why do economists disagree?

The New York Times Sunday Review had an article today about social values and science. The article began with a quote from Nobel Prize winning physicist Max Planck:

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.

The thesis of the article is simple and powerful: scientists who fully embrace their social values when doing research will come out doing better research for it. Instead of purporting to be more "scientific" than the opposition, researchers should explicitly note their social biases, because by doing so, we will approach a higher quality of science: when the social implications of economists' research are explicitly given ("thrown on the table"), so that they are held to be accountable for their ideas, economics will be the better for it.

It's time we started teaching undergraduates a broader view about why economists disagree. Mainstream texts often choose to present the market-centered view as a place of common ground for any group of economists and policymakers who disagree about how we ought to move forward. The "scientific" or rigorous justification for this choice is the welfare economics vision of the economy: i.e., that perfectly competitive markets maximize social welfare and are therefore socially optimal. Welfare economics has succeeded in an uncountable number of ways: from the clever mathematical articulation of its core ideas in the middle of the 20th century, to more unclear (though equally successful) treatments of the ideas in modern economics textbooks.

An alternative view argues that this baseline is an inappropriate way of addressing the concerns of workers, or the poor. For them, the terms of debate ought not to be defined by markets and market efficiency criteria: even if one admits that we are far from the social optimum, this "third view" believes that we should not discuss policy in terms of getting closer to that criterion of social welfare.

The punchline? Liberals and conservatives are both equally at fault for purporting their underlying economic model to be one of science, or even for trying to argue that views can be boiled down to a nice dichotomous world. A broader perspective on how economics is a pseudo-science would admit of more diverse views, and ultimately, better debates.

Economics -- indeed, the world -- would be much better for it.

employer control and theories of unemployment, illustrated

Image source: Terry Everton

Ever known someone, such as a parent or friend, who has lost their job, or who has remained unemployed for an extended period of time? Traditional theories of unemployment argue that your friend is unemployed because he or she is too lazy or lacks the skills to make him or herself marketable to employers. In the above picture, we see a different theory illustrated: namely, that employers use the threat of unemployment to increase the productivity of their workforce. As employers lay off workers, labor productivity increases. Similarly, as unemployment falls, workers feel more secure in their jobs causing them to slack off. The fluctuations in unemployment are thus at least partially a cause of employers' desire to control their workforce.

NOTE: This cartoon is part of an ongoing project at Imagining History to cull cartoons and other illustrations around the web as part of the Anti-Mankiw project (making critiques of mainstream economics accessible at the introductory level). See the link below for a list of all cartoons gathered thus far here: http://imagininghistory.blogspot.com/search/label/cartoons

Hat tip to Ian Seda at Los Expatriados for linking to picture, which was originally found at Monthly Review here.

Rachmaninoff, Prelude Op. 32 No. 10, by Sviatoslav Richter

The great Russian pianist plays a classic!!!

property rights and /capitalist/ growth: some current research

Regular readers of this blog will know that I've devoted quite a bit of time to the idea of property rights and how theories of property rights align with historical experience, especially in the U.S. In her address to the Economic History Association annual meetings in 2010, Naomi Lamoreaux outlined a compelling thesis for the particular path of development that the theory and practice of property rights has followed in the U.S. since the early 19th century.

To motivate her claim, consider the following observations which form the essential conflict motivating her study. Perhaps the clearest, concise and most overtly-political interpretation of the libertarian notion of property rights can be found in the Washington Consensus, from the 1990s, which argued that we must instill institutions of private property and enforceable contract in developing countries, since these institutions form one important cornerstone of successful economic growth. Critics of this claim may point to the fact that many Western nations (if not all) did not develop in the same way. In fact in a lot of cases, property rights of the disadvantaged, or the minority, were infringed in the name of "economic development". The classic example concerns eminent domain cases, but there are a variety of other situations in which private property rights were not totally respected, but which nevertheless resulted in widespread growth for the areas/economies in question.

Rather than argue that these observations serve as "anomalies", as she likes to call them, in the economist's theory of property rights, Lamoreaux argues instead that such a negative history of property rights protection can still be consistent with an overall view that property rights are to be respected, according to the libertarian conception of the idea. She argues that what has allowed such continual infringement in property over time in the U.S. is a popular democratic tradition which commits itself to widespread property ownership. At the core of the American experience is the presence of a strong middle class, which allows such a seeming "contradiction" between what we Americans say to other countries, vs. what we actually do, to maintain itself over the centuries. Two strings of examples, illustrating the two themes, support her argument.

First, we have historically been weary of large concentrations of property ownership, so we have allowed legalized (i.e. through the legislature) redistribution in such cases. Second, we have a general mistrust and dislike for non-property owners (the poor ... also, they usually do not vote and at some times, could not vote), and so we will generally not get upset when there is a property taking which involves buying up a slum or some other poor area for economic development. Lamoreaux uses many different examples to illustrate both of these points, and overall, I must say that the article is convincing: America has a significant majority of property owners which has been very powerful in determining political outcomes. The political voice of the middle class has supported abrogation of property rights only when the middle class's own property remains untouched.

Many historians -- liberal and Marxist alike -- have identified this trend in American political economy as being one of the key reasons why America has supposedly strayed so far from true-blue, European-style socialism. The argument, presented commonly as the American Exceptionalism thesis, comes in the form of a celebration for the liberal and a lament for the Marxist, but the core underlying conception is the same: democratic ownership of property symbolized by a strong middle class prevents radical change from occurring because society becomes too "spoiled", "individualistic", or "market-loving". In terms of Lamoreaux's thesis, this means that property rights can be infringed upon in a non-democratic way only when it leads to the material benefit of property owners. (Basically, they don't get outraged/mustered unless their property is being taken.)

Lamoreaux refuses to accept (pg. 301) that she is updating the American Exceptionalism argument (which has a lot of holes in it already, thanks to a swelling labor history that documents worker radicalism -- as well as the state's violent reactions to it). Nevertheless, one has to wonder what else her thesis could possibly imply about liberal values in America. Her thesis seems to flirt with the old yarn (though I guess not so old, since some oldies are still talking about it, in various updated forms) that Americans have always been bourgeois-freedom-loving, individualistic modernists.

What would constitute a Marxist critique of Lamoreaux's thesis? (Or, really, any critique that wants to question the relevance of this argument.) First of all, some Marxists might perfectly agree with her claim. They would lament that such is the main characteristic of a value system which has proliferated in American society, an unfortunate staple of the "objective material conditions" in American society, and simply move on. Such lamentations were generally expressed by an older tradition of American Marxist historians, harking back to the the 1920s and 30s, and they don't hold as much weight now (why? well for one, it doesn't seem like a very strong argument). Others, however, might draw from the (updated radical) social theory of the 1970s and discuss the role of ideology in Lamoreaux's story. I think this is one promising way of moving forward.

Alternatively, Marxists might even question the true importance of property rights as a cornerstone of strong economic growth in a developing capitalist society, because the majority of gains in American wealth occurred in the North beginning in the 1830s and 1840s and came from industry, such as textiles. Surely there is a "property rights" element to this historiography as well, since the mills were obstructing waterflow and were protected against downstream users' claims through legislative acts and raw judicial negligence, but obviously that is not the main source of capitalist growth in these areas.

At any rate, Lamoreaux's discussion is important for putting a dent in the accepted notion of Western property rights theory. it's an interesting look at how a country can seemingly be so hypocritical. In the end, however, I sincerely doubt the relevance of her claim to overall capitalist growth, and I question what role ideology might have had in the process as well. By the way, a draft of the paper can be found here. Lamoreaux is an excellent scholar and I recommend any of her works! They are always very smart, deep, and creative institutional analyses.

quick summer reading thoughts

I haven't been able to do much leisurely reading this summer, and what I have done is hardly voluntary. For example, I was given The Information by my family (albeit a bit indirectly!). Still, what I like about leisurely reading is that it usually stimulates some section of my brain that had gone un-"tickled" for some time.

The Information by James Gleick certainly fits in that category. It tickled the Hofstadter part of my brain that had remained dormant for quite a while. Years ago in college I read and quickly became obsessed with Douglas Hofstadter's Godel, Escher, Bach: An Eternal Golden Braid. I was a math major in college, and I have to say that those first two years of the major were really an exciting time for me because my eye was opened up to so many beautiful ideas, everything from the strange new field of Graph Theory to the centuries-old, strange and abstract field of Real Analysis. To see the ideas of mathematics applied to theories of consciousness in Gödel was truly captivating. (Of course, I later drifted away from math precisely for the lack of applications, but for a while there, math had me sold and, alas, I stuck with the major throughout college.)

But what I liked about Gödel, in particular, was Hofstadter's style of presentation and his ultimate thesis, i.e., that the human mind is something quite different from a computer. The book, in conjunction with the followup, titled I Am a Strange Loop, stressed the ways in which humanity's search for meaning through analogy, and the ways in which we struggle with self-reference when interpreting meaning. It was really fascinating to see Gödel's theorem applied here: Gödel said that formal systems (say, something which might represent a computer) will necessarily contain theorems which, while true, are unprovable using the formal system's tools. He essentially constructed a sentence that talked about itself, using the language of that very formal system. So that was dubbed "incompleteness" and Hofstadter uses the idea of incompleteness and of self-reference to say that it represents human consciousness, more or less. (Try answering the question, "why do you love your favorite piece of music?" you find yourself stuck at some point without being able to come up with a reason other than "I just love it!")

At any rate, the reason I went into that long explanation is to say that Gleick's book comes to the completely opposite conclusion. He starts from the bottom up, from our DNA, and argues that we're just carriers of information. Furthermore, he does it in a very strange way. He spends a lot of time talking about the history of information transferal, essentially tracing the development of modern communication theory, and then talks about genetics toward the end. Don't get me wrong, that part of the text is really well done and I learned a lot about the practical problems faced by a lot of the information theorists. But, the story is all about figuring out how to mechanically transmit information. Little is mentioned about meaning, because Gleick's thesis is that humans are simply agents carrying information, so that the information is the true protagonist of the story, so to speak. Information, measured in the omnipresent "bit", defined the beginning of time and information will remain when we are extinct.

He basically flips Hofstadter's ideas on their head by saying that meaning is not the important point; it's about the ever-growing industry of data storage and how efficiently it can flow. Think Facebook, Google. I'm not enthusiastic about such a position; it doesn't get my juices flowing like Hofstadter's book does. And I would say that Hofstadter provides a much better written and compelling case for his point of view. Gleick's story involves a lot of discussion of the brilliant inventor, and the development of communication technology is obviously related to military, development of the state, and private interests -- so how can there not be any discussion of meaning/symbols of information theory? Information technology is controlled, distorted, and manipulated constantly, so meaning inevitably "creeps in" wherever you talk about information even how it flows and is manufactured. And I'm sure Gleick would even agree with this statement. But the book is completely unconcerned with any of these ideas.

So whereas in Hofstadter I see a real concern with skepticism and philosophical concerns, Gleick's The Information is too dry. I wished there were more discussion of the humanity of it all, but I accept that perhaps that task is too much to tackle in a book which is already 400+ pages. Still, it didn't captivate me the way Hofstadter did and I think that derives from the somewhat flat conclusion and the (at times) slow pacing of the text.

An interesting exercise might be to think about how the incompleteness theorem could be applied to economics. It's already been applied to many different areas of science and philosophy, and I'm sure if someone wrote a pop-econ piece on it it would garner at least some widespread attention. The problem is that it's not exactly a mainstream idea: the thought that individuals are not soulless utility computers might cause most economist's heads to explode. The idea that there exists a human consciousness which, at its core, cannot be modeled formally, might risk a lot of Harvard tenured positions.

:)

an odd shift of perspective

Who would have thought. A random mentioning here of the DeLong-Harvey scuffle a couple years back led me to a discussion of that event by Econospeak, which led me, in turn, to a perspective on Keynes that I hadn't completely understood, but which is shared fervently by my colleague Josh Mason, and which I now appreciate much more.

My beef with Keynes, from day 1, has been with an overemphasis on the technocratic issues, ignoring the political issues that would, it seems to me, arise when the state tried to take over investment. The idea that we could solve the problem of capital scarcity by going this route is certainly powerful, and I would argue that with the appropriate institutional alterations it could be implemented. (For example, if you found some way of democratizing the workplace through a revolution then maybe it would work. Although even in this scenario, I suspect that if you do not abolish markets you will not be able to prevent market power.)

But it turns out that Keynes had a few other ideas up his sleeve, though they aren't discussed in the General Theory and they don't seem present or even implicit in Keynes' model of the economy. What is, then, the source of these ideas? To echo what JW's been screaming at me for ages, Keynes was inspired by philosopher G. E. Moore's discussions of what goes into the "good life". In fact, in a letter he wrote to T.S. Eliot in 1945 Keynes gets quite specific about it (now, why he was corresponding with old Tommy Stearns in the first place is a question that I would like answered, but I don't have easy access to the Collected Works at the moment to find out):

The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less.

Read the rest of the letter here, it's quite interesting. The policy is a kind of civil disobedience that has been proclaimed by radicals throughout history: in a situation of all-encompassing power, resist by not resisting. If you truly want to "abolish the rentier class", take away its fuel. As you slowly starve the beast, the concept of capital scarcity will slowly but surely evaporate and you have Keynes' utopian vision. In short, this is a fully developed, step-by-step prescription for bringing about massive change in society in a very radical way. Not in a Marxist way, mind you, but an important contribution to a utopia nonetheless.

Now, I've always known that Keynes didn't simply advocate for public control of investment. I knew that he favored strong unions, too. But I've always believed that Keynes was limited because his underlying model of market processes was very conservative. That is: keep the unions, keep the technocratic investment board, but don't forget to also include the bourgeois in power, too. Defend capitalism; just make it a more stable one where the rentiers don't play such a large role in government policy ("yeah right!" I used to exclaim to myself). But I think the policy ideas elucidated above demonstrate quite clearly that Keynes had a different understanding of humanity's goals in mind.

Well, now, it seems that I agree a bit more with my friend Josh on the issue...

||: a political project, not an intellectual one; a political project, not an intellectual one ... :||

Those are meant to be repeat signs, by the way.

A commentator writes on this post:

It would be interesting to read your views on what science is.

It's clear what is going on here, with this comment. Consider: Person decides to examine exhibit A. Exhibit A is mainstream economics, purporting to be a scientific theory well-grounded in evidence. Person looks at exhibit A and critiques it. Person can do so on many different grounds, obviously, but one of the most important methods is through the observation that something about exhibit A is logically inconsistent, according to the laws of science (i.e. according to what we actually see in the world, or according to the logic of the theory).

Unfortunately, by doing so, Person is implicitly using a set of his own standards (namely, those of "science") in order to judge the "scientific nature" of exhibit A. But science is not an objective concept in economics or in any field because political ideology also defines what "mainstream economics" is. The question thus arises: maybe Person himself has flawed standards of what "science" is! Perhaps even MORE importantly, perhaps Person's faith in scientific reasoning is representative of a person's faith in a politically charged "idea" of science itself! Fortunately, the main point of my criticism is not to judge exhibit A against what I purport to be "objective" standards of economic science. But I need to explain this a bit more.

Still -- touché. Good point. I should not be simply saying that "Mankiw's text does not hold up to the objectives of science", because that would be saying that if economics were more scientific, everything would be fine. But of course it wouldn't be that easy, because there is a component of ideology to the study of economics!

Fear not reader, I dare not go down the path of holding Mankiw up to standards of science which I myself do not believe in. And actually there are a couple reasons for that. First of all, it's cheap. Mankiw is a textbook! While there are of course some basic standards of logical rigor to which we all must tie ourselves, textbooks are not AER articles and therefore I am not going to pick on Mankiw for small slips in logic.

Second, and more importantly, is that I need to outline my full thesis as a process of steps so people don't jump on me for things I never meant to do in the first place. That is, the extent of my analysis is meant to go much further than simply making a point about logic or rigor. I plan to do the following:

1. Examine the discussion of welfare economics
2. Make some observations about how Mankiw tells his story, making note of both major and minor logical slips along the way.
3. Wrap it up by thinking Seriously about the overall picture of general equilibrium that the student walks away from after reading this section
4. Consider the political achievements attained at that point

In other words pointing out the non-rigorous nature of Mankiw's style is not the main point of my argument. However, I do think it's important to think about how welfare economics can be taught correctly, that is, in the sense that each proposition follows from prior assumptions and propositions. But that is not because I see any intrinsic value to the logical consistency of the welfare economics model. It's because of what the welfare economics model purports to be. That is, I would like to stress its political significance in the realm of economic thought.

Here's the clincher: That last point is very crucial to me because welfare economics is really a great political achievement. I don't think you would deny that, would you? The welfare theorems are really the epitome of the utopian vision of capitalism, a point expressed in numerous commentaries on them. Thus, by subverting the logic of the welfare theorems, as Mankiw does, he really is making a great political achievement.

He's essentially subverting the political overtones of them, which is essentially political indoctrination in disguise! For another example of the subversion of the political ideas, consider what happened in the 1940s and 50s with the mathematization of the welfare theorems -- that itself was a subversion of the political overtones because the mathematics is meant to bring the whole thing to a class of Higher Truth shared with mathematics and logic.

And this all goes back to my previous post regarding Lerner's verbal run-through of the general equilibrium model (for two people) in the 1930s. In that post I attempted to argue that the reasons why Lerner brought up the discussion of the way a perfectly competitive system would work with money was not necessarily in order to provide any substantive logical critique of Marxian economics; rather, the point was a political jab. All along.

Really an amazing story if you think about it, but you can trace these kinds of stories throughout the history of non-Marxian economic thought.