Interpersonal transactions

29/02/2012 § Leave a comment

Crooked Timber has been hosting an on-line seminar on Debt: the first 5,000 years by David Graebers. I haven’t read the book, but I’ve been enjoying the commentary.

I haven’t seen reference to a work that affected my thinking about participation in the economy. The Triumph of Venus by Jeanne L Schroeder discusses law and economics from a Lacanian viewpoint. The crux of the economic analysis is that individuals want recognition of their person-hood from the other people in their transactions (and here I’m paraphrasing to avoid jargon). Each transaction is a relationship, a personal experience with emotional and psychological echoes.

Debt appears to be about economic relationships that get established and the rules that govern them. One thing that changes from pre-industrial to industrial transactions is the depth of the relationship implied in each transaction. ‘Depth’ seems to mean, the extent to which the relationship is constrained by the past and circumscribes the future.

Daniel Davies says the following in his contribution to the seminar:

Perhaps the fact from the book that will end up resisting the longest against the onslaughts of late nights and Scotch whisky on my ability to recall, is that more or less every urban society in the world has ended up inventing an equivalent phrase to “Please”, and “Thank you”, terms which have the social function of asserting between parties to a commercial transaction that the transaction itself does not embed them in any deeper social relation.

This analysis says that these little words (which we stress when raising our little middle-class post-industrial children) limit the depth of the relation, ensuring that future potentials are not limited by the present contact (or contract).

Another way to think about it is that ‘please’ and ‘thank you’ are about interpersonal recognition. They indicate an equality in the relationship. They say, this is not about control. You are free to do as you like, and you have chosen to participate in this transaction. I am also free to do as I like, and I freely participate, too. We both choose this transaction from the universe of transactions. I will tickle your need for recognition, and you will tickle mine. We will come away from this exchange with our autonomous personhood validated.

The strength of a market economy — and perhaps the modern thrill of shopping — may come from this repeated reinforcement and validation. It also suggests that we value not only what we receive from an exchange, but the exchange activity itself.

Children invisible in theory and practice

28/02/2012 § 2 Comments

First, an aside. Am I the only one who saw the irony in yesterday’s announcement of the welfare reforms? The PM, raised by a solo mum in a state house, and the Minister of Social Development, former solo mum and beneficiary, announced cuts to programmes for solo mums and their children. This quote was particularly delicious:

“Despite the good intentions of the welfare system, it’s now creating a cycle of dependence and is actually out of step with today’s needs,” says Ms Bennett.

The problem is isolated to ‘now’ and ‘today’s needs’, which are presented as different from the needs when Ms Bennett herself (and Mr Key before her) were helped by the welfare system. Therefore, her success and his success cannot be taken as validation of the welfare system, as counter-evidence that the cycle of dependency is overblown. That was then, this is now.

Enough of that, on to the economics.

The reform is targeted at two groups:

  1. teens
  2. women with children.

The problem is that economic theory is unsatisfactory when it comes to thinking about children, which I discussed here. Because we cannot think about them well in theory, they are largely invisible when it comes to policy. The essential point is that economic actors are adult individuals whose childhoods are assumed. We don’t really say what those childhoods are or should be. In the language of economics, are they externalities? endowments? How do we think about their uneven allocation?

Let’s start with the teens. What is a teenager? It is a person who has just finished being a child and is now starting to be an adult. We can argue about how adult-like they are and what privileges and responsibilities they should have, but that is a question of degree. These people have just spend around 16 years as the responsibility of their parents, families, and communities, as well as schools, churches, and other institutions. If they aren’t ready to work or aren’t interested in study or training, whose fault is that? (Sondheim put it better, of course.) Put another way, what endowments should these economic actors have received from their childhoods?

The reforms have three major things for teens. The childcare assistance should be helpful. The incentives for work or study sound good, but why will they work when the previous 16 years or so haven’t? The ‘managed system of payments’ just sounds awful. It message is, ‘You haven’t learned to take care of yourself, so we’ll just do it for you. Here’s your pocket money’.

Moving on to the women-with-children reforms. There are two main thrusts. One is to put solo mums to work, part-time when children reach school age, full-time when the kids are 14. The other main thrust is contraception: thus, the provisions about having children while on the dole.

The focus of these reforms is clearly the mother. The government, and by extension, society, feels it has a claim on women who are receiving benefits. In return for the benefit, these women should be trying to work. The language of reform is about making sure that women aren’t ‘dependent’ and aren’t rorting the system. It is both paternalistic and suspicious.

The child is again invisible. Their experience is secondary or residual. But this is no surprise, because children exist in economic theory as the consumption goods of the parent (in wealthy countries; in poor countries they are investment goods). If we apply policy to the parent, then the quantity and quality of childhood adjusts.

Theory doesn’t help us decide what welfare policy is good for children. Childhood is not produced by society, but simply assumed to have happened to adults. Therefore, when we are making policy that affects children, we can make any assumption we choose.

Skill-biased tech change in parenting

27/02/2012 § 3 Comments

I’ve been reading the literature on skill-biased technological change. Essentially, technology is a substitute for low-skill work and a complement to skilled work. If you can write it down as a formal process, then a machine can probably do it better and faster than a human.

What about parenting? A lot of parenting is low-skill and repetitive. How many times have I told them to put their dirty socks in the hamper? How many peanut-butter-and-jam sandwiches have I made? I dream of something like this:

> for (years in 3:length(years_at_home))

> if (dirty_socks > 2){instruction <- 1}

> if(dirty_socks > 4){nagging <- 1}

Offsetting Behaviour wants to follow Becker, and is wondering about professionals’ domestic production activities and NZ’s minimum wage. So much of parenting, though, is context-specific. That’s the value of a nanny over a cleaner: the nanny can respond to the changing contexts and have a menu of contingent responses.

I was recently reading about Unequal Childhoods by Annette Lareau. She identifies two broad approaches to parenting, and points out that the middle-class approach better prepares children to have an active voice in adulthood. They are better prepared to make demands on institutions because families make discussion and negotiation a central feature of family life.

Modern technology — ICT — is focused on communication. So, shouldn’t it make middle-class parenting easier and more efficient (and cheaper) to produce?

I’m not sure how much ICT really helps. Parenting is a collection of activities, skilled and unskilled: cleaning, cooking, discussing, taxi-ing, playing, etc. For a lot of the low-skill work, the labour-saving devices were all invented decades ago. The remaining low-skill tasks, such as driving or making sandwiches, still require human work. For the skilled work — homework help, heartfelt discussions about who said what to whom — technology has a minor role. I don’t have to drive my kid to the library, but I still need to spend time explaining how to get information out of an (on-line) encyclopedia.

One place technology seems to be substituting for parental effort is games. I don’t have to play checkers/draughts or battleship with my kids; the machine will do it for me. Sometimes this is useful, but sometimes I actually do want to play.

I did have a good experience with technology this weekend. My kids take voice lessons, and I sometimes help them with the warm-ups. The problem is that I’m not usually around in the peak homework hours, and after tea is getting a bit late. I used music-writing software (Sibelius) to write out one of the exercises, and the software has a play-back feature. Now, the computer can ‘comp’ them for their warm-ups. The technology allows me to ‘amplify’ my skills and the kids get better practice time. Bingo — more efficient parenting.

Now, about those socks…

Living is leading cause of death

24/02/2012 § 2 Comments

The sun rose this morning. Wellington had some weather. Oh, and medical researchers said that food is bad for you.

Once again, we are told that high-calorie, low-nutrient food might not be the best choice. Researchers published a list of 49 foods that we should avoid. What’s more, they published it in the New Zealand Medical Journal, so they get points towards the next PBRF assessment round. The article is here but has restricted access.

The problem, apparently, is people’s knowledge:

“Many people struggle to know what to eat if they have a weight problem,” Dr Elmslie said.

“The advice out there is often complicated and contradictory. It can be quite difficult to understand the relevance of health-related product endorsements and the information on food labels.”

I really, really struggle with this idea that people don’t know what they are eating. We eat all the time. Food is one of the highest involvement products there is. If we don’t know or understand about food, then there is no chance we have good information about anything. Also, it’s a lazy argument that opens us up for any solution: people don’t understand what they are eating, so we should provide advice/limit their choices/feed them in giant public cafeterias/provide standard ration packs (choose one).

A much more interesting question is, what knowledge do people have and how  do they use that knowledge? But, that kind of research is much harder than dividing the number of calories by the number of vitamins and ranking foods by the result.

I found this interesting, too:

[Ria Schroder] and Dr Elmslie said they were expecting a backlash, but wanted to get out the message that there was an urgent need for new strategies or guidelines to deal with the growing problem of obesity.

See how they’ve set themselves up? They are tenacious researchers willing to brave backlash from unnamed sources in order to share their secret knowledge with the masses. This makes them impervious to counterargument. If you agree with them, you support them. If you disagree, then you are part of a ‘backlash’ and can’t be trusted. There is no space for informed disagreement.

The researchers get extra special bonus gold stars for item number one in the list:

1. Alcoholic drinks

‘Nuff said.

Book report: Economics and the Law

23/02/2012 § Leave a comment

I ordered Economics and the Law by Mercuro and Medema because of its subtitle: From Posner to Post-Modernism. The book had a disappointing lack of discussion on postmodernism, but made up for it by being a very good summary of this important field of economics.

The book surveys the different schools in law and economics. I found this really useful because I have picked up bits and pieces here and there, but didn’t understand how they fit into law and economics scholarship. Now I have a better sense of what the different schools focus on as well as their key assumptions and insights.

Mercuro and Medema discuss five schools of thought in law and economics:

  • Chicago school: Posner reduced legal justice to economic efficiency. Efficiency can both explain how law evolved and also how it should be written. Where legal rules are inefficient, there is an argument for ‘efficient breach’.
  • Public choice theory: applies economic principles to non-market decision making, particular in the political and bureaucratic spheres. People and firms act through the market system but also through the legal and bureaucratic systems to maximise their welfare. Bureaucrats maximise their own welfare, which may not accord with social welfare.
  • Institutional: economics and institutions are in a dialectical relationship. Efficiency doesn’t work as a criterion because the solution is not unique. Instead, law and economics are historically contingent and materially determined. Law creates and re-creates rights, which are (rightfully) contested.
  • Neo-institutional: also assesses the impact of institutions, but considers people to be constrained rational utility maximisers. The goal of society is wealth maximisation.
  • Critical legal studies: sees law as performative. This is a reaction against formalistic or doctrinal legal studies. This school rejects the Chicago school, and in particular rejects that it is value-neutral or apolitical. Because law is performative, it should be used to address social problems.

Helpfully, they also place ‘law and economics’ in the broader context of legal scholarship. The first chapter runs through hundreds of year of legal reasoning and explains the rise of ‘law and ___’ scholarship. When law was deprived of metaphysical foundations in God, religion, or Platonic ideals, scholars tried to understand why law was the way it was. They looked to other disciplines — economics, sociology, anthropology, etc. — to explan the legal system and to provide it legitimacy.

Two warnings:

  • Because I know this area only a little, I cannot vouch for the book’s accuracy. Caveat lector.
  • The quality of the writing is uneven. The book was clearly written by two different people. Some chapters flow really well, while others are informative but dense.

N.B.: I have the first edition (1997), but there is a second edition (2006).

Why it’s a good time to be an economist

22/02/2012 § Leave a comment

A couple of days ago, the Washington Post ran an article on Modern Monetary Theory.

A decade later, as the soaring federal budget deficit has sharpened political and economic differences in Washington, [James K.] Galbraith is mostly concerned about the dangers of keeping it too small. He’s a key figure in a core debate among economists about whether deficits are important and in what way. The issue has divided the nation’s best-known economists and inspired pockets of passion in academic circles. Any embrace by policymakers of one view or the other could affect everything from employment to the price of goods to the tax code.

I don’t know from MMT so won’t even try. But, this article highlights why it’s a good time to be an economist. Lots of ideas are being tossed around. Economists are trying to figure out the consequences of the theories, and sorting out where they fit together and where they don’t.

Furthermore, policy makers and the general public actually care about this stuff right now. People actually have some notion of Austrian, Keynesian, neo-classical, etc. I had a bus driver ask me last week what I thought about Greece. Ack! Where to start?

So let us bask in the attention while it lasts, and try not to do too much damage.

A consultant cannot serve two masters

21/02/2012 § Leave a comment

The Earthquake Commission (EQC) has received the report it commissioned looking into allegations of improper hiring [I cannot find a link - it was in the Dominion Post printed edition]. EQC is not making it public yet, wanting the State Services Commission to peer review it.

The allegations last year were:

The Earthquake Commission (EQC) has been accused of “jobs for the boys and girls” after employing the daughter of its claims manager at $75 an hour.

Several other people with prominent parents also had plum jobs. Because of the competition for the relatively small number of well-paid jobs, nepotism was alleged. EQC called in a consultant.

This is an example of a consulting arrangement that can only end badly. EQC had a problem: the perception of nepotism. To clear itself, it needed two things:

  • an assessment carried out with perceived independence
  • a finding that nepotism had not occurred.

In the end, EQC got neither. It got neither because the consulting was not arranged to deliver what EQC actually needed.

Two masters: EQC set the terms of reference, hired the HR firm, approved the report, and paid for the consulting. Consultants live and die by repeat business. Repeat business comes from satisfied clients who get value for money. EQC was clearly the first master who needed to be satisfied. The second master in all this was the public. Remember, the key problem was a public perception of nepotism. But, the public wasn’t footing the bill. They certainly don’t know or care who the consulting firm was. Regardless of the employment decisions or the quality of the consulting, someone should have managed the perception of independence better.

Process versus outcome: The most important part of any consulting job is the terms of reference. EQC made the ToR for this job public. The ToR is all about the process:

The Reviewer will investigate the Earthquake Commission’s management and application of the selection process for 2012 field staff, to determine the fairness of the policies and processes that were used.

This is typical in two ways. First, bureaucracies (public and private) are all about processes. They develop a process, write it down, and ensure that people follow it. Especially in complex organisations where results are far removed from the everyday actions of each individual, adhering to process is a substitute for producing results. Also, the ToR turns the consulting assignment away from the real allegation. The allegation was, ‘Hey, these people got jobs they shouldn’t have!’ That’s a complaint about the outcome. The ToR asks, ‘Were the proper procedures in place and is there any evidence they were  influenced by senior managers?’ That’s an assessment of the process.

This consulting assignment was set up to fail. That’s the sort of work I try to avoid.


DISCLAIMER: I am not saying that anyone or any organisation did anything illegal.

DISCLOSURE: I own a Christchurch property zoned TC3, so I am not disinterested.

Presenters, take charge!

20/02/2012 § Leave a comment

I went to music camp this weekend. Think Glee without the massive budget. I was a parent helper — janitor, lifeguard, roadie. Lotsa fun.

The first morning, an outside music teacher came in to run one session. He was a consultant, although no one called him that. His session was designed to get the kids warmed up, excited, and working as a group. He did it really well. By the end, the kids were singing in harmony and moving in unison, fired up for practicing the rest of the day.

The key to the whole session was that he took charge. The kids were all there to participate, the teachers had turned responsibility over to him, and he took charge of the group. He led them through four or five exercises in a bit over an hour. For each one, he clearly told them what to do and then led them through it.

The same is key to a good presentation. When you are asked to present to a group, you have to take charge of the room and the group. They have already granted you permission — they have asked you to speak and they’ve given you a place at the front of the room. Tell them why you are there, tell them what you are going to talk about, and then get to it.

The second important thing about the music session is what it wasn’t. It wasn’t hard. It wasn’t technical. There were a few simple harmonies and a few easy steps. But I’d say that a quarter of the kids there had the technical skills to run the session. They just didn’t have the presence or the permission.

Most presentations should also be simple. They should be light on the technical details, which are best handled in written reports or in conversations afterward. The aim is to communicate the big messages. You can point to the existence of technical issues, but they should not be central.

A common reservation with novice presenters is that they aren’t really the experts. So-and-so over there in the audience is really the expert. Again, the music consultant showed that technical knowledge is not the core of a presentation. Permission to be in charge and the presence to take charge and run the show are much more important.

That’s my key message: Presenters, take charge! Do that, and you can get the whole group singing along with you.

Are books worth saving?

17/02/2012 § 2 Comments

The acerbic Ted Rall presents his ideas for saving the print book industry. He maintains that digital publishing needs print publishing, pointing to the example of the music industry. To give you a flavour, here is his view of the world if Barnes & Noble collapse:

…the death of books.

Cultural apocalypse.


So, it’s fair to say he thinks this is important.

I’m kind of with him. I’ll admit to a slight book fetish. I keep them, store them up, line my living spaces with them. I tell myself I have to keep this book because I will read it again, one day.

But my inner economist tells me that maybe we haven’t thought this through.

Rall suggests that the US should support a Fixed Book Price Agreement:

In France and other nations studies have shown that FBPAs protect independent stores, increase the diversity and quality of titles sold, and support more authors.

Ah, France. I was there last month and studied literature there years ago. I have spent many glorious hours reading, dissecting, and debating French books. The first thing to understand is that French book stores exist in an entirely different social, cultural, physical, and economic space. Imposing an FBPA on the US won’t suddenly create small neighbourhood book shops. Secondly, the French read lots of police novels and Harlequin romances, too. These are exactly the kinds of books that Rall fears will swamp the worthwhile ones in the digital age. Finally, it would be interesting to know given all this whether the French actually read more than Americans — I couldn’t find statistics on it.

Rall also wants the government to ‘recogniz[e] the unique cultural contribution of books ‘. He tells of the great times he used to have browsing small record stores before the industry fell apart. What Rall misses is that he is consuming two different but linked things: one is the book or album, the other is the experience of browsing. These little shops provided him the opportunity to consume his shopping experience. It turns out that providing that shopping experience is expensive. It also turns out that other things have become more important.

Cheap, plentiful paper books and the whole economic and cultural context of them is recent in human history. Now, technological change threatens to rewrite the book-as-product. But, technological change is also providing new filtering capabilities, which is a key message of The Long Tail.

We can complain, but we may as well complain that each volume isn’t hand-bound in leather anymore. Yeah, it changes how authors make their crust. It’s not the first time. Books used to be dedicated to the authors’ benefactors (or prospective ones). The modern dedication to spouses, children, or parents is a function of the current economics of book writing. Well, those conditions are changing.

I actually think it’s exciting. More ideas, more writing. I just have to find a new fetish.

Rethinking the Crafar farms

16/02/2012 § 1 Comment

I was formulating a post on the Crafar farms and the overturning of the Overseas Investment Office’s decision as I walked to work this morning. I arrived and found that TVHE got in before me with this post. Their key message:

If the OIO is routinely conducting CBAs by comparing the factual to the current state then its hard to have much confidence in their assessments.

So, basically, the OIO didn’t do the economics right and the court called them on it.

What should OIO have done? Put another way, how do we think about the potential benefits of selling to overseas buyers?

Let me start by ruling something out. The whole pearl-clutching about being tenants in our own country is nonsense. Property rights — your ability to do something with a piece of land — are partial and contingent. They only exist because the government says they exist and is willing to back that up. You can’t build a sky-scraper in a residential area because (a) it’s against the rules and (b) the government has the means to enforce the rules (rough men standing ready to do violence — Orwell). If foreign-owned farms started creating nuisances for the neighbours, the country could pass legislation to deal with the nuisances. If foreign-owned farms became the majority and we were concerned about them sucking profits overseas, we could simply tax them.

Back to think about the impacts of overseas investment. It is simply, like all CBAs, about two curves. One curve says, here’s what could happen over time if we do nothing. The other curve says, here’s what could happen if we allow the investment. What you want to see is Curve 2 higher than Curve 1.

Then, the complexity is thinking about the economy and all the things that affect the paths of the curves.

  • Does the investment affect the resources available? If the investor is will to increase the amount of capital on-farm, then there are more resources. This can lead to more production or higher wages.
  • Does the investment create market opportunities? New Zealand has difficulties creating the necessary foreign linkages to promote exports. We are small and far away; investing in building networks takes resources. If an investor brings the market to us, we don’t have to go to it.
  • Does it affect technology? An investor may bring to New Zealand new production technology that allows it to produce more. In the case of dairy, this may be locally true — a particular farm may be less productive — but is unlikely to be generally true. Because the country has leading technology available, there is less scope for technological spillover.

The details start to get fiddly and uncertain. Crystal balls, rabbits, and hats might be employed. But the essence of the case is actually really simple. The court has asked the OIO to make it.

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