Author Archive

Back to the bank?

June 20, 2021 2 comments

from Peter Radford

Following on from the revelation that our impoverished banks are thinking off penalizing their staff for the rather obvious and rational decision to re-locate, along with their big city wages, to a low cost place to live, we discover that most are now trying to force those recalcitrant workers back to the big city offices.

My head is still spinning from the absurdity of the threat to cut the wages of enterprising workers.  Just how stupid, mean-spirited, and unnecessary is this?  Those workers are being exactly the kind of person the banks want to employ.  Self-interested, rational, aggressive in pursuing their goals, and intense.  The problem, I suppose, is that all those qualities make them difficult to control.  Whatever next?

Banks love, of course, to crow about the so-called “teamwork” and “spirit” that allows them to help their clients “realize their goals”.  Renting this teamwork is expensive.  Woe betide the unsuspecting client who falls into the grip of a hungry investment banker.  That spirited teamwork can appear gold plated at times.  Those partners have expensive lifestyles to uphold. Read more…

Power shifts, or not?

June 9, 2021 4 comments

from Peter Radford

“Even someone as smart as Larry Summers.”  

Power can flummox even the best economist.  A typical explanation of events in an economy makes scant reference to the way in which power distorts the wondrous smooth motions that so obsess the discipline.  It’s almost as if human relationships don’t exist in those wonderful models they are all so proud of.  For the rest of us, power is central.  It takes little time to realize that establishing an imbalance can have all sorts of advantages.  They most notable being that it defeats or undermines the consequences of the classic impersonal marketplace.  Fair is out.  Asymmetry is in.

Not that the existence of asymmetry ought surprise anyone.  The real world is an awfully lumpy place.  Resources, information, people, and everything else exist in clumps.  Without those clumps there would be no exchange.  There would be no trade.  There would be no markets.  But the world is lumpy, hence all of the above.  This paradox, that economists study idealized worlds whose features eliminate the very phenomena that are the supposed object of study, is one of the more endearing aspects of economics.  Building theories about made up worlds is a whole lot more fun and easier than inventing them to explain the real world.  But, hey, let’s be fair: as long as we all know that we are theorizing about our fantasies in order to extract useful nuggets about the real world, we should go for it.  Unfortunately, and I think this is fair criticism, the way in which economics is taught often elides this. Read more…

Where are we going?

May 26, 2021 4 comments

from Peter Radford

Paul Krugman has been rightly skeptical about cryptocurrencies lately.  The extraordinary volatility in the price of Bitcoin, for example, has brought a bout of crypto mania to the fore in both the media and the marketplace.  And, as seems usual, various regulators around the world are arriving at the party about a decade after the launch of what their advocates call an alternative to the evils of fiat currencies.

I suppose it would be churlish of me to remind us all that the launch of each and every form of crypto assets is itself an act of fiat.  Instead of a government waving its wand, a small group of self-selected techie libertarians waves its collective wand, that is if a group of libertarians can be called a collective.  The former is, apparently evil, the latter a wonderful expression of freedom and democracy.


But Krugman’s larger criticism is more interesting: Read more…

Weekend Read – Regime change — Technology style

May 7, 2021 5 comments

from Peter Radford

I have mentioned many times here that one of the ways in which economics has ventured astray is in its selection of capital and labor as the core constituents of production.  These are, to me, political and not economic quantities.  They are, at best, an approximation of reality and the farther we venture from the origins of modern technologically driven economic development the less useful the approximation becomes.  This is because they draw a veil over the essence of what went on: the first great wave of industrialization — the first great technological regime to borrow a phrase from Nelson and Winter — was centered on the substitution of different sources of power to drive production.  It was the harnessing and application of new sources of energy that defined this first regime.  

For most of history the energy needed to do the work necessary for human subsistence came in an animate form.  Either human or animal muscle power provided the energy to convert the natural world into something useable by our ancestors in their quest for survival.  Through the course of millennia wind and water were also tamed to assist, but even so most work was done by muscle.   Read more…

The technological bright blue yonder?

April 22, 2021 14 comments

from Peter Radford

One of the greatest shifts subsequent to the rise of machinery and industrialization is the social acceptance of apparently  never-ending technological change.  A change, moreover, that we are told will inevitably lead us all towards an improved, more prosperous, healthier, and happier existence.  That this future cannot be precisely determined or known to us is set aside, we simply accept the drumbeat of change and presume the rest.

Or at least that’s one view.  How else to explain the great contrast between the social reaction to new technologies back at the onset of industrialization and our contemporary reaction?  The one was tempestuous and riddled through with hostility, questions, and counter-attack by the workers affected by the introduction of the first machines.  The second simply elicits a resigned acceptance, confusion, and highly muted criticism by the workers affected by the latest wave of automation.  No one nowadays wants to be labeled a “luddite”.  No one wants to appear opposed to advance.  No one wants to question the efficacy of the decisions made by our latter day innovators and self-styled “disruptors”.

We have become inured to technological change.  Far from being an exciting frontier-extending aspect of life, full of promise and allure, technological change is now a routine, almost humdrum, background noise. Read more…

Chapter thirty-one

April 20, 2021 5 comments

from Peter Radford

There’s a story about Richard Feynman who is reputed to have said that anyone who claims to understand quantum physics almost certainly does not.  This coming from someone who almost certainly did.  I have much the same reaction to anyone who claims to have understood Ricardo on their first read through his work.  Then again, perhaps it’s just my own struggle: every time I grapple with Ricardo it takes me a while to understand where he’s going.  It’s a case of knowing the plot, but failing to follow the details.

In any case, here we are towards the end of the pandemic-induced economic downturn and minds are turning back to the many longer term issues we were all discussing before the shutdown curtailed conversation and re-focused our minds on shorter term issues.  The march of technology and inequality have always loomed large in my mind so it to those that I am now returning.

One conundrum that interests me is that we are constantly being told to regret the loss of “good paying” factory jobs and their replacement by lesser paying service sector jobs.  Looking back to the beginnings of industrialization those same factory jobs were hardly welcomed.  The threat to traditional ways of life, however much a struggle that life might have been, loomed large in contemporary discussions about the march of technology, the arrival of machinery, and the shift from domestic to factory production.

There are echoes of that early controversy in our current efforts to come to terms with the arrival of things like artificial intelligence and other digital technologies that appear, at least anecdotally, to be altering not just the workplace but deeper aspects of society such as the balance of power between the key factions in the economy.

Technological unemployment is back on the agenda.

Which is why Ricardo is worth recalling.  That enigmatic chapter thirty-one, tucked away as it was at the end of the third edition of his “Principles” seems to betray his entire prior thought process. Read more…

Weekend Read – Odd contradictions

April 16, 2021 1 comment

from Peter Radford

Jamie Dimon, CEO of JP Morgan Chase writes his annual letter to shareholders, Wall Street quivers in anticipation at his wisdom.  This year’s is a doozy.  Dimon, it seems, wants to explain to us all that corporations play many roles in society and are not simply focused on “short term rapacious profit taking” (his words, not mine).

Let me begin with an aside: why it is that an annual communication from a CEO to the shareholders of a corporation that he/she leads is thought newsworthy in some general sense?  Why is it not treated as a minor activity all CEOs are expected to indulge in?  Why is society at large meant to listen in and, perhaps, learn a thing or two?  Personally, I blame the cult of CEO personality, which is an absurdity that, by itself, demonstrates the depths to which recent capitalist fads have sunk.  Be that as it may, the Dimon missive is highly anticipated, perhaps because of the enormous oligopolistic presence that J.P. Morgan Chase commands in the economic landscape.

Dimon doesn’t let us down and I am going to limit myself to just one of the many messages of his letter.  I am assuming he considers it the most important because he addresses it first.  This is his view on what he calls the “Corporate Citizen”.

Where to begin? Read more…

The crooked timber of history

April 2, 2021 11 comments

from Peter Radford

I was lucky enough last week to meet a few friends for the first time in person since the pandemic swept all before it.  We are an eclectic group with more than a fair influence of Wall Street.  Given all that is going on, and has gone on since we last met face-to-face, I expected to be drawn into endless political discussions.  But no, we spent a majority of our time talking about how the pandemic has accelerated the current wave of technological change.  At one point someone asked whether there were lessons from the Industrial Revolution that we could apply to where we are now.  Our conversation evolved from there.

Near the end of the introduction to his history of the British experience between 1700 and 1850 Joel Mokyr gives us his abbreviated perspective on the key ingredients of what he calls the “economic game”:

“The economic game is played at two levels: the level of a game against Nature (technology), and a game of interacting with other people (institutions).  Stripped to its barest essentials, the game against nature is not a social game — though in any practical historical situation it was of course mixed up with social elements. Technology is always and everywhere about utilizing natural phenomena and regularities to extract from Nature something she does not willingly give up.  Production involves harnessing these regularities to further human material needs.”

This is on page twelve of a book that then goes on to span nearly another five hundred pages, but the meat of the discussion is all there.  Somehow a combination of technology and institutional evolution created the conditions for the extraordinary acceleration in human well-being we associate with the industrial era now ending. Read more…

Inflation: who matters?

March 30, 2021 3 comments

from Peter Radford

There are times when you really don’t need to say much.  The facts make the argument for you.  At such times all that matters is that the largest number of people are aware of those facts and that at least some of them speak to the issues raised.

So too is with a small snippet of news I saw this morning.

I came to it via the New York Times.  The original report being in Business Insider.

Apparently Wall Street bonuses have risen 1,217% since 1985.  Quite what the significance of 1985 is I cannot tell, but the number itself seems to have the right feel.  Having seen a few of those years first hand I can attest to the pace of increase from an anecdotal perspective.

More importantly, if we applied the same rate of increase to the minimum wage over a similar period it would stand at $44 per hour and not the current rather pathetic $7.25.

Imagine the hullabaloo were we to advocate bringing the minimum wage into line with the extraordinary levels of largesse Wall Street lavishes upon itself. Read more…

Reform of what?

March 25, 2021 1 comment

from Peter Radford

We have heard a great deal in the American media about the so-called Biden reform agenda.  The huge injection of government spending into our hibernating economy is meant not just to sustain it until we arrive at a post-pandemic moment when it will spring back to life by itself, but also to reform it.  That is to say the $1.9 trillion package is not just disaster relief, but is also politically motivated to change the economic landscape beyond the pandemic.

I think the politics of muddling the two goals, relief and reform, into one big package are clear: the Republican party would fight tooth and nail against reform and with the wafer thin majorities that the Democrats enjoy delaying it would court permanent postponement of even the most modest reform.

But the economics are less clear.  Anything that adds a cost to business at a moment when additional costs are more burdensome than usual, is problematic.  Surely we ought to wait until business conditions are on the up before we layer in more expense.

So the politics and the economics seem to be going in two different directions.  Clearly the Biden administration is mindful of the endless election cycles that cripple long term political thinking here in the U.S. and has decided to go for broke.

Good for them.

The problem then becomes: what are we reforming? Read more…

The social question

March 9, 2021 13 comments

from Peter Radford

If you were to ask me what the greatest intellectual error of the past fifty years has been I wouldn’t hesitate.  Shareholder value.  It’s an easy response.  Yes, it reflects my own curious interest in the fundamentals of business and its intersection with economics, but it is also emblematic of so much more.

Derived as it is from the wrong turn in economics and politics in the middle of the last century it carries with it so many of the ill founded ideas that have brought us all to where we are now: bedeviled once more by the social question.

How is it that the wealthiest nation the earth has ever witnessed is so ill equipped to ensure a secure life for its citizens?  All its citizens.

The history of the concept we know as shareholder value is well rehearsed.  There is no need to delve into its precise origins.  Like many pieces of technology it is an amalgam of ideas brought together eventually in one broad and encompassing whole.  Most of us have read the infamous newspaper article in which Milton Friedman gave his intellectual backing to the notion that the only goal of business management was to tend to the welfare of shareholders.   I think, from our vantage point many decades later, this appears to be uncontroversial.  We have been bent to accept something as a social goal which, in reality, only serves a few.  Generations of business school students have been taught the mantra.  They have taken on board the simplicity of the aim: shareholders are what matters, they need to be pandered to and nurtured.  Everything else is secondary. Read more…

Sameness is just wrong

February 26, 2021 3 comments

from Peter Radford

There is something truly odd about any economist who lives wholly in the world of equilibrium.  Truly odd.  Just think of what they have to assume to get there:

The first step is to make sure the problem they are tackling is well defined.  Really well defined.  Without ambiguous objects lurking in dark corners.  The problem must be well lit and sanitized of any potential taint.  And it mustn’t be connected to anything that might, under some circumstance or another, become entangled with it.  Good luck with that in the real world.

Then, this being economics, all the actors within the problem have to be identical.  They have to behave rationally — where rationality is something defined by the economist to make sure the math works out nicely — and they have to “know” everything, including what all the other actors know and will do.  Nirvana: we all know what we all know.

Next, the economist ensures that the actors behave in such a way that their aggregate behavior is both assembled from and validates their individual behavior.  Micro to macro is the watchword.  No emergence is allowed.  No nasty intermediate layers to get in the way of reductionist perfection.

With all this in place the preferred mathematics can then be applied.

And, hey presto, out can pop an equilibrium.

This is my version of the process that Brian Arthur described in a talk in 2019.  When followed rigorously and applied to the kinds of problems amenable to such a process, it can produce useful results.  Or at least that’s what Arthur said.  I am a little more skeptical.

The blandness, the sameness, the lack of difference, and the striking lack of reality make the process almost a caricature of itself.  I can comprehend why economics went down this road back in the 1800s, but why it became entrenched there is more confusing.  And more annoying.  Yes, there’s a great deal of work going on to lift it out of the hole it fell into, but, as yet, the public face of economics is still dominated by those who kneel before the altar of equilibrium. Read more…

AI and democracy

February 22, 2021 5 comments

from Peter Radford

Just a quick thought prompted by my reading of a talk given by Allison Stanger during the Santa Fe Institute’s 2019 Fall symposium.  First she gives us a nice quote from Hannah Arendt’s “The Human Condition” who says the question is not …

whether we are the masters or slaves of our machines, but whether machines still serve the world and its things or if, on the contrary, they and the automatic motion of their processes have begun to rule and even destroy the world and its things.”

This quote obviously resonates with fundamental interest to those of us struggling to understand the economy as we hurtle into the digital age.

The central issue as Stanger describes it is that all the algorithms based on big data, those that increasingly drive chunks of how we deal with each other, are based on a sort of collectivism.  They rely on groups.  They rely on large-scale analysis and the identification of structures detected in seas of data.  They abstract away the individual. Read more…

Complexity, institutions and firms

February 20, 2021 4 comments

from Peter Radford

Are they associated?

We all know that one of the central problems of economics is the existence of uncertainty.  At least since Frank Knight’s work in the 1920s, uncertainty has been something of concern to economists.  Knight’s description of uncertainty as being a condition in which no probability distribution existed, or could exist, has led some of the most eminent theorists of economics to argue that theorizing is simply not possible.  Which is a rather formidable obstacle.  I assume they meant that their particular form of theorizing was not possible.

One person who rose to the challenge represented by uncertainty was Douglass North, who famously built his theory of institutional change to show how humans respond to  the endemic uncertainty they deal with on a day-to-day basis.

I am going to use three separate quotes from North’s book “Understanding the Process of Economic Change” as a starting point for this short discussion.

First: Read more…

Information take two

February 18, 2021 19 comments

from Peter Radford

Keeping the conversation going.

Let’s start with Shannon, from his personal papers published in 1993 …

“The word ‘information’ has been given different meanings by various writers in the general field of information theory.  It is likely that at least a number of these will prove sufficiently useful in certain applications to deserve further study and permanent recognition.  It is hardly to be expected that a single concept of information would satisfactorily account for the numerous possible applications of this general field.”

So Shannon is fine with an eclectic vision of information, and expects a variety of definitions to emerge as useful.  This seems extremely wise.  Especially given his own somewhat narrow version.

Weaver, in 1949, expanded on  this ecumenical approach when he proposed a three pronged approach to understanding information.  He broke the analysis of information down into three basic areas of concern: technical issues to do with the quantification of information [which was where Shannon’s greatest insights lie]; semantic issues relating to meaning and truth; and a final category to do with the way in which information affected human behavior.

All the above information is summarized on page 81 of Luciano Floridi’s “The Philosophy of Information”  which is an excellent read.  Floridi has also provided us with “The Blackwell Guide to the Philosophy of Computing and Information”, which gives the topic a broad survey and is well worth the effort.  For those of you who want to get a taste of the way Floridi surveys the topic I suggest chapter four in the Blackwell Guide, which is simply entitled “Information” and begins thus … Read more…

The information conundrum

February 16, 2021 5 comments

from Peter Radford

Kolmogorov, I think, hit the nail on the head when he said:

“At each given moment there is only a fine layer between the ‘trivial’ and the impossible.  Mathematical discoveries are made in this layer.”

He might just as well have said that life itself is discovered in this layer.  But let’s not get ahead of ourselves.

A few days ago I tried to point our way towards an acceptance of a certain humility.  I used a couple of quotes, one from Durer and one from Soros, to provide us with insights form well-regarded figures separated by a good long period.  Obviously the need to recognize our inherent fallibility has a long history.  The problem is that we keep forgetting and frequently end up acting as if we had some form of ultimate knowledge.  I used the word ‘utopia’ to stand in as a proxy for this illusion.  I was not talking about Utopia the book.

I have made it a long habit not to engage in public with correspondents who critique what I write because my purpose is simply to begin conversations and allow correspondents to create their own conversation.  Most often, and most interestingly to me, they go in very different directions than the one I had on  mind when I wrote.  Such is the richness of our modern ability to discuss in this remote, electronic, fashion.  We learn, or at least I do.  And that is the envigoration that motivates me to continue.

Once in a while, however, someone will say something that requires my public reaction.  My little Durer and Soros missive is one such occasion.

I have three points of contention to respond to.  I will go in the order with which they appeared.

First, I was accused of never had read “Utopia”.  This is a highly personal attack .  It is offensive.  But par for the course.  Quite how anyone could have this knowledge I don’t know.  In any case, as I indicated above, I was not referring to the book.  I was using the colloquial word ‘utopia’ as a placeholder for any body of knowledge that is based on the illusion of perfect knowledge.  Modern economics falls very closely to being such a vision of utopia. Read more…

What do Durer and Soros have in common?

February 13, 2021 9 comments

from Peter Radford

I know, this is one of those more philosophical moments.  In my case prompted by my continued meditation on the deleterious effects of a belief in utopias.  Such beliefs seem always to end up with authoritarian consequences.  People can all too easily get swept up by the illusion of having solved life’s great mysteries.  It’s been going on for ages.  It appears to be a commonly held human attribute.  We need, apparently, to think we understand things that are, beneath the surface, remote, opaque, and inscrutable.  It’s the way we are.

The issue keeps popping up.  In the humdrum world of economics and economic history utopian ideas bedevil analysis.  Whereas we began with the humanistic description of the workings of an economy, for instance as articulated by Adam Smith, we end up with a cramped mechanistic and needlessly formal model of human behavior that is stripped of all humanity in its effort to be all encompassing.  Each step away from the initial description, each small addition of reasonable progress, each brick in the wall, and each hard won insight merely solidify the edifice, making it ever more difficult to challenge, and ever more difficult to improve.

This difficulty is then compounded by the necessary effort to become conversant with its entirety.  In modern economics it isn’t even possible to be truly fluent across the board.  We rely on others.  It has become a community effort, an act of solidarity rather than an act of individual accomplishment.  How does someone on one edge of the discipline know and trust the notions and analysis taking place on a distant edge?  Mutual trust.  Which is ironic in a discipline so committed to models of the individual. Read more…

Forecasting errors

February 10, 2021 4 comments

from Peter Radford

I suppose forecasting errors is one of those phrases that needs a bit of explanation.  Are we forecasting errors?  Or are we discussing the errors in forecasting?  I think it’s both.

Take the current debate going on about Biden’s $1.9 trillion economic relief package.

A few notable economists, including both Larry Summers and Oliver Blanchard, are arguing that Biden is proposing on spending too much.  This criticism is not based on any analysis of the level of unemployment, the ability to pay rents, the likelihood of imminent re-employment, or any other issue of urgency.  It is based on the usual orthodoxy economists trot out year after year.  The argument is this: the economy was not in distress prior to the pandemic, meaning there were none of those infamous “imbalances” that economist love to talk about; so it ought to bounce back quickly once the emergency lets us all get back to whatever we were doing before we so rudely interrupted; that it is in pretty good shape despite the headline closures, loss of jobs, and other ephemera of the crisis is shown by the facts that households still have pretty good bank balances and that consumer debt is also low[ish], meaning that there is plenty of cash around to splurge when splurging is OK once more. Read more…

January 6th, one month on

February 8, 2021 3 comments

from Peter Radford

It’s been a month.  It seems a great deal longer.

Trump has slunk off the stage and the first signs of what the post-Trump political arena might look like are emerging.  It isn’t hopeful.  Not if you’re looking for peaceful politics.

As we become more able to adjust our focus and ask “what just happened?” with a better degree of clarity, it becomes more obvious, to me at least, that the entire movement that has come to be known as Trumpism was not actually Trump’s at all.  It pre-existed him.  He simply packaged and branded it as if it were one of those buildings that bears his name but which he does not own.  Trump was and remains a veneer.  He is always willing to push to the head of a crowd and claim it was his idea to gather.  He is always willing to present himself as the prime mover of a movement already well in motion.  He is a shallow person incapable of the intricacies of creating something complex, but quite capable enough of providing the gilded gloss once it does exist.

So it is with Trumpism.

It isn’t actually Trumpism.  The term is a gloss that satisfies Trump’s insatiable ego.  He did not summon the movement into being.  It searched for, and found him.  He needed the movement more than the movement needed him.  It gave him strength where he had none.  It gave him purpose where he had none.  It gave him courage where he had none. It gave him a path too the presidency where he had none.  It gave him substance to hide his triviality.  All he had to do was to apply some finishing touches.

What we call Trumpism has roots way back in the darker recesses of American life. Read more…

Epistemic revolution? The search for algorithmic justice

February 3, 2021 1 comment

from Peter Radford

This is a long speculation, for which I apologize, provoked by the following:

In an information civilization, societies are defined by questions of knowledge — how it is distributed, the authority that governs its distribution and the power that protects that authority. Who knows? Who decides who knows? Who decides who decides who knows? Surveillance capitalists now hold the answers to each question, though we never elected them to govern. This is the essence of the epistemic coup.”  — Shoshanna Zuboff, New York Times,  January 2021 

Coups are all the rage right now.  Is Zuboff right that we are the victims of an “epistemic coup”?  What do we even mean by an epistemic coup?

It gets complicated.

For years now we have been bombarded by articles, many of which emanate from the business consulting world where Zuboff made a living,  arguing that we are moving from a world dominated by material supply and demand into world dominated by digital supply and demand.  This new world has to be differentiated from its predecessor, so people have taken to calling it the “knowledge economy”.  This is trivial and well known to all of us.  Information has emerged as the critical ingredient.  Knowledge workers are the darlings of the media and political class.  Education is the panacea for all ills, especially the so-called hollowing out of the middle class.  The “learning”organization is the business idea du jour.

Well, not to be too curmudgeonly, but this is all a bit of an over reaction.  Yes, we are living in a digital world, but the epistemic revolution occurred ages ago.  Zuboff is right, though, to speak of an urgent need to recognize what’s going on. Read more…