Whither economics?

21/08/2013 § 3 Comments

There is a fascinating little side discussion going on in the econoblogosphere. John Quiggin, who was a keynote speaker at the recent 2013 New Zealand Association of Economists conference, brought some recent blog-strands together to support a provocative statement:

Paul Krugman’s recent columns, responding in various ways to JM Keynes, Michal Kalecki and Mike Konczal have made interesting reading, signalling a marked shift to the left both on economic theory and on issues of political economy.

Quiggin picked up on some ideas that Krugman was bouncing around, and suggested that together they represent a challenge to current economic policy. The two (of three) that got me thinking were:

  • the loss of the neoclassical synthesis, which asserts essentially that getting macro conditions right gives free rein to laissez-faire micro policies, and
  • recognition that people — motivated, opinionated, blinkered people — do science in general and economics specifically, so that any statements of fact and truth must be viewed as partial.

Taking the last one first: well, duh. Oh, sorry, that’s not very intellectual of me. Let’s try this: modernism focused on universal statements, while post-modernism called into question the universality of modernism. Modernism made bold sweeping statements about how society should be organised; post-modernism suggested that it depended on your perspective. Po-mo suggested that perspective was bound up in power and privilege, so the bold-sweeping-statements were re-statements of power. And furthermore, as deconstructionism demonstrated, the bold narratives contained seeds of dissent, gaps or kernels (depending on your metaphor) that revealed how much the modernist perspective was imposed. So, recognising that the people doing economics are always speaking from a situated perspective, well, that puts economics about where the rest of the social sciences were in the late 1960s.

On a related note, Noah Smith’s description of ‘derp’ is absolutely brilliant. He uses Bayesian updating to explain political discussion. People who don’t change their minds in the face of contradictory evidence aren’t irrational, they just have really strong priors. Some of what passes for political and economic analysis is just restatements of priors, which are themselves reaffirmations of power relationships.

The loss of the neoclassical synthesis is a bit different. My history of economic thought is shaky, but here’s my take. There has been discussion for years about the microfoundations of macroeconomics. Somewhere, Krugman explained that micro and macro have different bases. Micro is about how people behave, so it’s the psychology and sociology of commerce. Macro is about statistical relationships in aggregates. We can estimate the statistical relationships without needing a behavioural explanation of why they hold.

The recent Krugman blog post that Quiggin picks up goes further than saying that these are two different areas of research. The neoclassical synthesis intentionally separated them, ring-fenced the micro from the macro. In a totally economist move, the neoclassical synthesis said, ‘assume the correct macro conditions’ when thinking about micro. The GFC and follow-on show the assumption is unwarranted. We won’t get the macro conditions right, and that will have micro ramifications.

This is also, in a sense, old news. When I finished my Bachelor’s, we were in a recession and jobs were hard to find. When my brother finished his degree, we were in a boom and employers were paying hiring bonuses. He stepped right into a job and never looked back; I took a while to get going. I have sympathy for the 20-somethings of today — their futures are significantly damaged by stuff that was going on when they were teenagers or younger. Of course the macro affects the micro. It’s just not as personal when you’re a tenured academic producing economic theory.

What Quiggin and Krugman and others are saying is that economics needs to account for the lived experience of people in ways that it has been reluctant to do over the last few decades. Well, they have my support.

What DOMA says about Deleuze

03/04/2013 § 1 Comment

I haven’t been paying much attention to the DOMA cases that are now before the US Supreme Court (or SCOTUS, if you must). Judging from social media, all kinds of surprising people have now gotten behind marriage equality as a cause du jour. Gandhi’s quote about ‘first they ignore you’ is all too fitting.

And then I read Ted Rall’s post on the subject:

Gays and lesbians may not all realize it yet, but adopting the cultural trappings of America’s hegemonic majority culture is a tragic, disastrous, suicidal move. This is why those fighting for the right to enter into state-sanctioned monogamous marital pacts are finding that they’re pushing against an open door.

That was quite a different take than anything else I’ve heard. And you know what? He’s got a point:

Back in the 1970s, Michael Warner reminds us in his 1999 book “The Trouble with Normal,” gays weren’t trying to assimilate into the toxic “mainstream” cultures of monogamism and empire. Instead, they were pointing the way toward other ways of life.

‘Pointing the way toward other ways of life.’ Wow. That’s what all the freaks and bohemians and hippies and punks and arty types have been trying to do. For decades, centuries, even.

We visited the Katherine Mansfield house in Thorndon, Wellington, recently. She was trying to do the same thing:

Risk! Risk anything! Care no more for the opinions of others, for those voices. Do the hardest thing on earth for you. Act for yourself. Face the truth.

But it hasn’t happened. We have been fairly poor at creating ‘other ways of life’. Each successive marginal group has instead focused on acceptance, which then triggers the search for the next marginal group to emulate and absorb. Lady Gaga uses New York subcultures the same way Madonna did. New York obligingly keeps producing more of them.

And that all takes me to Deleuze. My central problem with Capitalism and Schizophrenia is the illusory promise of liberation embedded in the notion of the rhizome. It sounds wonderful — branching along different paths and pushing through the social substrate to produce new organisms in a non-hierarchical system. But in fact, what we see is a constant return to the one true path, to the tree of life. Each new identity ends up mimicking the old; the rhizome carries some essential DNA to each one. The plant that might spring from a specific node just looks like the last one. And the first one.

I don’t think it is an accident that Deleuze was writing at the same time as the 1970s that Rall celebrates. But things have changed, or rather, things have stayed the same. The fact the DOMA ‘makes sense’ is proof of that.

Happy management thoughts

11/06/2012 § Leave a comment

I was reading an article on management and this sentence made me happy:

The Deleuzian use of desire as an immanent principle of creativity and movement enables for a new view on motivation that does not assume external stimuli but sees motivation as the continuous process of becoming.

It’s from a paper I found on Deleuzian theory and organisation theory (pdf), written by Alexander Styhre, University of Gothenburg, for a conference in Manchester, England, but hosted on the University of Waikato’s website (extra credit for diagramming that sentence).

Why does that sentence make me happy? The restlessness of it is certainly key. It prioritises movement and becoming — motion without specific direction. The statement also suggests that motivation in a management sense can be linked to creativity. This creativity is inherent in the situation — ‘immanent’ in the lingo. It’s a joyful and optimistic view of motivation and therefore the workplace.

This is the reverse of a typical management view, grounded in a sort of physics model, in which management energy is required to organise the potential entropy of the workplace. The workplace cannot be a perpetual motion machine.

I started reading the paper because of its title: ‘We have never been Deleuzians’. I should stress that I am not now (maybe never have been) a Deleuzian. I struggled through both volumes of Capitalism and Schizophrenia, and then read Massumi’s gloss on the second volume (helpfully provided me by an old editor friend), and also read some of A Deleuzian Century? I recount this reading history just to say that I’m not entirely ignorant.

Styhre’s paper makes the point that Deleuze’s thought is not presented as a fully-formed philosophical system, but rather as a toolbox. The philosopher performs a sort of bricollage on the world. I have some sympathy for such an approach, but only to a point. In my economics work, I often look for the tool that fits the question. Do I need a spanner or a hammer, supply and demand curves or a production possibility frontier? But, underpinning the various tools is a more-or-less consistent model of the economy that makes the various tools largely consistent with each other. The danger of philosophical bricollage is that nothing enforces consistency.

I guess the problem — and this comes through in Styhre’s paper — is that Deleuze is utopian. All of this rhizomatic identity and self-directed becoming is utopian. With the right view of motivation and creativity, the workplace can achieve perpetual motion. It’s a pretty pretty view of how the world and its beings could be.

But still, it’s a happy thought.

The thought before the economy

08/06/2012 § Leave a comment

A stomach bug got the better of me earlier this week. Looking for something to occupy myself, I pulled Borges’s Labyrinths off the shelf and read ‘Tlön, Uqbar, Orbis Tertius’ (pdf).

In this fabulous world of Orbis Tertius — a story within a story —  there is no concept of cause and effect. Things are as they are now. Later, they are as they are then.

This monism or complete idealism invalidates all science. If we explain (or judge) a fact, we connect it with another; such linking, in Tlön, is a later state of the subject which cannot affect or illuminate the previous state. Every mental state is irreducible: the mere fact of naming it – i.e., of classifying it – implies a falsification. From which it can be deduced that there are no sciences on Tlön, not even reasoning.

How would an economy in such a world function? It would be difficult to have a sense of ownership. How would this thing be mine now, even if it were mine in the past? The sophism of the nine copper coins (a parable in a story in a story) makes it clear that I couldn’t even know that it is the same item. It would also be difficult to organise production. Without cause and effect, how would we decide which seeds to plant when and where, or how to construct a house frame? Production would have to proceed by habit and custom — not because these actions are productive but because we have always done them.

Borges gives some suggestion of the economy. There is production of ‘lost items’ and invented archeological artefacts.

These secondary objects are called hronir and are, though awkward in form, somewhat longer. Until recently, the hronir were the accidental products of distraction and forgetfulness. It seems unbelievable that their methodical production dates back scarcely a hundred years…

The result is something we would now call postmodern simulacra:

The methodical fabrication of hronir (says the Eleventh Volume) has performed prodigious services for archaeologists. It has made possible the interrogation and even the modification of the past, which is now no less plastic and docile than the future.

Our modern economy largely relies on materialist and scientific thought, as opposed to the monism of Orbis Tertius. We need scientific materialism to tinker and reorganise, creating new products and organising new processes. Paradoxically, we first have to have the idea to do it — the economy seems to exist first as ideal, then as manifestation.

Deleuzian simulation models

19/03/2012 § Leave a comment

I picked up a book a while back from a university bookstore solely for its title: A Deleuzian Century? I have started it a few times but not finished it — it’s that sort of book (or I’m that sort of reader). Foucault suggested that this century would be Deleuzian, that Gilles Deleuze, a French philosopher, would be central to thinking in the 21st century.

I made it through both volumes of Deleuze and Guattari’s Capitalism and Schizophrenia and also read Brian Massumi’s excellent A User’s Guide to Capitalism and Schizophrenia. I admit that I don’t ‘get’ Deleuze. I can read the sentences and paragraphs, I can start picking up concepts like bodies-without-organs and rhizomes, but I am always outside the concepts the same way one cooks from an unfamiliar recipe.

Nevertheless, I am beginning to think that Foucault was right.

One Deleuzian concept that I find utopian and naive is the rhizome. A rhizomatic plant sends stems through the ground, putting roots down and leaves up from new nodes. The structure is nonhierarchical. Deleuze contrasts this type of growth with things like trees, which have a center trunk, a hierarchy of limbs and twigs, and an integrated existence (it can be killed as a whole). He uses the rhizome metaphor to describe new ways of becoming that are lateral and invasive, that don’t depend on hierarchy or permission. It is meant as a liberating metaphor.

I have just been looking at cellular automata models, including Schelling’s model, The Game of Life, and Wolfram’s classification of one-dimensional models. They are discussed in a excellent on-line course by Scott Page. It occurred to me that these are mathematical representations of Deleuzian thought. They are presented as flat models, as full depictions of their worlds from which patterns of organization spontaneously emerge.

Key to both the Deleuzian metaphor and cellular automata model is the idea of ‘emergent properties’. Patterns and organisation are thought to occur spontaneously as a result of individual elements just doing what they do. For Deleuze, these are new ways of being — I hesitate to say new ‘identities’, although I think that’s what he’s aiming at. For simulation modellers, it is complex order arising from simplicity, such as Wolfram Rule 110.

Simulation model thinking is rhizomatic thinking. Like John Wheeler’s ‘it from bit’, it considers that the binary on/off can be the basis for all organisation and the rest is just emergent properties. The simple rules of a Wolfram model push themselves through blank grids to establish new patterns, which can repeat themselves with relying on the rest of the pattern.

Simulation models are becoming more important in economic and policy analysis. Stats NZ, for example, recently hosted Martin Spielauer from Statistics Canada to talk about simulation modelling. As these models become more accepted, so will the underlying thinking.

We are becoming Deleuzian without even knowing it.

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).

Back to Oedipus

01/12/2011 § 2 Comments

Brad DeLong channels the Ancient Greeks for Matthew Yglesias:

Matthew Yglesias:

Read my colleague Ian Milhiser for a rebuttal of Paul’s constitutional arguments. For my part, when I hear this stuff I think of my former professor, the late great libertarian political philosopher Robert Nozick who developed the notion (“demoktesis”) that democratic governance is a form of slavery. Nozick is a very smart guy and the position is rigorously argued. That said, regulated welfare state capitalism is clearly not actually the same as slavery. The fact that one can reach the conclusion that it is shows that there’s something deeply unsound with the Nozick-style view of property rights and highlights the extent to which libertarian ideology represents a departure from the values of classical liberals in whose work one finds no support for such a conclusion.

We get our concepts of “freedom” and “slavery” from–surprise, surprise–the Classical Greeks. They saw full citizenship in a city-state–what we see as the powers, rights, and obligations of democratic governance–as the essence of freedom. It was the elimination of all of those pieces of citizenship that defined the state of slavery.

You can see this pretty much everywhere in the sources–my favorite place is in Herodotus’s Histories, where Demaratus tells Xerxes that Persia will have a difficult time conquering Greece. Why? Because the Greeks are not slaves but free men, and will not easily submit and will fight hard. Why will they fight hard? Because they value being free and not being slaves very much. How will they be able to fight hard and so keep their freedom? Because free men are slaves to a particular master: the laws that the boulos and demos prescribe. Indeed, men who do not willingly become slaves to the law don’t stay free men for long.

This is the Oedipal bargain described by Freud in Totem and Taboo. The free Greeks have agreed to place the power elsewhere — in the law — and to renounce enjoying that power. In return, they avoid becoming enslaved or eaten by some powerful male/father.

Another way to think of it is that the Greeks are maximising their expected utility in a Rawlsian framework. They don’t know beforehand where in the pecking order they will end up. The low probablity of successfully becoming the father-king means that they have collectively decided that they are singly and collectively better off being brothers.

Nozick and Paul seem to be trying to re-establish the pre-Oedipal situation. They think they can create a world in which each ego reigns supreme. Perhaps they don’t see the chaos that would result. Or perhaps, the expected value of winning the tournament for father-king has increased. This second interpretation would square with the recent research on income distribution in the US, for example.

Juliet Flower MacCannell wrote 20 years ago about the Regime of the Brother. I haven’t fully understood her argument, but the last two decades have seemed more about the re-emergence of a much older regime. The fact that DeLong has to re-explain why law is good for civilisation is a symptom of that re-emergence.

MESS-y ideas

22/11/2011 § Leave a comment

Clive Spash introduced a new acronym in the May 2011 Environmental Values, of which he is editor: merciless economics of scientists and society (MESS). According to the editorial, a environmental scientists are getting behind a narrow economic discourse to produce this MESS. The mess is ‘ecosystem degradation and biodiversity loss’, driven by ‘human population increase, war, corruption and greed, colonialism’.

Spash thinks that the shift from plural ecological values to ‘a monistic pseudo-economic one’ value is the wrong move for environmental scientists. It won’t just be bad for biodiversity, either: ‘Not just species are threatened but social and environmental responsibility itself.’

I started reading the editorial because (a) it had ‘economic discourse’ in the first sentence, and (b) I liked Spash’s work on non-compensatory preferences for economic goods, using contingent valuation. It let me down, though, in two ways.

Spash doesn’t really tell us what this economic discourse is. In fact, he seems to be guilty of that of which he accuses the environmental scientists. He has taken a jargon-y, intelligent-sounding word from another discipline and stuck it in his own economics analysis. He doesn’t describe the discourse, how it operates, what it includes or excludes, who is allowed to speak it, what its inversion might mean, what it glosses over, what its internal contradictions are — any of that. We are told that this discourse is ‘narrow’, ‘monistic’, and post-colonial, but not much more.

We can dig a bit deeper into the editorial and find that the discourse privileges orthodox economists, financiers, major corporations like Rio Tinto and Citigroup, banking concerns, and developers. On the other side, those who are spoken to include the Moabi tree, the politically weak, the poor. These categories are used rhetorically, rather than being categories inhabited by real people (or trees).

The use of ‘monistic’ also alludes to all sorts of work on phallogocentrism, but without really telling us what Spash is trying to say about it. It also alludes to Marcuse’s One Dimensional Man. That book was about productionism narrowing the field of human concerns and endeavours. Maybe that is what Spash is saying: we are placing the environment into the same productionist perspective, rather than considering it using plural values.

The second problem I had with the editiorial was the straw-man of economics that it presented. We aren’t really told what economic theory is causing the trouble. The word ‘neoliberal’ shows up in the last sentence, ‘orthodox’ in the second to last paragraph. ‘Economics’ seems to signify ‘that which I think is wrong about the actions of the rich’.

Those of us trying to work on ecosystem services and resource economics know that there is a lot more to the economics. We know there are limits — the amount of arable land, for example. We can create models using limits — that’s the point of a Lagrangian multiplier. We optimise a system subject to a constraint, and calculate the shadow price of the resource. If, for example, we decide that the atomsphere can sustainably handle no more than 350 ppm of CO2-equivalent, then we can model an economic system with the limit and figure out the shadow price.

Towards the end, Spash notes that the plural approach hasn’t worked: ‘environmental ethicists have seemingly tried every avenue of appeal to inspire their fellow human beings to forbear in the wanton destruction of Nature.’ That really should be a data point in whatever theory he constructs. His failure to grapple with that fact undermines the whole piece.

Election: National’s economic story

08/11/2011 § 1 Comment

Drawing on McCloskey and others, I have been thinking about the ‘economic story’ that the parties are telling for the election. Stories have heros who are transformed by their trials. They have obstacles or villains to test the heros. They start with a setting – the world pottering along as it does – until a dark stranger comes into town or a change falls over the land.

What story is the National Party telling?

Let’s start with what they’ve said. They will balance the books to lower debt and interest rates. They will create incentives ‘ for people to work hard, save and get ahead’. They will also build ‘better roads, broadband and other infrastructure so businesses can grow’.

In this story, the People and Businesses are caught in a grey muddling-through. There is no reward for working hard, and poor infrastructure makes it too hard, anyway. This will all change when the government pays off its debts, aligns the incentives, and rebuilds the infrastructure. Then, our economy will prosper and life will be in Technicolor (once more).

In this story, People and Businesses will not be transformed because they don’t need to be. They are already capable of the economic growth we could have.  They merely need to be released.

If the hero of a story is the one who is transformed, then the hero is Government. Government starts as dissolute spendthrift and becomes a mate helping spruce the place up. But that’s a political story. The economic underpinning is of People and Businesses who are good-hearted and creative, who are sufficient unto the task but held back.

Not all the policy details fit the story. The $150 million advanced technology institute, for example, seems like a poorly connected sub-plot. The obvious fudge is calling it investment that unlocks the existing creativity, but the spending targets specific industries. It suggests that maybe some Businesses aren’t quite sufficient enough.

‘Asset sales’ play a central role in the story. National has identified two different obstacles that Government must overcome to become our mate. For People, the problem is too much taxing and even more spending. For Businesses, the problem is not enough infrastructure. Government must therefore both spend less and spend more. Asset sales are a deus ex machina to resolve this conflict and allow the story to be internally coherent. It’s like finding out in chapter 20 that Great-Auntie’s little book of poetry from chapter 1 is really a signed first edition and you really can buy a gown, go to the ball, and meet the prince.

Rock aesthetics

27/10/2011 § 1 Comment

And now for a culture post…

We went to the Meat Loaf concert last night. It was a lot of fun, regardless of what the Dominion Post says. Yeah, okay, it was a nostalgia trip…but what great times we had!

The opening act, Luger Boa, was fascinating, because the aesthetics were all mixed up. Drummer: pretty boy, played in a singlet. Lead guitarist: looked like cookie-cutter high-school rock band kid.  Bassist: built like Joey Ramone, played like CJ. Rhythm guitarist: had this Bohemian Rhapsody thing going, and are those shoulder pads? Lead singer: massively self-absorbed, exactly like Michael Stipe when I once worked backstage at an REM show. Lined up across the stage, they were a doggie bag of rock cliches.

It reminded me a rock critic’s column years ago. He described two band members (from U2, maybe?) who did that ‘lean our backs against each other while we play’ thing. It’s supposed to be an expression of fraternity, a weary camaraderie. They did it because they were supposed to do it, because that’s how you’re supposed to act when you’re a rocker. The act didn’t refer to an emotion or experience, but to another act.

That old rock duo and Luger Boa were both presenting simulacra. The realm of rock-n-roll representation closed in on itself.

Now, in post-modern language you could call Luger Boa a pastiche. Okay, sure. But what made it not post-modern was the apparent lack of irony. That was what really struck me. Each of these guys had adopted a look from the archives of rock, but with no hint of self-awareness or mockery or irony or – what? – hipsterness?

Irony is mother’s milk for my generation. I never realised how much until I was performing a bossa nova piece (ironically, of course), and a hippy I knew asked me why I couldn’t just play it straight. It was a lovely song, after all. And Luger Boa showed me again what Strauss and Howe have pointed out: irony is my ge-ge-ge-generation’s pose. It was weird to see a band without it. But at the same time, they weren’t able to pull together the pastiche into anything coherent without it.

As for their music? Well, about what you would expect from a doggie bag of rock.

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