30 December, 2007

Markets and Local Knowledge

Slightly old, but an epic post from Henry Farrell arguing for a trade-off between markets and "local knowledge":

rad is a fan of markets, and believes that they contribute in very important ways to human freedom. I agree with him on this. But I think that Brad sometimes underemphasizes the real trade-offs that markets may involve, and overstates his criticisms of people who are concerned with these trade-offs. Sometimes, perhaps often, these trade-offs are relatively slight – as Brad says, many forms of redundant local knowledge can be discarded without compunction. Sometimes, these trade-offs are real, but still worthwhile – while we should acknowledge the costs of markets, we should acknowledge that the benefits of introducing them are higher. And sometimes they are not worth paying – there are areas of social life where marketization has more downsides than advantages.

Here is how I interpret his point. Markets require some level of standardization. For example, agricultural futures markets only took off when they figured out how to standardize a particular level of quality. Now you can buy one ton of grade A corn and it will be the same no matter who you get it from. Without this, abstract trade in corn is not possible. This standardization leads to more efficient markets, specialization, and cheaper goods. However, it also destroys local forms of knowledge, like which farmer produces the best corn. It doesn't matter since it is all mixed together.

This local knowledge is valuable because things produced with specific knowledge are better than things produced with abstract knowledge. Farrell argues that tomatoes in Italy are superior because they are acquired through multifarious informal social networks amongst small-scale producers and distributors. Put another way, your Grandma's bread is better than Pepperidge Farm. But Pepperidge Farm is a lot cheaper.

So, faced with a choice, most choose Pepperidge Farm. For each individual, the cost of lower quality product is outweighed by benefit of having more to spend on other things. As more and more choose the mass-produced option, local knowledge disappears, driving the price of Granny's loaf even higher: a vicious circle. The question is then, is society better off with everyone eating cheaper, crappier bread or with everyone eating more delicious bread and having lower real incomes? It's sort of like the Prisoner's Dilemma. Everyone would be better off in the latter situation, but no one is willing to choose it.

First, I think we should recognize that this is something we can only discuss because we live in countries that have already gone through a process of market abstraction, which has dramatically increased our income. This is not a realistic choice for, say, a poor African nation, because the increase in real standards of living that abstract markets provide is vastly more important that preserving local knowledge. In retrospect, we can look back and say "too bad about that", but ex ante there is no choice at all. Can we even imagine a situation in which this choice would be relevant?

Second, this choice may be false in the long run. Another benefit of living in a post-industrial economy is that we now have the luxury of buying organic chicken from the farm up the river or beer brewed down the street. There is nothing our upper-middle class love more than locally-produced items. Think Alice Waters and her Slow Food movement. We can spend our time and money on these local items because we now have plenty. The plenty was produced by abstract markets.

This is perhaps the central question in evaluating capitalism (or other rationalizing forces like Soviet-style communism). On some level it's also the central question of reality and of personal existence.

29 December, 2007

What do Paul Krugman and left-wing radicals have in commmon?

This sentence:

trade between countries at very different levels of economic development tends to create large classes of losers as well as winners.

The left-wing radical (I jest, of course) would say that the losers are the poorer countries and the winners are the richer countries. Krugman argues from economic theory that the winners are consumers in both countries, capital and educated workers in the rich country, and uneducated workers in the poor country. The losers are capital and educated workers in the poor country and, importantly, uneducated workers in the rich country. Moreover, if you sum the effects in each country, the "country as a whole" is better off, in some sense.

I suggest reading the whole column. He grapples with a very hard truth of American politics. Open trade is good for labor in poorer countries (a vast number of people), but bad for labor in this country (relatively fewer people). As a liberal, you could take a number of positions:

1. US policy should maximize total welfare in the US: Free trade.
2. US policy should maximize the welfare of the worst-off (or minimize inequality) in the US: Protectionism.
3. US policy should maximize total welfare in the world: Free trade.
4. US policy should maximize the welfare of the worse-off (or minimize inequality) in the world: Free trade.

If you care about total welfare (plain efficiency), you're a free trader. On the other hand, if you want to include some measure of inequality in your social goals, then you have to decide whether or not you care about people in the rest of the world. Personally, I'd choose option (4).

23 December, 2007

My last political post ever...

Well, not really. But this is amazing, in a bad way:



Watch through to the end to get the full effect.

19 December, 2007

Red Hot Chili Peppers music used as torture device

From Newsweek via Yglesias:

In addition to waterboarding, Zubaydah was subjected to sleep deprivation and bombarded with blaring rock music by the Red Hot Chili Peppers. One agent was so offended he threatened to arrest the CIA interrogators, according to two former government officials directly familiar with the dispute.

18 December, 2007

Ask not what your country can do for you

There has been much talk of Obama's Kennedy-esque appeal, especially with Kennedy's former speechwriter making the comparison explicit. Above and beyond the rhetoric of unity and hope, Obama is also echoing Kennedy's exhortation to public service, which both have framed as necessary for reinvigorating democracy at home and rebuilding America's standing abroad. The Hill reports that the Obama campaign is suggesting an innovative program for using the internet to facilitate national service:


Sen. Barack Obama (D-Ill.) unveiled a plan Wednesday that would seek to get more Americans to participate in public service, including the establishment of a Craigslist-like online network for volunteers.

In addition to an online database of volunteering opportunities, which was laid out in documents provided by Obama’s campaign, the Illinois senator proposes more than tripling the slots in AmeriCorps, which would allow the program to focus on education, clean energy, veterans, healthcare and homeland security. In addition, Obama wants to double the size of the Peace Corps, put in place a program that boosts public diplomacy and get students to volunteer their time to community service.

Of course, Obama ties it all back to the wasted opportunity after 9/11 to, in his words, "
answer a new call for our country". However,

"the call never came. Instead, we were asked to go shopping, and to prove our patriotism by supporting a war in Iraq that should never have been authorized and never been waged.


“Loving your country shouldn’t just mean watching fireworks on the Fourth of July; loving your country must mean accepting your responsibility to do your part to change it,” Obama said in Iowa. “And if you do stand up, I promise you that your life will be richer, and our country will be stronger.”

Powerful stuff. When I saw Bill Richardson speak this fall, I recall being impressed by his proposal for a revamped national service program. He proposed paying two years of college for those youths who are willing to spend two years in the service of their country, either domestically or internationally. A plan such as this would help mobilize considerable muscle to rebuild infrastructure, provide volunteers for inner city schools, and all sorts of problems that have been increasingly "privatized", to disastrous and shameful effect. It will also, in addition to helping more students afford higher education, instill an ethic of public service and harness patriotism for "something other than war", in Edwards' phrase. I hope the candidates keep this on the table.

17 December, 2007

Bali

Opinions differ.

John Quiggin:

The outcome of the international climate talks in Bali has been a huge win for the planet. Given the participation of the Bush Administration, we were never going to get firm short-term targets in the agreement of this round of negotiations (except as the result of a US walkout, and a deal struck by the rest of the world). But on just about every other score, the outcome has been better than anyone could reasonably have expected, including:

* Agreement in principle on a 2050 target of halving emissions
* Agreement to negotiate a binding deal in 2009, when Bush will be gone, and short-term targets back on the table
* Agreement to provide assistance to developing countries for both mitigation and adaptation
* Agreement by China to pursue emissions-cutting actions that are “measurable, reportable and verifiable.”
Paul Krugman:
So the headline today says that the United States, under pressure, has agreed to — well, not to actually do anything about climate change, but to talk about doing something about climate change.
In other environmental news, Greg Mankiw brings an important point about carbon taxes to our attention:
Applied to a carbon tax, this logic implies that the tax should be border adjustable. That is, a carbon tax would include a tax on imports from countries without a carbon tax based on the goods' carbon content and a similar tax rebate for exports. The policy would provide an incentive for Americans to reduce their carbon consumption, but it would not induce tradable goods industries to migrate toward nations without a carbon tax.
The idea is that, while companies can move their operations abroad to avoid a domestic carbon tax, citizens of the United States cannot really move their consumption. So, tax the consumption of carbon-heavy items, not the production.

Vomit

Thanks, Mike.

13 December, 2007

Bulletins from the front lines

For those of you who have still not watched Al Gore's Nobel acceptance speech, the former next President of the United States gave perhaps the most rousing call to action I have heard in my lifetime. He called on our generation to be the one that accepts the mantle of leadership and sacrifice, that accepts the challenge - and the opportunity - to mobilize the resources and resolve previously reserved for total war. He made the case more forcefully than ever before that our responsibility is the moral equivalent of war, and our choice to accept or reject that responsibility will determine the future shape and very survival of our civilization.

It seems impossible that one could listen to that speech and not leave it eager to enlist in this new campaign. General Gore, in that speech and elsewhere, has outlined specific steps that must be taken, courses of action that must be followed, and battles that must be joined, and I hope that the near future will see his vision for collective action fully engaged by our society.

In the meantime, I will contribute to the blogosphere -- with the spirit that in this war, what is to be mobilized and unleashed is individual creativity and constant, open discussion -- what will hopefully become a regular feature: Bulletins from the front lines of the War on Climate Change.

Today, several setbacks and a victory:

The Vatican defects After hosting a climate change conference last spring, Pope Benedict XVI has released a statement "condemning the climate change prophets of doom" and warning that the threat is over-hyped. The Pope said that "the world need[s] to care for the environment but not to the point where the welfare of animals and plants was given a greater priority than that of mankind." This statement signals either distressing ignorance or a greater ideological agenda. Or am I missing something?

The US derailing Bali The United States is effectively blocking any agreement that would mandate worldwide emission targets, threatening to completely derail the UN-sponsored Bali climate change talks. According to the article, not only did the US disagree with the particular target -- a mandated cut of 25-40% by 2020 -- but it was one of our "key objectives" to defeat any "specific emissions targets" whatsoever.

California law upheld A Federal judge upheld California's legal right to impose vehicle mileage standards after a 2002 law requiring automakers to increase their fleet efficiency by 30% by 2016 was challenged on the grounds that only the Federal government can set mileage standards. As Dave McCurdy, head of the Alliance of Automobile Manufacturers, says, "We can all agree that higher fuel economy is important" but in this case he was really concerned about the dangers of rampant federalism. Awesomely, the automakers also argued that "the state law usurps the federal government’s right to conduct foreign policy because climate change is a global problem." Give them some points for creativity.

Ahmadineblog

Iranian President Mahmoud Ahmadinejad has his own blog! Available in Farsi, Arabic, French, and, of course, Engrish. Read Imadinnerjacket's unvarnished thoughts on "A Guideline for Islamic Governance", in which he discusses his political theory; "To read or write, that is the question!", wherein he laments not being able to post more often; and, of course, "Merry Christmas to everyone!" -- aw, thanks Mahmoud. Happy Hanukkah to you too.

Also, don't miss the apparently uncensored comments section, complete with friendly, topical missives such as "I think you are an evil leader" and "Die slow..."

12 December, 2007

More Horserace

Brilliant bloggingheads with Matt Yglesias and Ross Douthat. Particularly the part about how no one seems able to win the Republican nomination, yet someone must. Romney is an unlikable phony, Giuliani's record is not conservative, Huckabee is inexperiences and has no money, Thompson's campaign is dead in the water, McCain is broke and has alienated many Republicans with his immigration views. So what will happen? A brokered convention! We can only hope.

Hmmm....

This profile of Mike Huckabee is pretty enlightening in a number of ways. It's also written from a liberal perspective that is, I suspect, meant to make him seem less mainstream and acceptable. But that's the sort of thing we'll need to do if he is successful in his primary bid.

Bottom line: Iowans love him, but his campaign has no money. Moreover, he seems hopelessly naive about nearly every issue except for social issues, where he is hopelessly old-fashioned. He simply won't appeal to same kinds of people in the general election that Republican politicians who are well-trained at sitting on the fence between religious and secular will.


Oh boy:

Huckabee does not have an impressive grasp of [the Fair Tax's] details. When I suggested, for example, that consumers might evade the tax simply by acquiring goods and services for cash on the black market, he seemed genuinely surprised.

11 December, 2007

I call upon Al Gore...

You must watch Al Gore's Nobel peace prize lecture.

(As an aside, it seems clear from his initial words that he is more than done with politics.)

UPDATE: You absolutely must watch this. Wow. I think I have to watch this again.

10 December, 2007

"I like my presidents like I like my coffee"

On the lighter side of politics, Obama girl has a new hilarious video! Go ahead and breathe in the fresh poltical-humor filled air, but don't block out the nagging voice in your head wondering how much of our country would prefer it if our elections were decided THIS way... I'd say, about 40%?

09 December, 2007

Updates

I posted about Mankiw's height tax earlier. Here is more:

The Times also quotes a critic:
Peter Diamond, an economist at M.I.T., says the paper’s basic mistake is the notion “that if you can draw a silly inference from an approach, then that discredits a model.” He comments: “I think there is probably no model that passes that test."
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I wonder what Peter's alternative approach is. If economic theorists are allowed to embrace inferences from a model that they like and cavalierly reject those that they consider "silly," what is the point of theory? That discretion gives the theorist the freedom to always confirm his priors.

I think Mankiw is pretty much right on here.

Ricardo Hausmann, posting on Dani Rodrik's blog, has a slightly different take on trade.

08 December, 2007

Fantastic

From David Roberts (thanks to Ezra Klein), a slide-show on the cap-and-trade system. Illuminating!






07 December, 2007

Trade Policy

Economist Dani Rodrik has some amazing thoughts on free trade agreements:

Trade was good for me...[w]as it good for you too?

You say it left you feeling really sore and that I did not even say a proper goodbye (let alone pay you for my share of dinner)? Well, I don't really care. I enjoyed it so much that we must have been both better off in aggregate. So we have to keep doing it. And in any case, if we stop you are likely to find some other way of hurting yourself.

Rodrik is, of course, right. Moving to freer trade, as with nearly all changes in policy, has winners and losers. Some people, typically the scarcer factor (in the U.S., labor, in China, capital) are made worse off because they must compete with foreign markets. Some people, in this case, consumers, are made better off. In most models of trade (certainly the ones that economists think are most important for describing the world), the benefits to consumers are larger than the costs to producers. Many of these consumers are also producers, and so some of these costs can be canceled out, but nonetheless there are many who are net losers from this sort of policy. As in, their permanent incomes are lower after the policy than before it.

To put this in economic terminology, trade agreements are Kaldor-Hicks improvements, but not Pareto improvements. The latter because not everyone is made better off, and the former because everyone could be made better off if only the winners would compensate the losers. In other words, the whole za gets larger, but some people end up with a smaller slice of za than they had before.

Let's talk about this pie:

1) Should we try to maximize the size of the pie? Or something else? This is fundamentally a philosophical question, not an economic one. Do we maximize average utility? Total utility? The utility of the least well-off? The sum of virtue? The well-being of communities?

At the risk of starting an argument about utilitarianism, I think that it's not a bad idea, for many things, for the government to try to maximize the average utility of society. We can safely assume that a dollar to a rich person is worth less than a dollar to a poor person, so that means that these sorts of trade agreements are bad. How can they be made good? By implementing some sort of social transfer program simultaneously with the trade agreement so that everyone or almost everyone gets something from it.

The problem with this is that all social transfer programs distort people's decisions and reduce the size of the pie at the same time. So there may well be trade agreements that are never worth pursuing because their effects will always be regressive. At the same time, there may be trade agreements that are actually progressive in their effects.

2) Do trade agreements actually maximize the size of the pie? This is not a philosophical question, this is an essentially economic one. Rodrik argues that this is not necessarily the case because too much trade without any social transfers weakens the political will for free trade and increases opposition to globalization, which can lead to sharp protectionism.

UPDATE: I should have linked to the post where I got the quote from.

06 December, 2007

In Which I Become Even More Disillusioned About Politics...

So Mitt Romney gave a speech on "Faith in America" (which you can watch here, if you have the stomach). Like John Kennedy's famous "Catholic speech", the intent was to reassure voters that Romney's peculiar religion would not affect his policies. But Romney had to have his cake and eat it too. As Ezra Klein puts it:

As I argued yesterday, there were really two speeches within it. The first 846 words, which were a Kennedy-esque denunciation of elevating religion into political litmus test, and then the rest of the speech, in which Romney elevated his religion into a litmus test, said his faith, and belief in Christ, ensured that he passed it, and then warned the Christian Right to focus on their real enemy: the secular left.

The modal opinion that I have observed from those commentators who are still willing to talk about substance is that the speech was awful on the merits but fantastic on the politics. Again, Ezra Klein:
Like Matt, I found Romney's speech pretty terrible. But it was certainly a brilliant political move.

What kind of broken political system do we have that a speech that is "pretty terrible" can at the same time be a "brilliant political move"?

Matt Yglesias has a good exposition of how exactly the substance of this speech was totally incoherent. For one, it's full of contradictions. Here's Swarthmore College history professor Tim Burke's version:
1. Religious tolerance is a central value in American life
2. Secularism is a religion
3. Secularism is worthless and has no place in American life
4. The President shouldn’t defend any particular religion*
5. *As long as he insists on the centrality of Christianity to American political life
6. P.S. Mormons are totally Christians, dude.

Basically, Romney wants religious conservatives to have just enough tolerance to ignore the strange non-mainstream cult-like aspects of Mormonism and at the same put so much weight on a candidate's religiosity that only the most devout and pious candidates deserve their votes.

But we have come to expect rampant inconsistencies (and inaccuracies) from conservative political rhetoric. So let's go to David Brooks for a more constructive take:
When this country was founded, James Madison envisioned a noisy public square with different religious denominations arguing, competing and balancing each other’s passions. But now the landscape of religious life has changed. Now its most prominent feature is the supposed war between the faithful and the faithless. Mitt Romney didn’t start this war, but speeches like his both exploit and solidify this divide in people’s minds. The supposed war between the faithful and the faithless has exacted casualties.

The first casualty is the national community. Romney described a community yesterday. Observant Catholics, Baptists, Methodists, Jews and Muslims are inside that community. The nonobservant are not. There was not even a perfunctory sentence showing respect for the nonreligious. I’m assuming that Romney left that out in order to generate howls of outrage in the liberal press.

And it did generate said howls, for good reason. As a postmodern liberal secular atheist I do find it a bit sickening to hear all of this talk of God as "the Author of Liberty" as if there are no secular And as if that claim makes any sense at all beyond the new American political theology that has arisen in the last twenty years, which Brooks covers next:
The second casualty of the faith war is theology itself. In rallying the armies of faith against their supposed enemies, Romney waved away any theological distinctions among them with the brush of his hand. In this calculus, the faithful become a tribe, marked by ethnic pride, a shared sense of victimization and all the other markers of identity politics.

In Romney’s account, faith ends up as wishy-washy as the most New Age-y secularism. In arguing that the faithful are brothers in a common struggle, Romney insisted that all religions share an equal devotion to all good things. Really? Then why not choose the one with the prettiest buildings?

In order to build a voting majority of the faithful, Romney covered over different and difficult conceptions of the Almighty. When he spoke of God yesterday, he spoke of a bland, smiley-faced God who is the author of liberty and the founder of freedom. There was no hint of Lincoln’s God or Reinhold Niebuhr’s God or the religion most people know — the religion that imposes restraints upon on the passions, appetites and sinfulness of human beings. He wants God in the public square, but then insists that theological differences are anodyne and politically irrelevant.


This, I think, is Brooks' more important point. It's ridiculous and repugnant that religious conservatives feel the need to exclude the non-religious from the national discussion, but they've been doing that since time immemorial (or at least since George H. W. Bush said that "atheists should not be considered citizens"). Romney, now, is consolidating this sentiment by reducing the importance of the theological differences between the various factions of Christianity to nil. (Jews and Muslims are thrown in for good measure, even though Romney has stated he would not appoint a Muslim to his cabinet.)

I think that this sort of intellectual move is very bad for our political culture. The idea that "any religion is good religion" is a kind of wishy-washiness very much like that which conservatives attribute to liberals who think that "any government program is a good government program" or "all activism is good activism". There are intellectual differences between religions and it simply doesn't make sense to say, as Romney does, that you appreciate the "the profound ceremony of the Catholic Mass, the approachability of God in the prayers of the Evangelicals, the tenderness of spirit among the Pentecostals, the confident independence of the Lutherans, the ancient traditions of the Jews, unchanged through the ages, and the commitment to frequent prayer of the Muslims" and you wish that these features were part of your own faith, but no, those religions just aren't for you. If you're a Mormon, you are committing yourself intellectually to a certain set of claims about the world. You cannot say that "Wow, I love the confident independence of the Lutherans!" and "I think the Lutherans are dead wrong about some of the most important things in life" without abdicating your rationality on some level. As Brooks says, this is New Age-ism at its worst, because it's extremist New Age-ism. If you don't believe the new American political theology, you're out of the debate.

Matt Yglesias sums up my views on Romney:
I've previously taken the view that Mitt Romney would be the least pernicious Republican were he to take the White House, but his entire campaign has been an insult to the collective intelligence of the American people (remember the Reagan Zone of Economic Freedom?) and with this speech he's just taking the trend one step further.

What's more is that he and the rest of the Republican field have consistently spouted provably false statements on religion, economic policy, terrorism and countless other issues and the American people could not, quite frankly, give a shit. Romney and Giuliani have been frontrunners since day one and others like Tom Tancredo and Ron Paul, who, though they have fairly ridiculous views on certain issues, are at least not blatant dissemblers, cannot break into the mainstream. Conservatives appear to eat whatever is fed to them, and the "liberal" media is happy just to talk about how it will play out politically. Thus, I am pushed to the brink...is benevolent dictatorship by the MIT economics department the only option?

UPDATE: Apologies for the length of this rant.

UPDATE II: Here are just two more items on Republican dishonesty. But that's it--there are far too many examples to catalogue them all.

05 December, 2007

Ivan Werning

This short article profiles Werning, a macro theorist at MIT, and gives some short explanations of his results. We'll see if I am good enough at math to ever write papers like these.

03 December, 2007

Campaign Blogging

It looks like Huckabee and Obama may both be ahead in Iowa. This makes sense given what people in Iowa are like, though I might have put Edwards above Obama.

Andrew Sullivan writes that Huckabee and Obama may be riding the same wave:

The key is that the old red-blue, right-left boomer paradigm is fading; Obama offers exhausted Republicans a way out: a Democrat they can vote for. Many do not actually like the party they have become, and want to move forward into a less nasty, cramped and vicious direction. That's why Huckabee is rising too.

What do they have in common? Huckabee is a conservative whose character appeals to liberals; Obama is a liberal whose temperament appeals to conservatives. Both represent a deep desire to get past the hideous, nasty polarization of the last few years. Obama doesn't despise conservatives the way Clinton does. Huckabee doesn't repel Democrats the way Giuliani and Romney do.
That's plausible, no?

George Will, conservative extraordinaire, takes Huckabee to task:
On the Republican side, Mike Huckabee's candidacy rests on serial non sequiturs: I am a Christian, therefore I am a conservative, therefore whatever I have done or propose to do with "compassionate," meaning enlarged, government is conservatism. And by the way, anything I denote as a "moral" issue is beyond debate other than by the uncaring forces of greed. ... Many Iowans think it would be wise to nominate a candidate who, when the Republicans were asked during a debate to raise their hands if they do not believe in evolution, raised his. ... Huckabee combines pure moralism with incoherent populism:
As I predicted last night, conservatives who are more conservative than they are Christian don't like Huckabee very much. I guess Will will be voting for Giuliani, so he's crazy in a different way.

A Huckabee-Obama matchup in the general would be fascinating. Paleo-conservatives like Will would be left adrift as would libertarians. On the other hand, Christian populists might vote for a Huckabee that agrees with them on both social and economic issues instead of Obama.

Wow. Just wow.

From the Clinton campaign:

In Boston this evening, Senator Obama said: "I'm not running to fulfill some long held plans or because I think it's open to me."....But that's not what Senator Obama's teachers, family, classmates or staff say:

In third grade, Senator Obama wrote an essay titled 'I Want To Be a President.' His third grade teacher: Fermina Katarina Sinaga "asked her class to write an essay titled 'My dream: What I want to be in the future.' Senator Obama wrote 'I want to be a President,' she said." [The Los Angeles Times, 3/15/07]

In kindergarten, Senator Obama wrote an essay titled 'I Want to Become President.’ "Iis Darmawan, 63, Senator Obama's kindergarten teacher, remembers him as an exceptionally tall and curly haired child who quickly picked up the local language and had sharp math skills. He wrote an essay titled, 'I Want To Become President,' the teacher said." [AP, 1/25/07 ]

Post-Post-Autistic Economics

Greg Mankiw brings our attention to this piece by Gilles Raveaud, published in that paragon of thoughtful journalism, Adbusters, which critiques Mankiw's introductory textbook from the viewpoint of heterodox (or "post-austistic" as it is known in Europe) economics. Read the article for some idea of what the heterodox economists' concerns are. Here is more. In response, Mankiw does not directly address any of the criticisms, which I believe to be a mistake. This is a common theme for Mankiw. He'll link to pieces attacking him and argue that since he is criticized equally from the left and from the right, he must be saying the correct thing. (Dani Rodrik is also guilty of this fallacy.) This is plainly wrong since it only pushes aside the substantive issues at hand. Perhaps he does not have time to respond in full and so prefers to remain pithy, but in this case it seems negligent to do so, especially since I'm sure he has excellent responses.

My general rejoinder to the post-autistic economists is that their criticisms were far more valid 30 years ago than today. As someone (whose name I cannot remember) observed, the history of economics can be modeled by an hourglass. Before Samuelson's neo-Keynesian synthesis in 1945, economists addressed many different issues, but in what we might call "literary" fashion, that is, without quantitative tools. These tools were constructed during the 1950s, 1960s, and 1970s, but in doing so, the scope of economics was severely restricted. Since the late 1980s, however, the scope of economics has broadened each year. It has become a far more empirical field--in many subdisciplines it is no longer kosher to publish papers that would better be classified as pure mathematics. Freakonomics would not have been possible in 1980. In my view, nearly all of the post-autistic economists' proposals, short of economics becoming second-rate sociology, are already integrated into the current state of the field. To give an example, I went to a graduate student's talk at MIT a few weeks ago at which one of the professors present said "Well, in your model, agents are forward-looking and rational, but there's no a priori reason to assume that they aren't myopic." If that phrase can be spoken without the slightest hint of derision or irony in one of the top economics departments in the world, then the post-autistic economists have won before they have even begun. I see a post-post-autistic economics, one in which their particular critique has already been answered.

Thus, I am confused about why the post-autistic economists do not see things the same way. Do they not read leading journals? In the current issue of the American Economic Review, for example, there are at least three articles on behavioral economics, which seeks to integrate psychology and economics, an article that explains war through political biases and another that presents a theory in which trade agreements are driven by domestic lobbies, and an article on "the benefits of social networks in prisoner-of-war camps." Do they not attend seminars like the one I mentioned above? There seems to be a large identity effect. If you call yourself a heterodox economist, then you cannot participate in the mainstream discussion, even though you are talking about the same things. This distinction seems arbitrary, though it would seem too easy to shout "call yourself neoclassical!". It is possible that post-autistic economists were so digusted with the first-year graduate courses that they never bothered to go to, say, any labor economics seminars and see that you can write papers on basically anything you want (yes, even at the University of Chicago). Another explanation is that they do not wish to adhere to the standards of the field (producing testable predictions from mathematical theories, testing those implications with econometrics). If either of these are the case, I have no sympathy for the heterodox.

Enough ranting. I am happy to agree with the heterodox on a weaker point. Undergraduate education in economics is badly in need of reform. This is the bulk of what the Raveaud article discusses. Undergraduate education and, in particular, the introductory course no longer reflect the methodology and diverse substance of more advanced levels of mainstream economics. This is certainly the focus of Raveaud's criticism of Mankiw's textbook. One line in the article tells this story well:

Unemployment is an example of the market being imperfect. For Mankiw, if unemployment exists, it is only because of human inventions such as unemployment benefits, trade unions and minimum wages.
Ironically, Mankiw is the author of a theory arguing that menu costs--the small costs that firms incur when they change prices--are responsible for sticky prices and thus recessions and unemployment. But this does not appear in his own introductory textbook.

However, there is certainly some folly in the premise of Raveaud's article, which is that an introductory textbook should present a discipline in all of its complexity and marginalia. Imagine a post-austistic physics student: "But, sir! Why are we learning Newtonian mechanics? This is ridiculous! Why is there no mention of Einstein?" The standard introductory textbook in economics is far more distant from the current practice of economics than it need be and should be updated. But an introductory textbook for a sequential discipline, in which one course builds upon another, must necessarily present what is easy in that field, with mere glimpses of the complications to come.

The flaw in my analogy with physics is that economists are typically presumed to have a responsibility to educate their students about the real world, whereas physicists are not. This claim may seem backwards at first, but it is not. The belief is that students should leave an introductory economics classroom armed with tools to inform their interactions with the world (and many teachers of economics perpetrate this belief). A beginning physics student, on the other hand, is really only expected to know how to solve basic problems in physics: "What is the acceleration of such and such ideal object under such and such force?" not "How do you build an airplane?". Yet an economics student with the same amount of training might be asked "At what level should the government set the minimum wage?"

This presumption about economics education should be dropped, because economics is much more like physics in this respect than, say, political science or literature. That is, novices in physics are not expected to build airplanes and their counterparts in economics should not be given the idea that they can set macroeconomic policy. The post-autistic economists are half-wrong that economics is not a unified discipline: it is unified with respect to its methodology (mathematical agent-based modeling and econometric testing of theories) but highly variegated with respect to the explanations of economic phenomena that it arrives at.

Raveaud makes this point for me:
Mankiw knows that the vast majority of his students are not going to become economics majors. He is not interested in training economists – his textbook is too simplistic to prepare a student for advanced study in economics. As he explicitly tells his teaching fellows, Mankiw’s interest is in shaping the minds of thousands of citizens and future leaders around the world.
I could imagine several different uses for an introductory course. One would be to uncritically introduce the student to the discipline in the style of a natural science course. But the current course does not do that. No one uses the simplistic theories found in Econ 101, though they may be useful heuristics. And most economics is conducted on the level of statistics now--even theorists must pay attention to the statistical relationships that their theories imply--yet there is usually no mention of statistics or econometrics in Econ 101. Another good use of the introductory course would be to present a wide variety of results from economics (necessarily simplified, of course) in the style of a first course in psychology, perhaps. But the current course has focused on theoretical results that have been around, in most cases, for at least a century.

(Another kind of course may examine the foundations of economics, like Stephen Marglin's course at Harvard, which is mentioned in Raveaud's article. Here is the syllabus for the heterodox class introductory course at Harvard. The course does look very good and I think it's fantastic that such a course is taught. But, it is interesting to note that the course still uses Mankiw's textbook. Here is what Marglin has to say about that:
There is a choice of textbook ... How should you choose between the texts? Mankiw is a “conservative” text ... Baumol-Blinder is a “liberal” text ... I would say that Baumol-Blinder is more nuanced and careful in its defense of the market, but what is striking is the similarity between the texts, not the differences. This is not, after all, so surprising: the unity of the economics profession on the principles of economics transcends political differences that separate Republicans and Democrats.)


I'd personally like to see all three sorts of courses implemented. The current Mankiw-style course serves none of these purposes. It does not induct students into the discipline, it does not present recent and interesting results or debates, and it does not examine the foundations of economics. What, then, does it do? I don't quite agree with Raveaud that it merely serves as indoctrination into a conservo-libertarian neoliberal world order. But it is certainly harmful. Free trade, for example, is usually discussed in terms of comparative advantage. But there are equity effects that are large and well-known in the profession (the Stolper-Samuelson theorem, for example, proves that free trade negatively effects the less relatively abundant factor in a country). The standard theory about the minimum wage is that it increases unemployment, but there's a great deal of debate about that proposition in mainstream empirical labor economics. And the introductory treatment of macroeconomics is usually so simplistic that it cannot be used for any reasonable analysis. I do believe that the canon must be learned before it can be critiqued. The introductory course does neither.

02 December, 2007

Obama and his "gaffes"

Frank Rich at NYT makes a case for Obama. His basic argument is devoted to overturning the "beltway logic" that Obama is unelectable or an easy Republican target compared to the "battle-tested" Clinton. Republicans, he argues, are salivating at the thought taking on Hillary. They've run their campaigns with the assumption Clinton would be the nominee, and so they wouldn't know where to begin with Obama. His obvious soft-spot, his race and foreign-sounding-ness, would be too difficult for Republicans to exploit without suffering a backlash.

In the best passage, Rich attacks the tired cliches of Obama's inexperience and continual "gaffes":

The Washington wisdom about Mr. Obama has often been just as wrong as that about Mrs. Clinton. We kept being told he was making rookie mistakes and offering voters wispy idealistic sentiments rather than the real beef of policy. But what the Beltway mistook for gaffes often was the policy.


Mr. Obama’s much-derided readiness to talk promptly and directly to the leaders of Iran and Syria, for instance, was a clear alternative, agree with it or not, to Mrs. Clinton’s same-old Foggy Bottom platitudes on the subject. His supposedly reckless pledge to chase down Osama bin Laden and his gang in Pakistan, without Pakistani permission if necessary, was a pointed rebuke of both Mrs. Clinton’s and President Bush’s misplaced fealty to our terrorist-enabling “ally,” Pervez Musharraf. Like Mr. Obama’s prescient Iraq speech of 2002, his open acknowledgment of the Pakistan president’s slipperiness turned out to be ahead of the curve.


I have tried to get at this a couple times on debaser: that Obama differs markedly from Clinton on policy as well as style. However, that fact goes underreported by a press that doesn't engage with issues qua issues. So I am ecstatic that Rich has come out and said what has frustrated me for so long as I've followed Obama's campaign -- namely, that the conventional wisdom is so ingrained that any alternative policy positions find their way into the headlines only as "gaffes", immediately discrediting Obama's ideas -- and even worse, perpetuating the myth that he doesn't have ideas -- even before the reader begins the story.

01 December, 2007

Again Venezuela

Sunday, December 2 -- tomorrow -- Venezuela will vote yea or nay on a slew of constitutional reforms. It seems that both sides think that Chavez's political future, and the future of the Bolivarian experiment, rides on the outcome. There is so much going on here the best I can do is direct you to where those more qualified than I are carrying on the debate.

A brief introduction: earlier this year, Chavez proposed 3o-some amendments to the 1999 constitution. The National Assembly, completely controlled by Chavistas (largely because the opposition boycotted the elections), took him up on this, and added some of their own, coming to a total of 69 amendments. These have been passed by the Assembly, but to become law they must be approved by a majority of Venezuelans in an up or down referendum, i.e. tomorrow's vote.

The amendments address a wide range of topics. According to this little sheet of paper I got at the Venezuelan Embassy, Article 64 reduces the voting age to 16. Article 67 prohibits political candidates from receiving foreign funding. Article 113 would -- socialismo! -- prohibit monopolies. Article 318 would politicize the Central Bank, which spencer frowns upon because "it relegates elite interests to a less powerful position." And, of course, Article 230 would lengthen the presidential term to 7 years (from 6) and abolish term limits.

Much like in our own country, the debate has little to do with the substance of the reforms. Depending on your rabidly held political views, the reforms mean either a) the salvation of the holy socialist revolution or b) the utter destruction and defilement of democracy -- either way, not much to debate. So, the discussion turns to who will win, and what that will mean for Chavez. Opposition Caracas Chronicles, in between its theorizing on the Habermasian public sphere, analyzes the possible scenarios, the chances for voting fraud, and the polls that are showing an impending "No" victory.

Meanwhile, moderate Oil Wars, while questioning those polls (whose owner once publicly opined that the only solution was to kill Chavez), and challenging the mainstream news coverage that has blamed recent student violence on Chavistas (whom was barricading whom in the university building?) finds himself divided. On the one hand, a "Yes" vote will advance Chavez' consolidation of power and reward his increasingly aggressive "you're with me or you're against Venezuela" mentality. On the other hand, the opposition is less than democratic itself -- the last time they took power, remember (after ousting Chavez in a 2002 coup), they closed parliament, instated martial law, and began to round up Chavez supporters. Oil Wars fears that a "No" vote will embolden the opposition to attempt the un-democratic route again.

Will the opposition finally score an electoral victory over Chavez? The skeptics point out that the opposition also used dubious poll numbers to claim the advantage in the 2004 and 2006 elections, only to be crushed by reality. There are signs, however, that Chavez is beginning to alienate his less ideological supporters. In a huge defection, the Venezuelan army Commander-in-Chief Raul Baduel very noisily moved to the ranks of the opposition earlier this month. The reforms themselves are not very popular, and their success will largely depend on how well Chavez has been able to conflate them with him personally.

This has been a long post, but it is an important topic. I have tried to lay out the issues clearly, and point to some resources on the topic. Please please please don't rely on our media to get your Venezuela news. The blogs I have listed, once one understands their ideological position, will serve you much better than a faux-objective regional reporter trying to squeak in 500 words under a snappy headline.

Finally, I will add my two cents: it is clear reading opposition blogs (and especially the less restrained comments sections) that the opposition still feels somehow entitled to be in control of the political system. The source of their arrogance, and the salt in their wound, stems from an implicit belief that Chavez somehow cheated them out of that entitlement by mobilizing the people the system since 1958 was designed to exclude.

In this context, Chavez's populism has done something that a half-century of formal democracy was not able to do. It has attached consequences to those in power, and it has made it impossible for Venezuelan elites to continue ignoring 80% of their countrymen and women. If they want their power back, they are going to have to do it the hard way, through organization and democratic contestation. We'll see if the oligarchs can learn to be democrats. Let's hope they do before Chavez takes Venezuela -- for lack of a better alternative -- someplace it doesn't want to go.