eminent domain?

This sounds familiar to me:

The tractability of our principal-agent framework also enables us to investigate several extensions. First, we introduce ex ante investments and show that there is a type of “holdup” in this framework, where workers underinvest in skills that increase their productivity in their current coercive relationship (since workers that are more productive with their current employer are coerced more) and overinvest in skills that increase their outside option (since coercion is decreasing in their outside option).

From Daron Acemoglu and Alexander Wolitzky, "The Economics of Labor Coercion," (2010) accessed here: http://econ-www.mit.edu/faculty/acemoglu/paper

UPDATE: I've done a bit of "snooping around" on Wolitzky. It turns out he just finished his third year at MIT Econ. Consider him a "rising star": graduating in the top 5% of his class at Harvard in 2007 (with a double major in Mathematics and Economics), Wolitzky already has several published papers, and the paper quoted above is currently in "revise and resubmit" stage at Econometrica. You can access his website with his papers here: http://econ-www.mit.edu/grad/wolitzky

beethoven, piano concerto no. 4 (final movement)

This blog hasn't had a media installment for a while. Here's the final movement of Beethoven's 4th Piano Concerto, two parts:

Last part:

imagining what???

I wonder how many historians would, or have, had heart attacks after hearing that Sam Bowles thinks we can find answers concerning the contours of the next property rights regime by running agent-based evolutionary models of private property revolutions backward. Here's a link to the talk:

http://cyber.law.harvard.edu/interactive/events/luncheons/2009/11/bowles

To briefly summarize, Sam finds a parallel between hunter-gatherer societies of the distant past and intellectual property economies of the 21st century. In both societies, a "big kill" (either a Kudu or a new software idea, for example) is characterized by high fixed costs and extremely low marginal costs and where the social pressures to share in the wealth are great. Sam has worked for over a decade now on showing how such hunter-gatherer societies died out and were replaced by domesticated farming, replaced by the private property regime, about 10,000 years ago if I recall his previous work correctly. He now thinks we are seeing a phasing back to the ancient model as creative commons and other open-source projects as well as a more knowledge-based economy gain prominence.

This is not intended to be a criticism, only to recognize the great significance of such an undertaking. However, I do wonder whether Bowles, in following this approach, is making some implicit assumptions about evolution and history that are not supported by the evidence. Taking a more modern view of property rights development -- that of the evolution of capitalism -- one has to question whether such a process can simply be undone. In Bowles' model, new property rights regimes arise due to competition within "firms" among different property rights models, where the efficiency or "evolutionary fitness" of different groups will determine outcomes. It's a symmetric setup because competition can be rerun countless times. This is not an explanatory model of capitalism that I've ever heard of, unless I'm missing something in translation (between the biological and economic history lingo). In fact, it seems more like an economic model of perfect competition, where the timeless nature of equilibrium knows no distinction between forward and reverse.

It just strikes me as very strange that Sam is taking this approach, since he is obviously quite familiar with the asymmetries inherent in relationships defined by economic power. And if economic power drives history... well?

What am I missing? Any thoughts?

debunking the conservative view of economic history deep into the early nineteenth century

In this post Krugman rejects the conservative claim that Reagan introduced an era of rapid growth to a previously sick economy through deregulation and general laissez-faire policy. This argument is essentially correct: there was nothing about the lack of a regulatory framework which spurred growth. The turn away from Keynesianism had more to do with the supply shocks of the 1970s and was not due to a general failure of Keynesian economic policies themselves (which worked quite "well" up until that time). Krugman highlights this best here:

The era of strong unions, high minimum wages, high top marginal tax rates, etc.
was also a period of rapid growth and rising living standards. That doesn’t
prove causation; it does disprove the widespread dogma that these things are
always economically devastating. And it’s telling that so many on the right have
airbrushed the whole postwar generation out of history.

This post reminded me of an article I recently read and suggested as optional reading for my Econ 362, American Economic History class which has a similar thesis but that it pertains to the long run: the history of the U.S. economy is built on laissez-faire government, so any modern attempt to regulate, say, the financial system, is to turn back on historical principles of American democratic capitalism. The article is here. A good excerpt:

American capitalism also developed at a time when government involvement in the
economy was quite weak. At the beginning of the 20th century, when modern
American capitalism was taking shape, U.S. government spending was only 6.8% of
gross domestic product. After World War II, when modern capitalism really took
shape in Western European countries, government spending in those countries was,
on average, 30% of GDP. Until World War I, the United States had a tiny federal
government compared to national governments in other countries. This was due in
part to the fact that the U.S. faced no significant military threat to its
existence, which allowed the government to spend a relatively small proportion
of its budget on the military. The federalist nature of the American regime also
did its part to limit the size of the national government.

But as I hinted at in an earlier post, one can extend Krugman's argument against the conservative commentary of Reagan back to the early nineteenth century at least: government has, through various channels throughout history, substantially altered the growth trajectory of the economy across crucial dimensions such as labor market "policy" and property development.

So in summary, Krugman praises regulation and general state policy in the economy as eliciting the strongest combination of successful capitalism and redistribution to counter the evil effects of inequality. Conservatives, on the other hand, either want to say such redistribution coupled with capitalism's success never happened or is a "deviation from optimal performance" (as in the case of the long run view of history), or simply ignore the success altogether (as with the "Golden Age" story). Something is seriously wrong with conservatives when they can't even develop a consistent critique.

If I were conservative and I wanted to critique the policies of the U.S. over the course of the last 200 years, I might as well become an anti-modern country bumpkin. Don't get me wrong, there's nothing wrong with that at all! -- in fact, I would say it's the most faithful type of conservatism there is. But that's for a later post!

Keeping with a common theme on this blog lately, how best to drive this point of institutionally contingent markets on the popular front?

Still waiting to hear suggestions!

super mario galaxy 2: first impressions

Amazing game. I'm only 40 stars in (probably out of 120) but I've already seen so much variety and faced so much challenge. And it's the first time I've actually been awestruck about the music in a Mario game (fully orchestrated with some particularly excellent new songs).

It's receiving unbelievably positive critical appraise. 10/10 at multiple websites. See the full lineup of reviews here.

If you have a Wii and haven't played this yet... what are you waiting for?

Full review to come soon!

bastardized keynes or keynes the ******? (continued)

I failed to mention in my previous post that "Economic Possibilities For Our Grandchildren" is included in Stephen Marglin's Social Analysis 72, Economics: A Critical Approach syllabus. It's not an important part of what I'm talking about, but I thought I'd mention it since I'll be drawing on many of the sources in that syllabus for my writings this summer.

I continue my response to this short article by stressing the conclusion made in the previous post: Keynes' work doesn't stray very far from the mainstream view of economic theory. Keynes' grand view of the economy is still very divorced from the tough political issues that need to be addressed if some of the conclusions which Keynes arrives at are to be implemented.

There is another subtle assumption in Keynes' writing here which I turn to now, an assumption which drives at one of the fundamental principles of mainstream theory: people face tradeoffs. Specifically, people face tradeoffs between work and leisure.

I feel sure that with a little more experience we shall use the new-found bounty of nature [once we are at the stage of technology at which we can solve the 'economic problem'] quite differently from the way in which the rich use it to-day, and will map out for ourselves a plan of life quite otherwise than theirs. For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. (368-369)

But this is not a "given," it is a product (as is everything else) of history and culture. First of all, the very use of a Judaeo-Christian biblical concept should set off some bells and whistles. Other religions have different understandings of the role of work in life. The Islamic religion, for example, has a more positive view of work. Buddhism no doubt also has a different view of work (though I don't know enough about it to comment). Second, Marx himself had a very different view of work, and argues that it is only the social system of capitalism which fosters the neoclassical understanding of the modern individual as facing a dilemma of tradeoffs between work and leisure. As David Spencer notes in a recent paper in Labor History:

People were required to work in order to meet their basic material needs but they also benefited from the challenge and difficulty of work itself. Marx suggested that human beings were drawn to work as a means to realise their 'species being' and he considered the participation in work as the basis for a contented and fulfilled life. ("The 'work as bad' thesis in economics: origins, evolution, and challenges," Labor History Vol. 50, No.1 [Feb. 2009]: pg. 48)

Keynes revolutionized the field of economics in methodology, theory, and policy conclusions. But Keynes' understanding of the economy is not radically different from those in the profession he aimed to overthrow. In a sense, it was a trading of places between one set of elites and another. Basic bourgeois understandings of the economy did not change.

That concludes my comments on this article. Within a week or so, I will tie this argument up with an examination of Linder's own analysis of the "Rise and Fall of Keynesianism," from Anti-Samuelson.

bastardized keynes or keynes the ******?

We dive once more into the world of Anti-Mankiw with a brief look at an article Keynes published in his book Essays in Persuasion (1933) titled "Economic Possibilities For Our Grandchildren," written in 1930. What I'm about to write may be controversial given that Keynes is one of the leftist's (most popularly, Nobel Prize winner Paul Krugman's) favorite weapons to use against the standard free market arguments of the Republicans. So this could be seen as an Anti-Krugman just as much as it is an Anti-Mankiw. I'll leave that for you to decide.

But before I begin I'd like to briefly interject a point here. The particular set of ideas I am about to draw out is very precious to leftist thinking (subliminally or otherwise). However, in a recent conversation with fellow grad student Ian Seda (you can see his project over at Los Expatriados) I addressed a key concern that there does not exist a strong rhetorical strategy for getting these ideas about a more critical reading of Keynes "out there". Any comments or help on this would be greatly appreciated, because it is quite hard to package some of these ideas in a less ugly fashion. (More on rhetoric as it applies to these ideas in a few days, when we explore the traditions of capitalist opposition in eighteenth century England.)

At any rate, let's get started.

"Economic Possibilities" was written before Keynes published the book which rocked the field of economics in 1935, the General Theory. In this short essy he argues that the disaster of the stock market crash followed by the catastrophic beginnings of the Great Depression is a sign that we are on the razor's edge between two stages of economic history, arguing that very soon we will be at a point when

the economic problem may be solved, or be at leas within sight of solution, within a hundred years. This means that the economic problem is not -- if we look into the future -- the permanent problem of the human race (366)

It's a quite compelling and beautiful passage! If not for want of some explanations, namely, how the economic problem may also be a political problem. This is my main criticism of this essay. Keynes doesn't recognize that, before the economic problem can be solved, the central political tension in all capitalist societies -- arising from the simple fact that employees do not normally have a say in the production process, nor do they share completely in the profits produced in an economy -- must be resolved. Regardless of whether you see the economy as naturally oppositional or not, it is crucial (and, I would argue, easy!) to see that if the problem of scarcity for all is going to be solved, economic decision making must be fully democratic. And economic decision making will be fully democratic when one group -- such as employers and others whose profit rates outstrip the productivity rates of their workers -- is no longer has control over economic decision making. That is, when private property in the means of production (factories, tools, technology) no longer exists, then everyone can decide about economic distribution, and scarcity will be on the way to being eliminated. This is all in the theoretical realm of possibilities, but the importance of it is brought to light by Keynes' prescriptions.

Don't get me wrong: I wouldn't argue that Keynes was oblivious to the strong relationship between economics and politics in his own time. But what this passage demonstrates is a crucial assumption in Keynes' theoretical understandings of the economy where he doesn't fully draw out the implications of the changes in society that would have to take place if a society were to transition to solving the economic problem.

Next (probably for either later today or tomorrow): we take up Keynes' thoughts in this article of the labor-leisure tradeoff. At that point I'll summarize my criticism and drive the main point: the prevalence of bourgeois ideology in economics regardless of whether you're left, right, or center.

industrial policy in the 21st century

I just saw this piece by Harvard development economist and former blogger Dani Rodrik on industrial policy in the U.S. It's interesting, though he could have gone much deeper with the history -- especially since most people start their timelines for state intervention in the U.S. economy at around t=1932 and go from there. And even in that story, things break down by around t=1972 and we apparently go back to minimal state intervention. So culling examples from 1950s-era economic history isn't very persuasive.

He also could have been more consistent in his policy proposals. For example, this:

Second, industrial policy needs to rely on both carrots and sticks. Given its risks and the gap between its social and private benefits, innovation requires rents – returns above what competitive markets provide. That is why all countries have a patent system. But open-ended incentives have their own costs: they can raise consumer prices and bottle up resources in unproductive activities. That is why patents expire. The same principle needs to apply to all government efforts to spawn new industries. Government incentives need to be temporary and based on performance.

Doesn't line up with his discussion of subsidies and other more forceful examples of state aid in other countries and in other "development miracles". State-funded industry doesn't sound like a passive game of carrots and sticks; it sounds more like an active role of wealth redistribution. Also, there has been some interesting work done by Naomi Lamoreaux on the lack of necessity of secure private property rights in economic development.

The full article (definitely worth checking out) can be found here

in the beginning there was...

I literally feel flooded with information at this point.

There is so much to digest. Please, read through the following articles and take a look at this history. It is truly astounding and I'm still not completely sure of everything going on here. All I can say is, "Wow."

Our documentation of the political motivations of the anti-Mankiw start with the impressive story of Samuelson and the post-WW II prolific economists of the two econ department powerhouses of Harvard and MIT. To remind the reader: the point is to document in excruciating detail the connections between the politics and the economics. Mr. Mankiw has been so adamant of separating the two in his critiques(?) of my views. But as the following articles demonstrate, politics and economic ideology has been intricately linked from the beginning, providing the strong political basis for an anti-Mankiw.

In this post, we begin by trying to answer the question: "Were there political reasons why Samuelson, after initially taking a Junior Fellow position at Harvard, accepted a position at MIT in the Fall of 1940?"

And thus the roller-coaster begins -- trust me readers, all of these articles are a must:

And we begin...

The Harvard Crimson reports on Samuelson's earning the Nobel here:

http://www.thecrimson.com/article/1970/10/27/professor-samuelson-wins-nobel-prize-in/

As you see even from this early stage, Harvard is obsessed with linking Nobel winners in economics at other universities to their own university in some way. For a contemporary example of that, see this report on Ostrom winning the prize in 2009. It is important to keep this in mind because of the strong blend of politics and elitism central to our critique:

http://www.thecrimson.com/article/2009/10/13/prize-harvard-hart-oliver/

This next article is interesting because it outlines the first documented attempt to replace Samuelson's book in the Introduction to Economics curriculum at Harvard (in 1964) with a book written by Harvard professors. The official switch did not happen until 1978 (a book by Richard Lipsey and Peter Steiner):

http://www.thecrimson.com/article/1964/1/27/samuelson-text-may-be-displaced-by/

One extremely interesting point is the significance of Lipsey's work, and therefore a suggestion for why Lipsey's book replaced Samuelson's. And it demonstrates once again the issue of politics and economic ideolgoy. The Wikipedia article on Lipsey says the following:

Lipsey was the protagonist and protector of the doctrine of the Phillips curve, which held that a tradeoff existed between unemployment and inflation. At the 1968 American Economic Association meetings Milton Friedman countered Lipsey's arguments in what was perhaps one of the great arguments in economics.

In other words, the choice of textbooks matches perfectly with the issues economists and politicians began to have in the 1970s with Keynesian economics!!!

The following is a very interesting documentary of the historic rivalry between Harvard and MIT, which finally answers the question at the core of identifying the space for an initial political motivation behind an anti-bourgeois text. It is central to our critique. Please take a look:

http://www.thecrimson.com/article/1982/10/28/economics-rivalry-r-heats-up-pwe/

It mentions several crucial moves between Harvard and MIT in the 80s, such as Larry Summers and Olivier Blanchard. But here, here is really the money quote that sinks the ship:

Some professors date Harvard and MIT's rivalry in economics back to an unmistakable controversy in the early '40s when Paul Samuelson, then a graduate student at Harvard, was passed over for a faculty appointment at the University. At the time, widespread reports attributed Harvard's failure to hire Samuelson to anti-Semitism.

Samuelson accepted an offer from MIT's young, unspectacular department, and proceeded to dominate the field of economics as few other scholars have in the century. Almost single-dedly, he attracted a long string of outstanding graduate students and faculty members to MIT, most notably Robert Solow.

"It will take half a century for Harvard to recover from that anti-Semitism," Otto Eckstein. Warburg Professor of Economics, told Business Week recently. Part of that effort to recover has included regular tenure offers to Solow and Samuelson, reportedly including an offer of a University Professorship to Samuelson.

We see here a potential validation of our hypothesis from above -- from a Crimson article in 1982!

But there is much, much more to come, as we enter the early to mid 70s and the ideological bias extends itself to other much more important political spheres.

Coming up, then?

GALBRAITH

BOWLES

GINTIS

...and much, much more.... stay tuned!

listener's choice radio

WFCR, a very good public radio station in western Massachusetts, is currently running a survey to determine the 100 most popular classical and jazz songs. The survey ends today, but you can hear the results in a countdown starting next Wednesday, May 19th from 9 to 4. [*UPDATE: The program continues into the rest of the week.*] The top 100 jazz pieces can be heard that night from 8-11. Check out the link here:

http://www.wfcr.org/events/survey.php

take note

Recent acquisitions of particular interest to readers of my blog:

N. Gregory Mankiw, Principles of Economics (from a former student; my copy from high school is apparently lost at home)

Stephen A. Marglin, Social Analysis 72, Economics: A Critical Approach syllabus (from same student)

Richard Parker, John Kenneth Galbraith (from a friend at Los Expatriados)

Kornai, Anti-Equilibrium (from the library!)

It will be a great summer.