Wednesday, December 31, 2014

Welcome

I study economics as a hobby. My interests lie in Post Keynesianism, (Old) Institutionalism, and related paradigms. These seem to me to be approaches for understanding actually existing economies.

The emphasis on this blog, however, is mainly critical of neoclassical and mainstream economics. I have been alternating numerical counter-examples with less mathematical posts. In any case, I have been documenting demonstrations of errors in mainstream economics. My chief inspiration here is the Cambridge-Italian economist Piero Sraffa.

In general, this blog is abstract, and I think I steer clear of commenting on practical politics of the day.

I've also started posting recipes for my own purposes. When I just follow a recipe in a cookbook, I'll only post a reminder that I like the recipe.

Comments Policy: I'm quite lax on enforcing any comments policy. I prefer those who post as anonymous (that is, without logging in) to sign their posts at least with a pseudonym. This will make conversations easier to conduct.

Thursday, December 18, 2014

Slaves Identifying With Their Masters

Marx's attempt to describe how capitalism creates objective illusions, so to speak, is one aspect of Capital that I like. In this comment on a long-ago Crooked Timber post, "Ted" draws an analogy to J. S. Mill's Subjection of Women, which I have never read. Apparently, Mill explains how women can come to identify with their oppressors.

I happen to currently be reading the autobiography of local Rochester hero, Frederick Douglass. This passage identifies a curious phenomenon:

"Moreover, slaves are like other people, and imbibe prejudices quite common to others. They think their own better than that of others. Many, under the influence of this prejudice, think their own masters are better than the masters of other slaves; and this, too, in some cases, when the very reverse is true. Indeed, it is not uncommon for slaves even to fall out and quarrel among themselves about the relative goodness of their masters, each contending for the superior goodness of his own over that of the others. At the very same time, they mutually execrate their masters when viewed separately. It was so on our plantation. When Colonel Lloyd's slaves met the slaves of Jacob Jepson, they seldom parted without a quarrel about their masters; Colonel Lloyd's slaves contending that he was the richest, and Mr. Jepson's slaves that he was the smartest, and most of a man. Colonel Lloyd's slaves would boast his ability to buy and sell Jacob Jepson. Mr. Jepson's slaves would boast his ability to whip Colonel Lloyd. These quarrels would almost always end in a fight between the parties, and those that whipped were supposed to have gained the point at issue. They seemed to think that the greatness of their masters was transferable to themselves. It was considered as being bad enough to be a slave; but to be a poor man's slave was deemed a disgrace indeed." -- Frederick Douglas, Narrative of the Life of Frederick Douglas

Maybe some day I'll read Hegel's Phenomenology of Spirit - it is on my shelf - to learn some ideas about the master-slave dialetic. Mayhaps the above is analogous to the opinions of many wage-slaves. There seem to be many ways to be unfree, and many ways to deny this.

Friday, December 12, 2014

First Formulation of Folk Theorem and Indeterminacy in Game Theory

Initial and Chaotic Learning in Rock-Paper-Scissors

Consider a game, as games are defined in game theory. And consider some strategy for some player in some game. The folk theorem states, roughly, that any strategy can be justified as a solution for a game by considering an infinitely repeated game. (An amusing corollary might be stated as saying that competition is the same as monopoly, if you do the math right.) The following seems to me to state the folk theorem (abstracting from the distinction between Nash equilibria and Von Neumann and Morgenstern's solution concept):

"21.2.3. If our theory were applied as a statistical analysis of a long series of plays of the same game - and not as the analysis of one isolated play - an alternative interpretation would suggest itself. We should then view agreements and all forms of cooperation as establishing themselves by repetition in such a long series of plays.

It would not be impossible to derive a mechanism of enforcement from the player's desire to maintain his record and to be able to rely on the on the record of his partner. However, we prefer to view our theory as applying to an individual play. But these considerations, nevertheless, possess a certain signiificance in a virtual sense. The situation is similar to the one we encountered in the analysis of the (mixed) strategies of a zero-sum two-person game. The reader should apply the discussions of 17.3 mutatis mutandis to the present situation." -- John Von Neumann and Oscar Morgenstern (1953) p. 254.

I have heard it claimed that economic theory has developed such that any moderately informed graduate student can now provide you with a model that yields any conclusion that you like. The folk theorem, as I understand it, is not even the most threatening finding for the ability of game theory to yield determinate conclusions.

Consider an iterated game before an equilibrium, under some definition or another, has been achieved. The players are trying to learn each others' strategies. Even a simple game, such as Rock-Scissors-Paper, can yield chaotic dynamics (Sato, Akiyama, and Farmer 2002; Galla and Farmer 2013). An equilibrium might never be established, for it is worthwhile for some players to deliberately choose "irrational" moves so as to ensure that other players do not achieve equilibrium, instead of a result that benefits the supposedly irrational player (Foster and Young 2012). (I hope I found this reference from reading Yanis Varoufakis, who, in one paper in one of his books, makes this point with the centipede game.) Apparently, this irrationality does not disappear by moving towards a more meta-theoretic level. And one player, who understands the evolutionary behavior of the other player in a Prisoner's Dilemma, can manipulate the other player to result in a asymmetric result - that is, a case where the non-evolutionary player extorts the player following a mindless evolutionary strategy (Press and Dyson 2012, Stewart and Plotkin 2012).

References

Wednesday, December 03, 2014

Noah Smith Befuddling Bloomberg Readers

1.0 Introduction

Noah Smith seems to be trying to become a professional columnist and blogger, however his day job works out. I do not know if the same opportunity still exists, as it apparently did when, for example, Duncan Black, Kevin Drum, Ezra Klein, Josh Marshall, Heather Parton, and Matthew Yglesias were starting out. I do not want to spend much time taking down Smith, but I wish so many of his columns did not provide anecdotal evidence that the job of mainstream economists is to sow confusion into the public sphere. Maybe I should try to resolve not to read him.

2.0 Confusion on Marginal Productivity

Consider this Bloomberg column, "You want a better paycheck? Convince me." Smith's column contains the, I guess, still obligatory confused red-baiting:

"No economic model says that people get paid based on average productivity. If they did, there would be no income left over for capital -- no profits, rents or interest. We’d be living in a sort of a Marxist world, where labor is the only thing with any value." -- Noah Smith

I do not see what that comment has to do with Marxism. (Consider the Critique of the Gotha Program.) Anyways, this comment immediately follows Smith's graphical and empirical demonstration that real wages rose with increases in productivity in the United States during the post war golden age. Was the United States in the 1950s and 1960s a "sort of Marxist" society? Certainly economic models of growth and distribution exist for thinking about the relationship between wages and average productivity in the golden age, and the breakdown of this relationship in the subsequent neoliberal era.

Smith apparently thinks that the theory of marginal productivity is a theory of the distribution of income. He is, of course, quite mistaken. Even worse, Smith goes on to use the discredited Solovian growth model, with an aggregate Cobb-Douglas production function, to explain how economists supposedly explain (changes in) the shares of "capital" and labor in national income.

Is it progress that Smith does not bring up skills-biased technical change, a nonsensical theory often used to propagandize for increased inequality in the distribution of wages? Maybe not, for Smith's purpose seems to be to propagandize for increased inequality in the functional income distribution between "capital" and wages. And so he brings up an equally nonsensical theory about the "rise of robots".

3.0 Inadequate Understanding on Women in Economics

Even when I don't necessarily disagree with Smith, I often find his columns insufficiently informed. Here he writes about career prospects in economics for women. I thank Smith for bringing this paper by Ceci, Ginther, Kahn, and Williams to my attention. But it takes Claudia Sahm, in a response to this column, to bring up the Committee on the Status of Women in the Economics Profession (CSWEP). And, as far as I am aware, nobody previously commenting on Smith has mentioned the International Association for Feminist Economics (IAFFE) and their journal, Feminist Economics. If you want to argue that homo economicus is gendered, I suggest browsing back issues of that journal.

Friday, November 21, 2014

Humans And Other Animals

Figure 1: Chapuchin Monkeys, Our Cousins

What do we think about generalizations, validated partly with experiments with non-human animals, for economics?

Nicholas Georgescu-Roegen is an economist widely admired by heterodox economists. He quit the American Economic Association in response to their flagship publication, the American Economic Review, publishing articles on, if I recall correctly, pigeons. Researchers were trying to demonstrate that properly trained pigeons had downward-sloping demand curves. I gather they wanted to show income effects and substitution effects, as well, with these laboratory experiments.

On the other hand, are we not supportive of behavioral economists undermining utility theory? I am thinking of controlled experiments that demonstrate people do not conform to the axioms of preference theory. And some of these experiments, as illustrated in the YouTube video linked above, extend beyond humans.

I have a suggestion to resolve such a tension. One might want to treat investigations of humans as a naturalistic enterprise. If so, one would not want to impose an a priori boundary on the different constituents of minds. Whether some species of animals has some sense of self, expectations of the future, primitive languages, or what not should be found by empirical investigation. On the other hand, activities that depend on the existence of social institutions cannot be expected to be found in animals not embedded in any society. And demand curves, if they were to exist, would only arise in specific market institutions.

Reference
  • Philip Mirowski (1994). The realms of the Natural, in Natural Images in Economic Thought (ed. by P. Mirowski), Cambridge University Press.

Thursday, November 06, 2014

Income Distribution And A Simple Labor Theory Of Value

I have a new paper available on the Social Science Research Network:

Title: Income Distribution And A Simple Labor Theory Of Value: Empirical Results From Comprehensive International Data

Abstract: This paper presents the results of an empirical exploration, with data from countries worldwide, of Sraffian, Marxian, and classical political economy. Income distribution, as associated with systems of prices of production, fails to describe many economies. Economies in most countries or regions lie near their wage-rate of profits frontier, when the frontier is drawn with a numeraire in proportions of observed final demands. Labor values predict market prices better than prices of production do. Labor values also predict market prices better than they predict prices of production. In short, a simple labor theory of value is a surprisingly accurate price theory for economies around the world.

Saturday, November 01, 2014

For Conflating Neoliberalism And Neoclassical Economics

Neoliberalism is a political project to remake the world into an unrealizable utopia. Neoclassical economics is a supposedly scientific effort to explain the world by its deviations from an unrealizable utopia. And they are both about how the world deviates from that utopia. This post is about this resemblance, not the differences, between neoliberalism and neoclassical economics.

This utopia consists of a society organized around markets1. These markets require government to define property rights and enforce contract law. But, in the utopia, they are not to be embedded in a broader institutional setting that prevents their supposedly free adjustment. Examples of government-imposed inference with such self-regulation include minimum wages, rent control, laws against price-gouging, usury laws, subsidies for farmers to limit the size of harvests so as to maintain their income, payments to the able-bodied unemployed2, and so on. Polanyi's claim is that such so-called interventions are bound to arise. The ideal which those enacting such laws were reacting against is unachievable, anyways. In the ideal, land, labor, and capital are treated as if they are only commodities. But land is the natural setting in which the economy takes place, and labor and capital involve social relations that cannot be reduced only to market relationships.

Both neoliberals and neoclassical economists often recognize their utopia must be constructed3, that it, will not emerge naturally, in some sense. The solution for problems with markets is said to be to construct more markets. I think about the tragedy of the commons, the theory of externalities4, 5, and the emphasis in neoclassical welfare theory on Pareto optimality. A paradigmatic policy recommendation, for both neoliberals and neoclassical economics, is the establishment of markets for pollution permits.

Footnotes
  1. I have been reading Block and Somers (2014), and I read Polanyi (1944) more than a decade ago.
  2. Block and Somers approvingly cite revisionist history from Mark Blaug in the 1960s that challenged centuries-long interpretations of English Poor Laws, especially the Speedhamland system. I know Blaug through his (multi-edition) history of economics and his misrepresentations of Sraffians and the Cambridge Capital Controversy. So I was glad to see a cite where he seems to be correct.
  3. This emphasis on the need for government to construct markets, to my mind, is a distinctive difference between classical liberals and sophisticated neoliberals.
  4. Some mainstream economists defend themselves from critics by asserting that the critics attack a strawperson. Economists do not believe, they say, that markets are perfect. And they'll ask why are the critics not aware of the frequent teaching about externalities. This objection seems to me to be beside the point if neoclassical economists react, as many do, the existence of an externality by calling for policy for internalizing the externality (or, at least, imitating the result of such policies).
  5. If one accepted neoclassical economics as a positive science, how could one call for any policy conclusion without an explicit statement of normative values at some low level of abstration?
References
  • Fred Block and Margaret R. Somers (2014). The Power of Market Fundamentalism: Karl Polanyi's CritiqueHarvard University Press.
  • Karl Polanyi (1944). The Great Transformation: The Political and Economic Origins of Our Time.