Principles (and Practices) of Economics

by Henry on March 4, 2008

Since I’ve already been giving grief to prominent economists today, I might as well annoy one of our regular commenters (whom I actually quite like) still further, by linking to this “Harvard Crimson article”:http://www.thecrimson.com/article.aspx?ref=522288 on the political economy of the textbook market (many thanks to the correspondent who sent it to me).

Since N. Gregory Mankiw returned to Harvard to teach the College’s introductory economics class, 2,278 students have filled his weekly lectures, many picking up the former Bush advisor’s best-selling textbook, “Principle of Economics” along the way. So, what has professor of economics Mankiw done with those profits? “I don’t talk about personal finances,” Mankiw said, adding that he has never considered giving the proceeds to charity. … With textbook prices sky high, some professors feel an obligation to donate the proceeds they receive by assigning their own textbooks for their classes. Kenneth A. Shepsle, the professor of government who teaches Social Analysis 46: “Thinking About Politics,” allows students to e-mail suggestions for where the charity money should go. … Similarly, the professor who introduces thousands of Harvard undergraduates to what is just finds it unjust to profit from textbook sales.

… Like many introductory textbooks, Mankiw’s book has seen frequent republication. Retailing for $175 on Amazon.com, “Principles of Economics” has come out in four editions since its first publication in 1998. Economics chair James K. Stock is known for complaining in class about this practice, although not about “Principles of Economics” in particular. “New editions are to a considerable extent simply another tool used by publishers and textbook authors to maintain their revenue stream, that is, to keep up prices,” Stock wrote in an e-mailed statement. He said that while he requires his own book for his class, he encourages students to buy older editions and international copies, and said one student bought a Korean copy for 15 percent of the domestic list price. “Some new editions really do make substantial intellectual improvements, but I would suggest that is the exception not the rule,” Stock said. … Mankiw asserts that “Principles of Economics” has been the bible of Harvard economics concentrators since before he took over “Economics 10.” … “The textbook chose the professor, the professor didn’t choose the textbook,” Mankiw said.

If he’s being quoted accurately, Mankiw seems unduly defensive. If I were him, I’d take a much more pro-active stance. I’d claim that I was teaching my students a valuable practical lesson in economics, by illustrating how regulatory power (the power to assign mandatory textbooks for a required credit class, and to smother secondary markets by frequently printing and requiring new editions) can lead to rent-seeking and the creation of effective monopolies. Indeed, I would use graphs and basic math in both book and classroom to illustrate this, so that students would be left in no doubt whatsoever about what was happening. This would really bring the arguments of public choice home to them in a forceful and direct way, teaching them a lesson that they would remember for a very long time.

The alternative – that a benevolent and all-seeing regulator named Gregory Mankiw has chosen the _very best_ textbook available for the students, and that any rents flowing from the $175 cover price were completely irrelevant to his decision making process – seems to be closer to Mankiw’s preferred explanation, and I see no reason whatsoever to doubt his sincerity (really – I’m not being sarcastic here, even if, like Stock, I generally consider the frequently updated textbook game to be a very fishy business). But it’s a claim that’s surely rather hard to reconcile with the usual political lessons we’re expected to draw from econ 10, econ 101 and their cousins.

Introducing the BBPI

by Henry on March 4, 2008

Some of the things that are most interesting to international political economy scholars such as meself are notoriously difficult to measure. To take one example, there’s a lot of muttering in the US and elsewhere about international trade, whether multilateral and bilateral trade deals are good or bad for the US economy, and so on (these debates also have close equivalents in Europe and elsewhere). But how to cut through the hype to figure out whether or not there is a real likelihood of change in the current regime or not? The usual approach is to look for an indicator variable of some variety that will allow you to track underlying processes that you can’t directly measure. I think I’ve found one – and it’s _at least_ as good as the Economist’s famous Big Mac index for figuring out shifts in PPP. My claim is that the degree of rhetorical overkill in Jagdish Bhagwati’s op-ed fulminations on trade is a very good indicator of what the free trade establishment actually thinks about the underlying risks or threats to the existing regime, and (to the extent that this establishment is politically plugged in) a plausible leading indicator of what’s likely to happen in the future. I’ll endeavour to test this hypothesis by keeping track of the Bhagwati Blood Pressure Index (or BBPI) over a period of time, and testing whether it maps well onto the expected outcomes.

Bhagwati’s piece in today’s “FT”:http://www.ft.com/cms/s/0/f24fa1c4-e92b-11dc-8365-0000779fd2ac.html is a good place to start. Those unfamiliar with his writing style might think that language such as “faintly ludicrous,” “denigration of freer trade,” “witless fear of trade,” and “disturbingly protectionist” indicates a BBPI that is alarmingly high, both for free trade and for Professor Bhagwati. Comparative analysis with previous op-eds and writings would suggest, however, that these criticisms are almost genial by historical standards; at worst they’re love taps. By my reading, the BBPI has dropped quite significantly since mid 2007 or so, suggesting that the free trade establishment believes that the current fervor over free trade is froth that will mostly disappear after the primary season. On the evidence of this article, we may expect the BBPI to drop still further if Barack Obama is elected President (one presumes that Bhagwati believes Austan Goolsbee’s representations to the Canadian government), but to rise substantially in the unlikely event that Hillary Clinton snatches the crown. Also of interest is the evidence that the article provides on the mental modelling processes that underlie these empirical predictions:

whereas Mr Obama’s economist is Austan Goolsbee, a brilliant Massachusetts Institute of Technology PhD at Chicago Business School and a valuable source of free-trade advice over almost a decade, Mrs Clinton’s campaign boasts of no professional economist of high repute. Instead, her trade advisers are reputed to be largely from the pro-union, anti-globalisation Economic Policy Institute and the AFL-CIO union federation.

Clearly then, your soundness on trade depends on the extent to which your campaign employs economists whom Professor Bhagwati approves of. I suspect that Hillary’s campaign is doubly damned because it’s supported by Paul Krugman (whom professor Bhagwati condescendingly refers to as an apostate ‘former student’). Nor had I hitherto realized that the economists of the ‘pro-union, anti-globalisation Economic Policy Institute’ were unprofessional economists of little repute; silly me.

Update: “Megan McArdle”:http://meganmcardle.theatlantic.com/archives/2008/03/a_fair_trade_index.php suggests that a basket of pundits would be preferable.

Gitmo and Gulag

by John Quiggin on March 4, 2008

My namesake, Canadian terrorism expert Tom Quiggin, takes a look at the Guantanamo Bay trials, and notes their adherence to the principles laid down by Stalin’s chief prosecutor, Andrey Vyshinsky.

Quiggin notes that

According to Col. Morris Davis, who is a former chief prosecutor of the military commissions, it appears that the plan was made ahead of time to have no acquittals, no matter what the evidence was to reveal. General counsel William Haynes is quoted as saying (according to Col. Davis) “We can’t have acquittals. If we’ve been holding these guys for so long, how can we explain letting them get off? … We’ve got to have convictions.”

As Australian readers will recall, Davis resigned his position in disgust after the only trial to reach court, that of David Hicks, was shut down when the Australian government intervened to secure a plea bargain, with Hicks pleading guilty in return for a sentence that saw him returned to Australia then kept in prison just long enough to ensure his silence for the election.

Hicks’ guilty plea led to his being described by the Howard government’s fan club as a “self-confessed terrorist”. Of course, the same description applies to many of those convicted in Stalin’s show trials, where charges of sabotage and terrorism were a routine part of the rap sheet (as with all show trials, some may even have been guilty, but their confessions prove nothing).