Principles (and Practices) of Economics

by Henry Farrell 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.

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Introducing the BBPI

by Henry Farrell 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.

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Gitmo and Gulag

by John Q 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).

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Deliberation vs. participation in blogs

by Henry Farrell on March 3, 2008

Bloggingheads have posted a dialogue I did some days ago with Cass Sunstein (I’ve embedded it below; if it doesn’t work for you, go “here”:http://www.bloggingheads.tv/diavlogs/8936 instead). As “John Q.”:https://crookedtimber.org/2008/01/31/the-monkey-and-the-organgrinder/ noted a few weeks ago, Cass is pretty skeptical about the virtues of Internet communication; he believes that it is quite likely to lead to political polarization and perhaps extremism, and not to the kinds of thoughtful, deliberative exchanges between left and right that he’d like to see. I suspect that he’s largely right on the empirics – but as I argue in the bloggingheads, there’s a strong case to be made that deliberation isn’t the only aspect of politics we should treasure. We should also be interested in increasing political participation. Unfortunately, there’s evidence that the two may be partly antithetical to each other – exactly the kinds of cross cutting exchanges between people of different political viewpoints that Cass wants to promote may decrease people’s willingness to participate in politics.

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Playing Against Type is a Market Niche

by Kieran Healy on March 2, 2008

Via Unfogged comes Charlotte Allen in the WP:

bq. What is it about us women? Why do we always fall for the hysterical, the superficial and the gooily sentimental? … I swear no man watches “Grey’s Anatomy” unless his girlfriend forces him to. No man bakes cookies for his dog. … At least no man I know. Of course, not all women do these things, either — although enough do to make one wonder whether there isn’t some genetic aspect of the female brain, something evolutionarily connected to the fact that we live longer than men or go through childbirth, that turns the pre-frontal cortex into Cream of Wheat. … Depressing as it is, several of the supposed misogynist myths about female inferiority have been proven true. Women really are worse drivers than men, for example. A study published in 1998 by the Johns Hopkins schools of medicine and public health revealed that women clocked 5.7 auto accidents per million miles driven, in contrast to men’s 5.1, even though men drive about 74 percent more miles a year than women. The theory that women are the dumber sex — or at least the sex that gets into more car accidents — is amply supported by neurological and standardized-testing evidence. Men’s and women’s brains not only look different, but men’s brains are bigger than women’s (even adjusting for men’s generally bigger body size). … I am perfectly willing to admit that I myself am a classic case of female mental deficiencies. I can’t add 2 and 2 (well, I can, but then what?). I don’t even know how many pairs of shoes I own.

There are different, and predictable, ways to react to Sunday-supplement piffle like this. Get angry; point-by-point rebuttal; roll your eyes; wonder whether it’s a put on; or, of course, pipe up and say how great it is that someone finally has had the courage to confirm the conventional wisdom of thirty years ago. Well done that gel. It’s certainly a well-executed example of the genre: the flipping back and forth between anecdote and gestures to the science; the carefully-placed qualifiers; the breezy non sequiturs.

I tend toward an ecological interpretation. If there is a niche in the market it tends to get filled, even — perhaps especially — if it seems like an unlikely niche. Because there’s lots of misogyny in the world, there is a demand for misogynist writing. There’s plenty such writing by men, but that’s by now boring and there’s probably too much supply. If a woman is doing it, though, there are bigger and better returns to it. Occupying a niche of this sort also gives you certain rhetorical advantages in generating controversy and responding to it. (See, a woman admits the truth! Or, how can I be anti-woman if I am one? And if you misjudge the reaction, you can claim the whole thing was a joke.) In short, being able to occupy a niche like this makes you a better troll. Hence, Charlotte Allen, etc.

The point generalizes to most other writing and broadcasting about classes of people by classes of people: if there are stereotypical beliefs about some social category, eventually you’ll see someone from within that category make a career by playing to type. Being able to embody different categories at once makes you distinctive, gives you some leverage. When your categorical identity runs against the grain of received opinion, you will probably be treated as a curiosity, an object of derision, or a freak. Here the benefits, if any, are associated with strong in-group solidarity and accompanied by active efforts to de-stigmatize the identity. When it confirms received opinion — but from an interesting or unexpected position — there are greater opportunities for being rewarded. Typically people who fit here are not at any particular risk of suffering from any downside following the public embrace of being stereotypically dumb, or lazy, or whatever. (Allen, for instance, can say she “breezed through academia” on a good memory, but she also went to Harvard and Stanford. Women who have full-time writing careers telling other women to stay at home with the kids are in a similar position.) When associations with some classification are strongly polarized, there’ll be more anger and fighting, but also more incentive to play against type. And of course these processes take place within nested contexts, which complicates the dynamic. But the bottom line is that cross-cutting social categories will be filled with people happy to bear the intersection as an identity, and probably also to spend most of their time talking about it: hence black conservatives, marxist economists, Log-Cabin Republicans, ex-gay fundamentalists, pacifist Marines, libertarian environmentalists, pro-life Democrats, or what have you.

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A lot or a little, part 2

by John Q on March 2, 2008

Daniel’s post on Stiglitz and the cost of the Iraq war reminded me to get going on one I’ve had planned for some time, as a follow-up to this one where I pointed out that the $50 billion in aid given to Africa over the past fifty years or so is not, as is usually implied, a very large sum, but rather a pitifully small one, when considered in relation to the number of people involved, and the time over which the aggregate is taken.

What are the sums of money worth paying attention to in terms of economic magnitude. I’d say the relevant order of magnitude is around 1 per cent of national income[1], say from 0.5 per cent to 5 per cent. Smaller amounts are important if you’re directly concerned with the issue at hand, but are impossible detect amid the general background noise of fluctuations in income and expenditure. Anything larger than 5 per cent will force itself on our attention, whether we will it or not.

To get an idea of the amounts we’re talking about, US national income is currently about 12 trillion a year, so 1 per cent is $120 billion a year. A permanent flow of $120 billion a year can service around $6 trillion in debt at an interest rate of 4 per cent, so a permanent 1 per cent loss in income is equivalent to a reduction in wealth by $6 trillion.

For the world as a whole, income is around $50 trillion, so the corresponding figures are $500 billion and $25 trillion.

What kinds of policies and events fit into this scale?

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Kosovo and the dark side of democracy

by Chris Bertram on February 29, 2008

Further to my post the other day on Kosovo, and whether or not it sets a precedent for other would-be secessionist movements, I’d just like to note a very interesting piece by Pratap Bhanu Mehta in the Indian Express, which I found thanks to Chris Brooke at the Virtual Stoa. Mehta draws on Michael Mann’s work on “the dark side of democracy” to argue that the Kosovo case does indeed threaten future instability. On the immediate political pragmatics, whilst Mehta is surely right to argue that the backing of the US and other Western powers meant that the Kosovo Albanians were under no pressure to negotiate a solution that fell short of independence, defenders of independence can reply that, given what has gone on since 1990, they would have had no reason to believe anyway that remaining within a Serb-dominated state would given them even basic safety, let alone more extensive human rights guarantees. That disagreement aside, Mehta makes a good deal of sense on the connections between democracy, ethnic homogenization and the disastrous doctrine of national self-determination:

bq. In the 19th century, there was a memorable debate between John Stuart Mill and Lord Acton. John Stuart Mill had argued, in a text that was to become the bible for separatists all over, including Jinnah and Savarkar, that democracy functions best in a mono-ethnic societies. Lord Acton had replied that a consequence of this belief would be bloodletting and migration on an unprecedented scale; it was more important to secure liberal protections than link ethnicity to democracy. It was this link that Woodrow Wilson elevated to a simple-minded defence of self-determination. The result, as Mann demonstrated with great empirical rigour, was that European nation states, 150 years later, were far more ethnically homogenous than they were in the 19th century; most EU countries were more than 85 per cent mono-ethnic. Most of this homogeneity was produced by horrendous violence, of which Milosevic’s marauding henchmen were only the latest incarnation. This homogeneity was complicated somewhat by migration from some former colonies. But very few nation states in Europe remained zones where indigenous multi-ethnicity could be accommodated.

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Game over?

by Henry Farrell on February 28, 2008

“Matt Yglesias”:http://matthewyglesias.theatlantic.com/archives/2008/02/poor_form.php complains that Harold Ickes shouldn’t be dishing the dirt before the Democratic primary is over. But _isn’t_ it over for all intents and purposes? Barring an act of God, it looks as though Obama has won. Matt’s co-blogger “Marc Ambinder”:http://marcambinder.theatlantic.com/archives/2008/02/we_need_to_start_with.php runs the delegate numbers and finds that:

Playing with the numbers a bit, here’s how [Hillary] could – in theory – accomplish this. If Florida and Michigan’s delegations are seated fully to her advantage, and if she wins in Ohio by 65% and wins in Texas by 65%, and all other percentages hold, she can win the nomination.

In other words, she’s the horse-race betting equivalent of a super-Yankee accumulator. Perhaps something entirely unexpected will happen (I note again that I don’t have any particular expertise in US electoral politics, and am relying on Ambinder’s calculations here), but it seems to me highly unlikely indeed that she can pull off an upset.

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One Percent of All American Adults are Incarcerated

by Kieran Healy on February 28, 2008

From today’s Times:

bq. For the first time in the nation’s history, more than one in 100 American adults is behind bars, according to a new report. Nationwide, the prison population grew by 25,000 last year, bringing it to almost 1.6 million. Another 723,000 people are in local jails. The number of American adults is about 230 million, meaning that one in every 99.1 adults is behind bars. Incarceration rates are even higher for some groups. One in 36 Hispanic adults is behind bars, based on Justice Department figures for 2006. One in 15 black adults is, too, as is one in nine black men between the ages of 20 and 34.

Here is an older post about how the U.S. incarceration rate compares to other countries. Here is Becky Pettit & Bruce Western’s (2004) ASR paper, with its frankly astonishing result that in the cohort born between 1965 and 1969, thirty percent of black men without a college education—and sixty percent of black men without a high school degree—had been incarcerated by 1999. Recent cohorts of black men were more likely to have prison records (22.4 percent) than military records (17.4 percent) or bachelor’s degrees (12.5 percent).Here is Bruce Western’s Punishment and Inequality in America, a superb analysis of how the prison system is now a key instrument not just of social control, but also social stratification, in America.

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Double movements

by Henry Farrell on February 28, 2008

I’ve been too busy with teaching responsibilities the last several days to link or respond to various posts that other people have put up on taxes, collective goods, and related questions, so I’m going to declare intellectual bankruptcy, and just tell you to read “Laura McKenna”:http://11d.typepad.com/blog/2008/02/more-on-the-tax.html, “Will Wilkinson”:http://www.willwilkinson.net/flybottle/2008/02/22/moral-duties-in-contexts-of-partial-compliance/ and “Russell Arben Fox”:http://inmedias.blogspot.com/2008/02/taxation-and-democracy-101-on-lucky.html. But I also wanted to point to some interesting stuff that’s been happening in Germany, which is sort of related to this question. The _Financial Times_ has been running stories for the last week or so about a disgruntled former employee of a Liechtenstein bank, who has sold a list of the beneficial owners of various trusts in Liechtenstein to the German tax authorities for several million dollars.
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Stiglitz on the (financial) cost of Iraq

by Daniel on February 28, 2008

Joe Stiglitz, interviewed in the Guardian about his book (co-authored with Linda Bilmes), “The Three Trillion Dollar War”. A couple of thoughts:

  • The cost of the Iraq War could have underwritten Social Security for fifty years. This brings home one of the points Max Sawicky always made in the SS debate (in general to a brick wall). Although the headline amounts associated with these problems are scary, they are actually not all that much as a percentage of GDP. The Iraq War is a horrific waste of money, but I don’t think anyone would actually try and claim that it literally can’t be afforded. Similarly with the Medicare/Medicaid/Social Security nexus of funding costs; it’s absolutely clear that the productive capacity of the US economy can pay for these things, it’s just a question of whether there is political will to do so, or whether the government would rather spend the money on killing hundreds of thousands of people overseas for no very obvious benefit.
  • It’s not often that one gets to correct a Nobel Prize winner, so I will take the opportunity. Stiglitz is qutoed as saying that “Money spent on armaments is money poured down the drain”. This is actually the best case for armaments spending from an economic point of view. Most of the time, when armaments are used, they damage something valuable. If all the bullets fired in Iraq had been poured down the drain instead, the world economy would be massively better off, even allowing for the cost of cleaning up the pollution caused in the drain.
  • Three trillion dollars really could have solved a lot of world problems. For example, it would have funded a once-and-for-all offer to the entire population of Gaza, the West Bank and the UNRWA refugee camps of half a million dollars each to slope off and stop bothering the Israelis. That’s the sort of money we’re talking about here.

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Mankiw’s 10 principles of economics

by Chris Bertram on February 28, 2008

Well, _I_ thought it was worth passing on ….

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Cute

by Eszter Hargittai on February 28, 2008

More here on what went into creating it. I definitely appreciate the level of detail (e.g., the blinking line in the search box and the changing cursor).

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William F. Buckley has died

by Henry Farrell on February 27, 2008

The “NYT obituary”:http://www.nytimes.com/2008/02/27/business/media/27cnd-buckley.html?_r=1&hp&oref=slogin is here.

Update: “Rick Perlstein”:http://www.ourfuture.org/blog-entry/why-william-f-buckley-was-my-role-model writes that William F. Buckley was his ‘role-model.’ It’s an interesting piece.

I’m hard on conservatives. I get harder on them just about every day. I call them “con men.” I do so without apology. And I cannot deny that William F. Buckley said and did many things over the course of his career that were disgusting as well. I’ve written about some of them. But this is not the time to go into all that. My friend just passed away at the age of 82. He was a good and decent man. He knew exactly what my politics were about—he knew I was an implacable ideological adversary—yet he offered his friendship to me nonetheless. …

Then came a very nice column. The passage from my book he reproduced quoted a “liberal” reporter on Goldwater: “What could such a nice guy think that way?”

Why did I love WFB? Because he never would have asked such a silly question. The game of politics is to win over American institutions to our way of seeing things using whatever coalition, necessarily temporary, that we can muster to win our majority, however contingent—and if we lose, and we are again in the minority, live to fight another day, even ruthlessly, while respecting our adversaries’ legitimacy to govern in the meantime, while never pulling back in offering our strong opinions about their failures, in the meantime. This was Buckleyism—even more so than any particular doctrines about “conservatism.”

Nice people, friends, can disagree about the most fundamental questions about the organization of society. And there’s nothing wrong with that. We must not fantasize about destroying our political adversaries, nor fantasize about magically converting them. We must honor that some humans are conservative and some humans are liberal, and that it will always be thus. …

Buckleyism to the end: friendship, and adversarialism, coinciding. All of us who write about politics, may that be our role model.

Update 2: See “Brad DeLong”:http://delong.typepad.com/sdj/2008/02/a-historical-re.html and “Patrick Nielsen Hayden”:http://nielsenhayden.com/makinglight/archives/009999.html#009999 for different perspectives.

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More from Dan Hardie on the subject of Iraqi employees of British forces; specifically on those ex-employees who are currently stuck in Iraq and neighbouring countries, waiting for the Borders & Immigration Agency to process their applications. Absolutely scandalous. Once more, the Parliamentary switchboard is 0207 219 3000 and it is really not difficult to put a (polite) call in to your MP on the general theme that the Foreign Secretary and Prime Minister have made a public commitment to helping the employees, and delaying the asylum and resettlement applications for these people is as bad as abandoning them.

Dan writes, below the fold:
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