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Wednesday, January 29, 2003

Marxist Mathematics

In my earlier post about heterodox economics, I mildly ridiculed a book called Quantitative Marxism. I had a look at the book again (working in a university library helps) and I was right--the book barely has any equations or models. It's also, well, boring.

While searching the shelves for the above book, I found a book by Meghnad Desai called Marxian Economics. (He's now Lord Desai of St. Clement's Danes, but I digress.) This book does contain quire a few models, exploring Marx's theory of value.

Now, I haven't read it, so I can't really comment on the models in question. I wonder, though, why Professor Desai thought this necesary. He has a new book, Marx's Revenge, which has been very well received here in the UK. The Economist says that Desai "argues that Marx was misunderstood and that the great man was right about far more than he is given credit for".

I'm no Marxist--I'm a free market classical liberal. It is interesting, though, to see the lengths to which one will go to maintain one's worldview. The faith of Marxism reduced to calculus? Strange indeed.

I wonder, though, why the Marxist economists and others in the post-Autistic movement don't use model's like Desai's more often. It would be more coherent, I assume, than the arguments they make now. Would that be the point, though?

Tuesday, January 28, 2003

The World, 20 Years On

Brad DeLong posts a generally optimistic outlook for the world, after having reviewed the world's spectacular progress during the 20th century. The world has come far in the past 100 years, I think--subjects like Third World development were not considered problems before the Second World War; environmentalism was not a movement prior to the 1960s. This does not mean, to use Bjorn Lomborg's phrase, that things are good enough; but the world has come far, and that needs to be acknowledged.

I've disagreed some with DeLong recently, but this article is right on the money.

The Pedagogy of the Heterodox

While trolling through one of my favourite second-hand booksellers in London, I once came across an odd book, Quantitative Marxism. Now, Marxism, as I understand it, is concerned with many things, but optimisation is not one of them. Not that a quantitative approach has to focus on optimisation, mind you; but quantitative approaches implies a solution to something--using data to arrive at some conclusion or to add to the analysis of a problem. The book's own blurb describes it as such:

This book seeks to establish a constructive and useful interaction between empirical data and research methods, on the one hand, and Marxist theory and analysis, on the other. It shows that it is possible to operationalize Marxist concepts either by using orthodox data and reinterpreting it, or by constructing data which are more congruent with Marxist notions. The contributions deal with a wide range of theoretical, methodological and policy-related issues. Among the substantive issues discussed are unemployment and structural change, uneven development and industrial restructuring, and the financial sector.

The blurb is, more than anything, a bit benign; it almost makes Marx seem, well, normal. That, I concede, may be naive--Marxism, to it's adherents, is not a mere school of thought, using various methodolologial approaches to support it. Marxism, as I understand it, transcends methodology--it certainly cannot be described as positivist in orientation.

Well, all of this is a bit academic, you may think. Why bring it up?

Last week the Chronicle of Higher Education published a story on heterodox economics. Now I go to Birkbeck, which, though many may not heard of it, and it certainly does not look like it, is one of the top economics departments in the UK. The only way to get up there is to be neoclassical, running a rigorous, mathematical programme. I take great interest, therefore, in people suggesting that what i'm leaning is, well, pointless. In June 2000, some French economics students, decrying the state of the profession as "autistic", had this to say:

Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered, that is to say for the most part neoclassical theory or approaches derived from it, does not generally answer this expectation. Indeed, even when the theory legitimately detaches itself from contingencies in the first instance, it rarely carries out the necessary return to the facts. The empirical side (historical facts, functioning of institutions , study of the behaviors and strategies of the agents . . . ) is almost nonexistent. Furthermore, this gap in the teaching, this disregard for concrete realities, poses an enormous problem for those who would like to render themselves useful to economic and social actors.

The students go on to complain about the abundance of mathematics in economics, and about the lack of pluralism in the field. In September of 2000 some French economics professors later supported the students with a petition, questioning, among other things, "the object and nature of modelling itself and considering how economics can be redirected toward exploring reality and away from its current focus on resolving "imaginary" problems." Thus, "post-Autistic economics" was born.

Now, people that have gone through a degree programme similar to mine work in all areas and sectors, solving (or, at least, trying to solve) "real-world" problems. Some of these are more successful than others, yet few would say that they do not find themselves "useful to economic and social actors". What do these students mean?

In a 1996 column in Slate, Paul Krugman describes the conflict:

More than 40 years ago, the scientist-turned-novelist C.P. Snow wrote his famous essay about the war between the "two cultures," between the essentially literary sensibility that we expect of a card-carrying intellectual and the scientific/mathematical outlook that is arguably the true glory of our civilization. That war goes on; and economics is on the front line. Or to be more precise, it is territory that the literati definitively lost to the nerds only about 30 years ago--and they want it back.
That is what explains the lit-crit style so oddly favored by the leftist critics of mainstream economics . . . the quantitative, algebraic reasoning that lies behind modern economics is very difficult to challenge on its own ground. To oppose it they must invoke alternative standards of intellectual authority and legitimacy. In effect, they are saying, "You have Paul Samuelson on your team? Well, we've got Jacques Derrida on ours."

A French post-Autistic website, for example, is not very impressed by representative-agent models:

Is it relevant to study the actual evolution of a whole country's economy as if it reflected the choices of a lonely individual? The answer is obvious: NO. In that case, what is the point of overburdening the student with the methods of "optimal control", the statistical techniques of confrontation of Robinson's "intertemporal choices" with the available data on the GDP evolution of such and such country? According to us, there is none.

In my macroeconomics course, we just finished going over the Hamiltonian (one way of solving optimal control problems) and we are currently learning the Bellman equation. This stuff is not easy, and, to some extent, I understand where these people are coming from. I am no mathematical genius; my bachelor's degree is in history. 18 months ago I could not solve equations, let alone do differential calculus. I still can't quite think mathematically, and I have to always work everything out, which makes reading papers, and sometimes even textbooks, slow. I tell classmates that when it comes to mathematics I'm not a fluent speaker, just a frequent tourist with a good phrase book.

That does not mean I don't see the value of what I learn. There are problems that you could spend page, upon page writing about, which could be more easily stated with a diagram and few lines of equations. I, for one, don't see modelling as an end in itself, merely as a means for understanding what happens in the world. It is at times counter-intuitive, and at other times seems like an explanation of the obvious. I've explained to humanities undergraduates, though, why it makes sense for them to take out student loans, using the permanent-income hypothesis. If they can make sense of that, then it means that economics, as it stands, can make a difference, if in a small way. The slow progress make is definitely worth it.

Virginia Postrel points out that criticism of neoclassical orthodoxy is not even new, and that economics is very open to new ideas:

Heterodox ideas like the limits of knowledge and "bounded rationality" are associated with Nobel laureates (F.A. Hayek and Herbert Simon, respectively). The hottest young fields in economics include behavioral economics (which, along with equally upstart experimental economics, garnered the most recent Nobel) and the New Institutional Economics (which also has a couple of Nobels to its name). Sure, you can get ahead in economics tweaking static models. But to pretend that economists are uninterested in economic change is ridiculous.

Craig Newmark echoes Postrel by noting that the some critics like Dierdre McCloskey and Ed Lerner have proposed ways to fix the criticisms they raise. The post-Autistic economists value pluralism above all else, and what they propose will not solve anything, and, worse, is not even true. Indeed, much of what I've read in the Post Autistic Economics Review, pace Krugman, reads more like literary criticism than actual scholarship. This notion of criticism does not only extend to the post-Autistic crowd; other heterodox theorists have much to add as well. Austrian economics, for example, has useful insights on the theory of business cycles, to name one example, as this survey in the Economist demonstrates. The editors of the Quarterly Journal of Austrian Economics, on the other hand, seem very interested in confrontation to prove a point:

The QJAE does not shy away from controversy, regardless of whose oxen are gored. In this vein, we welcome articles employing Austrian economic theory to evaluate and demolish faddish and foolish developments in mainstream economics, which have proliferated so rapidly of late—a sure sign of a paradigm in the latter stages of crisis and self-liquidation. As a means of appealing to a broader readership, we also encourage the submission of articles that subject an important contribution, or even the entire oeuvre, of a Nobel Laureate in economics or of a rising young star of the profession to the rigorous scrutiny of praxeological economic theory.

Mainstream economics is very much evolutionary, incorporating new fields and approaches as more tools (including mathematical ones like dynamic programming, which did not exist in its current form before the 1960s) are developed and data collection improves. In contrast to the heterodox economists, some other social scientists feel threatened by the expanding scope of economics, which has gone on to look at crime, law, political power, and the environment, to name a few. This does not mean that it is always right, and can explain everything. The post-Keynesinan Daniel Davies, for instance, never tires of telling neoclassicals about the non-ergodic nature of the world--and that criticism, mind you, is a mathematical one.

In another article, Paul Krugman makes this defence of the mainstream:

Many, indeed probably most, of the non-economists who attack the field's formalism do so not because that formalism makes the field irrelevant, but on the contrary because economists insist that their equations actually do say something about the real world. And since the critic's view conflicts with what the equations say, this whole business of using mathematics to think about economics must be a bad thing.

To end where I began, I put back the Quantitative Marxism book on the shelf where I found it. I just skimmed it for a couple minutes, I know, but I did not see a single equation in it. I decided that I was better off pursuing actual solutions, rather than bending the methodology to a particular perspective.

Monday, January 20, 2003

Robert Musil links to a Milton Friedman Op-Ed on the biggest isue in economics at the moment, the Bush dividend tax cut:

Many discussions of the economic effect of tax cuts and deficits implicitly assume that government spending is predetermined and independent of whether there is a tax cut or a deficit. In that world, deficits are produced entirely by a shortage of tax receipts. Raising taxes can eliminate the deficit without affecting spending. As I see the world, the situation is very different. What is predetermined is not spending but the politically tolerable deficit. Raise taxes by enough to eliminate the existing deficit and spending will go up to restore the tolerable deficit. Tax cuts may initially raise the deficit above the politically tolerable deficit, but their longer-term effect will be to restrain spending.

In the first of several post on the subject, Jane Galt wrote this on January 9th:

While I am in favor of holding down both taxes and government spending, broadly I agree with the propositions that government spending is the important factor to watch, not how it's financed; and that at the current levels of taxation and borrowing, increases in either are likely to have an effect too trivial to be measured in aggregate.

Does Milton read blogs?

Friday, January 17, 2003

In the Independent, Hamish McRae makes a broad point in a good article about supermarkets:

Profit is wonderful because you only make profits if you provide people with what they want. You don't have to go to the supermarket if you don't want to. We buy our meat from the local butchers and fish from the fishmonger because the quality is better. Our fruit and veg come from the Kurdish immigrants round the corner because they are nice people and are more convenient. But we go to Waitrose, too, because it has lifted its game a bit above the mainstream chains. However, I don't begrudge any group a profit.

There is choice, and the best way to get what you want is to use that choice, not to restrict it. (Via William Sjostrom.)

Nicholas responds to my post below about cheap food, in part by quoting The Road to Wigan Pier. He also asks in the comments if I consider the social costs of an ill-nourished populace. It's not that I have not considered this, but the externalities caused by malunitrition in a developed country are, well, limited; the people who suffer most are the malnourished poor themselves. My post was really directed at those who think that people cannot choose to be malnourished, and the attitude that would lead a person to consider a policy intervention to correct this, (such as a tax on cheap, fatty food) as being beneficial for the poor.

Poverty is a multidimensional problem, to be sure, but it's primary cause is a lack of income; malnutrition is more symptomatic in nature, and efforts aimed at tackling that is in isolation could end up exacerbating the problem of poverty. In the context of the present discussion, this is illustrated by indifference curve analysis. Click here and scroll down to the last graphic. The gist of it is this: given existing preference, an increase in the price of a normal good reduces income. By and lage, the food that the poor in developed socieites at are what economists refer to as inferior goods--as income increases, consumption falls. Thi includes the same fatty food that consumer activists rail against.

In the long run, the best way of dealing with poverty is to raise incomes--lack of income restricts the choices one can make. This is incredibly difficult, and there are no straight-line answers to the problem, but paternalism is not a good way to start--ultimately, I think, individuals know what's best for themselves, and suffer most from the consequences of thir own actions. Poor people suffer enough indignities in life, and a decent first principle in dealing with their condition is by treating their decision-making with respect, however one disapproves of its consequences.

Wednesday, January 15, 2003

Consumer advocates, in general, concentrate on two things--price and quality. I therefore find it hard to understand the logic of the Guardian's consumer editor, Felicity Lawrence:

If the battle to be top dog in the grocery market has resulted in a price war and we all get cheaper food, does it matter who owns what?

Of course it does. This is not a zero-sum game. Someone has to pay for those price cuts, and it ain't going to be the supermarkets. The big five - Tesco, Sainsbury's, Asda, Safeway and Morrison's - made £2.2bn combined profits last year. Farmers who actually produce our food meanwhile faced an agricultural slump, not just in Britain but across the world.

Ignore that what Ms. Lawrence describes in fact is a zero-sum game. Is she in favour of more expensive food?

A leader in the New Statesman back in October had this to say on the subject:

While supermarkets continue to keep food prices low, at whatever cost to the health of the nation and the survival of the small farmer, the government is unlikely to intervene. But the argument that food must be kept cheap for the benefit of the poor is a defeatist one. In effect, we are putting food producers out of business to subsidise low-wage industries.

The real beneficiaries of cheap food are not the poor. As the think-tank Demos argued in an important pamphlet earlier this year - Inconvenience Food - large out-of-town supermarkets favour car drivers able to make a substantial number of purchases in one outing. The poor also bear the brunt of the failure to link food policy to health. The country has divided into the 'food rich', able to eat cheap strawberries all year round, and four million 'food poor', with inadequate access to sufficient nutritious food.

The quoted report recommends a tax on fatty foods. Independent of whether or not that is a good idea (it would require a government definition of fat, among other things) such ideas are, at the very least, condescending, assuming that the poor do not know any better than to buy "bad" food. Theodore Dalrymple does a good job of dismissing this, saying that "this approach leads [the elite] to view those same people as helpless automata, in the grip of forces that they cannot influence, let alone control".

For their own good, the poor need to have "bad" food be expensive. The revealed preference of poor shoppers indicates a preference of "bad" food; why is this a problem at all? If these preferences are bad, why are supermarkets to blame for it? Maybe the poor heavily discount the future, leading them to not think much about the long-term effects of present consumption. Maybe the taste of "bad" food overrides any long-term considerations. Maybe they believe that the hype about obesity is exactly that--hype. Whatever the reason, it is hard to see why such behaviour merits a response--why supermarkets must be compelled to be socially responsible and sell expensive, healthy food to people who clearly don't want it.

Sunday, January 12, 2003

It snowed in London this week--the heaviest snowfall in 12 years--and I took some time off to enjoy it. I have not seen a blanket of the white stuff since I was six and living in New Jersey. My manager said I was like a child--the snow inexplicably made me very happy. I was polite enough to ask my colleages for a snowball fight, and most (predictably) refused; my classmates, however, received no such courtesy. and were met with salvos as they left Birkbeck on Wednesday night. No chance to build a snowman or make an angel, but I sang "Let it Snow! Let it Snow! Let it Snow!" to all who could hear.

Some people have wondered why, in spite of the tabloid press's best efforts, Londoners did not despair or, worse, panic after the ricin discovery. The fact that Londoners (one of whom, I guess, I can consider myself) already suffer so much plays a part. A huge part, though, IMHO, has to to with the coincidental arrival of snow. People were noticably brighter, and while the transport got worse than usual, it did not dampen spirits. People spoke to strangers, which rarely happens in this city; spontaneous snowball fights erupted in public squares. I will not overdraw from this, but this gives me some hope that maybe,just maybe, this most anonymous of cities has some civility after all.

Saturday, January 04, 2003

I am kind of busy writing a paper on the tragedy of the commons at the moment, as I've posted earlier. I plan to post on that when I'm finished, but now I would like to share a thought about why I am blogging.

I am a part-time postgraduate student in economics (I work full-time in a university library) and a huge part of this blog will be, I hope, to improve my clarity of thought on the subject matter I have to cover on my course. That does not mean I restrict myself to taught areas; my posts on Starbucks and on crime, for example, are on areas not directly covered by my microeconomics course this term. This does not mean that I'm wrong, only that I'm learning; and I hope that what I post about makes sense all around. I have a belief that if what I learn can be adequately expressed here then I'm on the right track.

Take for instance, my comment (scroll down) on Jane Galt's post about lighthouses as public goods, pointing her to Zirman Ahmed's post on the same subject. I commented that by enforcing the collection of usage fees for lighthouses, "the government was, in effect, creating a market. Much of contemporary microeconomics is about mechanism design--fashioning incentives and, sometimes, creating markets where none currently exist. The lighthouse owners lobbying probably had this effect."

Now I may have misinterpreted Zirman, or I could have been flat out wrong. Mechanism design, from what I gather, is generally aimed at finding an optimum, or, failing that, a second-best solution to a problem. The political process, on the other hand, produces solutions which, while dealing with some aspects of a problem, often accrue benefits to rent-seekers, who use lobbying to influence the process of policy design. (For example, I've recently read a journal article on JSTOR with a model of common-pool resource management that incorporates political lobbying.) That does not makes the process any less one of mechanism design--just that the design benefits certain parties. Anyway, Daniel Davies original post on Ronald Coase and lighthouses has sparked much debate; Jane herself read Zirman's post, and she posted an update on the subject here. The debate continues.

Am I right? I think I'm on the right track, though I'm still not entirely sure. Story of my life.

Wednesday, January 01, 2003

For those Trinidadians (and others) worried about the trend of oil prices, Eric Chaney and Richard Berner of Morgan Stanley post their outlook here. The three scenarios are widely divergent, in the end, though, they say this: " . . . at least for the immediate future, oil and energy quotes will likely stay at higher levels than we previously thought."

In both his books and newspaper columns, Lloyd Best has used the phrase "Afro-Saxon" to describe the Afro-Trinidadian (and, more broadly, Afro-Caribbean) elite. In an article in this week's Spectator, Andrew Kenny uses the phrase to describe post-independence leadership in Africa:

An Afrikaner commentator with a vivid turn of phrase, Dan Roodt, described our black leaders as ‘Afro-Saxons’. This is marvellously apt. President Mbeki of South Africa is a good example and President Mugabe of Zimbabwe is even better. You cannot really understand Mugabe’s behaviour and Mbeki’s support of him unless you understand what black racism really means.

A white racist is someone who believes that white civilisation is superior to black civilisation, and is happy about it. A black racist is someone who believes white civilisation is superior to black civilisation, and is furious about it. Robert Mugabe exactly fits this definition. He is Dan Roodt’s perfect Afro-Saxon. Mugabe reveres all things European and sneers at all things African. He loves English lords and ladies, and regards African peasants as backward coons. He shops at Harrods and dresses like an English gent. For 20 years he was quite content for white farmers to own a large part of Zimbabwean soil. It was only when he knew that the African electorate was going to vote him out that he dreamed up his present policies of ‘land reform’, whose main intention was to terrorise black farmworkers. And then the phrases of hatred against Europeans came naturally to him, since, like all black racists, he hates the thing he adores.

I somehow doubt that this is what Best had in mind for the West Indies.

David Carr of Samizdata makes me have a good laugh at Guardian columnist George Monbiot's expense. Not that Carr fisked Monbiot or anything; simply quoting Monbiot was enough. My favourite:

The laws of thermodynamics impose inherent limits upon biological production.

Enough said.

A Happy 2003 to all my readers.