very good paragraph

From A. Allen Schmid's Conflict and Cooperation: Institutional and Behavioral Economics:

When the recipe for production of a good or service is written, it does not contain institutions in addition to land, labor, and capital goods. Physical things are produced by physical things. Institutions and organizations are mental constructs. They influence what things humans put together to produce physical things, but they are not some magical extra ingredient. Some years ago, economists were baffled by the fact that their measures of changes in physical inputs could not explain observed changes in physical outputs. Many tried to add a residual variable and called it technology. But this was a name for our ignorance rather than an identification of an input. The technology can be represented in a sub-function explaining the inputs to produce a specific technology. But it would be double counting to include the new machine and the research expenditures to produce it in the same function.

addendum to previous post

Note: I realize that there is a significant "aside" when I start talking about work in economic history post-Fogel. I want to reiterate that these are sketches of my argument which will be developed more soon.

And as always, I welcome comments.

EDIT: Out of curiosity I just googled "radical Freakonomics" and apparently that phrase can be found nowhere else on the internet. I wish I could take credit for it, but I can't -- it belongs to a fellow grad student, who may or may not want credit for it.

methodological revolution as political revolution -- reflections on the future of heterodoxy

At certain times over its 1.5 year history, this blog has been used as a platform for my personal reflections on the state of heterodox economics, either in the very specific case of my own institution or in much more general considerations. Of course, as a leading institution of heterodox thought it is hard to disentangle UMass from larger issues of the past, present and future of radical economics. Today sees another one of these reflections, though I do believe it is one with much more meaning and potentially much more relevance to the future of leftist economics.

You see, while I have thus far focussed on historical issues in searching for a hint of light for the future contained in the past, I am both happy and disheartened to say that this post concerns itself almost explicitly with the future: an "experiment" if you will, in radical economics.

The case has to be made for or against a kind of "radical Freakonomics", an empirical program motivated largely by political frameworks which aim to answer big questions whilst supported by a set of sophisticated statistical techniques. The first main issue is the place of data in economics -- how it has been used and what has its impact been.

The story of data in economics as a social science, and in particular the academic impact of new datasets to enlighten and enrich theories, is of course a very old one. Marx himself found that the story of industrial capitalism needed to be told through the perspective of the disadvantaged classes, searching "underground" and developing his theory of alienation and exploitation based on what he saw to be a serious disconnection between the current "bourgeois economics" of the day and what actually happened in capitalism. Moving to other areas of economics and social science, the examples multiply: what John R. Commons' Documentary History of the U.S. did for institutionalism, or what Richard Morris' Government and Labor in Early America, collecting all those old colonial court records, did for legal history. Revolutionized history and became (and still is!) one of the definitive works on early American legal history -- written in the 1950s!

More recent accounts, however, is where I want to focus my attention:they include Fogel and Engerman's Time on the Cross. Published in the early 70s, the cliometric revolution called for in that book sought to rewrite American history on the back of regressions and other statistical output, starting with the new economic view of slavery.

Like Freakonomics, Time on the Cross had a shock factor to it, and like Freakonomics, it was based on the idea that clever econometricians could overturn a century of historiography on slavery. Coupled with a rising body of theoretical literature by Douglass North and others on the efficiency of institutional change, these libertarian-oriented, empirically-minded economists seriously sought to rewrite American economic history. Unfortunately, while there are still quite a good number of followers in this field, my assessment is that at this point, around 30 years later, economic historians are moving on to other crucial questions, are reaching out to other methodologies, and talking more to people in other disciplines in a more substantive way than simply, "Got any good data?". In short, the field is fragmented right now with no clear direction, especially as North's brand of institutional economics has been formalized and improved upon greatly by scholars such as Daron Acemoglu. It is still possible to take a strongly ideological (and simple) view, but in light of all the theoretical nuances which have been developed as well as a greater respect to cross disciplinary boundaries, the attempts at doing so largely fail.

And so the looming question is whether a radical Freakonomics is really going to make an impact on the trajectory of heterodox thought...

...Or, may I add, on economics at all.

Fogel and North both got a Nobel prize, don't get me wrong. But that's because they ushered in a methodological revolution. By asserting their econometric techniques over the "implicit models" of the historiography, they were radicals in their field. But work which simply strikes at some leftist sympathies is quite different. This type of work has a political "shock power" but without an accompanying methodological revolution (which is, of course, itself a political revolution -- just think for a minute about what Fogel and Engerman were able to accomplish in terms of getting people to think differently about social phenomena) it has a very low discount rate.

This is not the kind of work that changes the trajectory of radical economics -- this is the kind of work that makes it to the front page of the Times, becoming old news in time as the right wing figures out a new way for people to think about incentives.

I will have more to say about this in the very near future, but I just needed to get these thoughts out as I begin to organize my own views about what the future holds for heterodoxy.

methodological individualism ngram

Thanks to Greg Ransom at Marginal Revolution for the idea.

japanese decroissance

This piece on modern Japanese economic history really struck me. Especially coming from the Financial Times. Read it here:

http://www.ft.com/cms/s/0/6152b9ca-1904-11e0-9c12-00144feab49a.html#axzz1AMGbHM8M

I don't know whether Japanese culture has really reached this stage of acceptance, but I would certainly not argue that American relative decline will lead to wider cultural decay (this relationship in its various causal forms has been put forward lately by Thomas Friedman for one).

At any rate, I liked this paragraph:

The Japanese themselves frequently refer to non-GDP measures of welfare, such as Japan’s safety, cleanliness, world-class cuisine and lack of social tension. Lest they (and I) be accused of wishy-washy thinking, here are a few hard facts. The Japanese live longer than citizens of any other large country, boasting a life expectancy at birth of 82.17 years, much higher than the US at 78. Unemployment is 5 per cent, high by Japanese standards, but half the level of many western countries. Japan locks up, proportionately, one-twentieth of those incarcerated in the US, yet enjoys among the lowest crime levels in the world.

In a thought-provoking article in The New York Times last year, Norihiro Kato, a professor of literature, suggested that Japan had entered a “post-growth era” in which the illusion of limitless expansion had given way to something more profound. Japan’s non-consuming youth was at the “vanguard of the downsizing movement”, he said. He sounded a little like Walter Berglund, the heroic crank of Jonathan Franzen’sFreedom, who argues that growth in a mature economy, like that in a mature organism, is not healthy but cancerous. “Japan doesn’t need to be No 2 in the world, nor No 5 or 15,” Prof Kato wrote. “It’s time to look to more important things.”

Nevertheless, the article is quite controversial and thought-provoking throughout. It calls to mind a number of related theses. For example, Cowen has claimed at times over at Marginal Revolution that we should be thinking more optimistically about the recent recession as a time of reflection on what matters most in our lives. And (in another thread of the article's argument, distinct from decroissance) Keynes, in "Economic Possibilities", placed enormous emphasis during the Great Depression on the outlook for a post-growth society, where a nation's "economic problem" is solved.

By the way, the title of this post is inspired by the French decroissance, or "degrowth" movement. Read more about it here: http://en.wikipedia.org/wiki/Degrowth

acemoglu on democracy and economic growth

See this excellent debate on democracy and economic growth between Ed Glaeser and Daron Acemoglu. This is a bit old but it's the first time I'm seeing it:

http://online.wsj.com/public/article/SB117330214622129995-wXADlsfRHp9Z34RAyyVjN_w1yBI_20080311.html

I particularly enjoyed this part (Acemoglu):

The main barrier to democracy is not low education but deep social and economic divides that create intense conflict. Democracy has failed in highly educated countries -- such as Germany before World War II or post-war Argentina. It has also been extremely successful in very low-education countries. Botswana provides a perfect example. It is the most successful democracy and the fastest growing economy in sub-Saharan Africa. When the British granted independence to this colony in 1965, there were only 22 Botswanans who had graduated from university and 100 from secondary school.

But Botswana was fortunate to have avoided the most adverse effects of colonialism and thus did not suffer from deep social divides or distributional conflicts, because the British essentially had no interest in the colony and left it alone. Botswana used the revenues from its diamonds both equitably and wisely. Botswana's democracy has not only endured and flourished, but has not even been challenged by a coup or tarnished by major electoral fraud during the past 40 years.

I would also like to emphasize -- and conclude with -- this point: Sustained economic growth requires secure property rights and a level playing field for generating new technologies and entry by new firms. Democracy is the best guarantor for such sustained economic growth. Economic growth generates various vested interests, ranging from landed elites to businessmen in declining industries to privileged workers. These vested interests will try to block the introduction of new technologies and stop the entry of new firms. Democracy is not perfect, but with its more egalitarian distribution of political power, it will have greater resistance against vested interests than autocracy.

By the way, apparently Acemoglu is writing a Principles of Economics text with Laibson and List, due out in 2012:

http://econ-www.mit.edu/files/6269 (last page). I'm interested in seeing what this looks like (though a coauthor with List somewhat diminishes my excitement).

looking beneath the left-right distinction: the tradition of critiques of economics pedagogy

Greg Mankiw made a quick reference the other day on his blog to a panel at the AEA meetings on economics education. He linked to a paper by Lopus and Paringer that compares the leading textbooks on the market today. Here is a link to Mankiw's post, which has a link to the paper:

http://gregmankiw.blogspot.com/2010/12/econ-education-at-assa-meeting.html

Here are some bullet point comments:

• I certainly agree with Lopus and Paringer's claim that Samuelson's book still sets the framework for economics education, even as other texts have superseded it. In content and approach, Samuelson's successors including McConnell and Mankiw are focused on political balance built on fundamental principles of market mechanisms, limited government intervention, supply and demand, and thinking at the margin, among other key features of a mixed economy.

• But Lopus and Paringer simply miss the big issues when they claim that the main problems scholars had with Samuelson's book (and thus the later texts as well) were that it was either "too Keynesian [or] not Marxist enough" (pg. 3), depending on one's place in the political spectrum. This is a very narrow summary of the debates surrounding Samuelson's books. Marc Linder's criticism of Samuelson in particular is much more fundamental. Shunning the left-right distinction, Linder showed how Samuelson's approach to teaching economics was also ahistorical because it pretended to teach "core" economics concepts of scarcity and market efficiency as if they were God-given aspects of economics. Linder argued that these concepts are actually the product of the particular socioeconomic system of capitalism. In short, by ignoring key changes in the history of economic thought, Samuelson's book naturally fits itself into market rhetoric and, if I might add, indoctrination -- precisely because it does not even question principles and ideas which are not wholly absolute or scientific.

• It was interesting to learn that McConnell's book overtook Samuelson's in sales by 1975. I thought it was later than that, but it does make sense. It shouldn't surprise anyone because during the mid-1970s a lot of turmoil in the political economy was brewing which led people to question certain basic Keynesian fundamentals. This was also around the time that Harvard started using a different book for its Ec 10 course (i.e., not Samuelson), causing a lot of uproar which has been documented in the Harvard Crimson. The story here goes as follows: after WWII Samuelson had a visiting position at Harvard, but he was denied a full professorship there, purportedly due to the fact that he was Jewish, so Samuelson ended up going to MIT instead. This caused a lot of negative sentiment between the two schools, with one Crimson article arguing that it would take decades for Harvard to recover from their mistake. Thus, when Harvard switched away from Samuelson, this also caused some discontent, seen as another political move against Samuelson and his brand of economics. I talk about some of these controversies more in depth in a post relating to Anti-Mankiw from a while back; you can find it here: http://imagininghistory.blogspot.com/2010/05/in-beginning-there-was.html

• Of course, the paper finds little difference among the leading books, aside from small differences in the level of mathematics, policy orientation, and range of topics. While some would qualify an important difference in the top books in terms of their hegemony in the field, to some this is not an important distinction. I for one would certainly not argue that Mankiw's Principles is more hegemonic than any of the others, since economics education itself is partly a political project. But it would have been nice to hear more about different methodologies, in particular when dealing with economics education!
• Paper notes that Mankiw's intro does not address the short run as fully as other texts, and there is no discussion of the Keynesian aggregate expenditures model.

Overall, I was not thrilled with the paper, but it is a useful introductory discussion to different economics textbooks. We still have very far to go...