Dear editor: Love, me

I finally finished a submission to a Lacanian academic journal. Lacan was swimming around in my head, analysing everything. It occurred to me that a journal submission is a little love letter — Dear editor: Love, me.

First, of course, we start with Lacan’s dictum that all demands are a demand for love. And what is a submitted paper but a demand? It imposes an obligation on unseen, unknown others. An editor must vet the submission and send it to referees, who must then read it and consider it and render opinions on it. I in my act of submitting have demanded that they respond. Perhaps I stoop to conquer?

A submission is a demand to be read. More than that, it is a demand to be understood, or — in Schroeder’s formulation — a demand to be recognised as a subject. I am asking these august personages to include me in their circle, to say to the world that I am good enough to be in their midst.

Then, inevitably, comes the reply from the Other. Have I behaved well enough? Have I submitted to the desire of the Editor/Other well enough that he/she/it will recognise me? Four outcomes are possible:

• Rejected — My love will be unrequited. I will need to turn my attentions to a new journal, a new Editor — perhaps that affair will end better.
• Revise and resubmit — I am making progress with the Editor/Other. The possibility of recognition remains open. All I need to do is learn to submit. I must re-enact my submission, only better.
• Conditional acceptance — I am recognised! The Gaze of the Editor falls on me and sees me. I must change, of course — the Gaze sees me not for who I think I am, but for what the Editor wants me to be.
• Accepted — Oh rare joy! To be accepted without condition! I have never known such love.

For the moment, though, I wait in agony, my love letter lying in the Other’s in-tray.

What did you think they would do with all that money?

A friend pointed me via social media to a column/post on The Leveraged Buyout of America:

As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.

The core argument is that banking should be an auxiliary activity in service of the commercial sector. The current set-up (in both senses of the term) promotes (a) risk-taking and (b) rent-seeking in ways that harm the economy. Responsible public banking should be promoted as an alternative, to achieve better well-being.

The column packs a lot of ideas into a small space, so it might help to tease them out a bit.

Rent-seeking: This is jargon for economists but isn’t being used exactly that way in the column. Economic ‘rent-seeking’ is trying to fix the rules of the game to get an unfair advantage. ‘Rent’ is super-normal profits for not doing anything useful. So, for example, getting the government to change copyright laws to protect a monopoly over a certain cartoon character — that’s rent-seeking.

The letter the author cites focuses on:

businesses [in] such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining.

We’re talking capital-intensive infrastructure businesses, some of them with local monopolies. These sorts of businesses can have a standard return on investment, including a payment for the land they use (‘rent’ in the everyday sense). In addition, they can use their market power to extract economic rents or excess payments. It’s a classic problem with infrastructure — they tend to be ‘natural monopolies’.

What’s not clear is what ‘rent-seeking’ is alleged. The purchases could be innocuous: just people with lots of money buying things that cost lots of money and generate a consistent return over many years, sort of like buying bonds. On the other hand, they could be nefarious: sharp suits buying local monopolies with a plan to extract super-normal profits. But that has to happen over time — it isn’t the buying that’s the problem, it’s what they do with the assets once they own them.

Risk-taking: The deals described are risky, in the sense that they are done with borrowed money and expose banks to Minsky’s debt ratchet (pdf). It isn’t the underlying assets that create the risk, or the fact that someone new has bought them. It could be an insurance company, a pension fund, a sovereign investor or a consortium of private investors who buy the asset hoping to make a profit. The fact that it happens to be financial holding companies linked to banks isn’t all that important. It’s the structure of the finance that creates the risk.

But the deals create a problem I find more interesting: a privately planned economy. Think about it. These finance companies are trying to manage a whole bunch of assets and make as much money as they can — they are trying to manage small economies. This was Schumpeter’s and Galbraith’s insight about modern industrial economies. Especially as they start to manage the supply side through infrastructure investments and the demand side through credit card policies, they are now faced with trying to be Soviet planners. Do they relax credit conditions for their customers to goose spending on their airports and ports, or would they be better off charging monopoly prices for port access but thereby reducing demand and credit card earnings?

Here’s my prediction: they will fail. The problem, though, is that they are going to take down an even bigger portion of the economy than last time. That’s the ‘macro’ or ‘systemic’ risk that is now being created.

Cash is king: In a financial crisis, when a Ponzi bubble bursts (see the above Minsky paper), cash is king. People are trying to reduce debt as quickly as possible, so they sell assets at whatever price they can get. The people with the cash have the power. In this case, the banks have the ‘cash’ — safe, liquid assets. Highly indebted people with large, illiquid assets are looking for buyers. It’s not really a surprise that mines, airports, ports and other big expensive items are being converted into cash. Heck, New Zealand is following the same strategy. There’s not a lot you can do about it once you’ve got a Ponzi situation — it’s a natural consequence of the debt cycle.

But let’s ask ourselves, why are the finance companies cashed up? Well, that’s where any reasonable justification falls over. The same swaggering sultans spending large to buy all these assets crashed the world economy a few years back. They were bailed out by public money. It is like they went to a casino, bet large and lost, and then the house gave them the money back and let them try again.

The real problem isn’t so much what they are doing with the money they have. It’s the fact that they still have any money in the first place.

Sin taxes aren’t mechanical

The title of the post was going to be ‘Beer taxes cause child abuse’, but that over-states the case (and is inflammatory). Instead, let me just refer you to a paper I stumbled across and make a gentler point: taxes don’t mechanically change behaviour. They don’t pull a lever over here and have exactly the effect you think they will over there. Life is messy, people are complicated, and prices are just another variable.

The paper is here (pdf). The authors look at the impact of beer taxes on child abuse. The dependent variable is the probability of severe violence against children, and the main independent variable is the state tax on beer in the United States. Several other variables, including other alcohol policies, were included. The key results are in Table 1.

They find that the tax on beer significantly and sizeably reduces the probability of abuse by women. For men, on the other hand, the parameter is nearly zero  for 1976 data (in the full model) and is positive and large in 1985. That is, higher beer taxes lead to child abuse.

Yes, this is just one paper. Yes, the results are ambiguous when you take into account gender and years and model specification.

But, it serves as a warning. I can take these results and tell a plausible story. Some father just wants to go home and have a few beers and get a nice buzz on. The price has gone up, so he has to ration his beers a bit more. He can’t afford that fourth or fifth or sixth one, the one that gives him the click*. Or, when he does, he doesn’t want that now-expensive buzz ruined by some snotty, whining kid. A few beers at home has turned into worrying about money, and he takes it out on the children.

Sin taxes aren’t mechanical. Raising prices does reduce consumption (of alcohol or cigarettes or fat or sugar or whatever). But what drives the social interest in personal behaviour is the harm caused, not the consumption itself. The link between prices and harm is not as clear-cut, not as mechanical. In fact, as this article suggests, it may sometimes be the opposite of our expectations.

—

*Cat on a Hot Tin Roof

Brick: It’s like a switch, clickin’ off in my head. Turns the hot light off and the cool one on, and all of a sudden there’s peace.

Whither economics?

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.

Five stages of workplaces

Another business book review. This time, it’s Tribal Leadership, by Logan, King, and Fischer-Wright. The book is, helpfully, available as a free audio book from the website.

Overall rating: good. useful. pretty smart.

Yes, there are the annoying traits of pop-culture business books. There are beautiful anecdotes about teams that overcome adversity to realise the potential hidden within. There is the university research used as a totem, such as the cameo appearance by Daniel Kahneman. There are the impossible generalisations, the air-brushing of complex people (such as Frank Jordan, former San Francisco mayor — ask Food Not Bombs how cuddly he is), and the simple tools to make things better.

But there is also good stuff.

What hooked me into the book was that it starts off saying that ‘life sucks’ for some people. The First Stage of Tribes describes bad environments. It was really refreshing to have a book recognise that it isn’t all good and not everything can be fixed.

The Second Stage of Tribes is when ‘life sucks for me’. This is apparently an advance on the First Stage, because it recognises that life is good for some people, which opens up the possibility that it could actually one day be good for me. Wisely, the book acknowledges that professional workplaces can suck. They can be awful places, horribly dysfunctional and unpleasant to work in. The authors recognise their readers may be in such a situation. Recognising ‘where we are’ is important if we are trying to change.

So what if we want to fix it? The authors say that slogans and techniques don’t work, especially not in a dysfunctional environment. When you have people in a beaten-down state, you can’t change them with one-minute management or good thoughts for the week. These devices only add to the insult. The authors admit that it takes work to sort out problems.

Of course, this is also a self-help book, so they do offer techniques to make things better, and they do give examples of slogans that motivate workplaces. But this is the central irony of the genre, no?

Something else that they get right is that it’s all about people. It is always about people and their relationships. The book focuses on how people feel about where they work and how they relate to each other. From a consultant’s perspective, there is nothing more important. People decide whether to send work your way; people decide whether your work meets their needs. There can be all sorts of objective measures to judge that a proposal or a report is really bad or really good, but in the end a consultant needs to convince people.

And so the book goes, taking us through the Third, Fourth, and Fifth Stages of Tribes and Tribal Leadership. At each stage, life gets better, people feel more fulfilled, and workplaces are more productive. Stages Four and Five are the Future of Business, according to the authors. Their message, in a sense, isn’t too far off books on Flow or Bliss or Being in the Zone. The less time we spend bickering amongst ourselves, the more energy we have for working towards a common purpose. Simple thermodynamics.

Subtly, though, the book undermines its central premise (which is the central premise of all self-help books), that everyone can be great. To get to Stages Four and Five, you have to go through Three, whose catchcry is ‘I’m great!’ The authors tell us that we should become great — world-class, even! — at something. Then, we can really live Stage Three and be recognised as a valuable member for a Stage Four organisation. The problem is that we can’t all be world-class. Does that mean we should embrace Stage Two? Should we join in saying, ‘Bonjour paresse‘?

But you wouldn’t be reading Tribal Leadership to be a slacker, would you? So my verdict is that it’s worth reading and thinking about, and wondering about the interpersonal dynamics in your workplace. Then wonder if maybe there isn’t a way to improve them and of being the change you wish to see.

Work, dammit!

Over the weekend, I ended up at a review of The Invention of Capitalism. The book’s author is Michael Perelmen, an economist in California who has stirred up controversy over the years. Apparently, he doesn’t disappoint in this book.

Disclaimer: I have no idea whether Perelmen is right in his history, or should I say ‘right’, as history is a matter of interpretation (written by the winners and all that). Having said that, I had two reactions:

1) Aren’t we still living with the attitudes described?

This quote from a pamphlet of the day caught my attention:

The  possession of a cow or two, with a  hog, and a few geese, naturally  exalts the peasant. . . . In sauntering  after his cattle, he acquires a  habit of indolence. Quarter, half, and  occasionally whole days, are  imperceptibly lost. Day labour becomes  disgusting; the aversion increases by indulgence. And at length the  sale of a half-fed calf, or  hog, furnishes the means of adding  intemperance to idleness.

Here we have a peasant making a decision about work and leisure. He has a few animals and the wherewithal to maintain them, and that suffices. ‘Day labour becomes disgusting’ — well, or not worthwhile. Not worth the effort. And what does our peasant do to while away the time not spent working? He drinks! He is intemperant! Oh my stars and garters!

What is the problem with this? Well, he isn’t working. He isn’t being industrious. He isn’t being productive.

The review (and thus the book) suggests that the problem to the thinkers of the time was that these were potential labourers who could produce profits for the rich. They needed to be forced out of their traditional lifestyles, and hunger was the weapon.

What I noticed, though, was the command to be productive. It wasn’t up to the individual to make such decisions. They were clearly wrong. And alcohol was clearly part of the problem.

It is the same today. When the ‘social costs of alcohol’ are computed, lost productivity and lost worklife are often included. These are largely private costs, locally affecting the drinker and perhaps a few people around the drinker who are able to make local decisions about the problem (and thus force the drinker to internalise the externalities). Nevertheless, there is horror that these people aren’t working to their full potential. So, as much as this is a history book, that same command to work and produce is still apparent today.

2) What does the forced labour of those people mean for today?

We (the industrialised West) are rich. Fabulously wealthy by historical standards. Yes, there is poverty and want, but most people have enough. We have more food than we can eat. Most individuals have their own bed (or share by choice). Our farm animals don’t live in our houses in the winter. We have one room for sleeping, one for eating, one for sitting, etc.

We rarely convert this personal wealth into anything productive. It goes on consumer goods, so many that they don’t fit in our houses and we pay people to store them for us. My daughter was marvelling this weekend at the size of the Wellington Storage King.

Many of us could take all this wealth and buy back the lifestyle of the peasant or the ‘native Highlanders’ of Scotland. And yet we don’t.

So, even though as a matter of historical record the shift to factory work may have been achieved through a deliberate campaign of dispossession, and even though this is an excellent demonstration that property rights are socially constructed and enforced by rough men standing ready to do violence, how does that help us make sense of the consumer economy? Is it about understanding that we have options — that we choose to live like this? Is it about understanding the violence inherent in the system (Help! I’m being repressed!)? Or, is it nostalgia for a simulacrum?

They don’t like diet drinks

I have been discussing with colleagues a recent article in the American Journal of Agricultural Economics, Zhen, et al. on Predicting  the Effect of Sugar-Sweetened Beverage Taxes on Food and Beverage Demand in a Large Demand System. One issue we discussed was whether diet and sugar sodas were complements or substitutes. As a reminder, substitutes means that as one price goes up, people buy more of the other product. A complement means that that as one price goes up, people buy less of both goods.

Are they substitutes or complements? I would suggest that it’s an empirical question. Zhen, et al. mention research that finds that the two types of sodas are complements (Dharmasena and Capps, 2012, for those playing at home).

If someone is buying diet soda, I would not expect the prices to affect their decision within the ranges of price movements we usually see. Price may lead them to switch to other low-calorie drinks (water, tea) or other diet foods, but the significant calories in a sugar soda probably represent large dis-utility to the diet-conscious consumer. On the other hand, consumers of sugar drinks have already rejected the diet drinks and probably switch to other good-tasting drinks (energy drinks, flavoured milk).

Me, I can’t stand diet drinks and price won’t make me switch. I will drink water instead.

We could also think about the purchase scenario. When consumers buy soft drinks, perhaps they are buying them for a group: a family or a party. They buy both diet and sugar drinks to cater to the different tastes in the group. Higher and lower prices change the total amounts but have little effect on the ratio.

There are two methodological issues that can affect these sorts of estimates. First, there is significant correlation in the diet and sugar soft drink prices. Companies tend to price both types the same. That correlation would make it difficult (or perhaps impossible) to estimate cross-price elasticities (XPE). Secondly, a common assumption is that XPEs are symmetric. That is, the diet–> sugar XPE is the same as the sugar–> diet XPE. That may not be the case. A diet drinker may be reluctant to change, but a sugar drinker may be quite price sensitive. If we assume symmetry (which is common) then we won’t estimate the different XPEs.

Surprised by the biosecurity issue

The issue with botulism bacteria in Fonterra’s whey powder has been in the news all week. There’s been lots of talk of milk prices, exchange rates, marketing images and damage to brands. Most of it is fairly simple. A lot of it, at least over the weekend, was speculation about what could or might happen — filler more than news.

I have one small note to add. I have been working in agricultural economics in New Zealand for the last ten years, all across the sector. Dairy, sheep/beef, apple, kiwifruit, potatoes, forestry, wine, lettuce — lots of different products. I’ve also worked on many different issues: trade, technology, consumer trends, productivity. One area in particular has been biosecurity, which in New Zealand refers to keeping bugs out (in other countries, it refers to biological terrorism, which led to some confusion once when I visited the OECD).

In the biosecurity work I’ve done or seen in New Zealand over the last ten years, the focus has been primarily on (a) trade and tourism, (b) farm-level practices and (c) the environment. There’s a big programme called Better Border Biosecurity, which should be self-explanatory. They are trying to keep the bugs out of the country (although there’s nothing they can do about the occasional organism swept across the Tasman by the wind). Farm-level research on the potential impacts of biosecurity issues has been around things like foot and mouth or tuberculosis. Or, take a look at this webpage that lists biosecurity publications for New Zealand — lots of marine pests, on-farm pests, etc.

And then a dirty pipe lets the side down. It wasn’t the biosecurity scare we expected. Just a guess, but the systems may therefore not really have been in place to deal with it.

Why weren’t we ready? Again, a guess. The work I do and see tends to come from Ministries or the public good science system (FRST, MoRST, MSI, MBIE, CoREs). Environmental biosecurity is a public good (non-rival, non-excludable), and so gets funded through those channels. Farm-level biosecurity is also a public good, but in a different way. Agricultural production has long been acknowledged as an appropriate area of public funding because of the non-rival, non-excludable nature of knowledge.

On the other hand, cleanliness in the supply chain is seen more as a private good — embedded in a commodity product that is rival and excludable. Therefore, it is seen as the domain of private firms — Fonterra, in this case. They should invest in cleanliness or biosecurity in proportion to the business risks, without public funding.

This is a debatable proposition, of course, depending on the spill-over impacts on marketing image and exchange rates. We are now getting some data on how big those spill-overs might be. I hope someone gets a chance to do a proper analysis of the whole situation when it is over.