Not from a parody account, it would appear:
From the category archives:
Economics/Finance
Pope Francis’s new Apostolic Exhortation, [Evangelii Gaudium](http://www.vatican.va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione-ap_20131124_evangelii-gaudium_en.html), has been getting some attention today, mostly thanks to its reiteration of some long-standing Catholic doctrine on social justice and the market. So, here is a quiz to see whether you can distinguish statements by Pope Francis from statements by Karl Marx. I figured someone was likely to do this anyway, so why not be first to the market? It’s fair to say that the Pope and Karl Marx differ significantly on numerous points of theory as well as on what people asking questions at job talks refer to as the policy implications of their views. So I don’t think this quiz is very hard. At the same time, I sort of hope it will be picked up, stripped of this introductory paragraph, and circulated as evidence that the Pope and Marx agree on pretty much everything.
### Questions!
> *1.* In a similar way, by raising dreams of an inexhaustible market and by fostering false speculations, the present treaty may prepare a new crisis at the very moment when the market of the world is but slowly recovering from the recent universal shock.
> *2.* … society needs to be cured of a sickness which is weakening and frustrating it, and which can only lead to new crises.
> *3.* In this play of forces, poverty senses a beneficent power more humane than human power. The arbitrary action of privileged individuals is replaced … Just as it is not fitting for the rich to lay claim to alms distributed in the street, so it is also in regard to these alms of nature.
> *4.* Yet we desire even more than this; our dream soars higher. We are not simply talking about ensuring nourishment or a “dignified sustenance” for all people … for it is through free, creative, participatory and mutually supportive labour that human beings express and enhance the dignity of their lives.
> *5.* … the limitless possibilities for consumption and distraction offered by contemporary society. This leads to a kind of alienation at every level, for a society becomes alienated when its forms of social organization, production and consumption make it more difficult … to establish solidarity between people.
> *6.* Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.
> *7.* In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile … is defenseless before the interests of a deified market, which becomes the only rule.
> *8.* Inequality eventually engenders a violence which recourse to arms cannot and never will be able to resolve. … Some simply content themselves with blaming the poor and the poorer countries themselves for their troubles; indulging in unwarranted generalizations, they claim that the solution is an “education” that would tranquilize them, making them tame and harmless.
> *9.* The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.
> *10.* Solidarity is a spontaneous reaction by those who recognize that the social function of property and the universal destination of goods are realities which come before private property.
That’s the title of my new piece at Jacobin, which links back to a variety of discussions we’ve had here at CT, in particular this one from Ingrid. Mankiw, whom Ingrid cites, offers an implicit defence of the 1 per cent, implying though not quite asserting, that the gains accruing to those in this group (largely senior executives and the financial sector) have been the price we pay for a process that benefits everyone, yielding a Pareto improvement. As Ingrid says, Pareto improvements aren’t as self-evidently desirable as Mankiw assumes. My argument focuses on Mankiw’s factual premise, concluding that the expansion of the financial sector has made the majority of people worse off. This implies that a response to the global financial crisis focused on attacking the financial sector is feasible as well as being, in my view, politically necessary as an alternative to rightwing populism.
Jacobin doesn’t appear to have a comments section, so feel free to comment and criticise here. I’ve had an interesting discussion with Daniel on Twitter already, but it’s not really a great medium when more than a few people are involved.
Actually, that’s an unnecessarily coarse title for this post, which is a pointer to a thoughtful, timely and by all accounts superbly executed play about bankers’ role in Ireland’s financial crisis. Journalist documentary-maker Colin Murphy (full disclosure, an old and dear friend) has written a play called ‘Guaranteed. It tries to get to the heart of what the *%$%ing £$%! happened in 2008, using official documents and interviews with insiders. Let’s just say it’s a little more insightful than Michael Lewis’ back of the taxi/fag packet journalism, and goes gratifyingly against the official grain.
‘Guaranteed’ is in Waterford tonight, Dun Laoghaire on Tuesday and Wednesday, then around the country till the 29th.
A palate cleanser afterward might be Colm McCarthy’s recent piece in the Indo, marking the triumvirate of ECB/IMF/EC and their involvement in Ireland’s forced bail-out out of 10. You may be surprised by who scored highest.
For a while I have been working on a paper on democracy, expert knowledge, and economics as a moral science. [The financial crisis plays a role in the motivation of the paper, but the arguments I’m advancing turn out to be only contingently related to the crisis]. One thing I argue is that, given its direct and indirect influence on policy making and for reasons of democratic accountability, economics should become much more aware of the values it (implicitly or explicitly) endorses. Those values are embedded in some of the basis concepts used but also in some of the assumptions in the theory-building.
The textbook example in the philosophy of economics literature to illustrate the insufficiently acknowledged value-ladenness of economics is the notion of Pareto efficiency, also known as ‘the Pareto criterion’. Yet time and time again (for me most recently two days ago at a seminar in Oxford) I encounter economists (scholars or students) who fail to see why endorsing Pareto efficiency is not value-neutral, or why there are good reasons why one would not endorse the Pareto-criterion. Here’s an example in print of a very influential economist: Gregory Mankiw.
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Economics students from the University of Manchester have set up the Post-Crash Economics Society. The subtitle of their website summarizes their mission:
The world has changed, the syllabus hasn’t – is it time to do something about it?
I am probably getting old but in any case can’t suppress a déjà -vu feeling.
Paris June 2000.
Cambridge University June 2001.
The Kansas City Proposal August 2001.
Harvard University November 2011.
and there surely were more that I don’t recall.
Yet what’s interesting is that the Post-Crash group get strong support from a surprising corner. Is there someone out here/there who can tell us what an ‘early day motion’ in British Parliament precisely means, politically?
Twitter alerted me to an amusing exchange between Chris Auld, posting a list of “18 signs you’re reading bad criticism of economics and Unlearning Economics, responding with 18 Signs Economists Haven’t the Foggiest. UL suggests that Stephen Williamson manages an impressive 9 out of 18 in his review of Zombie Economics (my response here with more from Noah Smith.
Scoring myself against Chris Auld’s list, I’d say I’m in the clear. But quite a few commenters on Zombie Economics have made complaints along the lines of his point 1, that I focus too much on macroeconomics (and finance). The implication is that, even if macro is totally wrong, only a minority of economists do it, and microeconomists are in the clear.
This defense doesn’t work, at least not in general.
I’m currently reading Scarcity by by Sendhil Mullainathan and Eldar Shafir. At this stage, I’m inclined to sympathise with the unnamed colleague who commented “There’s already a science of scarcity. It’s called economics”. So far, it’s mostly straightforward applications of the observation that time and attention are scarce resources, combined with some fairly familiar observations from behavioral econ on how people fail to optimise either the first-order problems of allocating a tight budget or the second order problem of allocating time and attention to the first-order problem (my terms here, not theirs). However, I’m only part way through, and the authors promise to show how their approach differs from the way in which economists would normally think about this kind of problem.
This post is about a specific and well known observation cited by Mullainathan and Shafir. Faced with paying $100 for an item that could be had elsewhere for $50, most people are willing to put in a fair bit of effort (say, driving for an hour) to get the lower price.[^1] On the other hand if the item costs $1050 and could be had for $1000, people with reasonably high incomes mostly pay up, instead of driving to the other store. This is obviously inconsistent with standard opportunity cost.
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Ingrid links to some fascinating discussion from Philip Mirowski of the role of Swedish domestic politics in the establishment of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, with emphasis on the way in which claims of “scientific” status for economics helped the claim of the Swedish central bank to independence from government.
In the broader context, it seems pretty clear that, if the idea had arisen even a few years later, it would have been rejected. In 1969, economics really did seem like a progressively developing science in which new discoveries built on old ones. There were some challenges to the dominant Keynesian-neoclassical synthesis but they were either marginalized (Marxists, institutionalists) or appeared to reflect disagreements about parameter values that could fit within the mainstream synthesis.
Only a few years later, all of this was in ruins. The rational expectations revolution sought, with considerable success, to discredit Keynesian macroeconomics, while promising to develop a New Classical model in which macroeconomic fluctuations were explained by Real Business Cycles. This project was a failure, but led to the award of a string of Nobels, before macroeconomists converged on the idea of Dynamic Stochastic General Equilibrium models, which failed miserably in the context of the global financial crisis. The big debate in macro can be phrased as “where did it all go wrong”. Robert Gordon says 1978, I’ve gone for 1958, while the New Classical position implies that the big mistake was Keynes’ General Theory in 1936
The failure in finance is even worse, as is illustrated by this year’s awards where Eugene Fama gets a prize for formulating the Efficient Markets Hypothesis and Robert Shiller for his leading role in demolishing it. Microeconomics is in a somewhat better state: the rise of behavioral economics has the promise of improved realism in the description of economic decisions.
Overall, economics is still at a pre-scientific stage, at least, as the idea of science is exemplified by Physics and Chemistry. Economists have made some important discoveries, and a knowledge of economics helps us to understand crucial issues, but there is no agreement on fundamental issues. The result is that prizes are awarded both for “discoveries” and for the refutation of those discoveries.
Wait, why do we have actually have The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ? If you have ten minutes to spare, Philip Mirowski will give us part of the answer, and tell us about his research project investigating this issue.
Catherine Hill, President of Vassar, at the Washington Post explaining the rapid increase in tuition at elite colleges:
Increased access to higher education would help moderate the expansion in income inequality over time. Yet the increasing inequality itself presents obstacles to achieving this goal.
Real income growth that skews toward higher-income families creates challenges for higher education. The highest-income families are able and willing to pay the full sticker price. Schools compete for these students, supplying the services that they desire, which pushes up costs. Restraining tuition and spending in the face of this demand is difficult. These students will go to the schools that meet their demands.
Hence the proliferation of climbing walls and luxury dorms at selective and highly selective colleges (one college president told me that the climbing wall is a highlight of the college tour at both the private colleges he has led). Highly selective education is a positional good, and wealthy families have become enormously wealthier over the past 30 years and have been having fewer children: what are they going to do with all that money? Compete with each other to get their children into the best possible position, thus bidding up the price of highly elite colleges, making it unaffordable for others. In fact, elite colleges respond by using some of the revenues from those who cheerfully pay full price to subsidize students whose families cannot:
At the same time, many schools are committed to recruiting and educating a socioeconomically diverse student body. At private, nonprofit institutions, this commitment has been supported through financial aid policies.
Telling elite schools to keep down tuition doesn’t help:
Ironically, some of the proposed “solutions” to make higher-education finances sustainable would exacerbate future income inequality rather than address the trends that are creating financial challenges for institutions.
For example, in his 2012 State of the Union address, Obama called on colleges to slow down tuition increases and threatened to reduce public support. “If you can’t stop tuition from going up, the funding you get from taxpayers will go down,” he said. But slow tuition growth not tied to offsetting expenditure savings can result in reductions to financial aid. This is playing out in the private, nonprofit sector. Lower tuition combined with lower financial aid benefits higher-income students and hurts lower-income students.
Of course, public institutions, which are the main resort for lower income families, are different. They are the main resort partly because they have traditionally had a low-tuition, low-aid, model, and I cannot tell you how many students I have talked to who were deterred from applying to more selective private schools by the sticker price, applied only to Madison because it had low tuition, but who, I know, would be in much less debt than they are if they had applied to and attended the more selective, elite, private schools that they spurned because of the sticker price (which they would not have had to pay). Anyway, well worth reading the whole piece.
Alex Pareene at Salon points to a bunch of evidence showing, in essence, that the rich look out for themselves and their kids, and no one else, then to a piece by Andrew Ross Sorkin defending nepotism in the US, and by extension in China. There was a time, not so long ago, when Asia’s reliance on guanxi and similar networking practices was denounced as ‘crony capitalism’, to be contrasted with the pure and hard-edged version to be found in the US. This was supposed to explain the vulnerability of Asian economies to the crisis of 1997, and the stability of the US, then well into the Great Moderation.
A few years later, in the very early days of blogging, I wrote a post pointing out that the eagerness of financial sector workers to congregate in the same physical location, even though their work was supposed to be based on objective evaluation of data transmitted by computer, was pretty good evidence that the “global city” phenomenon, much in vogue at the time, was just guanxi writ large.
I turned that into a magazine article at Next American City (now Next City, whose web site seems to have lost it). Then I wrote a longer and more academic version and submitted it a lot of journals in economic geography, urban geography and so on, none of whom were interested. I think it stands up well in retrospect (much more so than most of the ‘global city’ literature, at any rate), but of course I’m biased.
At any rate, at least now everyone, and not least a defender and beneficiary of the system like Sorkin, is comfortable with the notion that capitalism is a rigged game, in which the ability to fix the next round is part of the prize for winning this one.
Update/clarification I’ve implicitly taken the efficient markets hypothesis as a benchmark, and assumed that features of the financial sector (for example, physical colocation) that can’t be explained by EMH are likely indicators of cronyism. It’s possible to take the view that the financial sector does things that are inconsistent with EMH, but nevertheless socially beneficial. An obvious example is the kind of opaque, over-the-counter derivatives that Dodd-Frank has tried to ban, and that the finance sector is lobbying hard to protect: it seems clear that doing these kinds of deals would benefit from face-to-face contact. So, if such deals are, in aggregate, socially beneficial, my argument fails – the converse also holds.
Paul Krugman’s recent columns, responding in various ways to JM Keynes, Michal Kalecki and Mike Konczal have made interesting reading, signalling a marked shift to the left both on economic theory and on issues of political economy.[^1] Among the critical points he has made
* Endorsement of Kalecki’s argument (which he got via Konczal) that “hatred for Keynesian economics has less to do with the notion that unemployment isn’t a proper subject of policy than about the notion of shifting power over the economy’s destiny away from big business and toward elected officials.”
* Rejection of the Hicks-Samuelson synthesis of Keynesian macroeconomics and neoclassical microeconomics and advocacy of (at a minimum) comprehensive financial controls
* Abandonment of the idea that the economics profession is engaged in honest intellectual debate, in favor of the conclusion that the rightwing of the profession, including leading economists, is characterized by denialism and bad faith. As he says, while many economists would like to believe otherwise ” you go to economic debates with the profession you have, not the profession you want.”
In the controversy over who should replace Ben Bernanke as Chairman of the US Fed, a fair bit is being made of the fact that Larry Summers is (to put it politely) a jerk. Without denying this, I’d like point out that, when it really mattered, Summers was thoroughly outjerked by the genuine article, Rahm Emanuel.
The occasion was the decision on a stimulus package needed immediately after Obama’s inauguration. Emanuel’s brilliant strategy was to go for as small a stimulus as possible, declare victory on the economic front, then turn to the main game of cutting a deal with the Republicans on health care reform. We all know how that turned out, [^1] and anyone who recalled the Great Depression could easily have foreseen it. I can recall how stunned I was that Obama failed to take the obvious opportunity to nail Bush and the Repubs for the crisis, and switch to a single-minded focus on economic recovery.
The Keynesian analysis done inside the White House by Christina Romer and outside by Paul Krugman showed that what was needed was a stimulus of at least $1.7 trillion. Based on his subsequent commentary, it’s clear the Summers understood and agreed with this. If he had lived up to his reputation, Summers would have pushed this through the White House by demonstrating, beyond any doubt, that Emanuel was the kind of fool he is famed for not suffering gladly. Instead, he first made Romer reduce the estimate to $1.2 trillion, then dropped it from his brief without telling her, giving Obama a range from $600 billion to $800 billion.
Summers is great at saying the unsayable when it comes to things like shipping toxic waste to poor countries or making baseless speculations about genetics and gender. But when it really mattered, he couldn’t come up to scratch.
Note: Out of laziness, I omitted the link to the piece by Noam Scheiber, on which I relied. I’ve added it now.
[^1]: Fans of 11-dimensional chess might want to make the case that Obama deliberately threw the 2010 election to the Tea Party, foreseeing that the resulting hubris would drive the Repubs mad, and therefore lead to their ultimate destruction. But I can’t impute such subtlety to Emanuel.
[Monsters University](http://monstersuniversity.com/edu/), the prequel to [Monsters, Inc](http://disney.go.com/monstersinc/index.html), opened this weekend. I brought the kids to see it. As a faculty member at what is generally thought of as America’s most [monstrous university](http://duke.edu), I was naturally interested in seeing how higher education worked in Monstropolis. What sort of pedagogical techniques are in vogue there? Is the flipped classroom all the rage? What’s the structure of the curriculum? These are natural questions to ask of a children’s movie about imaginary creatures. Do I have to say there will be spoilers? Of course there will be spoilers. (But really, if you are the sort of person who would be genuinely upset by having someone reveal a few plot points in *Monsters University*, I am not sure I have any sympathy for you at all.) As it turned out, while my initial reactions focused on aspects of everyday campus life at MU, my considered reaction is that, as an institution, Monsters University is doomed.