Air travel offers an opportunity to catch up on one’s reading. In my case, this means Marion Fourcade’s “Economics: A View from Below”, which had been sitting in my pile for at least two long weeks. For those wondering about her title, she has been toying for several years with the actual/mock inferiority felt by other disciplines, such as her own sociology, in the face of the pretensions, authority and worldly success of economics.
This essay is another dancing, enigmatic exploration of this apparently stable dominance, one that survives public embarrassment, like the backwash against its claimed expertise after 2008, and internal fissures. She plays with Hayek, who denounced economists for their empty pretense of knowledge, and sports with contemporary eminences such as Ricardo Caballero, who have similar objections to the intellectual simulacrum that passes for economic insight.
To cut to the chase and save you from a more detailed reading if you’re not so inclined, Fourcade goes part of the way with Hayek, but recognizes that the critique of pretense is a gun that points in all directions, since there is no position of “postense” from which to aim it. She, like many others, sees the shared worldview and methodology of economics as the source of its strength, the reason why the discipline can prosper and expand its influence even as it hosts bitter debates among its practitioners; in fact, its capacity to cohere despite apparent fracturing is exactly its greatest asset. She also sees the discipline’s internal discord reflecting a dialectic between altering the world as a significant participant in it and interpreting it as a reflective bystander—not so different from a priesthood if one recognizes both aspects of what it means to be priestly. Economics does not converge on consensus because of the dynamic relationship between particular understandings of economic and political life and the ensuing events created by those understandings that themselves become objects of study.
Along the way, Fourcade demonstrates a tendency to be conventional. Foucault is invoked in a big way, for instance, even though it is now becoming apparent he profoundly misread classical and more modern political economy—a trajectory that ended up as utterly deluded cheerleading for neoliberalism. We also read that Keynesianism is a response to economic disorder stemming from fixed prices (getting JMK’s critique of his orthodox opponents exactly backwards) and German ordoliberal macroeconomics reflects the country’s experience with hyperinflation (rather than the hyper-austerity that ushered in Hitler). I get the impression that Fourcade’s method is to critique the conventional wisdom of particular academic specializations by juxtaposing them with the conventional wisdom of others.
On the main point, I think Fourcade gets half the story right: economics has established itself at the pinnacle of academic prestige because its subject matter and data pertain to the core institutions and practices of the modern, capitalist world. Experts on banks are going to have a lot more sway in this society than experts on pre-schools. That’s not a deep observation, and Fourcade is hardly the first to have voiced it, but it deserves repeating.
The half she misses is the extraordinary practical force that derives from conjoining positive and normative analysis, something economists do better than anyone else. Like many others—maybe Fourcade and maybe you—I was misdirected for years by the standard economic protestation that positive analysis is one thing and normative something altogether different. Analyzing how markets work is an entirely different project from arguing how they should work, or so it was said.
I now see this disclaimer hides exactly its opposite in plain sight. Economists use modeling and empirical techniques to explain and forecast, spottily in some topic areas and impressively well in others. The point is, positive claims can be given quite a load of legitimacy by the sophistication of these methods, creating the kind of expectations that fostered disillusionment in the wake of the 2008 financial crisis. You economists are so clever and have so many sources of data to work with; how come you blew it this time? The rest of us thought we had reason to expect much better.
But the remarkable thing about the normative side of economics, the welfare interpretation of markets, is that its sole role is to enable positive analysis to yield normative conclusions. Once you accept the welfarist framework, there is no longer any wall between the two. Economists can conduct detailed, empirically dense studies of particular markets or policies, and their results can be applied directly to determine the “optimal” actions that ought to be taken by decision-makers.
I realized this in a single epiphany. I was debating a particular aspect of welfarism with another economist, someone I agreed with on many issues, and after I had (I thought) demolished any defense of providing a welfare interpretation for a set of results we both accepted, he replied, “But how then do we tell the agencies what to do?” Implied is that it is our job to do this, and there will be a hole in the universe if we don’t. At that moment it became clear that protestations that positive analysis is over here and normative over there are just window dressing: economists take their core job to be the application of the techniques of positive investigation, predictive modeling and empirical estimation of model parameters, to adjudicating questions of policy.
If I can play that game too, I’d say that welfare economics, which claims to derive judgments of what decisions to take directly from market analysis without any substantive input from other realms of knowledge—like philosophy, psychology, sociology, public health or ecology—is the intellectual basis for Fourcade’s economic “superiority”. And it would be optimal for society if it could be lopped off from the rest of economic theory and safely disposed of.
Thursday, May 10, 2018
Wednesday, May 9, 2018
Blowing Up The Iran Nuclear Deal
This is probably Donald Trump's biggest mistakes, his refusal to certify Iran's compliance with the JCPOA nuclear deal with Iran and his fullout abrogation of it by announcing the reimposition of full economic sanctions against Iran, although we had not fully undone those sanctions anyway. An immediate victim in the US of this action will be Boeing workers who were to benefit from a $3 billion contract Boeing had with Iran, now cancelled by order of the US government. Needless to say, Trump has simply lied repeatedly about this matter, claiming the Iranians are not in compliance, when the IAEA and all other parties to the agreement say they are. Trump has strutted some reports stolen by Israeli intelligence, but those show almost nothing we already did not know, most particularly that Iran did have a covert nuclear weapons program prior to 2003 that it shut down.
I have posted on this topic regularly over a long period of time, going back all the way to the predecessor of this blog, MaxSpeak. I shall not reiterate all that I have said over those years, although I think my track record has been pretty good. I have long heavily relied on Juan Cole's Informed Comment for information on what is going on in Iran, and his track record on that has been excellent.
Two conflicting points come out, one suggesting bad things happening, one suggesting maybe not so bad. The bad is that Trump appears by all reports to simply have no plan beyond reimposing sanctions. Apparently he and his advisers think they can topple the regime, that economic unhappiness by Iranian citizens frustrated at failing to get much in the way of economic benefits from the JCPOA will rise up and overthrow the regime. But the more likely reaction will be for Iranians to move to support the regime against this clearly unwarranted and hostile act by the US. Of course apparently the Israeli and Saudi governments might like to have us engage in military action against Iran, which would be truly disastrous, but that does not seem to be in the works anytime soon. Anyway, it appears that aside from undoing yet another thing Obama did (lots of criticizing Obama and Kerry in his announcement), he really seems not to know what to do next. What I really wonder is if he truly believes his own lies that the Iranians have not been keeping to the deal.
The more positive fact is that all of the other participants of the deal: Russia, China, UK, France, Germany, and the EU, have all openly criticized Trump for this action and are not reimposing sanctions. Indeed, they seem to be acting so they can get around the effects through banking by the US to keep doing business with Iran, such as by using the euro instead of the dollar. This means that while Iranian leaders made noises about exiting the deal themselves and starting up their centrifuges again, maybe they can be talked out of doing that by the other parties to it. That would simply leave the US alone with its unemployed Boeing workers paying the price for this rank stupidity of Trump's. Let us hope for the best at this bad moment.
Barkley Rosser
I have posted on this topic regularly over a long period of time, going back all the way to the predecessor of this blog, MaxSpeak. I shall not reiterate all that I have said over those years, although I think my track record has been pretty good. I have long heavily relied on Juan Cole's Informed Comment for information on what is going on in Iran, and his track record on that has been excellent.
Two conflicting points come out, one suggesting bad things happening, one suggesting maybe not so bad. The bad is that Trump appears by all reports to simply have no plan beyond reimposing sanctions. Apparently he and his advisers think they can topple the regime, that economic unhappiness by Iranian citizens frustrated at failing to get much in the way of economic benefits from the JCPOA will rise up and overthrow the regime. But the more likely reaction will be for Iranians to move to support the regime against this clearly unwarranted and hostile act by the US. Of course apparently the Israeli and Saudi governments might like to have us engage in military action against Iran, which would be truly disastrous, but that does not seem to be in the works anytime soon. Anyway, it appears that aside from undoing yet another thing Obama did (lots of criticizing Obama and Kerry in his announcement), he really seems not to know what to do next. What I really wonder is if he truly believes his own lies that the Iranians have not been keeping to the deal.
The more positive fact is that all of the other participants of the deal: Russia, China, UK, France, Germany, and the EU, have all openly criticized Trump for this action and are not reimposing sanctions. Indeed, they seem to be acting so they can get around the effects through banking by the US to keep doing business with Iran, such as by using the euro instead of the dollar. This means that while Iranian leaders made noises about exiting the deal themselves and starting up their centrifuges again, maybe they can be talked out of doing that by the other parties to it. That would simply leave the US alone with its unemployed Boeing workers paying the price for this rank stupidity of Trump's. Let us hope for the best at this bad moment.
Barkley Rosser
Active Measures against the Spectacle
Passivity is a key term in Guy Debord's Society of the Spectacle:
Because, "there is, thank God! no means of adding to the wealth of a nation but by adding to the facilities of living: so that wealth is liberty-- liberty to seek recreation--liberty to enjoy life--liberty to improve the mind: it is disposable time, and nothing more."
12. The spectacle presents itself as something enormously positive, indisputable and inaccessible. It says nothing more than “that which appears is good, that which is good appears. The attitude which it demands in principle is passive acceptance which in fact it already obtained by its manner of appearing without reply, by its monopoly of appearance.
13. The basically tautological character of the spectacle flows from the simple fact that its means are simultaneously its ends. It is the sun which never sets over the empire of modern passivity. It covers the entire surface of the world and bathes endlessly in its own glory.
96. The ideology of the social-democratic organization gave power to professors who educated the working class, and the form of organization which was adopted was the form most suitable for this passive apprenticeship.
144. The commodity society, now discovering that it needed to reconstruct the passivity which it had profoundly shaken in order to set up its own pure reign, finds that “Christianity with its cultus of abstract man ... is the most fitting form of religion” (Capital).
219. One who passively accepts his alien daily fate is thus pushed toward a madness that reacts in an illusory way to this fate by resorting to magical techniques. The acceptance and consumption of commodities are at the heart of this pseudo-response to a communication without response.
What, then, constitutes activity? Debord's reply to this crucial question is inadequate -- rhetorical slogans about an amorphous "revolution." I would suggest instead two things, the autonomous disposal of disposable time and the labor strike (work stoppage or job action).
As should be clear, capital seeks to colonize disposable time with commodity consumption and "The Spectacle." How, then, does one distinguish between active use of disposable time and passive commodity consumption during one's free time? The distinction can be based on the criterion of whether what one does in one's free time will contribute to one's ability to withstand an interruption of income. Disposable time should be used to prepare for the struggle to obtain more disposable time!
As should be clear, capital seeks to colonize disposable time with commodity consumption and "The Spectacle." How, then, does one distinguish between active use of disposable time and passive commodity consumption during one's free time? The distinction can be based on the criterion of whether what one does in one's free time will contribute to one's ability to withstand an interruption of income. Disposable time should be used to prepare for the struggle to obtain more disposable time!
Because, "there is, thank God! no means of adding to the wealth of a nation but by adding to the facilities of living: so that wealth is liberty-- liberty to seek recreation--liberty to enjoy life--liberty to improve the mind: it is disposable time, and nothing more."
Saturday, May 5, 2018
200 Years, 200 Dollars!
In celebration of Karl Marx's 200th birthday, Sandwichman is offering a $200 (Canadian) prize to the first person who answers the following two-part question:
In what passage of The Wealth of Nations did Adam Smith commit the lump-of-labor fallacy (i.e., assume a fixed amount of work to be done) and in what passage of Capital did Karl Marx disparage the assumption as dogma and prejudice?
Post your answers in comments.
Friday, May 4, 2018
Job Guarantees, Collective Bargaining and the Right to Strike
“Guaranteed jobs programs, creating floors for wages and benefits, and expanding the right to collectively bargain are exactly the type of roles that government must take to shift power back to workers and our communities,” -- Senator Kirsten Gillibrand
"By strengthening their bargaining power and eliminating the threat of unemployment once and for all, a federal job guarantee would bring power back to the workers where it belongs." -- Mark Paul, William Darity, Jr., and Darrick Hamilton,
"Support for workers’ right to organize and collectively bargaining would, of course, be part of any such effort." -- Harry J. Holzer
"This, then, was the broad issue to which Samuelson and Solow's paper was addressed: Were price stability and full employment – or, as it was sometimes put, were price stability, full employment and collective bargaining – compatible in the America of their times?" -- James Forder
Under conditions of full employment, can a rising spiral of wages and prices be prevented if collective bargaining, with the right to strike, remains absolutely free? Can the right to strike be limited generally in a free society in peace-time? -- William Beveridge, Full Employment in a Free SocietyEveryone is talking about Job Guarantees these days and no one appears to have thought through the implications of such a policy for collective bargaining with anything like the thoroughness that William Beveridge did in 1946. In 1960, Paul Samuelson and Robert Solow concluded their discussion of full employment and inflation with a disclaimer:
We have not here entered upon the important question of what feasible institutional reforms might be introduced to lessen the degree of disharmony between full employment and price stability. These could of course, involve such wide-ranging issues as direct price and wage controls, anti-union and antitrust legislation, and a host of other measures hopefully designed to move the American Phillips' curves downward and to the left.We are told by the adherents of Modern Monetary Theory that inflation is not a problem. The government just sops up inflation by taxing back some of the money it has created to fund the program expenditures. Correct me if I'm wrong, but that seems like what they say. At the same time, though, at the same time, advocates of a Federal Job Guarantee tout the increased bargaining power that it would give to workers.
Usually that bargaining power is not specified as collective bargaining power. Harry Holzer's comment is the exception. Senator Gillibrand's mention of Job Guarantee and expanding the right to bargain collectively may have just been a smorgasbord of good things and not meant to imply advocacy of collective bargaining specifically for people in the Job Guarantee program. To use a distinction Richard Freeman and James Medoff adopted from Albert O. Hirschman, the "bargaining power" mentioned by Paul, Darity and Hamilton could as easily refer to the "exit" of individual choice as to the "voice" of collective action.
Well, who doesn't want to see workers gain more bargaining power? That is not a rhetorical question. To ask it is to call attention to the very powerful political forces that have seen to it, especially over the last 40 years or so, that they don't. Could it be that the advocates of the Job Guarantee have not done their opposition research? Do they suppose that the regime of supply-side, trickle-down, corporate neo-liberalism was inadvertent?
I am not so certain that the Kochs and the Waltons and Jeff Bezos and Jamie Dimon are going to shrug their shoulders and say, "O.K., workers, your turn now. Best of luck!" Regardless of whatever MMT says about inflation, the "inflation!" card will be played against any proposed job guarantee election platform, as will the "socialism!" card, the "moochers!" card, the "boondoggle!" card, and, yes, even the "lump-of-labor!" card.
In individual terms, bargaining power comes down to the alternative options if one quits a job -- what is the Best Alternative if There is No Agreement (BATNA). Collectively, bargaining power is determined by strike leverage, which is a mutual perception of the relative capabilities of the two parties to endure a prolonged work stoppage. A Job Guarantee would appear to give additional leverage to unions in the event of a work site closure or the hiring of replacement workers. The amount of leverage depends on what the rules are regarding the eligibility of striking workers for a Job Guarantee. Presumably, workers currently on strike would be ineligible. But what happens if the employer hires scabs (otherwise known as "replacement workers")? What if the company closes down and moves away? Would there be a waiting period before discharged workers become eligible for the Job Guarantee?
And what about the rights of the Job Guarantee workers themselves to collectively bargain and to strike? Until relatively recently public employees were denied the right to collective bargaining and the right to strike. Even today those rights are not universally acknowledged:
All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service... A strike of public employees manifests nothing less than an intent on their part to obstruct the operations of government until their demands are satisfied. Such action looking toward the paralysis of government by those who have sworn to support it is unthinkable and intolerable.Who said that? Governor Scott Walker in 2011? Chris Christie? No, Franklin Delano Roosevelt, in a 1937 letter to the president of the National Federation of Federal Employees. Scott Walker cited FDR in a 2013 speech. Could a Job Guarantee program that denied participants the right to strike become a Trojan horse for rolling back public sector unionism? That is not a rhetorical question.
The conspicuous lacunae in the Job Guarantee literature regarding collective bargaining and the right to strike strikes me as an elephant in the room. The fact that no one talks about it could not conceivably be because no one notices it. For what is at stake here is nothing less than the sovereignty of the State and its monopoly on the legitimate use of violence. In an astonishing paragraph in his essay on the "Crtique of Violence," Walter Benjamin makes this not so much "clear" as available for deciphering.
Benjamin's provocative claim, distilled from the writings of Georges Sorel and Carl Schmitt, is that "Organized labor is, apart from the state, probably today the only legal subject entitled to exercise violence." Let that sink in...
Benjamin goes on to offer qualifications and explanations that address the inevitable objections to that statement. By conceding the political right's standard objection to the labor strike as violent, however, Benjamin -- again following Sorel -- has isolated and emphasized the one circumstance in which it is not -- the revolutionary general strike. This is not to discount the inevitability of retaliatory violence from the State.
The insertion of Benjamin's argument into the debate on the Job Guarantee idea may seem esoteric to the casual reader. The reason it doesn't seem esoteric to me is that I have spent the last 20 years studying the history of anti-labor rhetoric of the right and how it gets translated ultimately into seemingly innocuous "policy principles." Public works as an employment stabilizer sounds like a good idea -- what happened to it? Full employment after the war sounds like a good idea -- what happened to it? The reduction of the hours of work sounds like a good idea -- what happened to it? As John Stuart Mill rightly pointed out, "He who knows only his own side of the case, knows little of that."
Thursday, May 3, 2018
On Negotiations In Korea
Let me say that if Donald Trump is able to finalize a serious agreement in Korea that brings an official end to the war there as well as establishing some kind of peaceful settlement in general that leads to some sort of mutually acceptable arrangement between the two Koreas that maintains a peaceful situation for some reasonably lengthy time into the future, pretty much irrespective of the exact details, I shall applaud. I shall not even hold my nose if somehow he gets the Nobel Peace Prize for it, as advocated by ROK president Moon Jae-in, although it is the latter who is the far more deserving recipient. But maybe such an award would have several recipients for it, if it happens. A few observations in any case.
I suspect that the importance of Trump's loud sabre-rattling has been exaggerated, certainly in the US media, but I shall not say it has played no part. But certainly important has been the substantial heightening of economic sanctions that came in over the past year as DPRK president Kim Jong-un carried out a series of major nuclear weapons and missile tests, culminating with a claim of testing an H-bomb and obtaining a sufficient nuclear weapons stache for deterrent purposes. Most important in this was China finally enforcing much stricter economic sanctions on the DPRK, either out of trying to please Trump, or out of increasing annoyance with Kim, or more likely a combination of both. As it is, Kim visited Beijing (by train) just before announcing his willingness to visit the ROK, and in fact China has been easing the economic sanctions since then. Without doubt this played a huge role, if not all that widely acknowledged, and even as all along pretty much everybody said that DPRK would not act until China put the economic squeeze on, and it finally did.
The other major player, probably the most important one, has been ROK president Moon Jae-in, who has managed cleverly to keep not only Trump but most US commentators and media from realizing that he has successfully manipulated Trump into supporting his diplomatic opening. It must be remembered that last year when Moon first came to office (and he would have come to office if Hillary was prez), he proposed and advocated a diplomatic opening. This was largely sneered at by Trump and those around him, with Abe of Japan and Xi of China receiving praise from Trump, who rather grudgingly acknowledged Moon as an "ally." It was Moon who pulled off getting Kim to attend the Winter Olympics in ROK, even though he allowed Trump to take credit for it. He has been repeatedly giving credit to Trump for everything since, even though most of it has been his own doing. But he has managed to get Trump on board, and indeed he needs Trump to finalize parts of this, including especially formally ending the Korean War from two thirds of a century ago.
I hope it all turns out well (and I remind any who do not remember, that I have posted here previously on how the hawkish policy by W. Bush after he came into office in 2001 pushed the DPRK to leave the NNPT and acquire the nuclear weapons it has, something not irrelevant to Trump's current approach to the Iranian nuclear deal).
Barkley Rosser
I suspect that the importance of Trump's loud sabre-rattling has been exaggerated, certainly in the US media, but I shall not say it has played no part. But certainly important has been the substantial heightening of economic sanctions that came in over the past year as DPRK president Kim Jong-un carried out a series of major nuclear weapons and missile tests, culminating with a claim of testing an H-bomb and obtaining a sufficient nuclear weapons stache for deterrent purposes. Most important in this was China finally enforcing much stricter economic sanctions on the DPRK, either out of trying to please Trump, or out of increasing annoyance with Kim, or more likely a combination of both. As it is, Kim visited Beijing (by train) just before announcing his willingness to visit the ROK, and in fact China has been easing the economic sanctions since then. Without doubt this played a huge role, if not all that widely acknowledged, and even as all along pretty much everybody said that DPRK would not act until China put the economic squeeze on, and it finally did.
The other major player, probably the most important one, has been ROK president Moon Jae-in, who has managed cleverly to keep not only Trump but most US commentators and media from realizing that he has successfully manipulated Trump into supporting his diplomatic opening. It must be remembered that last year when Moon first came to office (and he would have come to office if Hillary was prez), he proposed and advocated a diplomatic opening. This was largely sneered at by Trump and those around him, with Abe of Japan and Xi of China receiving praise from Trump, who rather grudgingly acknowledged Moon as an "ally." It was Moon who pulled off getting Kim to attend the Winter Olympics in ROK, even though he allowed Trump to take credit for it. He has been repeatedly giving credit to Trump for everything since, even though most of it has been his own doing. But he has managed to get Trump on board, and indeed he needs Trump to finalize parts of this, including especially formally ending the Korean War from two thirds of a century ago.
I hope it all turns out well (and I remind any who do not remember, that I have posted here previously on how the hawkish policy by W. Bush after he came into office in 2001 pushed the DPRK to leave the NNPT and acquire the nuclear weapons it has, something not irrelevant to Trump's current approach to the Iranian nuclear deal).
Barkley Rosser
Stock of Debt Held by US Public Has Tripled Over the Last Decade & Other Misleading Information
My title was the heading of Figure 19 in something from Deutsche Bank that has John Cochrane all stressed out over a pending debt crisis again.
This graph is gorgeous. US deficits have, historically, been driven overwhelmingly by the state of the business cycle, and have very little to do with tax policies and spending decisions that dominate press coverage. In booms, income rises, so tax rate times income rises. In busts, the opposite, plus "automatic stabilizer" spending kicks in. Until now. There is a good reason past deficits did not really spook markets. They understood the deficit was a temporary phenomenon, due to temporary poor demand-side economic performance. We do not have that excuse now.I’m wondering if Cochrane’s goal of late is to make his readers more stupid. First of all – looking at the nominal debt today compared to a decade ago is highly misleading. James Tobin once noted that the tripling of the Federal debt during the 1980’s was misleading as the real debt only doubled. He usually said that with his usual smile. OK – inflation today is a bit lower than it was during the 1980’s but the debt/GDP ratio only doubled over the last decade. Now we should admit that the fiscal stimulus since Trump took office is an alarming trend but it is very much like Reagan’s fiscal stimulus in 1981 in that both cut taxes for the rich and increased defense spending. Oh wait – Cochrane was all supportive of these fiscal moves last year but now he is sounding the alarm bells as Team Republican really does want to cut “entitlements”. To be fair - Cochrane did say:
I do think that roughly speaking we could pay for American social programs with European taxes. That is, 40% payroll taxes rather than our less than 20%; 50% income taxes, starting at very low levels; 20% VAT; various additional taxes like 100% vehicle taxes and gas that costs 3 times ours.He said a whole lot more that one can take a look at. My only response is that he is echoing another Team Republican line – tax everyone except the rich. But let me directly challenge this nonsense that our deficits have been “overwhelmingly by the state of the business cycle, and have very little to do with tax policies and spending decisions”. Yes – the recent run-up in the debt was due to the Great Recession and not some alleged Obama fiscal stimulus. We had only a temporary stimulus designed to counter the Great Recession. The run-up in the debt/GDP ratio under Reagan and Bush43 were due to tax and spending policies. Fortunately these supposed permanent tax cuts were not so permanent after all.
Tuesday, May 1, 2018
Duncan Foley On Socialist Alternatives to Capitalism
Yes, it is May Day, time to think about workers and socialism, while Vladimir Putin gets himself inaugurated for another term as President of Russia, with military vehicles parading In Red Square like they used to for the glory of the workers, but today for the glory of President Putin.
So, a couple of weeks ago there was a conference at the New School honoring Duncan Foley, who seems to be gradually retiring, half time to quarter time, I am not sure. It is my understanding that this conference had a lot of emphasis on Duncan's work on Marxist economic theory, with it organized by Roberto Veneziani and Mark Setterfield. I did not attend, but heard rumors about it. As it is, this is the second conference there honoring Duncan. I attended and presented in the first, which resulted in a festschrift volume in 2013, Social Fairness and Economics: Economic essays in the spirit of Duncan Foley, Routledge, an excellent volume.
The first thing that should be noted is that while Duncan is indubitably one of the leading living theorists of Marxist economics, he does not consider himself to be a "Marxist," but rather a student of Marx, if a deeply sympathetic one. This is a sensitive matter as he was turned down for tenure at Stanford largely because he was accused of being a "Marxist economist" when he started publishing papers and books on Marxist economics. He has always sais that his true ideology is his religion, Quakerism, the Friends, with him agreeing with their pacifism, which is not an idea inherent in Marxism, indeed, with many Marxists supporting violent revolution. Nevertheless, there is probably no living economist who is clearly more important as a deep analyst of Mars's economics, with some of his closest rivals in attendance at this latest conference, such as Anwar Shaikh.
How he got into Marxist economics followed on from his earlier work on general equilibrium theory, which was what got him hired at Stanford in the first place (and he still writes on GET). Indeed, he had been hired at MIT from Yale to teach general equilibrium theory to grad students a la Arrow-Debreu-McKenzie, as this was not Paul Samuelson's cup of tea. The motive for moving to Marx was the problem posed by fitting money into general equilibrium theory, which is generally done in a purely barter form. This is also a cover for the problem of how to link micro to macro. He was especially intrigued by Marx's writings on money in the Grundrisse and in Vol. III of Capital, which became the basis for his later interpretations and studies of this.
Again, I do not know what was presented or what he said at this most recent conference, but he has a working paper at New School from Feb. 2017 on "Socialist Alternatives to Capitalism I: From Marx to Hayek," which arguably shows his most recent thinking, not all that far from some of his earlier views, but more influenced by some of his more recent work on history of thought such as Adam's Fallacy, dealing with Adam Smith as well as Ricardo and Malthus.
Indeed, Duncan starts this paper with a discussion of post-Ricardian socialists such as Bray and Thompson, who proposed replacing money with labor-certificates, thus drawing on Ricardo's use of the labor theory of value. While he also briefly discusses the utopian socialists and Marx's reaction to them, he spends much more time on Marx's critique of this labor-certificate idea in the Grundrisse. At its bottom, Marx in effect says that labor power's value is only instantiated in capitalist commodity exchange. So these labor-certificates will not really move a society towards socialism. He also notes that in both Grundrisse, but even more so in the first two chapters of Capital Vol. III, Marx takes a long period position, noting that prices and wages may deviate from labor values even over entire rounds of the business cycle; that is only in the long run that prices oscillate about their natural "prices of production" given by labor values.
He then looks at Marx's own prescriptions for socialism in the 1875 Critique of the Gotha Program. There are two stages, the first essentially being a mixed economy where workers still work in commodity production with markets, but with the surplus being taken by the state or some other entity led by the workers that would use it for public investment, social welfare, or redistribution. The higher stage is that pure communism where the state withers away, and distribution is based on "from each according to his ability, to each according to his need," which Duncan notes is not backed up by any detailed institutional or other analysis, essentially a nice slogan.
He talks about the history of the early Soviet Union, noting that the NEP of the early 1920s looked like Marx's own first stage, but that it led to both the emergence of a neo-bourgeoisie as well as a "plodding behind the peasant." This would be replaced by Stalin's command central planning, which achieved rapid industrial growth in the short run, but stagnated in the longer run.
He runs through Pareto and Barone and then the socialist calculation debate with Lange and Lerner and von Mises and Hayek. He accurately sees the first two as laying the groundwork for an apolitical general equilibrium theory that could implemented either by a capitalist market or a central planner. He notes that Lange's market socialist response is essentially an updated version of Barone, but trying to take the von Mises critique about appropriate incentives into account. He says this is what became the policy of Deng Xiaoping in China, essentially a rerun of the 1920s Soviet NEP.
He ends with Hayek, noting his emphasis on information. He says that Hayek essentially returns to classical political economy and engages in an "existential" redefinition of commodity production. I am not sure I agree with this, but that is what he argues. He makes a final critique of Hayek by noting his ignoring of the distributional question, certainly a valid complaint, and one to keep in mind on this May Day, even if Duncan Foley ultimately leaves us hanging on what are the most promising of socialist alternatives to capitalism today.
Addendum, 5/2/18: So now I have read the follow piece by Duncan Foley, "Socialist Alternatives to Capitalism II: From Vienna to Santa Fe." Should have read it before posting above. So it directly follows from the first one (and was written at the same time apparently), taking Hayek's redefineition of commodities as information seriously. This is followed by a disquisition on top-down versus bottom-up socialist approaches. He sees the Soviet failure as reflecting it top-down and de facto exploitive nature. He says much nicer things about the worker management system of the former Yugoslavia, although without any analysis of how or why it failed. He bemoans the failure to fully follow through on Lenotief input-output matrices in the US, although the Dept of Commerce does have one that is periodically updated. He then makes a "speculative" effort at proposing a bottom-up form of quasi-socialism for the US, which he calls "Lifenet." It somewhat resembles cooperatives, but operates through information-sharing systems. He proposes how this could lead to dynamic adjustements over time in markets, but without accumulating concentrations of wealth and inequality. I guess this is the Santa Fe of the title. I can see potential problems with it, and he admits it is not fully worked out and is "speculative," but at least it is something.
Barkley Rosser
So, a couple of weeks ago there was a conference at the New School honoring Duncan Foley, who seems to be gradually retiring, half time to quarter time, I am not sure. It is my understanding that this conference had a lot of emphasis on Duncan's work on Marxist economic theory, with it organized by Roberto Veneziani and Mark Setterfield. I did not attend, but heard rumors about it. As it is, this is the second conference there honoring Duncan. I attended and presented in the first, which resulted in a festschrift volume in 2013, Social Fairness and Economics: Economic essays in the spirit of Duncan Foley, Routledge, an excellent volume.
The first thing that should be noted is that while Duncan is indubitably one of the leading living theorists of Marxist economics, he does not consider himself to be a "Marxist," but rather a student of Marx, if a deeply sympathetic one. This is a sensitive matter as he was turned down for tenure at Stanford largely because he was accused of being a "Marxist economist" when he started publishing papers and books on Marxist economics. He has always sais that his true ideology is his religion, Quakerism, the Friends, with him agreeing with their pacifism, which is not an idea inherent in Marxism, indeed, with many Marxists supporting violent revolution. Nevertheless, there is probably no living economist who is clearly more important as a deep analyst of Mars's economics, with some of his closest rivals in attendance at this latest conference, such as Anwar Shaikh.
How he got into Marxist economics followed on from his earlier work on general equilibrium theory, which was what got him hired at Stanford in the first place (and he still writes on GET). Indeed, he had been hired at MIT from Yale to teach general equilibrium theory to grad students a la Arrow-Debreu-McKenzie, as this was not Paul Samuelson's cup of tea. The motive for moving to Marx was the problem posed by fitting money into general equilibrium theory, which is generally done in a purely barter form. This is also a cover for the problem of how to link micro to macro. He was especially intrigued by Marx's writings on money in the Grundrisse and in Vol. III of Capital, which became the basis for his later interpretations and studies of this.
Again, I do not know what was presented or what he said at this most recent conference, but he has a working paper at New School from Feb. 2017 on "Socialist Alternatives to Capitalism I: From Marx to Hayek," which arguably shows his most recent thinking, not all that far from some of his earlier views, but more influenced by some of his more recent work on history of thought such as Adam's Fallacy, dealing with Adam Smith as well as Ricardo and Malthus.
Indeed, Duncan starts this paper with a discussion of post-Ricardian socialists such as Bray and Thompson, who proposed replacing money with labor-certificates, thus drawing on Ricardo's use of the labor theory of value. While he also briefly discusses the utopian socialists and Marx's reaction to them, he spends much more time on Marx's critique of this labor-certificate idea in the Grundrisse. At its bottom, Marx in effect says that labor power's value is only instantiated in capitalist commodity exchange. So these labor-certificates will not really move a society towards socialism. He also notes that in both Grundrisse, but even more so in the first two chapters of Capital Vol. III, Marx takes a long period position, noting that prices and wages may deviate from labor values even over entire rounds of the business cycle; that is only in the long run that prices oscillate about their natural "prices of production" given by labor values.
He then looks at Marx's own prescriptions for socialism in the 1875 Critique of the Gotha Program. There are two stages, the first essentially being a mixed economy where workers still work in commodity production with markets, but with the surplus being taken by the state or some other entity led by the workers that would use it for public investment, social welfare, or redistribution. The higher stage is that pure communism where the state withers away, and distribution is based on "from each according to his ability, to each according to his need," which Duncan notes is not backed up by any detailed institutional or other analysis, essentially a nice slogan.
He talks about the history of the early Soviet Union, noting that the NEP of the early 1920s looked like Marx's own first stage, but that it led to both the emergence of a neo-bourgeoisie as well as a "plodding behind the peasant." This would be replaced by Stalin's command central planning, which achieved rapid industrial growth in the short run, but stagnated in the longer run.
He runs through Pareto and Barone and then the socialist calculation debate with Lange and Lerner and von Mises and Hayek. He accurately sees the first two as laying the groundwork for an apolitical general equilibrium theory that could implemented either by a capitalist market or a central planner. He notes that Lange's market socialist response is essentially an updated version of Barone, but trying to take the von Mises critique about appropriate incentives into account. He says this is what became the policy of Deng Xiaoping in China, essentially a rerun of the 1920s Soviet NEP.
He ends with Hayek, noting his emphasis on information. He says that Hayek essentially returns to classical political economy and engages in an "existential" redefinition of commodity production. I am not sure I agree with this, but that is what he argues. He makes a final critique of Hayek by noting his ignoring of the distributional question, certainly a valid complaint, and one to keep in mind on this May Day, even if Duncan Foley ultimately leaves us hanging on what are the most promising of socialist alternatives to capitalism today.
Addendum, 5/2/18: So now I have read the follow piece by Duncan Foley, "Socialist Alternatives to Capitalism II: From Vienna to Santa Fe." Should have read it before posting above. So it directly follows from the first one (and was written at the same time apparently), taking Hayek's redefineition of commodities as information seriously. This is followed by a disquisition on top-down versus bottom-up socialist approaches. He sees the Soviet failure as reflecting it top-down and de facto exploitive nature. He says much nicer things about the worker management system of the former Yugoslavia, although without any analysis of how or why it failed. He bemoans the failure to fully follow through on Lenotief input-output matrices in the US, although the Dept of Commerce does have one that is periodically updated. He then makes a "speculative" effort at proposing a bottom-up form of quasi-socialism for the US, which he calls "Lifenet." It somewhat resembles cooperatives, but operates through information-sharing systems. He proposes how this could lead to dynamic adjustements over time in markets, but without accumulating concentrations of wealth and inequality. I guess this is the Santa Fe of the title. I can see potential problems with it, and he admits it is not fully worked out and is "speculative," but at least it is something.
Barkley Rosser
LOMPIGHEID: "Omgekeerd omgekeerd."
Last week I was browsing through one of the books on the shelf at work, which had in it three essays by the inter-war German Marxist Karl Korsch. One of the essays, a 1932 introduction to Capital mentioned mentioned a section in Chapter 24, "The So-Called Labour Fund" as exemplary of Marx's critique of political economy. The "labour fund" was more commonly known as the wages-fund, the doctrine famously recanted by John Stuart Mill in 1869.
After it had been repudiated in various degrees by the economists who formerly propounded it, the defunct doctrine became a straw man "fallacy" attributed to precisely the trade unionists who had been the targets of the doctrine's disdain. Marshall dubbed the re-purposed doctrine the fallacy of the fixed work-fund. David F. Schloss christened it the Theory of the Lump of Labour.
As is my habit, I searched on "labour fund" and "lump of labor/labour" to see if anyone had previously made the connection between Marx's critique in Capital and the ubiquitous attributions of the fallacy by economists to non-economists. What I discovered was a six-page discussion of my own historical investigation by a Belgian economist, Walter Van Trier, published in 2013 in the Belgian journal Over-Werk.
The title of the journal is somewhat of a pun as "over" means both "about" and "above" in Dutch, so it could mean both about work and overwork in English. The word lompigheid also contains a bit of a pun -- as one might guess lomp is lump and lompigheit (with a 't') refers to lumpiness, while lompigheid (with a 'd') means rudeness or clumsiness.
I am posting below a translation of the section from Van Trier's article that deals specifically with my analysis of the lump of labor fallacy. The full article, in Dutch, can be found here. Happy May Day!
After it had been repudiated in various degrees by the economists who formerly propounded it, the defunct doctrine became a straw man "fallacy" attributed to precisely the trade unionists who had been the targets of the doctrine's disdain. Marshall dubbed the re-purposed doctrine the fallacy of the fixed work-fund. David F. Schloss christened it the Theory of the Lump of Labour.
As is my habit, I searched on "labour fund" and "lump of labor/labour" to see if anyone had previously made the connection between Marx's critique in Capital and the ubiquitous attributions of the fallacy by economists to non-economists. What I discovered was a six-page discussion of my own historical investigation by a Belgian economist, Walter Van Trier, published in 2013 in the Belgian journal Over-Werk.
The title of the journal is somewhat of a pun as "over" means both "about" and "above" in Dutch, so it could mean both about work and overwork in English. The word lompigheid also contains a bit of a pun -- as one might guess lomp is lump and lompigheit (with a 't') refers to lumpiness, while lompigheid (with a 'd') means rudeness or clumsiness.
I am posting below a translation of the section from Van Trier's article that deals specifically with my analysis of the lump of labor fallacy. The full article, in Dutch, can be found here. Happy May Day!
Sunday, April 29, 2018
Job Guarantee versus Work Time Regulation
There has been a bit of commotion recently about the Job Guarantee idea (AKA employer of last resort). I don't consider myself an opponent of the strategy but I do have several reservations about its political feasibility, the marketing rhetoric of its advocates, and its economic and administrative transparency. Some of these concerns I share with an analysis presented by Robert LaJeunesse in his 2009 book, Work Time Regulation as Sustainable Full Employment Strategy. For that reason, it would be timely to post an excerpt from Bob's discussion of"Job guarantees versus work time regulation."
One thing that has puzzled me about the Job Guarantee rhetoric is the invocation of Hyman Minsky as patron saint of the strategy. There is no question that he advocated a job guarantee with the government acting as employer of last resort. But in the passages I've read, the proposal was either contingent to a broader discussion or supplemented with various other proposals some of which might be regarded as more far-reaching and controversial even than the job guarantee.
For example, a 1968 proposal argued that, "In addition, it will be necessary to restrain profits and investments; in particular, the highly destabilizing tendency for investment demand to explode will have to be brought under control." Nineteen years later, Minsky supported a proposal for "a maximum of 32 hours of work a week at the minimum wage" but argued it needed to be supplemented by other programs such as a universal, non-means tested child allowance. Both of these proposals were historical and context specific, with the earlier one arising from a critique of LBJ's War on Poverty and the later one in response to Reagan administration proposals for welfare reform.
The following excerpt is from pages 125-134 of Work Time Regulation as Sustainable Full Employment Strategy.
One thing that has puzzled me about the Job Guarantee rhetoric is the invocation of Hyman Minsky as patron saint of the strategy. There is no question that he advocated a job guarantee with the government acting as employer of last resort. But in the passages I've read, the proposal was either contingent to a broader discussion or supplemented with various other proposals some of which might be regarded as more far-reaching and controversial even than the job guarantee.
For example, a 1968 proposal argued that, "In addition, it will be necessary to restrain profits and investments; in particular, the highly destabilizing tendency for investment demand to explode will have to be brought under control." Nineteen years later, Minsky supported a proposal for "a maximum of 32 hours of work a week at the minimum wage" but argued it needed to be supplemented by other programs such as a universal, non-means tested child allowance. Both of these proposals were historical and context specific, with the earlier one arising from a critique of LBJ's War on Poverty and the later one in response to Reagan administration proposals for welfare reform.
The following excerpt is from pages 125-134 of Work Time Regulation as Sustainable Full Employment Strategy.
Monday, April 23, 2018
Whither Social Capital?
This past Friday there was yet another retirement conference, this time honoring "Mr. Social Capital," Robert D. Putnam, who is retiring from Harvard's Kennedy School at age 77. I was not invited, but I know some people who attended, including my sister and brother-in-law, the latter speaking at the dinner as family, the brother of Bob's wife, Rosemary. As it is, I have known Bob Putnam since before he became Robert D. "Mr. Social Capital" Putnam. That came especially with the publication in the 1990s of his massive hit book, Bowling Alonw, in which he presented massive amounts of data and arguments about the idea of social capital. This helped trigger an outright fad among academics and policymakers, including at the World Bank, about the importance of increasing social capital in many nations so as to supposedly improve their economic and social situations. It also led Putnam to become one of the most frequently cited living social scientists (176,000 plus times and counting, according to Google Scholar).
According to him the idea has been floating around in and out of public discourse since it first appeared in a report on education in West Virginia a good century ago. However, it began to pick up serious academic steam starting in the late 1980s when sociologist James Coleman began studying it and writing about it. Putnam's own background was mostly as an expert on Italian politics, but he picked up on the idea from Coleman in the early 1990s in a famous book he wrote on Italian democracy. For him it became a crucial factor in explaining the much better economic and social (and political) performance of northern Italy compared to southern Italy, albeit with a deep historical background. Whereas substantial portions of northern Italy had been independent city states with long histories of civic engagement in local ruling groups, most of southern Italy spent several centuries ruled by outside and autocratic Spain, which laid the foundation for the rise of the mafia as a countervailing power, which would come to dominate the society of the Mezzogiorno with its secrecy and lying and corruption. For Putnam one finds lots of people engaged in civic group activities in the North, but not in the South, and I even heard him once give a talk in which he claimed that one could explain 90% of the difference in economic growth rates among Italian regions by just looking at the percentage of their populations that belonged to civic choral groups in the 1870s. That correlation is probably correct, even if it has almost nothing to do with causation.
There are at least two issues here that need explaining, both of them Putnam well aware of and discussing in Bowling Alone, as well as some of his more recent books and articles. One is the basic matter of how one defines "social capital." As I have noted here previously, there are seep problems in defining "capital" in any of its supposed forms, with these more recent concepts such as human and social capital, much less such vagaries as "cultural capital," potentially involve a lot of vacuous handwaving and sloganeering. In any case, two competing definitions of it have emerged, with Putnam very much favoring and pushing one of them. The one he favors is this matter of the amount of social or civic groups that citizens belong to and are actively involved in. Indeed, the takeaway from Bowling Alone was that while more people were bowling in the 1990s, they were increasingly doing so literally alone, in contrast with the 1950s and 60s when people bowled in leagues with other people, this indicating a dangerous decline in social capital responsible for numerous social ills in American societies, with commentators on both the political left and right picking up the cry of worrisome woe over this matter. Of course this fit his story about what has happened in Italy, with his focus on widespread civic groups and activities in the North compared to the monolithic dominance of the secretive mafia in the South.
The competing concept has involved "generalized trust," which can be argued to support better economic performance through lowering transactions costs. In this way, lots of this kind of social capital might actually contribute to economic growth, although the other might as well. But some have argued (Fukuyama among others) that the civic engagement stuff only becomes important if it increases this generalized trust, thus lowering transactions costs. Furthermore, an influential paper in 1996 in the QJE by Knack and Keefer econometrically compared the influence of measures of both of these measures of social capital on economic growth rates in several European nations. Their much cited result claimed no effect from the civic membership variable, but positive and significant effects from the generalized trust measures.
The other issue involves another distinction between two kinds of social capital: "bridging" versus "bonding." The former seems to relate to generalized trust and involves working across groups in a society, thus supposedly heightening broader social solidarity and cohesion (to use competing terms for "social capital"). The other involves in-group solidarity and trust against outsiders. This may help the bonded group (Jewish diamond merchants, Italian mafia members), but not those outside the group. Indeed, the bridging looks like northern Italy while bonding looks like southern Italy again. In any case, Putnam has written on this matter extensively.
This brings us to a further dark side issue arising from his research, the matter of inter-ethnic relations and their relation to this concept, with this matter of bridging versus bonding crucial here. A more or less liberal Democrat, although an official adviser to President Carter (it was after that he moved from the University of Michigan to Harvard) and an unofficial one to President Clinton, he has reported, if not with much enthusiasm or publicity, that it appears that ethnic fragmentation and diversity does not help increase social capital on any of its measures, although this is not a universal one. Nevertheless, for supporters of diversity such as he is (and I am also), this is kind of depressing news, whatever one thinks of the concept. And, big surprise, it had been picked up by enthnocentrists and nationalists of various striped around the world, including in the US among Trump supporters. It looks like a triumph for social capital bonders rather than the more pleasing and virtuous bridgers, a victory of southern Italy and its corrupt mafia over the civic choral singers of northern Italy. Sigh...
Barkley Rosser
According to him the idea has been floating around in and out of public discourse since it first appeared in a report on education in West Virginia a good century ago. However, it began to pick up serious academic steam starting in the late 1980s when sociologist James Coleman began studying it and writing about it. Putnam's own background was mostly as an expert on Italian politics, but he picked up on the idea from Coleman in the early 1990s in a famous book he wrote on Italian democracy. For him it became a crucial factor in explaining the much better economic and social (and political) performance of northern Italy compared to southern Italy, albeit with a deep historical background. Whereas substantial portions of northern Italy had been independent city states with long histories of civic engagement in local ruling groups, most of southern Italy spent several centuries ruled by outside and autocratic Spain, which laid the foundation for the rise of the mafia as a countervailing power, which would come to dominate the society of the Mezzogiorno with its secrecy and lying and corruption. For Putnam one finds lots of people engaged in civic group activities in the North, but not in the South, and I even heard him once give a talk in which he claimed that one could explain 90% of the difference in economic growth rates among Italian regions by just looking at the percentage of their populations that belonged to civic choral groups in the 1870s. That correlation is probably correct, even if it has almost nothing to do with causation.
There are at least two issues here that need explaining, both of them Putnam well aware of and discussing in Bowling Alone, as well as some of his more recent books and articles. One is the basic matter of how one defines "social capital." As I have noted here previously, there are seep problems in defining "capital" in any of its supposed forms, with these more recent concepts such as human and social capital, much less such vagaries as "cultural capital," potentially involve a lot of vacuous handwaving and sloganeering. In any case, two competing definitions of it have emerged, with Putnam very much favoring and pushing one of them. The one he favors is this matter of the amount of social or civic groups that citizens belong to and are actively involved in. Indeed, the takeaway from Bowling Alone was that while more people were bowling in the 1990s, they were increasingly doing so literally alone, in contrast with the 1950s and 60s when people bowled in leagues with other people, this indicating a dangerous decline in social capital responsible for numerous social ills in American societies, with commentators on both the political left and right picking up the cry of worrisome woe over this matter. Of course this fit his story about what has happened in Italy, with his focus on widespread civic groups and activities in the North compared to the monolithic dominance of the secretive mafia in the South.
The competing concept has involved "generalized trust," which can be argued to support better economic performance through lowering transactions costs. In this way, lots of this kind of social capital might actually contribute to economic growth, although the other might as well. But some have argued (Fukuyama among others) that the civic engagement stuff only becomes important if it increases this generalized trust, thus lowering transactions costs. Furthermore, an influential paper in 1996 in the QJE by Knack and Keefer econometrically compared the influence of measures of both of these measures of social capital on economic growth rates in several European nations. Their much cited result claimed no effect from the civic membership variable, but positive and significant effects from the generalized trust measures.
The other issue involves another distinction between two kinds of social capital: "bridging" versus "bonding." The former seems to relate to generalized trust and involves working across groups in a society, thus supposedly heightening broader social solidarity and cohesion (to use competing terms for "social capital"). The other involves in-group solidarity and trust against outsiders. This may help the bonded group (Jewish diamond merchants, Italian mafia members), but not those outside the group. Indeed, the bridging looks like northern Italy while bonding looks like southern Italy again. In any case, Putnam has written on this matter extensively.
This brings us to a further dark side issue arising from his research, the matter of inter-ethnic relations and their relation to this concept, with this matter of bridging versus bonding crucial here. A more or less liberal Democrat, although an official adviser to President Carter (it was after that he moved from the University of Michigan to Harvard) and an unofficial one to President Clinton, he has reported, if not with much enthusiasm or publicity, that it appears that ethnic fragmentation and diversity does not help increase social capital on any of its measures, although this is not a universal one. Nevertheless, for supporters of diversity such as he is (and I am also), this is kind of depressing news, whatever one thinks of the concept. And, big surprise, it had been picked up by enthnocentrists and nationalists of various striped around the world, including in the US among Trump supporters. It looks like a triumph for social capital bonders rather than the more pleasing and virtuous bridgers, a victory of southern Italy and its corrupt mafia over the civic choral singers of northern Italy. Sigh...
Barkley Rosser
Thursday, April 19, 2018
Can Nudging Become A New Road To Serfdom?
Last weekend I attended a conference at NYU Law School on "Behavioral Economics and the New Paternalism, organized by Austrian economist Mario Rizzo and classical liberal law professor Richard Epstein. It included economists, lawyers, philosophers, and a couple of psychologists. While there was a range of views present a theme for many and especially of the organizers was bashing the ideas about "libertarian paternalist" nudging advocated by Richard Thaler, winner of the most recent economics Nobel Prize, and Cass Sunstein. In particular, Rizzo and participant Glen Whitman have written a book charging the nudgers with advocating a creeping totalitarianism with their advocacy of governments nudging people to do what governments think is best for them. While there were no full-blown Thaler defenders at the conference, the more philosophically oriented attendees rose to the bait and argued against the anti-nudgers, with an especial sharp debate happening between Epstein and Robert Sugden a philosophical economist from East Anglia in England.
Pethaps the most substantial anti-nudge and also critical of behavioral economics paper came from George Mason law professor, Todd Zywicki. While he overdid it a bit he argued with some good reason that most legal decisions in the US relying on claimed behavioral economics foundations, especially on matters involving credit and consumer finance issues, have been seriously flawed. They have either relied on misinterpretations or else mere assertions that have not been empirically demonstrated. He raised a point of more general interest in charging that there has been a problem of "citation cascades," where a string of decisions have been based on people citing people citing other people in a cascade that eventually boils down to an initial claim that has no clear basis. He noted several of these where the original argument was mere speculation in a paper by Thaler for which no empirical support was provided, but then people quoted his opinion as proof and then quoted each other quoting him, and so on.
Much less polemical but more serious intellectually were papers by Gerd Gigerenzer and Nathan Berg. The former directs a branch of the Max Planck Institute in Berlin and has written an important book with the late Reinhard Selten. Berg was a professional jazz musician before he became an economist, now based in Otago, New Zealand. I have published a paper in my journal, ROBE, on their general themes, which draw on ideas of Herbert Simon and his bounded rationality. In particular Gigerenzer pointed out lots of cases where people doing things that look supposedly irrational for one reason or another in fact lead them to perform better than supposedly rational actors. So there may be a hot hand after all and the "gambler's fallacy" may actually make money. One point is that sample parameters may not be the same as population ones. Even being inconsistent may actually allow one to perform better than consistently. So to the extent nudge paternalism is supposed to help people overcome hurtful damaging of themselves, well, it may not really help them.
The philosophical defenders of the nudge agenda appealed to multiple selves theory, among other things. One problem was that some of the nudge critics denied findings of behavioral economics that hold. So Richard Epstein denied the endowment effect, noting that most experiments about it have involved undergrads and coffee mugs, demanding more for ones they have been given than they are willing to pay for ones they do not own. Epstein argued that coffee mugs are not a big part of the economy. Also, he and others cited papers by Plott and Zeiller that showed it is possible to structure these experiments so that the effect disappears. However, Sugden and others noted that this is a special case, and that generally the endowment effect holds and does so in important and large scale situations. So people will demand much more compensation for giving up some wilderness area than they are willing to pay for more of it.
I noted that this is like the matter of the ultimatum game, where people tend to refuse what they consider unfair offers, even though it costs them money to do so. Over 30 years ago Ken Binmore showed that it was possible to set up ultimatum game experiments where the usually found effect disappears. But the oddity of that result in the end shoed that Binmore's result was an exception. The ultimatum game result is very robust. People really do care about fairness.
Economic philosopher Daniel Hausman of Wisconsin presented a middle ground, partly supporting the multiple selves and meta-preferences view (so government might nudge one towards one of one's better selves, e.g. trying to discourage an 18 year old from smoking), but focused more on the means involved, the method of nudging. Thus, informing and encouraging is one thing, but deception and coercion are another, although Thaler and Sunstein claim to oppose coercion for sure. As it is in the real world, the line between some of these things, which opens the door for the slippery slope critics who warn of these possible new roads to serfdom.
Barkley Rosser
Pethaps the most substantial anti-nudge and also critical of behavioral economics paper came from George Mason law professor, Todd Zywicki. While he overdid it a bit he argued with some good reason that most legal decisions in the US relying on claimed behavioral economics foundations, especially on matters involving credit and consumer finance issues, have been seriously flawed. They have either relied on misinterpretations or else mere assertions that have not been empirically demonstrated. He raised a point of more general interest in charging that there has been a problem of "citation cascades," where a string of decisions have been based on people citing people citing other people in a cascade that eventually boils down to an initial claim that has no clear basis. He noted several of these where the original argument was mere speculation in a paper by Thaler for which no empirical support was provided, but then people quoted his opinion as proof and then quoted each other quoting him, and so on.
Much less polemical but more serious intellectually were papers by Gerd Gigerenzer and Nathan Berg. The former directs a branch of the Max Planck Institute in Berlin and has written an important book with the late Reinhard Selten. Berg was a professional jazz musician before he became an economist, now based in Otago, New Zealand. I have published a paper in my journal, ROBE, on their general themes, which draw on ideas of Herbert Simon and his bounded rationality. In particular Gigerenzer pointed out lots of cases where people doing things that look supposedly irrational for one reason or another in fact lead them to perform better than supposedly rational actors. So there may be a hot hand after all and the "gambler's fallacy" may actually make money. One point is that sample parameters may not be the same as population ones. Even being inconsistent may actually allow one to perform better than consistently. So to the extent nudge paternalism is supposed to help people overcome hurtful damaging of themselves, well, it may not really help them.
The philosophical defenders of the nudge agenda appealed to multiple selves theory, among other things. One problem was that some of the nudge critics denied findings of behavioral economics that hold. So Richard Epstein denied the endowment effect, noting that most experiments about it have involved undergrads and coffee mugs, demanding more for ones they have been given than they are willing to pay for ones they do not own. Epstein argued that coffee mugs are not a big part of the economy. Also, he and others cited papers by Plott and Zeiller that showed it is possible to structure these experiments so that the effect disappears. However, Sugden and others noted that this is a special case, and that generally the endowment effect holds and does so in important and large scale situations. So people will demand much more compensation for giving up some wilderness area than they are willing to pay for more of it.
I noted that this is like the matter of the ultimatum game, where people tend to refuse what they consider unfair offers, even though it costs them money to do so. Over 30 years ago Ken Binmore showed that it was possible to set up ultimatum game experiments where the usually found effect disappears. But the oddity of that result in the end shoed that Binmore's result was an exception. The ultimatum game result is very robust. People really do care about fairness.
Economic philosopher Daniel Hausman of Wisconsin presented a middle ground, partly supporting the multiple selves and meta-preferences view (so government might nudge one towards one of one's better selves, e.g. trying to discourage an 18 year old from smoking), but focused more on the means involved, the method of nudging. Thus, informing and encouraging is one thing, but deception and coercion are another, although Thaler and Sunstein claim to oppose coercion for sure. As it is in the real world, the line between some of these things, which opens the door for the slippery slope critics who warn of these possible new roads to serfdom.
Barkley Rosser
Reposted AGAIN: Down the Rabbit Hole with Trump FBI Fanboy, Jimmy Kallstrom
With the news that Rudolph Giuliani has joined "Mobster Don" Trump's legal defense team, it seems that it would be timely to again raise the historical specter of the odd series of events that led to James Comey's letter to Congress about the emails on Anthony Weiner's laptop.
Originally posted November 7, 2016, reposted May 9,2017
Who is James K. Kallstrom? Kallstrom is the retired FBI assistant director and frequent Fox News guest who has been orchestrating the "revolt" of FBI agents from the New York field office that led to FBI director Comey's questionable letter to Congress about emails found on Anthony Weiner's laptop. He is an enthusiastic supporter of Donald Trump and bitter foe of the Clintons, referring to them as a "crime family."
Kallstrom was a top electronic surveillance expert for the FBI. Here is what the New York Times wrote about him in February 1995, when he was appointed to head the FBI's New York City office:
In a presumably unrelated incident, Kallstrom was a strong advocate of the innocence of FBI agent, Lin DeVecchio, who was indicted in 2007 on charges of helping Mafia informant, Gregory Scarpa, commit four murders in the 1980s and 1990s. Charges were dropped when it was revealed that the government's key witness, Scarpa's mistress, had given conflicting accounts of DeVecchio's involvement. Information Scarpa supplied to DeVecchio played a major role in the "Mafia Commission Case" that established the reputation of young prosecutor Rudy Giuliani in 1985.
There are provocative "conspiracy theories" having to do with Kallstrom's involvement in the TWA flight 800 investigation and its relation to the DeVecchio case. I won't link to them because anyone who wants to know can simply Google the key words. The truth is out there -- so is a lot of speculation and innuendo. What is unequivocal, though, is the relationship between FBI investigations and informants of dubious character. A December 1996 New York Magazine article featured the Scarpa/DeVecchio relationship without going too deep down the rabbit hole of conjecture.
UPDATE: See also the December 16, 1996 New Yorker feature, "The G-man and the Hit-man" from which the following:
Originally posted November 7, 2016, reposted May 9,2017
Who is James K. Kallstrom? Kallstrom is the retired FBI assistant director and frequent Fox News guest who has been orchestrating the "revolt" of FBI agents from the New York field office that led to FBI director Comey's questionable letter to Congress about emails found on Anthony Weiner's laptop. He is an enthusiastic supporter of Donald Trump and bitter foe of the Clintons, referring to them as a "crime family."
Kallstrom was a top electronic surveillance expert for the FBI. Here is what the New York Times wrote about him in February 1995, when he was appointed to head the FBI's New York City office:
A former Marine captain and a Vietnam veteran, Mr. Kallstrom joined the F.B.I. in 1970 and spent most of his career in New York City, heading the unit responsible for electronic monitoring of criminals.
As the head of the Special Operations Division in New York from 1976 to 1990, Mr. Kallstrom oversaw a band of surveillance experts that grew from 15 to more than 300.”A little less than three years later, Kallstrom retired from the FBI to take a job with MBNA Bank. During his tenure as director of the New York City office, Kallstrom presided over the controversial criminal investigation into the 1996 crash of TWA flight 800.
In a presumably unrelated incident, Kallstrom was a strong advocate of the innocence of FBI agent, Lin DeVecchio, who was indicted in 2007 on charges of helping Mafia informant, Gregory Scarpa, commit four murders in the 1980s and 1990s. Charges were dropped when it was revealed that the government's key witness, Scarpa's mistress, had given conflicting accounts of DeVecchio's involvement. Information Scarpa supplied to DeVecchio played a major role in the "Mafia Commission Case" that established the reputation of young prosecutor Rudy Giuliani in 1985.
There are provocative "conspiracy theories" having to do with Kallstrom's involvement in the TWA flight 800 investigation and its relation to the DeVecchio case. I won't link to them because anyone who wants to know can simply Google the key words. The truth is out there -- so is a lot of speculation and innuendo. What is unequivocal, though, is the relationship between FBI investigations and informants of dubious character. A December 1996 New York Magazine article featured the Scarpa/DeVecchio relationship without going too deep down the rabbit hole of conjecture.
UPDATE: See also the December 16, 1996 New Yorker feature, "The G-man and the Hit-man" from which the following:
In 1980, the Department of Justice had issued detailed guidelines: if an informant was suspected of involvement in any “serious act of violence,” the supervisor in charge was required to consider closing him and targeting him for arrest. While it was understandable that DeVecchio might be reluctant to close a top-echelon informant --particularly someone who had helped make his career [S: and that of Rudy Giuliani] --that seeming reluctance put him at odds with some of his own agents. Eventually, four of them reported to the Bureau that, in an apparent effort to protect Scarpa not merely from arrest but from his enemies in the Mob, DeVecchio had leaked sensitive, confidential information to him. One agent has alleged that DeVecchio became compromised to the point of helping Scarpa locate people that Scarpa wanted to kill.
In early 1994, DeVecchio was placed under investigation, but in the meantime he was neither discharged nor put on administrative leave. Instead, he was moved off his squad to another supervisory position -- as the F.B.I.’s drug-enforcement coördinator for the entire Northeastern United States, with unrestricted access to classified documents. He continued to hold that job after he informed the Bureau in a sworn statement that he was not amenable to a voluntary polygraph examination, and, incredibly, even after invoking his Fifth Amendment privilege and refusing to testify about his conduct as an F.B.I. supervisor at a hearing last May. No F.B.I. official—not even Louis Freeh or the New York chief, James Kallstrom—would comment on why a man being investigated for leaking information was kept in a post requiring top-security clearance. Douglas Grover, DeVecchio’s lawyer, says it is because the Bureau had always understood what DeVecchio was doing to protect a valuable informant, and had approved of his actions. “Whatever Lin did, he did it as an agent of the institution, both literally and figuratively, acting on behalf of the F.B.I.,” Grover says.
Sunday, April 15, 2018
A Teachable Moment: The Importance of Meta-Learning
Today’s New York Times has a fine article by Manil Suri about math education and the development of reasoning skills. Its concluding point is that, while the general contribution of the first to the second is weaker than you might think, math instruction can be improved by bringing the math-reasoning tests themselves into the classroom. I’m pretty confident that Suri is right, since I’ve seen positive results from doing something similar in economics and related areas.
When preparing to introduce a new topic in econ, for instance, I’ll often start by taking stock of what lots of people without an economics background think they know about it. This might mean looking at surveys or some excerpts from news or other websites. It often involves drawing out this information from the class itself. For instance, I’ll divide students up into groups of five or so in which they can say to each other what they believe, or even suspect, about the topic, and then have the groups report in a general way what these views were. (I try to use methods that don’t identify potentially mistaken concepts with specific people, to avoid any sense I’m trying to belittle anyone.) Then we will go on to learn about the question, keeping in mind the misconceptions we’ve found and trying to locate the points at which “pop economics” veers off from the real stuff.*
There are many reasons for doing this. One is frankly political: a lot of the political babble in this country is framed by erroneous economic thinking, such as nearly all the fretting over “the national debt”. (Every time I bring this up in the context of the income accounting identities I see expanding eyeballs all across the classroom.) Another is pedagogical: if you don’t put effort into deconstructing pre-existing beliefs as well as developing new knowledge, what you will see on papers and exams is a weird mishmash of the two. It took me too many years to figure this out. But a third is the insight Suri also came to, that using an external point of reference to step outside oneself and observe one’s own learning process provides a powerful boost to learning of all sorts. The misunderstandings of pop econ provide a baseline from which students can measure their progress; they illuminate what they are learning and how.
The name for this is meta-learning (or deutero-learning in cybernetic-speak). It is foregrounded by activities that help students get outside the technique or concept immediately in front of them and see their learning of it as the object of attention. Like all forms of learning, it is best approached inductively and in context: rather than give lectures on meta-learning, provide exercises that call attention to it in situ. I incorporated material to support meta-learning in my textbooks, more in the second (macro) than the first (micro), since I was learning (and meta-learning!) as I went along.
I’ve come to think that explicit incorporation of meta-learning may be the single most important innovation to transform teaching. For those of you who have this as a day (or night) job, give it a try.
*Just to be clear, “real” economics is not mean “sanctified by the mainstream”, just conceptual approaches that can be supported by careful reasoning and empirical data. Some mainstream econ is rather closer to the pop variety than to legitimate analysis.
When preparing to introduce a new topic in econ, for instance, I’ll often start by taking stock of what lots of people without an economics background think they know about it. This might mean looking at surveys or some excerpts from news or other websites. It often involves drawing out this information from the class itself. For instance, I’ll divide students up into groups of five or so in which they can say to each other what they believe, or even suspect, about the topic, and then have the groups report in a general way what these views were. (I try to use methods that don’t identify potentially mistaken concepts with specific people, to avoid any sense I’m trying to belittle anyone.) Then we will go on to learn about the question, keeping in mind the misconceptions we’ve found and trying to locate the points at which “pop economics” veers off from the real stuff.*
There are many reasons for doing this. One is frankly political: a lot of the political babble in this country is framed by erroneous economic thinking, such as nearly all the fretting over “the national debt”. (Every time I bring this up in the context of the income accounting identities I see expanding eyeballs all across the classroom.) Another is pedagogical: if you don’t put effort into deconstructing pre-existing beliefs as well as developing new knowledge, what you will see on papers and exams is a weird mishmash of the two. It took me too many years to figure this out. But a third is the insight Suri also came to, that using an external point of reference to step outside oneself and observe one’s own learning process provides a powerful boost to learning of all sorts. The misunderstandings of pop econ provide a baseline from which students can measure their progress; they illuminate what they are learning and how.
The name for this is meta-learning (or deutero-learning in cybernetic-speak). It is foregrounded by activities that help students get outside the technique or concept immediately in front of them and see their learning of it as the object of attention. Like all forms of learning, it is best approached inductively and in context: rather than give lectures on meta-learning, provide exercises that call attention to it in situ. I incorporated material to support meta-learning in my textbooks, more in the second (macro) than the first (micro), since I was learning (and meta-learning!) as I went along.
I’ve come to think that explicit incorporation of meta-learning may be the single most important innovation to transform teaching. For those of you who have this as a day (or night) job, give it a try.
*Just to be clear, “real” economics is not mean “sanctified by the mainstream”, just conceptual approaches that can be supported by careful reasoning and empirical data. Some mainstream econ is rather closer to the pop variety than to legitimate analysis.
Friday, April 13, 2018
C'mon, M'Honey, URINE THE MONEY! (you've got a lot of what it takes to get along.)
The REAL Trump pee-tape was a urine sampling pyramid scheme.
"Whatever happened to Trump neckties?" asks Zane Anthony, Kathryn Sanders and David A. Fahrenthold at the Washington Post, "They’re over. So is most of Trump’s merchandising empire." Among the products that Trump lent his name to, for a fee, was a vitamin supplement, supposedly custom formulated based on the results of a urine test:
YouTube videos of Trump doing his urine test pitch have surprisingly few views, considering the man is "President of the United States" and his performance selling a get-rich-quick scam is, word-for-word and gesture-for-gesture, all he is and all he has ever been: pure flim-flam and puffery.
So much winning! As John Kenneth Galbraith observed, "Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)"
"Whatever happened to Trump neckties?" asks Zane Anthony, Kathryn Sanders and David A. Fahrenthold at the Washington Post, "They’re over. So is most of Trump’s merchandising empire." Among the products that Trump lent his name to, for a fee, was a vitamin supplement, supposedly custom formulated based on the results of a urine test:
"Take a snapshot of the most critical metabolic markers in your body’s natural waste fluids," said the website for the Trump Network, a vitamin company that sent its customers urine-sample kits with the Trump logo on them. The tests would be used to determine what vitamins the customer needed, according to archived versions of the Trump Network website.As usual, the authors of this article miss the point of the enterprise, despite the Washington Post Wonkblog having covered it two years earlier. The overpriced vitamin supplements and quack urine tests were only window dressing. The real "product" the Trump Network sold was the "opportunity" to get rich quick by selling pseudo-scientific piss takes.
YouTube videos of Trump doing his urine test pitch have surprisingly few views, considering the man is "President of the United States" and his performance selling a get-rich-quick scam is, word-for-word and gesture-for-gesture, all he is and all he has ever been: pure flim-flam and puffery.
What bothers me, though, is not Don-the-con selling pie-in-the-sky schemes to suckers. What bothers me is what his kind of swindle reveals about the "legitimate" economy. The difference between a crude Ponzi scheme and conventional economic policy is a question of degree, not of kind.
Hyman Minsky argued that there are both "legitimate" and "fraudulent" forms of Ponzi finance. The distinction seems to hinge on matters of perceptions and intentions. Ponzi finance thus may be regarded as legitimate if dividends are paid on the basis of income that has been accrued but hasn't yet been received. Whether that income has actually been accrued and is going to be received is a matter of judgment about asset quality. A term deposit at the bank is one thing, a horde of Bitcoin is something else.
The quality of assets changes over time and is influenced by economic policy. "Everything that you do to encourage investment," Minsky claimed, "encourages debt financing. This increases instability." Here is the congressional testimony where he said that almost 40 years ago: June 20, 1978, from Special Study on Economic Change, Hearings before the Joint Economic Committee, Congress of the United States, Ninety-Fifth Congress, Second Session, page 858:
Representative BOLLING: I would like to begin by asking Mr. Minsky a question due to my own ignorance. This is my weakest area. I don't claim to be an economist, just a political economist. I need to know some things. In your statement, next to the last page -- the second sentence in the first full paragraph -- there are few words and a lot said. I want to be sure I understand it.
To decrease the emphasis on debt, the full employment rather than economic growth should become the proximate objective of policy;
Now, I would like you to explain that to me. I don't understand exactly what you mean.
Mr. MINSKY: I don't believe it is an accident that we have had increased instability and increased inflation since the emphasis shifted toward economic growth during the Kennedy-Johnson administration.
Everything that you do to encourage investment encourages debt financing. This increases instability. The simple example is that during the 10 years it takes to put a nuclear power plant on stream the workers producing that nuclear power plant are receiving income, spending that income on consumer goods, and not producing any consumer goods in exchange. So every time you increase the ratio of investment expenditures to consumer goods expenditures in the economy, prices rise.
Any time a higher proportion of a wage bill is used to pay for people who are earning investment income compared to the wage bill that is used in the production of consumer goods, consumer goods prices will increase. This, in turn, means that the wages of workers will go up. This is a very simple idea.
It takes 10 years before you get a kilowatt out of a nuclear power plant. People all the way back to the producers of input into that complicated thing meanwhile are spending. Every time you build a plant that does not quickly pay off you are producing inflation in the country.
Every time England goes out and builds a Concorde you produce inflation. Any banker and businessman knows that for every investment project worth doing there are thousands that are not. Everything you do to increase growth by way of increasing investment, offer incentives to undertake things that are not worth doing in a pure private account, you produce inflation.Perhaps Minsky's "very simple idea" was a bit too simple. What if economic policy was used to encourage investment and debt financing but suppress the wages of workers? Voila! Perpetual, non-inflationary growth! A non-accelerating inflation rate of unemployment! Instead of letting the instability and inflation infect the whole economy, why not target it on those dumb fucks who have no political traction anyway? If the rabble become restive, they can always be placated by chauvinist circuses and slick get-rich-quick scams.
So much winning! As John Kenneth Galbraith observed, "Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.)"
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