Author Archive

Complex Simplicity

April 30, 2017 3 comments

from Peter Radford

Simplification, in the context of an economy, is the eradication of all things of interest. This does not mean that studying an economy is thus doomed to be a pointless recitation of history as it unfolds. It is, rather, the recognition that as an economy moves through time it is never, to paraphrase Heraclitus, possible to see the same thing twice. Each economy is different. Each instance of the same economy is different. Any attempt to generalize eradicates those differences and thus eliminates the very substance we wish to explain. It is the existence of differences that are of interest in economics. Indeed, it is the existence of difference that allows an economy to exist in the first place.

Difference as in the spatial scarcity of resources.

Difference as in the complexity of human agency, motivation, and desire.

Difference as in the application of and resistance to power.

Difference as in variations in access to opportunity.

Difference in the chance bestowed by birth.

Difference as in variable interpretations of information.

And so on …

It is impossible to collapse all these differences into a model and then hope that such a model can capture even a modicum of reality. It couldn’t hope to. No amount of mathematical elegance and rigor can contain all the information needed to describe let alone predict an economy. Such a task is a computational impossibility. Uncertainty condemns a model’s relevance to degrade rapidly through time, if not from the very beginning.  Read more…

Nailed to its perch

April 23, 2017 5 comments

from Peter Radford

I always use some famous Chicago School economist as my representative fool when I am describing mainstream economics to my uninitiated friends. How does one, after all, defend such a ludicrous body of thought? By reference to Monty Python?

Here is Gary Becker explaining why mainstream theory is so ridiculous:

“The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and consistently, form the heart of the economic approach.”

And thus Becker’s economic approach remains firmly nailed to its perch looking for all the world like a dead bird. A very dead bird. It would be funny, indeed hilarious, were it not for the rather dismal fact that people like Becker win prizes and accolades for believing such tripe. There is, apparently, no satire sufficiently cutting, no mirth sufficiently loud, and no critique sufficiently detailed to stop the farce from continuing.

Economics, especially the Becker sort, is dead. It died at its inception. It is a joke that needs sensitive burial so we can move on and look for a real economics that engages real problems and real economies and not the fetid fantasies of the type inhabiting too many professor’s minds.

I often wonder whether economists realize how funny they sound. Or whether they even care about economies. The evidence isn’t reassuring. They press on teaching rubbish as if it were golden. They press on writing ever longer papers riddled with details and mathematics that describe absolutely nothing. They continue to paint pictures that amount to fog. They are, in short, wasting everyone’s time.  Read more…

Notes on the firm

April 20, 2017 2 comments

from Peter Radford

When, for reasons too byzantine to recount here, I decided to re-engage with economics a couple of decades ago I did so through the prism of business. After all I had just finished a stint in banking and was thinking about the way in which the rise of digital technology would change the way in which business is conducted.

The reason for this point of re-entry was that I believed then, and still do, that economies are movements of information as much as, if not more than, anything else. So if digital technologies make information more tractable, abundant, and accessible then they must affect business. My earliest basic assumption was that a business firm is simply a system of thought whose objective is to protect and exploit its information advantage. This brings it into conflict with both its suppliers and its customers who are seeking to overcome the asymmetries of information that occur “naturally” in the landscape. I described the space that firms occupy as “operating space” that is a wedge preventing direct contact between customers [end users] and suppliers [or resources].

That was back in the mid 1990’s and, by and large, since then the disintermediation of operating space that we observe as a consequence of the “digitalization” of the economy has gathered pace.

The most obvious manifestation of this is the steady redesign of business itself. More and more business firms are reducing their operating space by jettisoning  what they consider to be “non-core” activities. The idea being to reduce their logical space only to that in which their information advantage resides, and to allow those aspects of their older form that represent no advantage to go elsewhere to be repurchased at lower cost if, and when, needed.  Read more…

Reflections: Perhaps we need to re-invent economics.

April 14, 2017 4 comments

from Peter Radford

It is easy to be partisan. It is easy to believe in sweeping utopian solutions. It is easy to delude yourself that what you think is what everyone thinks, or, perhaps, what they ought to think. This is why I recoil from anyone offering definitive answers to complex questions. The truth is never so easily teased from reality. A healthy does of skepticism helps to keep us grounded. It seems we need that protection especially right now.

Why now?

Because I feel we are going through a great transition during which much of what we know is quickly being made irrelevant by our changing environment.

The progressive wing in American politics suffered what appears to be an irreversible defeat back with the rise of Reagan. Of course it was not Reagan himself, after all he was a very narrow person and depended on image to project his message. It was the revolution in ideas that permeated society, his rise simply marked the triumph of those ideas. It was the same with Thatcher in the UK.

Looking back the so-called Reagan revolution was an attempt to contain the after effects of the progressive era immediately preceding his election. That progressive era itself was an attempt to bring alignment to a society that was trying to match its prosperity born of industrial prowess with its remaining and widespread inequities which were legacies of the pre-industrial era.

The early industrial inequity of class seemed to be fading away as the post-war boom saturated society with material wellbeing. Yes, in retrospect that conclusion was an error, I suppose it was inevitable that capital would find ways to fight back, but in the moment class issues had become decidedly old fashioned. Besides the existential threat posed by communism as represented by the Soviet Union provided a convenient backdrop against which class style confrontation could be characterized as unpatriotic. America had solved its class issues, not through politics, but through economics.  Read more…

Firms: Who Knew?

April 12, 2017 5 comments

from Peter Radford

One of the controversies buried by contemporary economists in their great cause of advocating market freedoms, is that of the role of central panning. There was a time when economics accomodated controversy. Nowadays it’s arguments are securely contained within the narrow bounds of saltwater versus freshwater type spats that are little more than professional name calling inspired over minor differences of detail.

Recall the capital controversy? No?

How about the socialist calculating controversy? No?

They were real differences. Time has allowed modern economics to ignore its larger conflicts in the name of ideological purity.

Yet central planning lives on.

Bigly, as our new president might say.

One of the greatest deficiencies of modern economics is its total blindspot to the middle layer of economic activity. Few, if any mainstream economists, refer to a “meso-economics”on a par with their hallowed micro and macro versions. Indeed the most ideologically pure insist that macroeconomics is simply a summation of their micro version. So they try to pummel everything into one flat layer.

And yet that meso level exists. We call it business, and if you want to understand what’s going on in most modern economies you have top grasp what’s going on in business.   Read more…

Impossibilities and The Market Turn

April 10, 2017 3 comments

from Peter Radford

One of the least credible aspects of economics, an enterprise that suffers from a credibility problem at the best of times, is that of general equilibrium. Chasing after this mirage comes at a great cost. For one thing it makes economists look more like priests than scientists or even artists. It is an article of faith, not anything remotely plausible in a real economy. Any reference to general equilibrium in an article, book, or paper, automatically disqualifies its author as being about to pronounce on the economy as we experience it. It is, rather, a necessary badge to be sworn within the temples so as to allow the author to assert membership of the highest faith.

Economists have been fixated on the apparent order exhibited in the economy ever since the discipline began to form in its modern guise. Adam Smith’s unfortunate and passing reference to an invisible hand with its supernatural ability to turn individual greed into aggregate happy circumstance was the beginning of a chase down one of economic’s deepest rabbit holes. Turning lead into gold is a time honored endeavor and has always made its aspirants look foolish.

There is no global order. There is no general equilibrium. All that apparent calm on the surface is simply a gloss over the constant seething and deep undercurrents beneath. You cannot suddenly jump from individual activity with all its idiosyncrasy to smooth seas above with no intermediate explanation at all. Unless, as economists do, you suppress the individual and impose absurd constraints.   Read more…

Budget Topline

March 17, 2017 1 comment

from Peter Radford

We all ought calm down about the Trump budget. Presidential budgets never, ever, get put into practice. They are simply exercises in politics. They simply give us insight into presidential goals.

In Trump’s case there is nothing that we didn’t already know. He wants to slash domestic programs, especially those niggling ones that offend his far right fans, and pile on the offensive weaponry for the Pentagon.

As I said: no big surprise.

Here’s a very short synopsis of the bigger items:

  1. The Environmental Protection Agency takes a really big hit — a 31% cut in spending. Many of its key programs would simply be axed. They range from any and all research into climate change to the very popular Energy Star program that rates energy using products and so gives consumers insight into their probable energy bills. Ironically one program that might survive is the greenhouse emissions monitoring program which is a mandate by Congress so getting rid of it would imply legislation unlikely to pass. So the EPA might still monitor greenhouse gases. It just would n’t be able to do anything about them.
  2. The Energy Department gets hammered too with an almost 18% cut. The biggest target at DOE is its research programs designed to help accelerate the country’s move from a carbon based energy supply to alternative sources. Right wingers have constantly complained about the DOE dabbling in applied rather than pure early stage research. Evidently Trump agrees.
  3. The State Department also gets a beating, especially anything to do with climate change. The cuts don’t indicate that the US is quitting the Paris climate agreement of 2015, but it sure looks as if that is in the cards. The cuts also include anything to do with UN based climate initiatives. Indeed the UN is a heavy target with the US contribution to peace keeping in the cross hairs. State is having its “soft power” capacity severely trimmed. These are the kinds of programs both the hard right and Russia particularly dislike. They are programs that allow the US to project a softer, gentler image to the world and are meant to take the edge off the militaristic image all those wars project. Apparently Trump doesn’t care about the US image. His generals do: they love soft power because it makes their lives easier out in the war zones.
  4. NASA gets its climate watching programs axed or drastically cut.
  5. The National Oceanic and Atmospheric Administration is likewise gutted.

Read more…

The scorekeeper speaks

March 14, 2017 6 comments

from Peter Radford

The Congressional Budget Office is the latest victim of the intensity of Washington politics. The CBO is the organization we rely on to “score” legislation so that Congress and the White House know roughly what impact their policies will have on the country. As you can imagine being the CBO during times such as these when alternative facts have become the primary way of explaining things is perilous. Worse: being the CBO when one party wants to cram through some legislation  that is already known to be a doozy is more than perilous.

So it is with Trumpcare.

Up until today we were just guessing at how awful the Republican healthcare reform plan is. Now we know. The CBO issued its report today. There isn’t much to say other than this:  Read more…

RyanCare! Or is it TrumpCare?

March 7, 2017 1 comment

from Peter Radford

Well, the wait is over. We now know what the Republican health care plan looks like. It’s early days and the inevitable compromises will have to be made, but the Republican seven year crusade is reaching its climax.

Or not.

The problem is this: as we have discussed many times, any credible health care plan needs a number of key features. Three stand out:

  1. You need to ensure the biggest insurance pool you can. In an ideal world this pool would be the entire population of the country. In the US it will be smaller because local ideologies militate against “social” solutions and thus we are prevented from seeking maximum efficiency. Obamacare sought to do this through the so-called “mandate” which penalized people who failed to get insurance coverage.
  2. You need to regulate the private insurers to prevent them from discriminating against high risk customers. Obamacare did this by forcing insurance companies to cover people with “pre-existing” conditions, and by limiting the premiums charged to such people.
  3. Then you need some form of subsidy so that low wage people can afford to buy insurance. Obamacare did this by providing subsidies and by imposing taxes to cover the cost. The subsidies were linked to income and to the cost of insurance to make them strongly effective.

The success of Obamacare was that it achieved its biggest goal: it vastly expanded coverage, with around 20 million people newly insured at a rough cost of 0.6% of GDP. That cost, in the context of the goal, is low.

So now we have RyanCare.

How does it differ?   Read more…

Healthcare continued …

March 1, 2017 10 comments

from Peter Radford

Nothing could possibly give us more insight into the ineptitude and unpreparedness of Trump for high office than his comment yesterday:

It’s an unbelievably complex subject. Nobody knew health care could be so complicated.”


Everyone knew. Everyone.

Except for Trump who has blithely been assuming that his bully-boy attitude could translate easily from his real estate business into the White House. He, like a lot of others in recent years, reacted to the gridlock in Washington by arguing we needed a bold business like period of “action” to solve our national issues. We did not need anymore “talk”. All talk and no action is a criticism Trump levels glibly at anyone who appears to want to reflect before doing or saying anything.

So it is with health care.

During the presidential campaign Trump promised the earth. According to his many statements on the topic no one was going to lose coverage, prices would fall, people could keep their own doctors, and all this would delivered by a private rather than public mechanism. He said he was going to eliminate the dreaded mandate aspect of the Affordable Care Act [aka Obamacare]. This was the crucial part of the three legged stool approach in the ACA that lowered average insurance premium costs. Unfortunately it raised them for healthy people and lowered them for the sick, and it was the subsequent uprising amongst the healthy that so motivated the Republicans. This was, of course, over and above their ideological objection to anything smacking of governmental intrusion into the purity of the free market.   Read more…

Economics is a waste of time

February 15, 2017 22 comments

from Peter Radford

There I said it.

There comes a point when we all have to stop banging our heads against the wall and just step back. Why, we ask in such moments, are we wasting our time? The wall is immoveable. It is indifferent to our efforts. It is solid. It has the appearance of permanence. It just won’t shift.

So walk away.

Do something else.

In the case of economics go and study the economy instead.

Too many people are wasting far too much time talking about economists as if they study the economy. They don’t. They really and truly don’t. They live in a post-fact world. Indeed before it became fashionable to toss that phrase around — Trump and his regime pretty much define “post-fact” — economists had been steadfastly denying fact, ignoring reality, and living in a wonderland of their own creation.

Economists study economics. And economics is not the economy. It is a self-contained set of ideas, models, theories, mathematical intricacies, and axioms, that are designed to provide exciting intellectual sport for those so inclined to busy themselves with such activity. It is carefully constructed to look as if it touches reality. It still contains words that make it look as if it relates to reality. Economists intone cogently about real-world topics. And economists fill all the key policy positions that relate to steering, regulating, and measuring the economy.

But that’s all illusion.   Read more…

Not Friedman!

February 10, 2017 13 comments

from Peter Radford

While I was checking the inner debates the Republicans are having about health care I came across this quote [in an article written by Tierney Sneed in TPM] from Representative David Brat, an extreme right winger:

“When it comes to how much you want to park in the HSAs for providing catastrophic care, that, when it comes, to the safety net, we have to find the Milton Friedman way of doing that,” Brat said. “The Price bill would do tax credits. I am not a fan of those because it keeps the federal government in the center of that.”

My heart sank.

Milton Friedman? Really.

His version of economics is simply an ideology cloaked in clever language. And it is profoundly anti-democratic.

Friedman’s stalwart libertarianism led him to develop an economics that started, unscientifically, with a built-in bias against communal action. This meant that anything the government did was, a priori, damaging to the magic that Friedman was desperate to ascribe to the workings of something he, and most economists, call markets.

Markets, you see, are wonderlands that always and inevitably lead to efficient outcomes. And it is no good any starry eyed liberal tinkering with those outcomes. They are magically correct. By correct we mean that they cannot be improved upon. Economists have this vice like attachment to certain core beliefs. One of those is that, if left unfettered, markets will zero in on an allocation of stuff that can never be improved, especially by meddlesome governments. Read more…

Risk Adjusted Work

February 2, 2017 4 comments

from Peter Radford

One of the greatest shifts in our economy over the past few decades has been the steady rise of what we call contingent workers. These are people who make their livings on a part-time or contractual basis and have no full-time job. In the US the increase in contingent workers accounted for all the increase in jobs between 2005 and 2015. Whilst  there was an increase in full-time jobs during that period that increase was more than offset by a simultaneous elimination of other full-time jobs. There are many different measures of this part-time or contingent workforce because the government has not collected reliable data for over a decade, but all those private and academic efforts at measurement concur: contingent workers are now a very large and rapidly growing part of the national workforce.

Before we all lament this trend let us remind ourselves of some history. Prior to industrialization most people worked as a contingent worker. They supplemented their incomes from a variety of work, they were partly self-sufficient, they were largely based in agricultural activities, and they survived generally minimally above the barest subsistence levels. Those were the days of Malthusian economics: short burst of higher wages led to population growth, which stressed the food supply and thus brought on starvation which then reduced the population and restored the possibility of higher wages. Most economies existed in this kind of slow meandering and scarcely improving condition for centuries. Life was, to borrow Hobbes’s infamous phrase “nasty, brutish, and short”

We then broke free from this.

Why?   Read more…

Economy Base Level

January 30, 2017 8 comments

from Peter Radford

We are, no doubt, about to be barraged by a torrent of alternative facts concerning the economy and economic growth under our new leader. So let’s get a few facts on the table in order to set a base level for future reference. Let’s start with growth during the past six presidencies:

So, no, Obama was not the disaster Trump and the Republicans are trying to paint him as. The economy during Obama’s term outperformed that of his predecessor. This includes the enormous difficulty of digging out of the Great Recession without much help from Congress. Average growth through all that last six presidencies is around 2.8% a year, so boosting it to, and then maintaining it at, the 4.0% promised by Trump will take some extraordinary efforts, not to mention a defiance of history and is thus unlikely to occur.   Read more…

The Beginning

January 26, 2017 8 comments

from Peter Radford

Already the Trump regime is taking shape. Or, rather, I ought say the agenda is taking shape since the cabinet that is supposed to be overseeing things is well behind schedule in arriving on station.

First things first.

Trump raised to cost of applying for a mortgage for low income people. He undid a recent reduction in the fees charged by the FHA. That reduction had been put in place because the FHA has a large surplus and wanted to pass along that prosperity to homeowners. Apparently Trump thinks that FHA mortgages should be more expensive. This is an attack on low income voters that is pure Republican thinking and not at all populist. Republicans hate the FHA. They always have. They don’t believe in any help for low income people other than charity.

Next: Trump signed an order calling for the abolition of Obamacare. This is meaningless since undoing Obamacare will take a long time. What the order could do, however, is to throw the insurance market into a bit of a mess and thus drive up premiums for everyone as insurance companies scramble to figure out how to ditch 20 million customers.

Third: Trump begins his attack on free trade by getting the US out of the Trans Pacific Partnership [TPP] and calling for the renegotiation of NAFTA. He also has made dark comments about imposing tariffs on imports. None of this will have a great deal of impact because the exchange rate ought offset most of it. TPP was a rotten deal because it was mainly, from the US point of view, a pro-big business boondoggle. It was first proposed during the Bush administration, and was opposed by many leaders on the left. Good riddance. Re-negotiating NAFTA will be much more tricky and probably will have little effect. Most of the shifts in employment, which seems to be Trump’s motivation, will not change because automation is making them anachronisms.   Read more…

Healthcare Chaos

January 20, 2017 3 comments

from Peter Radford

Here we are one day before the ascension of Trump to the White House and already the policy chaos has begun. To be fair to Trump this particular chaos is not necessarily of his own doing entirely. The Republicans in Congress are also responsible. So hell bent are they in expunging all things Obama from the record that they have charged into the valley of death known as health care reform. Or, in this case, un-reform.

Having spent vast amounts of hours and taxpayer money in pointless votes to eliminate the Affordable Health Care act, and its eradication having become a totem of party loyalty, the Republicans jumped for joy when they finally gained enough control of Congress to make this wish come true. This is the moment their extremists have been waiting for.

And it’s terrifying the entire party except for those so clueless that they imagine getting rid of Obamacare is easy.

The source of this terror is the realization that they are now responsible for the consequences of their quixotic crusade. They will be accountable. It was all well and good to tilt at windmills when everyone knew that their efforts would be foiled, but now the public is looking at them as the legislative power. What happens over the next few years in our health care marketplace is entirely the doing of the Republican party.   Read more…

Trump and Economics

January 17, 2017 15 comments

from Peter Radford

I don’t want to spend much time on Trump and his version of economics primarily because I am not sure what it is. Nor, I think, does he.

One thing worth mentioning is that there is an unprecedented disconnect between the economics profession and the incoming President. Just about every economist I know says that Trump will be bad for the economy, and that the best we can hope for is that his notoriously poor attention span will prevent him from doing much.

For a much more detailed discussion of this disconnect go and read Justin Wolfers article in the New York Times.

What intrigues me is that this near complete separation between the economics profession, of all political persuasions, and the incoming administration is in stark contrast to that between Trump and both Wall Street and small business owners.

Is this because Wall Street and small business has a better handle on the economy? Or is it because they are deluded and are thus in for an ugly surprise?

There’s a part of me that would argue that Wall Street and small business are better informed than economists are about the economy. This opinion is based on my continued amazement at the extraordinarily strange convolutions that economics puts itself through in order to “prove” its various propositions. They are, frankly, absurd. So much so that any conclusions economists draw from their mathematics ought be taken with bucket loads of salt. Economists are steadfastly incapable and unwilling to amend their ideas and are still stuck in major reconsideration mode after the real world repudiation of their confidence and theories that the Great Recession represented. Suffice to say that were I a politician trying to steer the ship of state through these turbulent times, the last place I would look for economic advice is to a profession that still — despite the evidence — builds its theories on the quicksands of rationality, perfect information and so on.   Read more…

Putney Debates and The Trump Adminstration

January 13, 2017 1 comment

from Peter Radford

Here’s a well known quote:

“For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think it’s clear, that every man that is to live under a government ought first by his own consent to put himself under that government … and I do think that the poorest man in England is not bound in a strict sense to that government that he hath not had a voice to put himself under.”

Thus spoke Colonel Rainsborough at Putney in 1647.

This is an early instance of the rise of the modern liberal view of government. Rainsborough lost the argument with Cromwell and Ireton because the issue of property ownership intruded into the debate. That issue revolved around the question of the likelihood that those who owned no property would infringe on the rights of those who did, were the former allowed to participate in their own governance. So even at this formative moment in modern constitutional development the possibility that a liberal stance could evolve down two parallel tracks was clear.

Liberalism was subject to division at its inception.

One track, the one that dominated early on and which echoes strongly to this day, argues that for a person to have a voice in their own government they ought to have an overt stake in society. And the most obvious and material such stake is the ownership of property.   Read more…

Tectonics and Growth

January 10, 2017 37 comments

from Peter Radford

My wife is reading Kahneman’s “Thinking Fast and Slow”, somewhere in which he relates his reaction when he first came across the bedrock of mainstream economics: rational microeconomic behavior. I must admit I had a very similar reaction. The description of human behavior that underpins modern economics is so bizarre that my first thought was that it must be some form of Monty Pythonesque satire. Surely, I thought, this is a joke and in a few pages all will be revealed. But no. Economics really is built on a foundation that to outside eyes is not just odd, but what appears to be a deliberate spoof.

What is even more strange, and those of you who listen to economists and take them seriously  please suspend your sense of humor at this point, is that this total perversion of humanity is then taken as the essential starting point for all subsequent theorizing. Economists are all brought up nowadays to repeat the mantra that all “good” theorizing about the economy at higher levels — what economists call macroeconomic theory — has to be based on a foundation of theorizing at a lower level — what economists call microeconomics. So in the literature and in conversation it is common to come across the phrase that some higher level idea is based upon “micro foundations”.

Except that foundation is exactly what Kahneman and others laugh at.

You would too if you spent any time at all thinking about it.

Which brings me to another point: economics is full of these oddities that anyone outside the profession would dismiss a priori as some form of ludicrous joke.  Read more…

The Market Turn

January 4, 2017 4 comments

from Peter Radford

I am going to be writing an extensive review of Avner Offer and Gabriel Söderberg’s excellent book: “The Nobel Factor” in the near future. Meanwhile allow me to share a a couple of early comments because they bear heavily on how we all approach the Trump administration.

Offer and Söderberg clarify the circumstances behind the shift in economics that occurred in the late 1970’s and came into full effect in the subsequent decades. Their  focus is heavily on how the Nobel Prize in economics has reinforced that shift and how the very origins of the prize were steeped in political bias on the part of the Swedish Central Bank, which was involved at the time in a guerrilla war against the then prevailing (in Sweden) economics of social democracy.

This history is, perhaps, the clearest indication of the inherent anti-democractic intentions of modern economics.

Democratically aware economics and the more commonly quoted mainstream or neoclassical economics have very different attitudes towards the mitigation of lifetime risks that we all experience.

In a socially democratic world such risks are borne by the community via the redistribution of wealth, taxation, and the establishment of government provided safety-net programs of various sorts. In the world of modern economics the libertarian approach dominates: people provide their own risk mitigation through the purchase of private insurance. In this latter world the government plays no role. Indeed, any attempt on the part of government to play a positive role is regarded as, by definition, an attack on the ability of so-called free markets to produce maximal social welfare.  Read more…