Random Finds in Heterodox Economics, #1

by Daniel on January 23, 2004

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.



Micha Ghertner 01.23.04 at 7:50 pm

Here is an article on the Camridge Capital Controversy, in which the author summarizes some of the views of others, such as Deirdre McCloskey’s literary criticism approach of economics as metaphor creation, and presents some linguistic anwers of his own.

As for economic analyses of the Middle East, I wrote an article for a general interest webmag summarizing one of Tyler Cowen pieces, and I think it is fairly objective.


mike d 01.23.04 at 8:18 pm

wow… it’s rare that such a long piece by D-squared will result in such silence from the peanut gallery.

I’ll bite, however, and ask for a brief summary behind

I think that GE is a dead duck and so is the CAPM

or at least some links to dispell my ignorance…


Micha Ghertner 01.23.04 at 8:55 pm

Mike, do a search on Google for the Cambridge Capital Controversy. It’s difficult to summarize the controversy briefly, and understanding the controversy itself requires a fairly technical understanding of economic theory. I don’t even understand most of the issues involved, and I’ve read quite a bit on the topic.


PG 01.23.04 at 9:40 pm

The peanut gallery pipes up with an Indo-centric understanding of trade and labor economics.


Micha Ghertner 01.23.04 at 11:12 pm

Good post, PG. I agreed with all of it except for your support of unions. Bah, unions!


Dave 01.24.04 at 9:02 pm

I’ll second the request for more detail on the CAPM.

Perhaps there is a more technical bone to pick, but over the last decade or so I haven’t seen any reason not to believe in “you picks (one hopes efficiently) your risk aversion and you takes your chances”.


Jason McCullough 01.25.04 at 12:11 am

Ah ha, that Harcourt thing is finally online. It’s excellent.

The first thing capital-reversing brings to mind is oil prices…..


dsquared 01.25.04 at 12:29 pm

Dave, Mike: I thought I’d be able to provide a link to my critique of the CAPM on D^2D but it appears that I never wrote it. Should be something along these lines next week; a critique of CAPM is at the heart of my case against top-up fees in the UK. Basically, I don’t like the identification of risk with variance around a mean, and I’m a sceptic about correlations.


Robert 01.25.04 at 12:52 pm

I wrote the first page turned up by a Google search on Cambridge Capital Controversy. In an act of shameless self-promotion, I might as well point out that I have other resources on the CCC, catalogued under “Publications For Fun” on my page. My “Choice of Technique” spreadsheet, “Sraffian Interpretation of Marx” html page, “Reswitching and the Cambridge Capital Controversy” html page, “Critique of Disaggregated Neoclassical Theory” pdf file, “On Labor Demand and Equilibria of the Firm” pdf file, and “Choice Of Technique for a Firm” html page are all about aspects of the CCC.

Dan is being generous in only saying that the CCC shows mistaken work with aggregate production functions. Look at Gehrke and Lager on Sraffian Political Economy. They say the CCC also destroys HOS trade theory, the neoclassical of tax incidence, and Pigouvian tax theory. My explanations are more narrowly focused on price theory.

The CCC is hard to get a grip on. Just as you think you’ve worked out most ways it can be viewed, somebody comes along and tells you it’s about something else, for example, computability in economics.

As far as I can tell, mainstream economists teach nonsense partly because those who have used the CCC to expose the nonsense are the sorts who take Marx seriously, whether they agree or disagree with him.


Robert 01.25.04 at 12:58 pm

Sorry, that last link on computability in economics should be as here.


dsquared 01.25.04 at 9:57 pm

Whooohooo! Robert Vienneau reads this blog!


Micha Ghertner 01.26.04 at 1:28 pm

Heh, I figured you two would know each other, being the only two lefty non-economists that I know of online who know enough about economics to aim well-placed criticisms at it.

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