Doxy Wars II
Max Sawicky - who last time around pretty much stated that the only good kind of Economics is a left wing Economics (when he was warning fellow heterodoxists against trusting too much in Behavioral Economics because it too could be "reactionary") - has a pretty little smear job over at TPM Cafe. I guess I could use a nicer phrase to describe his article, but since in the fairly recent past Max has not found it in his heart to give others a charitable reading, I don't see why I should extend him that courtesy. And this is part of a theme. Last time this whole heterodox vs. orthodox economics thing went around the Internets I walked away with a distinct feeling that many of the mainstream economists (Brad DeLong, Mark Thoma, Tyler Cowen, if he can be called mainstream) where bending over backwards to find something nice to say about the heterodoxists (I believe the only one who called them whiners and said mean things (though probably true) about them was Henry Gintis, a fellow heterodoxist), while most of the heterodox behaved like assholes or spoiled little brats with a sense of entitlement (I'll leave it alone at that). Let me note the exceptions that pop in my head immediately- Barkley Rosser was as always calm, reasonable and with many interesting things to say. Robert was esoteric, cryptic and, uh, less than clear as always but polite. There were probably a few others but anyways... no more Mr. Nice Mainstream Economist.
Let's go through Max's list. (Also read the comments on Max's site. It's true. I insulted what he said (which I think is fair game in these kinds of debates). He on the other hand goes straight for the personal. "Toady". "Comedian". I'm surprised that it hasn't been suggested that I take money from Evil Corporations. Did I mention the word "asshole"?)
1. Supply and demand, 1. This celebrated and most basic economic model while in principle multidimensional in practice obscures anything interesting that affects market conditions. It bespeaks militant, ideologically-based reductionism. A good illustration is the minimum wage debate. In the usual supply and demand model, a minimum wage can only reduce employment. Nothing else is logically possible.
Bunkum. In the "usual" supply and demand model the consequences of a minimum wage can be:
1. Unemployment if the min wage is set high.
2. No effect if the min wage is set low.
3. Higher wages with no effect on employment if the labor demand curve is inelastic.
Now, the 3rd one is pretty "unusual" in that it probably doesn't happen very much. But Max's speaking of logical possibilities. What is a weasel word like "usual" doing in an enumeration of logical consequences? It's there so he can BS his way out if called on it.
2. S&D, 2. The outcome in an supply and demand model in principle has no inherently attractive qualities, in and of itself, since it depends on the distribution of ability to pay. If Oliver Twist has no money to buy a crust of bread, his zero allotment is "efficient." The lack of any normative foundation is typically glossed over.
Well first, you need a positive model before you can start making normative judgments. And the equilibrium of the "usual" S&D model does have one attractive feature - no waste, no money left on the table. Okay, lemme explain slowly the concept of Pareto Efficiency here because folks is confused.
Suppose there's a total of 100$ in the economy and two people, Meriadoc and Pippin. If all of that 100 bucks is in some way fully divided between the two, then regardless of who gets what, the outcome is said to be Pareto Efficient. Not fair. Not just. Just efficient. But suppose that only 80$ gets divided between Meriadoc and Pippin with, say, Mary getting 79$ and Pip getting 1$. The other 20$ just lies there on the sidewalk rotting. Then we have inefficiency. We could pick up the 20$ and give it to Pip, or give it to Mary or split it up between them two. Even if we give it all to Mary, so that now he's got 99$ and Pip only 1$, assuming Pip and Mary don't care about relative status, only more money, then we can all agree that (Mary=99, Pip=1) is "better" or, more precisely, "more efficient", then (Mary=79, Pip=1). (If they do care about status or whatever, you can reformulate the problem in equivalent terms)
Of course we may care about income distribution, inequality and all those other things. But that comes later. The PO criteria just says, if there's 20$ laying on the side, for goodness sake, pick it up and give it to someone, anyone. And that's the attractive property that a "usual" S&D equilibrium has - no 20$ left lying around rotting.
3. Gross Domestic Product (GDP). Add up all the quantities in the supply and demand models over the year ("final goods and services") and you get GDP. Solemn assurances that GDP is not synonymous with economic welfare fall easily by the wayside. More GDP (and less leisure time, less environmental quality, a less sustainable economic future) is always better. If terrorists knock down the Empire State Building, GDP could go up. More! Better! Comrade Stalin would approve.
This one's dumb in several ways. In fact it's so dumb it's embarassing - Max doesn't seem to even know what GDP measures. First, measurement or the definition of GDP HAS NOTHING TO DO WITH FREAKIN' SUPPLY AND DEMAND! It is simply adding up everything that has been produced by an economy in a given year. True, there are practical issues in what weights to use when constructing this measure - the prices - and a lot of sweat has been poured out over tackling that issue but for one if all you care about how GDP changes over time, a lot of those problems go away. And that's not what Max is talking about anyway. Second, the part about "assurances..fall easily by the wayside" is just pulled out of thin air. And um, for a given amount of leisure, and a level of environmental quality, more GDP is better. If you want something that measures other things then look at another measure.
Third, and perhaps most tellingly, the statement about GDP going up if terrorists destroy the Empire State building is a classic example of the Broken Window Fallacy, and anyone minimally trained in economics should know better. Presumably Max thinks that GDP would go up because you'd have to use firemen, policemen to deal with it, and construction workers to rebuild it. Of course the firemen, policemen and construction workers employed to deal with the terrorist strike are firemen, policemen and construction workers who would otherwise be employed in some other endeavor and so GDP WOULD NOT go up.
But suppose that through some weird, complex, effects, GDP could go up because of a terrorist strike. So freakin' what? DO YOU REALLY SERIOUSLY THINK THAT THE US GDP, OR THE EUROPEAN GDP, OR THE GDP FOR ANY FREAKIN' COUNTRY IN THE WORLD HAS INCREASED OVER TIME BECAUSE OF AN INCREASE IN TERRORIST ATTACKS? Or because of car accidents (Nader used that line once when I saw him speak)??? NO! It has increased over time because of investment and technological growth. This is misleading shyster-ness at its worst.
4. Commerce versus The Market. Forgetting about boring concerns of economic justice, the idea of a competitive, functioning market is actually very rigorous. So much so, there are hardly any good examples of such things. (The example often used is grain, undoubtedly by people who have never seen the back end of a cow.) When the Federal government tries to organize markets with the buzzword of "competitive sourcing," the results are even more comical. There is plenty of commerce, but there are very few markets, even though economists pretend they solve most of our problems.
I'm not gonna say much about this one because it's too ambiguous to really know what he's talking about. Let me just 1) suggest that Max looks through the, I dunno, last five years, of top economic journals and see what small percentage of articles actually assumes perfectly competitive markets, and 2) note that if you have a badly designed government auction then you get bad outcomes and if you have a well designed government auction you have good outcomes. How do you get a well designed auction? Yo hire some mainstream economists trained in game theory friend.
And having spend a lot of time on the farm as a kid let me just note that I've seen plenty cows but never this much bullsh... never mind.
5. In Search Of: The profit motive. Professors tell their gullible students that business firms maximize profits. This induces efficient use of resources and fortuitous allocation of capital. But if you study the economics of firms, even under orthodox auspices, you find out they don't maximize profits.
Because I'm getting lazy I'm gonna skip this one too. But what is it that firms do anyway? Maximize the number of ponies per capita? All the stuff on the principal agent problem, role of managers, market shares, has been part of mainstream, even in undergrad teaching for years.
6. The deficit's gonna getcha. Years of braying about the evils of budget deficits have failed to be borne out by the purported consequence -- high interest rates. The entire traditional macro apparatus fails to allow for the interventions of large foreign lenders who aren't dumb enough to believe what the textbooks say.
So apparently Max is with Dick Cheney on this one. Hey, cut'em taxes George, deficits are nothing to worry about. (I'll go out on a limb here and guess that Max thinks deficits are not a problem if they're produced by high spending by left wing presidents, but are a problem if produced by low taxes under right wing presidents) More substantially, you might not see higher interest rates as a consequence of budget deficits if the Fed doesn't want to see'em, since that's ultimately where interest rates get set. But since Max has put my mind at rest here, I've learned to stop worrying and learned to love the deficit.
7. Capital fundamentalism. As with reductionism of the S&D model, growth modeling zeroes in on private capital accumulation, even though a) other factors are demonstrably important and beg for attention; and b) private capital accumulation may be a consequence of other factors, rather than a cause and appropriate object for policy. Out of an obsession with this premise, the International Monetary Fund has screwed up a lot of countries too weak to ignore its advice.
This is another one that's particularly dumb. The story of Growth Theory in the past ... 25 years ... has been all about looking at "other factors that are demonstrably important". In fact, if it wasn't for that past 25 years of mainstream theory we might still be putting too much emphasis on capital accumulation today (and worrying too much about stuff like the CCC). Either Max hasn't read a Growth paper in the past 25 years or he's making stuff up for an audience that may not know any better. As far as b) goes, why the heck do you think all them Growth Regressions (to take an example, other approaches do the same thing) go to all these lengths to control for "endogeneity of investment". Same for human capital (ever heard of Bils and Klenow?). What you get at the end of the day is that once the growth-as-a-cause-of-investment (rather than vice versa) is controlled for, there's still some room for investment playing a role. But see answer to a) on that.
8. Every import is sacred. Regulation of markets is allowed, unless the market includes parties from different countries. Then it is strictly verboten.
Huh? Oh yeah, I remember a while back EPI was estimating "job loss due to trade" by counting every unit of imports as displacing exactly one unit of domestic production. Even Paul Krugman made fun of them for it.
9. The unnatural rate of unemployment. Economists used to say it was 6.0, maybe 5.5 percent. Lower would give rise to ruinous inflation. The huge social benefits of another couple of percentage points less unemployment were -- are -- implicitly discounted. Current rate is 4.5. 'Nuff said.
This particular one may have some truth to it. But it's a "smart after the fact" kind of thing. If the Fed was trying to get unemployment down to 4.5 in say 1978, not only would it had not been able too, but inflation would've been very high. Oh wait. It actually was very high.
10. "Power? You want the political science dept." Power looms over economic transactions, except in economic theory. Workers do not hire capitalists. Consumers do not choose merchants. Shareholders do not choose managers. Voters do not choose elected officials.
Maybe workers do not hire capitalists. But they do choose what employers they work for. Hey, I worked 12 years in the food industry, about half at minimum wage and I quit my job plenty of times. And seriously, "Consumers do not choose merchants"????? Is that actually said with a straight face? Is this heterodox wisdom that we've been missing? It happens to be summer and so I'm spending some time with the family. Always, always, my folks insist on telling me about where they shop, which stores have the best deals for the best items, and how they...um...choose the merchants they patronize. Again, I can't believe this is said in any kind of seriousness. Same freakin' thing for the voters - though I'm guessing here Max has the political lobby's and so on in mind. Maybe he's right. Maybe he knows better. After all he works for one.
Here's some folks who are nicer about it. Me? I just don't have it in me to put up with personal insults and arguments-in-bad-faith without hitting back a bit.
Let's go through Max's list. (Also read the comments on Max's site. It's true. I insulted what he said (which I think is fair game in these kinds of debates). He on the other hand goes straight for the personal. "Toady". "Comedian". I'm surprised that it hasn't been suggested that I take money from Evil Corporations. Did I mention the word "asshole"?)
1. Supply and demand, 1. This celebrated and most basic economic model while in principle multidimensional in practice obscures anything interesting that affects market conditions. It bespeaks militant, ideologically-based reductionism. A good illustration is the minimum wage debate. In the usual supply and demand model, a minimum wage can only reduce employment. Nothing else is logically possible.
Bunkum. In the "usual" supply and demand model the consequences of a minimum wage can be:
1. Unemployment if the min wage is set high.
2. No effect if the min wage is set low.
3. Higher wages with no effect on employment if the labor demand curve is inelastic.
Now, the 3rd one is pretty "unusual" in that it probably doesn't happen very much. But Max's speaking of logical possibilities. What is a weasel word like "usual" doing in an enumeration of logical consequences? It's there so he can BS his way out if called on it.
2. S&D, 2. The outcome in an supply and demand model in principle has no inherently attractive qualities, in and of itself, since it depends on the distribution of ability to pay. If Oliver Twist has no money to buy a crust of bread, his zero allotment is "efficient." The lack of any normative foundation is typically glossed over.
Well first, you need a positive model before you can start making normative judgments. And the equilibrium of the "usual" S&D model does have one attractive feature - no waste, no money left on the table. Okay, lemme explain slowly the concept of Pareto Efficiency here because folks is confused.
Suppose there's a total of 100$ in the economy and two people, Meriadoc and Pippin. If all of that 100 bucks is in some way fully divided between the two, then regardless of who gets what, the outcome is said to be Pareto Efficient. Not fair. Not just. Just efficient. But suppose that only 80$ gets divided between Meriadoc and Pippin with, say, Mary getting 79$ and Pip getting 1$. The other 20$ just lies there on the sidewalk rotting. Then we have inefficiency. We could pick up the 20$ and give it to Pip, or give it to Mary or split it up between them two. Even if we give it all to Mary, so that now he's got 99$ and Pip only 1$, assuming Pip and Mary don't care about relative status, only more money, then we can all agree that (Mary=99, Pip=1) is "better" or, more precisely, "more efficient", then (Mary=79, Pip=1). (If they do care about status or whatever, you can reformulate the problem in equivalent terms)
Of course we may care about income distribution, inequality and all those other things. But that comes later. The PO criteria just says, if there's 20$ laying on the side, for goodness sake, pick it up and give it to someone, anyone. And that's the attractive property that a "usual" S&D equilibrium has - no 20$ left lying around rotting.
3. Gross Domestic Product (GDP). Add up all the quantities in the supply and demand models over the year ("final goods and services") and you get GDP. Solemn assurances that GDP is not synonymous with economic welfare fall easily by the wayside. More GDP (and less leisure time, less environmental quality, a less sustainable economic future) is always better. If terrorists knock down the Empire State Building, GDP could go up. More! Better! Comrade Stalin would approve.
This one's dumb in several ways. In fact it's so dumb it's embarassing - Max doesn't seem to even know what GDP measures. First, measurement or the definition of GDP HAS NOTHING TO DO WITH FREAKIN' SUPPLY AND DEMAND! It is simply adding up everything that has been produced by an economy in a given year. True, there are practical issues in what weights to use when constructing this measure - the prices - and a lot of sweat has been poured out over tackling that issue but for one if all you care about how GDP changes over time, a lot of those problems go away. And that's not what Max is talking about anyway. Second, the part about "assurances..fall easily by the wayside" is just pulled out of thin air. And um, for a given amount of leisure, and a level of environmental quality, more GDP is better. If you want something that measures other things then look at another measure.
Third, and perhaps most tellingly, the statement about GDP going up if terrorists destroy the Empire State building is a classic example of the Broken Window Fallacy, and anyone minimally trained in economics should know better. Presumably Max thinks that GDP would go up because you'd have to use firemen, policemen to deal with it, and construction workers to rebuild it. Of course the firemen, policemen and construction workers employed to deal with the terrorist strike are firemen, policemen and construction workers who would otherwise be employed in some other endeavor and so GDP WOULD NOT go up.
But suppose that through some weird, complex, effects, GDP could go up because of a terrorist strike. So freakin' what? DO YOU REALLY SERIOUSLY THINK THAT THE US GDP, OR THE EUROPEAN GDP, OR THE GDP FOR ANY FREAKIN' COUNTRY IN THE WORLD HAS INCREASED OVER TIME BECAUSE OF AN INCREASE IN TERRORIST ATTACKS? Or because of car accidents (Nader used that line once when I saw him speak)??? NO! It has increased over time because of investment and technological growth. This is misleading shyster-ness at its worst.
4. Commerce versus The Market. Forgetting about boring concerns of economic justice, the idea of a competitive, functioning market is actually very rigorous. So much so, there are hardly any good examples of such things. (The example often used is grain, undoubtedly by people who have never seen the back end of a cow.) When the Federal government tries to organize markets with the buzzword of "competitive sourcing," the results are even more comical. There is plenty of commerce, but there are very few markets, even though economists pretend they solve most of our problems.
I'm not gonna say much about this one because it's too ambiguous to really know what he's talking about. Let me just 1) suggest that Max looks through the, I dunno, last five years, of top economic journals and see what small percentage of articles actually assumes perfectly competitive markets, and 2) note that if you have a badly designed government auction then you get bad outcomes and if you have a well designed government auction you have good outcomes. How do you get a well designed auction? Yo hire some mainstream economists trained in game theory friend.
And having spend a lot of time on the farm as a kid let me just note that I've seen plenty cows but never this much bullsh... never mind.
5. In Search Of: The profit motive. Professors tell their gullible students that business firms maximize profits. This induces efficient use of resources and fortuitous allocation of capital. But if you study the economics of firms, even under orthodox auspices, you find out they don't maximize profits.
Because I'm getting lazy I'm gonna skip this one too. But what is it that firms do anyway? Maximize the number of ponies per capita? All the stuff on the principal agent problem, role of managers, market shares, has been part of mainstream, even in undergrad teaching for years.
6. The deficit's gonna getcha. Years of braying about the evils of budget deficits have failed to be borne out by the purported consequence -- high interest rates. The entire traditional macro apparatus fails to allow for the interventions of large foreign lenders who aren't dumb enough to believe what the textbooks say.
So apparently Max is with Dick Cheney on this one. Hey, cut'em taxes George, deficits are nothing to worry about. (I'll go out on a limb here and guess that Max thinks deficits are not a problem if they're produced by high spending by left wing presidents, but are a problem if produced by low taxes under right wing presidents) More substantially, you might not see higher interest rates as a consequence of budget deficits if the Fed doesn't want to see'em, since that's ultimately where interest rates get set. But since Max has put my mind at rest here, I've learned to stop worrying and learned to love the deficit.
7. Capital fundamentalism. As with reductionism of the S&D model, growth modeling zeroes in on private capital accumulation, even though a) other factors are demonstrably important and beg for attention; and b) private capital accumulation may be a consequence of other factors, rather than a cause and appropriate object for policy. Out of an obsession with this premise, the International Monetary Fund has screwed up a lot of countries too weak to ignore its advice.
This is another one that's particularly dumb. The story of Growth Theory in the past ... 25 years ... has been all about looking at "other factors that are demonstrably important". In fact, if it wasn't for that past 25 years of mainstream theory we might still be putting too much emphasis on capital accumulation today (and worrying too much about stuff like the CCC). Either Max hasn't read a Growth paper in the past 25 years or he's making stuff up for an audience that may not know any better. As far as b) goes, why the heck do you think all them Growth Regressions (to take an example, other approaches do the same thing) go to all these lengths to control for "endogeneity of investment". Same for human capital (ever heard of Bils and Klenow?). What you get at the end of the day is that once the growth-as-a-cause-of-investment (rather than vice versa) is controlled for, there's still some room for investment playing a role. But see answer to a) on that.
8. Every import is sacred. Regulation of markets is allowed, unless the market includes parties from different countries. Then it is strictly verboten.
Huh? Oh yeah, I remember a while back EPI was estimating "job loss due to trade" by counting every unit of imports as displacing exactly one unit of domestic production. Even Paul Krugman made fun of them for it.
9. The unnatural rate of unemployment. Economists used to say it was 6.0, maybe 5.5 percent. Lower would give rise to ruinous inflation. The huge social benefits of another couple of percentage points less unemployment were -- are -- implicitly discounted. Current rate is 4.5. 'Nuff said.
This particular one may have some truth to it. But it's a "smart after the fact" kind of thing. If the Fed was trying to get unemployment down to 4.5 in say 1978, not only would it had not been able too, but inflation would've been very high. Oh wait. It actually was very high.
10. "Power? You want the political science dept." Power looms over economic transactions, except in economic theory. Workers do not hire capitalists. Consumers do not choose merchants. Shareholders do not choose managers. Voters do not choose elected officials.
Maybe workers do not hire capitalists. But they do choose what employers they work for. Hey, I worked 12 years in the food industry, about half at minimum wage and I quit my job plenty of times. And seriously, "Consumers do not choose merchants"????? Is that actually said with a straight face? Is this heterodox wisdom that we've been missing? It happens to be summer and so I'm spending some time with the family. Always, always, my folks insist on telling me about where they shop, which stores have the best deals for the best items, and how they...um...choose the merchants they patronize. Again, I can't believe this is said in any kind of seriousness. Same freakin' thing for the voters - though I'm guessing here Max has the political lobby's and so on in mind. Maybe he's right. Maybe he knows better. After all he works for one.
Here's some folks who are nicer about it. Me? I just don't have it in me to put up with personal insults and arguments-in-bad-faith without hitting back a bit.
posted by YouNotSneaky! at 3:17 PM
6 Comments:
On the GDP point, I suspect he has a sort of multiplier/paradox of thrift dynamic in mind. How '60s! Just like his politics! :-)
I really enjoy your blog. As someone that is first heading into graduate school, I've been learning a lot about the heterodox vs. orthodox debate. I think that a lot of the juggling of methodological, institutional and ideological issues are more complex than a lot of these posts @ the tpm cafe want to realize. It leads to a lot of generalizations and displaying of ignorance. I find Barkley Rosser to be a very reasonable, with a lot of good points but I don't understand why he puts up with Max's fallacious statements. I've read his book with Colander and Holt and it had a great introduction that does a better job putting the issues in perspective.
Well, I've said my piece so I'm not gonna keep piling on Max. But yeah, I've also found David Colander to be a very smart, "knows his stuff" heterodox-type (I'm not sure what label he'd actually prefer) economist. Don't know much about Richard Holt though and I haven't read the book yet.
Any group of which Robert Vienneau is the nicest member, is going to be seriously overly representative of ESES (Excess Self-Esteem Syndrome).
Also to being believers in The Great Conspiracy to Destroy the Streetcars and How We Got Stuck With Lousy Typewriter Keyboards.
Ah yes, the HWGSWLTK model of path dependence. I believe we learned that in grad school.
That and the Hahn-Solow model in which, due to Space-Time entanglements, the rental price for the Millennium Falcon is lower than its marginal product in the Rebel Fleet.
Post a Comment
<< Home