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Libertarian Economics

September 4, 2015 8 comments

from Peter Radford

Economics is contextual. At its inception this context was the struggle for power as entrepreneurial and landowner citizens tried to wriggle free of the impress of ages old monarchical rule. As political freedoms steadily grew and different societies obtained an ability to critique their rulers and as they managed to change the institutional set up in which their economies were embedded the study of economics became a coherent field of enquiry.

This early economics was almost invariably an attempt to demonstrate why it was that monarchs ought to interfere less in the workings of the economy. Such interference was seen as arbitrary and inefficient, whereas the operation of the entrepreneurs and landowners was seen as obeying ‘natural laws’ that would, inevitably, produce better outcomes than those obtaining under state rule.

The market versus state conflict was thus built into classical economic thought from the beginning. Indeed much of the original impetus for economic theorizing was precisely to ‘prove’ the efficacy of markets. Read more…

Plutocracy?

September 2, 2015 4 comments

from Peter Radford

Seriously though.

The 2012 Page, Bartels, and Seawright paper makes interesting reading. I came across it via the Krugman blog and recommend it to you all.

The key is that this is a first small attempt to quantify the difference in perspective between the ‘wealthy’ and the ‘general public’. The paper is thus an important step along the way towards understanding why it is that so  much of our political discourse seems totally blind to the reality as experienced by the vast majority of our citizens.

If, like me, you have come to believe that our policy makers have a narrow focus and that their focus overlaps more with that of the wealthy and/or big business than it does with ordinary folk, then this paper is a start to getting empirical support for that feeling.

The paper’s concluding paragraph is worth quoting in full: Read more…

Mea Culpa: Storytelling Part Two

August 31, 2015 8 comments

from Peter Radford

I have been accused of a few things. I appear to have upset some people. For this I apologize.

I need to explain in order that we can all move on.

Let me begin my stating my belief that economics, in all its multiple instantiations, is a vital discipline. It seeks to get at the heart of one of our most important activities, and it seeks to discover what can be called truths about those activities. It then propagates what it learns and passes its wisdom along to those outside and who might then act upon that wisdom in order to organize human life more properly. However they define ‘properly’.

So I begin with a profound belief in the importance of economics. Read more…

Market truths or obscured views?

August 28, 2015 4 comments

from Peter Radford

This is meant as a friendly gentle nudge:

As we all know markets are heavenly creations of exquisite perfection. Free and impersonal markets that is. We just know this. It just is. Free impersonal markets are what have delivered us all from the abominations of servitude and the darkest poverty. They have enlightened us. The have illuminated us. They are what have enabled us to discover what we now know. Our literature, our arts, our politics, our cultures, our very beings are due entirely to the ability of free impersonal markets to grab hold of the tyrannical state and demolish its suffocating grip.

Markets said free, and they were free.

That in a democracy we the people are the state and so apparently have our own hands on our own throats is of no consequence. That ‘we the people’ stuff is just a veil behind which lurks the monster of the state waiting to bash us with another calamitous and inevitably doomed policy. Even if that policy was conceived with the best intentions. Read more…

Quick Question

August 26, 2015 5 comments

from Peter Radford

How do you calculate the marginal productivity of an economics professor? Especially a tenured professor. Especially a tenured professor who advocates economics theories based upon ‘marginalist’ thought.

And do they apply those theories to their own lives?

Do they?

Do they believe that the theories they advocate and promulgate are representations of reality?

If so they must surely live by those theories. Their lives must reflect those ideas. Their day to day existence must mimic the ideas they fill student’s heads with.

I am not so much interested in the fun discussions of cutting edge ideas that occupy their time in graduate seminars, professional meetings, conferences and the like, but, rather, in what they teach everyday students. What do they teach students who are taking only one of two economics classes and whose knowledge of the economy will rest entirely on that exposure? Read more…

Economics as storytelling: McCloskey again

August 20, 2015 9 comments

from Peter Radford

This is not new to most of you of course. You are already steeped in McCloskey’s Rhetoric. Or you ought to be. After all economists are simply telling stories about the economy. Sometimes we are taken in. Sometimes we are not.

Unfortunately McCloskey herself gets a little too caught up in her stories. As in her explanation as to how she can be both a feminist and a free market economist: Read more…

Some Issues Re-visited

August 14, 2015 10 comments

from Peter Radford

Hmmm.

It seems that some people misunderstood my comments regarding neoclassical economics.

Allow me to reiterate and, perhaps, clarify.

I want to say that I regard neoclassical economics as a triumph. A wonderful achievement. Brilliant.

Please read the fine print: that brilliance has nothing to do with relevance, reality, or any other such yardstick.

All I am saying is that within its own confines, with regard to its own rules, and with respect to the limits placed upon it by its multitude of excellent practitioners, neoclassical economics has been an extraordinary success.

Further, and more to the point, I am saying that the number of instances of economies we find within the space of all possible economies described by neoclassical economics is tiny. So tiny we are unlikely ever to experience one. Read more…

The SEC rules on CEO Pay – Sort of

August 10, 2015 Leave a comment

from Peter Radford

I have a friend who counts bank reform as one of Obama’s signature achievements. Maybe. But what he probably doesn’t realize is that it is only just now getting implemented.

Hidden amongst the weeds of the Dodd-Frank legislation was a provision authorizing the Securities and Exchange Commission to order publicly traded companies to publish the ratio of CEO to median worker pay.

That rule was finally voted on this week. That is five years after the legislation was passed.

The delay in enforcing the rule was caused, at least in part, by the massive push back by big companies. Presumably they were embarrassed by the ludicrous differential that has opened up in that ratio.

One of the major reasons business gave for objecting to the rule was that it is very difficult to calculate how much they pay their employees. Really? It doesn’t seem that way when they announce cost cutting programs aimed at boosting earnings per share. Somehow I think businesses have a pretty good idea of their payrolls. After all they are notorious for being picayune over every little detail that might cost the CEO a part of his or her bonus. Read more…

Some Issues

August 8, 2015 8 comments

from Peter Radford

First:

I have finally arrived at the point where I can give orthodox simple economics its due. It is a triumph. A system of thought well conceived, brilliantly executed, coherent, consistent, and pretty much complete. Bravo. I love it.

As long as we are trying to examine economies consisting of one or two prescient households, a couple of firms of exquisite accounting excellence, one or two products that are easily substituted for one another, as long as there is no uncertainty, no relevant time, and as long as these various actors can calculate everything at warp speed, we know everything we need to know about economics. The game is over.

As I say: well done everyone.

These unbelievably simple little economies, I assume, must exist somewhere. And wherever they do we can explain them easily.

Where they don’t is another matter.

Orthodox economics is simple economics. Simple.

Second: Read more…

I agree

July 24, 2015 5 comments

from Peter Radford

Yes. I agree.

The negotiations concerning the Greek bail-out were absurd. They showed in vivid highlight just how foolish the entire Euro exercise is. Countries with economies as varied as those of Europe ought not bind themselves together without going the whole way into some sort of federal political and budgetary union. That would allow funds to move about internally so that regions falling into distress can get help ‘anonymously’ without the need for the tragic farce we have just witnessed.

This is what happens inside the United States. Funds routinely move about, Federal programs make sure that some basic services – such as Social Security – are paid from a central source so if a state like Florida gets into difficulty bills still get paid and services are still provided. Were this not so, and if Florida had been responsible for, say, those pensions back in 2009, it would have faced a crisis similar to that in Greece. Indeed the imbalances in the flow of funds into and from Washington are what allows many states in America to pretend that they are fiscally secure. Read more…

Memoirs from beyond the tomb

July 16, 2015 1 comment

from Peter Radford

Right at the end of his book called “Memoirs from Beyond the Tomb” Chateaubriand gives us a remarkable insight into our current troubles. I wonder whether we will solve them or whether we will simply write an addendum to his book.

He asks, for instance:

“Is it possible for a political system to subsist, in which some individuals have so many millions a year while other individuals are dying of hunger, when religion is no longer there with its other-worldly hopes to explain the sacrifice?”

A little later, with respect to the spread of education downward in society, he goes on :

“The excessive disproportion of conditions and fortunes was endurable as long as it remained concealed; but as soon as this disproportion was generally perceived, the old order received its death-blow. Recompose the aristocratic fictions if you can; try to convince the poor man, once he has learnt to read and ceased to believe, once he has become as well informed as yourself, try to convince him that he must submit to every sort of privation, while his neighbor possesses a thousand times what he needs: as a last resource you will have to kill him.”

Chateaubriand, as we know, lived through a great transition in society.  Read more…

Greece 2

July 14, 2015 5 comments

from Peter Radford

Well so much for that.

Where do I begin?

The so-called deal announced yesterday achieves none of its objectives. The written objectives that is. The unwritten ones we will get to in a moment.

There is no doubt in my mind that the Greek economy suffers from a surfeit of inefficiencies. It cannot sustain the social edifice erected on top of it without ridding itself of the multitude of privileges that various groups have accumulated for themselves through time. Greek government has been, for many years, a source of patronage and protection of a slew of inside deals that wreak havoc on those – the majority – on the outside.

I am sure this systemic problem must irk everyone living further north.

But.

Clearing out those problems now is not the priority. Saving Greece is. Saving Greek democracy. Saving those who have no access to the myriad schemes and deals that enrich the minority.  Read more…

Greece

July 8, 2015 10 comments

from Peter Radford

So we reach the end. Good. Let democracy and popular government prevail. The entire Euro project was conceived by a small group of elitist technocrats, then foisted on national peoples often without any ability on the part of the people to veto it.

The crisis in Europe is an echo of the crisis here in the US. America’s banks went on an unsustainable binge of greedy excess. They generated, accumulated, mixed, and then sold mortgages in an ever increasing frenzy driven by the knowledge that as long as they moved the pile fast enough they could reward themselves handsomely and not suffer the consequences of their descent into the depths of outright fraud.

And it was a fraud.

Maybe not in the narrow and legally provable sense, but in the broader and more applicable ethical sense. The banks sought to rip us off to enrich themselves. They knew how compliant our governments all were. They knew that, in the end, they would be bailed out. So there was never a brake on their acceleration over the edge.  Read more…

Liberty to do what?

May 18, 2015 2 comments

from Peter Radford

Continuing my peon to Judt: he reminds us of Condorcet’s fear:

“Liberty will be no more, in the eyes of an avid nation, than the necessary condition for the security of financial operations.”

No kidding.

How many times do we come across, in this avid nation of ours, some foolish comment that our social policies must not restrict commerce? How many times do we hear some politician arguing that we must become more business friendly? We scarcely can move an inch without tripping over someone cajoling us with fears that limitations on liberty are actually limitations on prosperity. As if prosperous was purely an arithmetic reference and had no qualitative content.

This is Condorcet’s fear alive and well. We seem to have reduced liberty to some small prop for the making of profit. Liberty is simply, in this ghostly shadow of what it once was, a veil behind which profits can be amassed without reference to the fabric of society as whole. And certainly without reference to any larger interest than that of the individual, or individuals, engaged in making that profit. Read more…

We rely on economics too much

May 14, 2015 7 comments

from Peter Radford

I think I am with Tony Judt on this one. I am reading the new collection of his essays written between 1995 and his death in 2010, and have had my memory jolted: he gave us many very considered critiques of modern economics, although they were usually dressed within the context of a book review. The point I am agreeing with is this statement he gives us in his 2009 speech called “What Is Living and What Is Dead in Social Democracy?”:

“But how did we, in our own time, come to think in exclusively economic terms? The fascination with an etiolated economic vocabulary did not come out of nowhere.”

Etiolated? Lovely, but I disagree. Our economic vocabulary is both robust and way too vigorous to be etiolated. On the contrary, economics has become a weed infesting society in every corner, and our use of it is far too frequent to consider it etiolated at all. Indeed our reliance on economic vocabulary belies the gaping holes in the theories that those words depend upon for their relevance.

But the larger point: that we overuse economics, that we see our world in economic terms rather than in other, perhaps more relevant, terms, and that we have come to depend too much on economic analysis to justify our actions is one I wholeheartedly endorse.  Read more…

Transaction Cost Confusion

May 5, 2015 3 comments

from Peter Radford

OK. Let’s have some fun.

Transaction costs were invented by Ronald Coase to help explain why we see business firms littering the economic landscape when orthodox economic theory argues that the marketplace is the superior and unequalled coordinator of economic activity. The Coasian idea, later extended and expanded upon by the likes of Oliver Williamson, is that there are costs of accessing the market which, under some circumstances, render market coordination more expensive than having production contained within the boundaries of what we call a business firm. These costs are what are now called transaction costs.

The problem is that they are also fairly vague. Indeed on of the main counter attacks by leading orthodox economists has always been that transaction costs are hard to pin down and thus ‘formalize’. And, as we all know, things that are not formal are considered to be dicey and not rigorous by orthodox ideologues.

Anyway, that’s for them to argue over, let’s get back to our fun.  Read more…

Coase and Reality

from Peter Radford

In his introduction to a collection of his own work, Ronald Coase tells us:

‘Becker points out that: “what most distinguishes economics as a discipline from other disciplines in the social sciences is not its subject matter but its approach”’.

He then goes on:

‘One result of this divorce of the theory from its subject matter has been that the entities whose decisions economists are engaged in analyzing lack any substance. The consumer is not a human being but a consistent set of preferences. The firm, to an economist, as Slater has said, “is effectively defined as a cost curve and a demand curve, and the theory is simply the logic of optimal pricing and input combination”. Exchange takes place without any specification of its institutional setting. We have consumers without humanity, firms without organization, and even exchange without markets.’

All true, too true.  Read more…

Unification

April 8, 2015 3 comments

from Peter Radford

There are many billions of people in the world. There are tens, if not hundreds, of business firms. There are hundreds, if not thousands, of government and quasi government agencies. And there are a multitude of other organizations scattered about the global economy. All these are actors on the economic stage. They generate an incalculable number of relationships built around their multiplicity of desires, needs, and resource endowments. They barter. They exchange. They self-employ. They employ others. They sell. They buy. They consume. Some produce for their own consumption. Some produce for others. Some make their income as rentiers. Others work. They all change through time as they adapt to and interact with each other. They all learn.  Read more…

Efficient Allocations?

March 25, 2015 9 comments

from Peter Radford

Willford King has written:

“It is easy to find a man in almost any line of employment who is twice as efficient as another employee, but it is very rare to find one who is ten times as efficient. It is common, however, to see one man possessing not ten times but a thousand times the wealth of his neighbor … Is the middle class doomed to extinction and shall we soon find the handful of plutocrats, the modern barons of wealth, lined up squarely in opposition to the propertyless masses with no buffer between to lessen the chances of open battle? With the middle class gone and the laborer condemned to remain a lifelong wage-earner with no hope of attaining wealth of even a competence in his old age, all the conditions are ripe for a crowning class-conflict equaling in intensity and bitterness anything pictured by the most radical follower of Karl Marx. Is this condition soon coming to pass?” [Emphasis in original]

That was in 1915. My how times change.

Well maybe not. That comment about the middle class has a very contemporary ring to it.

A couple of things pop out at me when I read that quote – no doubt you will find your own emphasis.  Read more…

Ideas that must be forgotten

March 17, 2015 5 comments

from Peter Radford

Much of what we are told as being advances in economics are diversions or delusions that serve only to trap us in a cul-de-sac. Sometimes that becomes a very long road to nowhere. Sometimes, it seems, economics will never return to being about actual economies, but will always be doomed to stay the plaything of a select group of very clever savants separated from the world by their contempt for its complex messiness.

I am not one of those to indulge in endless territorial fights over purity of thought. What matters to me is practical application. I measure the usefulness of an economic idea by the illumination it throws on a real world problem and on its ability to assist us better our collective lots in life. I frankly don’t care if it is the precise meaning that some long ago dead theorist gave to an idea. Our current divination of that meaning may have strayed from purity, but it might also work. Battles over intellectual turf are meaningless except for a very few whose reputations are involved. Other than that, who cares? Read more…

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