Random Finds in Heterodox Economics, #1

I stole this idea from Cosma Shalizi, who got it from something else. Anyway, it’s basically an irregular sampling of economics things that interested me. Mainly post-Keynesian, econophysics or sociology of economics stuff, but if I see a good Austrian piece I’ll use it. Also a few things that aren’t really all that heterodox but struck me as good. I’m trying to put in a few bits that will interest fellow nerds and obsessives, and a bit of didactic stuff for the layman, so if any of it strikes you as incomprehensible and/or patronising, then I’ll hide behind the excuse that it probably wasn’t meant for you. Email suggestions very welcome.

Chap of the Week is Perry Mehrling of Barnard College, who has a few nice-looking papers on his college webpage. The one that particularly caught my eye while I was looking for someone else is Understanding Fischer Black. Which brings to mind an old Robert Crumb joke (“nobody understands Fischer Black except Robert Merton, and he ain’t telling ….”), but is a decent summary of the Big Ideas of the general equilibrium approach to the Capital Asset Pricing Model. Personally, I think that GE is a dead duck and so is the CAPM, but Black’s take on both was a lot more interesting than the standard version, and there are some very good points about the relationship between finance and economics. Not sure that Black’s career path really followed a conscious plan to revitalise economics by entryism via the business schools as Mehrling suggests, but good stuff. Also some very worthy pieces on liquidity.

Moving on to another personal obsession, the link between economics and literary criticism is this reprint of a Journal of Post-Keynesian Economics piece by Fernando J. Cardim de Carvalho. Basically, one of the key features of tragedy is that the characters make choices which have long term consequences, without knowing what those consequences will be. Since a good chunk of Keynes’ economics is about choice under uncertainty, you can write a decent piece bringing the two together.

It’s a shame I already gave the “Chap of the Week” award out in the first paragraph, because Franklin Fisher also deserves it. On the other hand, his CV runs to 19 pages (with the John Bates Clark Award discreetly popped in in chronological order, between “Council Member of the Econometric Society” and “FW Paish Lecturer, Association of University Teachers of Economics, Sheffield, England” – the old school used to be a bit more modest about these things), so I doubt he needs another award from me. To be honest, the papers on the site are not his best, despite the billing “Hall of Fame”, but “Janis Joplin’s Yearbook and the Theory of Damages” is a fantastic title, and at least The existence of Aggregate Production Functions is there. If that looks like heavy going, the first bit of this abstract gives you a clue what he’s on about; the question of “the existence of aggregate production functions” is that they don’t, and provably so, but neoclassical economists will not be talked out of using them in completely inappropriate contexts. If after that you want to see someone give the tired old undead corpse of aggregate production functions get yet another kicking, this paper by Luigi Passinetti struck me as quite good. For laymen, by the way, the debate about aggregate production functions matters because they’re used (wrongly) by applied economists to try and answer all sorts of questions about productivity and growth. More or less any time you see something in the Economist reported as fact on this topic, there’s an APF and therefore a logical fallacy at the base of it.

This was Fisher’s contribution to the Cambridge Capital debate, along with the observation that any econometric estimates of “factor productivity” are most likely really only telling you anything about movements in the change in factor income shares. That debate is summarised by Geoff Harcourt, the only really first-rate economist to have played in a Varsity Australian Rules football match, in a reprint from the Journal of Economic Perspectives. Harcourt is hardly a neutral in the debate, but on the other hand, he was on the side that was very clearly and demonstrably right, so any partisanship is most likely for the best.

And finally, thanks to the guy who emailed me the link to this number on the boundaries of econophysics and Marx’s value theory, and sorry I’ve lost your email so I can’t thank you by name. I’m normally allergic to this sort of Ormerodish simulation-building, but if you have to do it, I think that Ian Wright does it about as well as it can be done. I’ve never really understood the obsession on the arXiv for fitting power law distributions to economic phenomena (particularly in cases when lognormal distributions seem to fit just as well), but Wright’s model has one. It’s almost (almost) convinced me that arXiv might be useful as a source of interesting papers, rather than a great place to send people if you want to disabuse them of the idea that you can’t bluff in the ‘hard’ sciences.

more to come as and when ….

PS: As an example of an economist trying to do something good in the world, check out Franklin Fisher’s Water Management Site. It’s extraordinarily rare to read anything written by someone hoping to help facilitate peace in the Middle East and not to be able to work out within five minutes which side they’re on.