dynamics of the textbook industry - a quick thought

Some sentences to ponder regarding the dynamics of the textbook industry, from New Perspectives on Keynes by Cottrell and Lawlor:

Principal features of Samuelson's text remain unchanged over a period of forty-six years. We have argued that Samuelson's 'son' of Keynes was really the product of a virgin birth; it also appears true that, in common with other products of immaculate conception, the analytical apparatus of Samuelson's Economics has remained unsullied by its confrontation with the world. the larger uses of that apparatus have also remained unchanged: Samuelson of the eleventh edition remains the harmonist and neutral scientist of the first edition.

The authors are being less praising of Samuelson than they might seem, given this quote. As they observe in a footnote, Samuelson lost significant market power as early as the mid 60s. His text might have been praised as an excellent model of how to educate undergraduates, but that's not all what sells in the textbook industry. Politics and approach play a significant role -- which is a big reason (though not the whole reason) why big-name centrists (Mankiw), or smaller-name economists who keep a close ear to the ground for ideological shifts in the mainstream (what McConnell was), end up being the most successful.

in which n. gregory mankiw demonstrates the irrelevance of his ten principles

This post written earlier today is said by Mankiw to have demonstrated the relevance of his Principle 4, "People Respond to Incentives," but it's very possible students will not see his main point. From the (Wall Street Journal) article:

Top officials, in a bid to meet goals to win promotions or thousands of dollars in bonuses, directed many employees to refrain from issuing decisions on cases until next week, according to judges and union officials. This likely would delay benefits paid to thousands of Americans with pending applications, many of whom are financially needy and have waited for a government decision for more than a year.

So Mankiw decided to pick on government officials who responded to a blip in the government calendar by suggesting to their employees that they work less. While this does indeed demonstrate how officials responded to (perverse) incentives (hm... how does "People Respond to Perverse Incentives" sound as a principle?), some students may react by saying, "that's not the duty of government employees! They should be fulfilling their public duty!"

Yes indeed, and guess what: "citizens usually act so as to fulfill their public duty" is not one of Mankiw's ten principles. So I guess Mankiw's 10 principles don't apply to government workers....

...or to families (who purposely do not respond to incentives when deciding whether to provide you with a home or food on the table) either...

I guess the 10 principles aren't really principles, are they? Either that, or whatever world Mankiw is envisioning in his textbook is a cold and barren wasteland.

the problem with orthodox economics

As though we needed another reason to make the point!

So, I was reading through an article from the journal of economic education entitled, "Textbooks, Taxes, and Objectivity in Economics Instruction" (always gotta love that word "objectivity" when talking about teaching economics). They present the standard textbook argument that taxes lower social welfare by creating some deadweight loss -- the standard argument of course, where the loss in consumer surplus is greater than the gain in profits. The author then laments that this is usually as far as textbooks take the argument in terms of the chain of logical reasoning.

And then, oh boy, I get to this quote:

If the textbook discussion... concludes at this point in the example, the student will be left with the impression that the public sector is necessarily a burden on society. A discussion of the benefits of tax-financed public expenditure will give the student a more balanced view.... Before the city council exercised its power to tax, the private demand for police protection was not strong enough to produce any police protection....If [citizens] reveal their preferences for police protection... the social demand for the services of police... can be identified by vertical addition of the private demands of the citizenry.

Cops! Really? That's what makes the neoclassical model balanced -- if you see that taxes will in turn fund public goods such as the police which has positive externalities. Take the logic of the model one step further and you might even get militarization for self-defense (and for smashing unions and wall st. occupations -- the pesky institutions are too market-distortionary!!!!).

I guess cops don't have diminishing returns to scale either -- they can share donuts or something.

empirical dimensions of class conflict, part ii

Last time, we ended with a somewhat banal point: that you can't really understand what goes on inside a firm without looking at the social conditions surrounding the firm. The idea becomes interesting and thought-provoking in comparative context -- either cross-sectionally or temporally -- because that way you can say something of value about how the details of different contexts lead to different behavior.

I take up the latter approach and argue that different stages of industrialization produced significantly different patterns of class conflict. Early in the history of the mill, the workforce was primarily composed of farm girls, who took temporary jobs to earn some money before eventually returning home to teach, go off and get married, or go back to work on the farm. Women didn't even necessarily see all of their wages since most of it would be sent home to their father or other guardian. Nevertheless, women were vocal at the mills about wage cuts and would actively protest negative turns in management policy.

Unfortunately, such turns were becoming increasingly common as we move from the beginnings of the mill in the mid 1830s into the early 1840s. Things change at home, too, as agriculture becomes less and less lucrative, thus making families more and more dependent on the womens' earned wages. Of course, protests still occur in this period but the goals become centered around legislative reform (10 hour laws, better working conditions, etc.) now that it had become increasingly apparent that the girls might be working on a more permanent basis. By the late 1840s and early 1850s, when managers at the mill had begun to employ Irish immigrants and had introduced various technological changes leading to increased intensity of work, working families were almost solely dependent on wage work for survival.

Stand back for a second and think about how you might respond, given these different eras, to an increase in your wage rate. In a period where you're relatively free to go and return as you please, a wage increase might be seen favorably as a way of management wanting to share in the profits of the firm -- so you might work a little harder in response, knowing that you'll be rewarded for doing so. But then, think about an era when you're really stressed for time and are already working 70, 80 hour weeks. Is an increase in your wage now necessarily going to mean that you'll put in another 4, 5 hours of work?

Of course not. Even if you're making more in the earlier era relative to the latter era, you might very well be at your "breaking point" in the latter era, with such a "point" significantly affecting your work-leisure preferences. And that is essentially what I am out to prove in the paper -- in short, that working conditions were being increasingly downgraded, causing a shift in response to how workers decided (partly as a group, partly individually) to react when managers dramatically increased or decreased their wages. This isn't a wealth effects model where increased income leads you to shift your time from work to leisure; rather, it is one of changing outside conditions compelling specific performance in the latter period where it was only optional in the previous.

That's it for now! In the final part to the series I'll present the conclusions in a bit more detail and argue a few "big picture" points -- for example, that we can learn a lot about labor contracts in this period from this case study.

fall entertainment at imagining history

I often enjoy making lists of things I plan on enjoying after getting through difficult bouts of work. Given that I have 2-3 conferences and loads of other stuff to work on up until mid-November, here are some things I'm looking forward to enjoying (note that all of these have been featured at various points on this blog in one form or another) as all of that winds down.

Haruki Murakami, 1Q84 (October 25, 2011)

Murakami's latest is supposed to be a really sensational novel on the order of Wind-Up Bird Chronicle. Released in three separate volumes in Japan, the English translation will released late-October. A selection from it recently appeared in The New Yorker: "Town of Cats".

Assassin's Creed: Revelations (November 15, 2011)

Taking place in early 16th century Constantinople (i.e. Istanbul) promises to be a stunningly beautiful and expansive end to Ezio Auditore's story. (Might have to wait until Christmas break to tackle this one!)

The Rum Diary (October 28, 2011)


This movie adaptation of a classic but rather less well-known book by Hunter S. Thompson starring Johnny Depp is a unique, early look at the young author that is not present in most of his later works that releases, whaddya know, late-October.

Legend of Zelda: Skyward Sword (November 20, 2011)

Probably going to end up being the best example of the Wii's "last stand" before the new console (Wii U) rolls out. Apparently this game is huge. Invoking a less-mature look than Twilight Princess, the visuals on this game look promising. And let's hope that the WiiMotion Plus controls deliver!

Professor Layton and the Last Specter (October 17, 2011)

The latest installment of this fantastic puzzle series is actually a prequel in terms of the timeline of the story. Apparently it includes a lengthy RPG detailing Layton's "London Life"! Coming to stores mid-October.

At various times in my life I have determined that (1 or 1.5 hours) less sleep each night is worth it. I suspect this might be one of those times.

empirical analysis of class conflict -- some current research

Consider this post to be the first in a series in which I attempt to explain some things I'm currently working on. The problem with stating anything definite about projects is that you risk it coming across the wrong set of eyes. Maybe once I get tenure I'll have a more relaxed tone, but for now (since I haven't even gotten a PhD!), I'll try to write in such a way that doesn't give away techniques, data sources, or references. See my research page here for a list of all current and past projects.

Of course, that stuff tends to be the boring part of any research paper anyway, and when I comment on research I usually avoid technique and references in a New York Times Sunday-esque "pop social science" sort of way, so I guess I'll just try to do that same sort of thing with my own work. Anyway, on to it:

The project I want to write about for the next few posts is both narrow and broad. I started out with a question that hasn't been adequately resolved in the empirical literature, and ended up manifesting about the importance of social context when evaluating model results.

The question: whether under a piece rate (where you get paid based on how much you produce), more productive workers in the firm are prone to work less hard than they should in order to reduce the possibility that the manager cuts their piece rate.

In a firm where all workers are under the same contract, like the one that I looked at, this possibility might arise if individual effort is observable and if workers gain significant experience on the job, or "learning by doing". In such a situation, managers might observe the total output of the firm, decide that productive workers are earning really high rents because the work is too easy for them, and cut rates on everyone in order to stop workers from earning as much and, of course, to keep the profits of the firm from slipping.

The best way to test for the presence such "strategic" individual behavior would be to examine worker effort over time, and see how it responds to changes in his piece rate. Additional information on how long the worker has been at a firm, as well as other factors that might contribute to his or her productivity (how closely is management observing the worker?), would be good "controls" -- i.e., they allow you to tell the fullest story possible by evaluating the contribution of each possible factor to explaining worker effort. And finally, ideally, you would have a lot of workers to look at over a long period, in order to tell a convincing story.

The problem, however, is that if you want to tell a truly convincing story, those are not all the variables you need. Sure, from the inside of the firm, you might be able to explain the relationships among, say, worker effort and how productive he could have been, and then see if he's "lying" on the job. But what if his behavior is also affected by his fellow workers' ideas about why managers are changing their wage rates on them in the first place? A rate cut could mean one thing -- a rate hike, another. Or, what if the worker has to work for a certain amount of time in order to feed his family back home, because it's becoming harder and harder to do so as other options for work deteriorate? These are potentially very significant factors that simply cannot be included in a firm-level research design.

Well, that's it for now. I've outlined the ideal situation for testing the research question as well as a potential problem with that approach. Next time I'll talk a bit more about who these workers were and why running the model in the 1830s might be different from running the model in the 1850s.

old court-new court controversy in kentucky in the 1820s

One of the more interesting events I've encountered in my research lately is the Old Court-New Court controversy in the early 1820s in Kentucky. Reading through this, you might be struck with some parallels between current debt controversies. And, maybe even ways to get out of them.

It began with debtors unable to meet their obligations (a common theme of social unrest in the early Republic) and deciding to form a party which would stand against the repayment of debts. When this debt relief movement took hold, views on it obviously split into two camps: those representing the creditor interests such as banks who wanted to force payment, and those, in the party, representing debtors who either wanted to delay payment (for, say, a year) or to absolve the debtors of all responsibilities completely.

The situation was made worse from the fact that the cause of the debtors' problems stemmed from a speculative bubble in land in Kentucky that had burst. People had originally taken out loans in order to pay for the land, only to find that when the bubble burst, they owed large sums of money! Thus creditors, who included big insurance companies and banks, were very angry and fought hard against a legislature that had come out in majority support (in both houses of the General Assembly) of the relief party.

The courts, however, declared debt relief to be unconstitutional -- creating a split in the government between the judicial and legislative branch. But unlike most of the early clashes between a society rife with factions on the one hand and "friends of order", the judges, on the other hand, the Debt Relief Party made a radical move by deciding to simply create a completely new court! By the time it was abolished a few years later (once a legislature more strongly against debt relief had come in, and once economic conditions had improved), this "new court" dominated by debt relief interests had heard 77 cases!

Eventually, the cases heard by the New Court were declared null, but Kentucky's brief experience with a dual-court system represents a truly remarkable event in legal history, when people literally took institutions into their own hands to set up an alternative more in line with popular views. While there are many examples of court occupations throughout the history of the Early Republic, nothing quite like this can be found in the history books. It shows what happens when you combine hard times with enormous sums of debt and a government that is insufficiently responsive to majority interests. And, it might just teach us something about current events!

You can read more about the controversy at its Wikipedia site here: http://en.wikipedia.org/wiki/Old_Court_%E2%80%93_New_Court_controversy

beethoven, piano sonata no. 32, op. 111

This is a side of Beethoven we don't usually get to see in all the renditions of the symphonies and "Moonlight Sonatas"! The final sonata in Beethoven's opus is a delightful surprise, and here is the second (and last) movement of it. Serkin's gentle but I think it's a good interpretation. Enjoy!

First part:



And the second part:

something to reflect on this labor day

From E.J. Dionne's excellent Opinion piece in today's Washington Post:

So it would take a brave man to point out that unions “grew up from the struggle of the workers — workers in general but especially the industrial workers — to protect their just rights vis-a-vis the entrepreneurs and the owners of the means of production,” or to insist that “the experience of history teaches that organizations of this type are an indispensable element of social life.”

That’s what Pope John Paul II said (the italics are his) in the 1981 encyclical “Laborem Exercens.

Quotes from Abraham Lincoln as well in what is a good summary of the history of how laborers have been overlooked as the drivers of our economy. For a more current example, it is interesting to note that almost three years after the beginning of the U.S. recession (in December 2007), after trillions of dollars to save capital from a total collapse and refusing to raise taxes on the wealthy, President Obama is finally attempting to Get Serious ("Economic Adviser Pick is Known as Labor Expert", NYT 8/29/11) about jobs in the economy.

Makes me sick.

american relative decline in blogs, academics, and policy

The stagnation of the American economy over the last few years (or as some would argue, even longer) has prompted a growing concern about the possibility of American "relative decline", echoing, in part, the discussions among policy and academic circles in the 1950s regarding British relative decline. And like those debates from the 1950s, people on both sides of the spectrum are weighing in.

From the center-right we have people like David Brooks (see here, "The Vigorous Virtues" NYT Op-Ed) and (from the further-right) Tyler Cowen, who argue that we have dried up a lot of our productive resources, largely from a sluggish public sector and a drift from "republican" virtues. In particular, Cowen's The Great Stagnation published earlier this year looks at median household income and some non-standard (if not thought-provoking) measures of technological growth to argue that American ingenuity is in serious jeopardy of a kind of "plateau".

Liberals, such as the further-left Dean Baker and liberal Dani Rodrik, argue against the view that America is on its way out. Baker in this piece ("Trade Arithmetic for David Brooks") concentrates on continuities, not breaks, in American policy since the 1970s regarding its attitudes towards organized labor as well as where a country's true strength's lie in its political economy. Baker gives a refreshing view of how America has always had an antagonistic view of what Brooks sees as the truly vital source of American productivity and prosperity -- the American worker. In other words, American economic policy is nothing new; it's simply exacerbated by other more important factors, including financialization.

Dani Rodrik looks at the issue on an international scale here (WSJ blog) and here (FT articles are gated, but you can get around the gate by Googling "don't expect china et al to save the world", the article's title, and clicking on the first link), arguing that unless emerging economies adopt a strict industrial policy allowing them to push out of manufacturing into higher-growth areas, relative decline is not likely to be the most important force in the international political economic landscape because developed countries will maintain an edge on the technological frontier.

Relative decline debates always seem to be instigated by conservatives who want to lament the passing of some better time when a country's citizens were more virtuous and hard-working, and "real" economy concerns were more important than finance. Marxists or Marxist-influenced scholars may join the fray by commenting on the labor politics involved, for example by arguing that a lack of a strong labor movement may hinder progress towards socialist revolution and thereby lead to economic/capitalist stagnation (Baker walks a fine line on this front, whereas Bill Lazonick is a solid example of this argument in the British decline debates).

Real progressives, on the other hand, see through the rhetoric most clearly by arguing that relative decline is a fiction manufactured by conservatives in order to skirt the main issues of capitalist development (I would place Rodrik in this camp). I have yet to encounter an explicitly Marxist take on the question and would be interested to hear if anyone has an article to recommend on it.