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May 28, 2007

A Chris Hayes Reader

No other journalist publishes work I desperately wish I'd written with the maddening frequency of Chris Hayes. It's really rather aggravating. In the past week or so, he's come out with not one, not two, but three articles that, I assume, were written largely to taunt me. Thankfully, the taunting also results in some really good articles, which you should read.

Hip Heterodox: A Nation feature on heterodox economists, the stultifying effects of the profession's group-think, and challenges to the mainstream.

Who's Afraid of Democracy?: A review of Bryan Caplan's The Myth of the Rational Voter.

Revolt of the CEOs: On the growing realization among business-folk that regulations are coming, and they'd be better off trying to shape them than trying to block them.

I'll have more to say about most of these later. But for now, go read.

May 28, 2007 | Permalink

Comments

Thank you for the pieces, but I disagree with the piece about a revolt of the CEOs. In part because I don't think healthcare or global warming are a proxy for a seachange occuring in other areas. They are so unique, and so far reaching as issue that, of course, any sane person would have to assume that the market is not working. But, does that mean that Walmart is now endorsing wider protections for labor? Does that mean that they will stop their free riding of the system or rather does it reflect what they have been doing all a long with regard to healthcare?

More importantly- speaking of groupthink and entrenched views- for their to be a true seachange in Washington would require replacing a large number of Democrats born as politicians during the era of when Reagan and his revolutionists were in power. Indeed, much of what happened with Iraq can be understood through the lense of the Democrats live in fear of the ghost of Republicans past.

It's a truism that all politicians are afraid of risk, but it is something more than a truism with Democrats. With them, it is a fatal flaw. They are more afraid of the ghost of Republicans past than they are of the realities of where the electorate, the facts or any other calculus would lead them. This is the central reality in Washington- the Washington bubble trumps all outside influences.

Posted by: akaison | May 28, 2007 2:42:41 PM

I just graduated from ND, and Ruccio was my thesis advisor. Isn't he fantastic??

Posted by: senior | May 28, 2007 3:27:31 PM

Hayes: Heterodox isn't so hip, if your paycheck depends on it.

Ruccio's statement on the 'science' of neoclassical economics: "markets, private property and minimal government will achieve maximum welfare."

While admitting my relative Economics ignorance, I've in the last decade or so become convinced that the professional mainstream in the profession is best thought of in terms of the chicken-egg dilemma. Which can first? The idealogy of business and political conservatism in western countries, or some 'natural' laws that the profession of Economics had discovered.

I've concluded that of course the chicken came first, and that ideology trumps empirical science when applied to the Economics profession and the business/political tits that it displays.

That the mainstream has to be dragged kicking and screaming into looking at actual human behavior in systematic ways, and how economics-based policies actually play out in the real world, has given the game away that they've been playing. And they play hardball, as the great Hayes article indicates. Lucidity at its best!

To add to Ezra's well-written-article-reading blowout for the holiday:

Here's a well-written, and frightening non-Hayes article from The New Republic book section - by Cass Sunstein, reviewing The Lucifer Effect: Understanding How Good People Turn Evil
written by Philip Zimbardo - the guy who established the infamous Stanford Prison Experiment. Sunstein gets to the heart of the issues we need to know regarding 'normal' human behavior in regard to authority, torture, and 'bad apples'. We have met the enemy among those who would torture or allow it, and they are us.

Posted by: JimPortlandOR | May 28, 2007 4:52:22 PM

Ezra,

Please say more about how these issues are shaped by media scripts as described by the daily howler.

Chuck

Posted by: chuck | May 28, 2007 5:09:42 PM

I don't know about the story on economist group-think. Behavioral-economics based theory seems like a hot topic right now: one guy I know did very well on the job market this year with that as his dissertation. People are definitely interested in this stuff and are integrating empirical observations into theory. For example, see Raj Chetty’s paper on how consumers don’t necessarily take sales taxes into account when making purchases: http://elsa.berkeley.edu/~chetty/papers/taxsalience.pdf.

That said, the “markets are efficient and valuing of efficiency above all” story else still seems like the public profile of many economists. As an undergrad you're never really taught the First-Welfare Theorem: you just draw some supply and demand curves and are told in an intro class that markets are efficient. Then you learn some exceptions to this (externalities—e.g., pollution). As a graduate student, you're taught the First Welfare Theorem as the very strict conditions that are required to ensure that markets leads to efficient outcomes.

Undergraduates are taught the Coase Theorem (if transaction costs are zero, government allocation of property rights is all that is required to ensure that efficient outcomes are reached). However, it wasn’t until I got to graduate school that I heard about the negative equivalent—the Myerson-Sattherthwaite Theorem, which roughly says that without complete information, in general no mechanism can lead to efficient trade between two parties. Most people who take an economics course at some point will have their views influenced by the Coase Theorem, but not the Myerson-Sattherthwaite theorem.

Posted by: Joel | May 28, 2007 8:50:01 PM

You know, as someone with a pretense to Marxism, I should hate most economists. But I remember the Locke maxim at the core of Marx:"Man has a right to the fruit of his labors" and his Manchester experience and the 18th century English influence.

All economists all moralists. It is the moral science. It is the political science. Every one of them, from the Trotskyite to the Hayekian, has Malthus looking over his shoulder saying:

"But they must starve and die."

I believe every one of them understands what is stake in the cold equations.

Posted by: bob mcmanus | May 28, 2007 9:31:20 PM

Thomas Malthus ...Wikipedia

"Additionally, many have argued that Malthus did not fully recognise the human capacity to increase food supply. On this subject Malthus wrote "The main peculiarity which distinguishes man from other animals, is the means of his support, is the power which he possesses of very greatly increasing these means."

However, it should be noted that the explosion in human population is strongly correlated with the discovery and extraction of hydrocarbons. Hydrocarbon technology is the primary means by which food supply has increased since the 19th century through fertilizer derived from natural gas feedstock and mechanization and transport enabled by liquid fuels. The peaking of world hydrocarbon production (Peak Oil) may test Malthus critics."
...
"Malthus saw that in capitalism the demand of the workers could not be large enough to enable the capitalists to realize their profits. And since prices included profits, they could not be realized in intra-capitalist exchange. Capital-labor relations contained and created a lack of demand which destroyed the incentive to accumulate capital. Malthus concluded that this demand must come forth from social layers other than labor and capital. In this way he justified the continued existence of the non-productive feudal class: he deemed their consumption necessary for the proper functioning of the economy. However, “the great puzzle of effective demand with which Malthus wrestled, vanished from economic literature,”[17] until resurrected by Keynes. His theory may thus be regarded as a modern version, elaboration, and possibly refinement of Malthus’ theory of accumulation." ...Paul Mattick:Marx and Keynes The Limits of the Mixed Economy MIA, 1969, just what I am reading this week

Posted by: bob mcmanus | May 28, 2007 9:51:14 PM

I'd like very much to draw everyone's attention to Michael Perelman, and especially his very excellent book: Steal this Idea, the Corporate Confiscation of Creativity, which (should be) essential reading for anyone interested in the economic fallout from our present system of Patents, Copyright, Trademark and Trade Secret laws. (Yes, I am carefully avoiding the wrong term Intellectual Property, see Richard Stallman on why)

I had worked for several of the Big Pharma Companies mentioned in this book, and know from direct personal experience that clinical efficacy is not the only criteria used for drug selection, and I was happy to see that fact actually PUBLISHED and DESCRIBED.

Posted by: enigma_foundry | May 28, 2007 10:25:29 PM

"The peaking of world hydrocarbon production (Peak Oil) may test Malthus critics."

Just like Malthus was proven wrong, so will peak oil theorists. Why? The human creative capacity to supply society's needs in return for a profit. That is at the core of what people don't understand about neoclassical theory, and why their equations are so "simplistic" -- it is immeasurable and impossible to model.

Posted by: Jason | May 29, 2007 2:07:33 AM

Malthus was not wrong. And the hell with gas taxes and cap-and trade. The best answer to global warmimg is a cheap portable substitute for fossil fuels. You want cap-and trade? At $100 a barrel oil (Next summer) I bet Sumatra and South America go up in smoke(slash & burn farming). So much for carbon reduction.

Unless we turn Wall Street into windmills (or whatever) in a generation we will be down to 2 billion world pop at the end of the century, your lifetime, and global warming won't be a problem. We have to get cheap energy and cheap food to Bangladesh and Rio or live with guilt that makes the Holocaust look like a garden party.

But I will be dead and Jason won't care if the margins aren't high enough.

Posted by: bob mcmanus | May 29, 2007 2:44:58 AM

I am an avowed progressive.

I feel that the Chicago school's pronouncements are often ludicrous.

And I am also a defender, at least to an extent, of the mainstream approach to answering economic questions.

Contradiction? Not necessarily. While I found the spirit of "Hip Heterodox" to be well-intentioned, I was frustrated by its framing of "heterodox" economics as the principal opposition to an Evil Empire of clueless academics, the ragtag army of original thought fighting a delusional rational-choice mafia.

Sure, sure, some of the characterizations are true. As currently practiced, neoclassical economics is riddled with inadequacies, and there are indeed characters (like the dour sorts left reeling from Akerlof's speech) whose devotion to such narrow assumptions invites parody. But formalism is not exclusively a tool of Milton Friedman and his ilk; in fact, it's critical for anyone who aspires to rational policy analysis.

Consider what I call the "fundamental principle of mainstream economics," which found its best expression in vintage Paul Krugman:

The problem is that there is no alternative to models. We all think in simplified models, all the time. The sophisticated thing to do is not to pretend to stop, but to be self-conscious -- to be aware that your models are maps rather than reality.

There are many intelligent writers on economics who are able to convince themselves -- and sometimes large numbers of other people as well -- that they have found a way to transcend the narrowing effect of model-building. Invariably they are fooling themselves. If you look at the writing of anyone who claims to be able to write about social issues without stooping to restrictive modeling, you will find that his insights are based essentially on the use of metaphor. And metaphor is, of course, a kind of heuristic modeling technique.

In fact, we are all builders and purveyors of unrealistic simplifications. Some of us are self-aware: we use our models as metaphors. Others, including people who are indisputably brilliant and seemingly sophisticated, are sleepwalkers: they unconsciously use metaphors as models.

This is an immensely important insight. In the progressive sphere, there is a temptation for us to throw away economics as specious pseudoscience, colored by ideology and improbable assumption. But while a great deal of economic theory is sloppy, there is nothing sloppier than discrediting an entire field of quantitative analysis because its premises are "unrealistic." After all, however wrong they may be, the proofs of neoclassical macroeconomics are much better constructed than the intuitive arguments non-economists are prone to spout.

In the minimum-wage debate, for instance, we often see conservative editorialists whose education ended at Econ 101 claim that economic theory and wage floors are in inevitable opposition. I don't need to tell any of you that this isn't true. But we can't just shout "Card and Krueger! Inelastic labor markets! Har har!" and count ourselves absolved of further analysis, because beyond the uninformed brush of conservative punditry there is a very serious debate about the effects of minimum wage legislation, and there remains the distinct possibility that it actually hurts the poor. Now, I don't think that the current balance of evidence supports this possibility, but it has not been convincingly refuted, and for precisely this reason we need better and better models -- both theoretical and empirical -- to help us reach the correct conclusion.

And this, I think, is what is wrong with so many in the "heterodox" crowd. Justifiably annoyed by the weak points of the science, they slide into a self-righteous annoyance at the mainstream approach, and then into a faith-based fury that rivals the True Belief of neoclassical economics' most fervent defenders. Luckily, however, this isn't true of every economic skeptic. Many good people in the field today understand that while established theory may be awful, we must not use this as an excuse to abandon rigorous analysis in general.

Posted by: Matt Rognlie | May 29, 2007 4:06:56 AM

Well put. Matt, you're going to make one hell of a neoclassical economist in a few years. As a Duke Math/Econ/CompSci major all you need to do now is go to Stanford GSB and then you can become Susan Athey Jr.

Posted by: Joel | May 29, 2007 6:31:04 AM

"In the progressive sphere, there is a temptation for us to throw away economics as specious pseudoscience, colored by ideology and improbable assumption. But while a great deal of economic theory is sloppy, there is nothing sloppier than discrediting an entire field of quantitative analysis because its premises are "unrealistic.""

Unfortunately this line of thought is totally undermined by the following:

"Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy not on trade but on the minimum wage. In 1994 he conducted a study to see whether an increase in the minimum wage in New Jersey had the negative effect on employment that basic neoclassical theory would predict. He found it didn't. In fact, his regression analysis showed that, controlling for other factors, New Jersey gained fast-food jobs after increasing its minimum wage, compared with Pennsylvania, which hadn't raised wages. The paper attracted a tremendous amount of attention and criticism, and Card himself largely abandoned working on the minimum wage. In a 2006 interview, he explained his decision to leave the topic behind this way: "I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole."

Practicioners in an honest "entire field of quantitative analysis" don't react with anger and disappointment, don't cry out "treason", when a piece of data-based research appears that contradicts their theory. They either argue that the study was flawed, carry out their own studies, or accomodate the data somehow into their theory. By evidence the orthodox economists did none of that, they just turned on Card and ended up driving him out of that area of study altogether.

Rejecting results because they don't match theory is exactly what discredits this as a pseudo-science. Economists are free to refine their models and begin to bring them into some sort of accordance with reality, what is frustrating is their insistance that all of that has been done already and that their patently incomplete models should be used as policy tools on everything from free trade to minimum wage to Social Security. If these guys were just playing with abstract theory about cosmic strings it would be one thing. But what they are doing is insisting that economic policy be shaped around a faith-based theory of markets that does not in fact hold up well to testing.

Because in the end what is the "cause of economics"? Sciences don't have 'causes', ideologies do.

Posted by: Bruce Webb | May 29, 2007 8:53:15 AM

Just like Malthus was proven wrong, so will peak oil theorists. Why? The human creative capacity to supply society's needs in return for a profit. That is at the core of what people don't understand about neoclassical theory, and why their equations are so "simplistic" -- it is immeasurable and impossible to model.

As we have several references to "faith based" economics in the comments, it's worth noting that Jason has given us a perfect illustration of a faith based axiom being treated as an economic law: "Don't worry. We'll come up with something."

Posted by: W.B. Reeves | May 29, 2007 9:32:26 AM

Ezra, thanks for thinks. I enjoyed all 3 articles. It seems Galbraith had a lot right, doesn't it?

Jake

Posted by: Jake - but not the one | May 29, 2007 12:42:08 PM

For an alternative approach to neoliberal economics, try Ecological Economics and especially the work of Herman Daly

Posted by: BillCross | May 29, 2007 6:04:47 PM

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Posted by: judy | Oct 6, 2007 4:52:01 AM

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