as well as pure theory.)

Meanwhile, what about the mainstreamers—how much do they know about the dissidents they criticize?  For instance, it would be hard to find a more sympathetic mainstream economist than Thomas Piketty, but his passages in K21 on the Cambridge controversies are egregiously misinformed.  This is not just about one guy: no doubt Piketty passed around the manuscript to many of his colleagues, high-level economists all, and none of them noticed that something was fundamentally amiss.  Meanwhile, hardly any mainstream economists pay attention to economic sociology, even though good work has been done on that front for decades.

And I shouldn’t leave this topic without saying that the best heterodox economists know their mainstream stuff backward and forwards—they know it better by honing their criticisms.  Consider someone like Lance Taylor, for instance; who is the mainstream LT who gives equivalent attention to the arguments on the other side?

So enough hippie punching already.  There is a lot of half-baked or even salmonella-raw argumentation on all sides.  Nevertheless, with the distribution of resources being what it is, heterodox types usually have to pay more heed to the mainstream than vice versa.  Their arguments may be wrong, but at least they have a clue who they’re arguing with.  The reverse is seldom true.

That follows from a mainstream (incentives) analysis, by the way.