Wednesday, January 01, 2020

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.

Saturday, March 23, 2019

Elsewhere

  • Arindrajit Dube writes an obituary for Alan Krueger, in Slate.
  • Maria Cristina Marcuzzo, at INET, highlights Krishna Bharadwaj's contributions to economics.
  • Longtime commentator Emil Bakkum's web page, collecting a variety of resources, is here.
  • An advocate of Modern Monetary Theory, Brian Romanchuk is apparently writing a book about models supposedly of Dynamic Stochastic General Equilibrium. Some recent posts include:
    • Questions about time scales in DSGE models. Anticipations have a time scale and so does calendar time as it passes.
    • A tutorial introduction to the limitations of linear models of business cycles. Basically, they either explode or decay, with possibly sinusoidal variation. Persistent cycles can only exist because of driving noise.
    • A long summary of problems with DSGE. Some of Romanchuk's objections, like that DSGE models are not put forth with standard mathematics, I find it hard to credit. On the other hand, I find it difficult to make sense of them too. (Romanchuk should probably read Athreya's book.)

Friday, March 15, 2019

Arguing Against "Libertarianism"

1.0 Introduction

By "libertarianism", I mean propertarianism, a right-wing doctrine. In this post, I want to outline some ways of arguing against this set of ideas. (On this topic, Mike Huben has much more extensive resources than I can allude to.)

2.0 On Individual Details

I like to use certain policy ideas as a springboard for arguments that they have no coherent justification in economic theory. Unsurprisingly, the outdated nonsense market fundamentalists push does not have empirical support either. I provide some bits and pieces here.

Consider the reduction or elimination of minimum wages. More generally, consider advocacy of labor market flexibility. I like to provide numerical examples in which firms, given a level and composition of net output, want to employ more workers at higher wages. Lots of empirical work suggests wages and employment are not and cannot be determined by supply and demand.

Lately, I have been developing examples of international trade. (I think these examples need work when produced means of production can be traded.) In these numerical examples, the firms in each country specialize as in the theory of comparative advantage. That is, they produce those commodities that are relatively cheaper to produce domestically. I explicitly show processes for producing capital goods and assume that capitalists obtain accounting profits. Numeric examples demonstrate that a country can be worse off with trade than under autarky. Their production possibilities frontier (PPF) is moved inward. So much for the usual opposition to tariffs.

Some like to talk about the marginal productivity theory of distribution. But no such valid entity exists. I suppose one could read empirical data on the distribution of income and wealth and mobility as support for this, although others might talk about monopsony and market power.

No natural rate of interest exists. So some sort of market rate would not be an attractor, if it wasn't for the meddling of Jerome Powell and the Federal Reserve. As I understand it, this conclusion also has empirical support.

A whole host of examples arises in modeling preferences. I do not think I have previously mentioned, for example, Sen's demonstration of The Impossibility of a Paretian Liberal.

One can point out sources of market failure from a mainstream perspective. I think of issues arising from externalities, information asymmetries, principal agent problems, and so on. As I understand it, John Quiggin is popularizing such arguments in his upcoming Economics in Two Lessons.

3.0 Arguments From Legitimate Authority

I like to cite literature propertarians claim as their own. One set of arguments is of their experts advocating policies on the other side. For example, in The Road to Serfdom, Hayek advocates a basic income and social security. He says his disagreement with Keynes is a technical argument about whether fiscal or monetary policy can stabilize the economy and prevent business cycles, not a matter of the fundamental principles he is arguing about in the book. Adam Smith argues for workers and against businessmen, projectors, and speculators. He doesn't expect rational behavior, as economists define such. Among scholars, those building on Marx could with more right wear Smith ties than Chicago-school economists.

A second set of arguments from authority provide a reductio ad absurdum. One points out that propertarian authorities seem to end up praising authoritarians and fascists or adopting racists as allies. I think of Von Mises praising Mussolini, Friedman's advice to Pinochet, and Hayek's support for the same. The entanglement between propertarianism and racists in the USA has been self-evident at least since Barry Goldwater's run for president. I might also mention Ron Paul's newsletters.

4.0 Hermeneutics of Suspicion

Instead of arguing about the validity of certain supposed propositions, one might argue about why some come to hold them. Why do so many argue against their concrete material interests and for the whims of malefactors of great wealth? In social psychology, one can point to research on the need for system justification and on the just world fallacy. Marxists can draw on Lukács' analysis of reification or Gramsci's understanding of civil society and hegemony.

I also like how doubt is cast on the doctrines just by noting their arguments are easily classified as falling into a couple of categories. Propertarians can be seen as hopping back and forth from, on one foot, justifying their ideas on consequential, utilitarian, or efficiency grounds to, on the other foot, justifying it based on supposed deductions from first principles. So when you attack one argument, they can revert to the other, without ever admitting defeat. (Am I stealing from John Holbo here? From Cosma Shalizi?)

Albert Hirschman classified arguments into three categories: perversity, futility, and jeopardy. One could always say, "I agree with your noble goals", but:

  • Your implementation will lead to the opposite.
  • What you are attempting is to change something that is so fundamental (e.g., human nature) that it cannot succeed.
  • Your attempt risks losing something else we value (e.g., self-reliance, innovation, liberty etc.)

If the arguments are always so simply classified, they cannot be about empirical reality, one might think.

5.0 Conclusion

None of the above addresses issues of political philosophy that propertarians may think central to their views. I do not talk about what roles of the state are legitimate, the source of authority in law, the false dichotomy of state versus markets, negative liberties and positive liberties, or the exertion of private power by means of the ownership of property. In short, this approach is probably irritating to propertarians. I'm good with that.

Thursday, March 07, 2019

Should Liberals Want A Coalition With Conservatives Or Labor?

This is current events, but this post is about current events in Britain in 1920. Lenin comments on reports of a dispute between Lloyd George and H. H. Asquith, both leaders of the Liberal party:

[In] the speech delivered by Prime Minister Lloyd George on March 18, 1920... Lloyd George entered into a polemic with Asquith (who had been especially invited to this meeting but declined to attend) and with those Liberals who want, not a coalition with the Conservatives, but closer relations with the Labour Party. (In the above-quoted letter, Comrade Gallacher also points to the fact that Liberals are joining the Independent Labour Party.) Lloyd George argued that a coalition — and a close coalition at that — between the Liberals and the Conservatives was essential, otherwise there might be a victory for the Labour Party, which Lloyd George prefers to call "Socialist" and which is working for the "common ownership" of the means of production. "It is . . . known as communism in France," the leader of the British bourgeoisie said, putting it popularly for his audience, Liberal M.P.s who probably never knew it before. In Germany it was called socialism, and in Russia it is called Bolshevism, he went on to say. To Liberals this is unacceptable on principle, Lloyd George explained, because they stand in principle for private property. "Civilisation is in jeopardy," the speaker declared, and consequently Liberals and Conservatives must unite. . . . -- Lenin (1920).

We see here centrists justifying an alliance with the right by calling those to their left "socialists" and "communists". Lenin, of course, was to the left of the British Labour party and did not consider them communists or Bolsheviks. Rather, he grouped their leaders with those like Karl Kautsky, who could not be counted on to stand up for the workers when World War II started. Or maybe Lenin considered the British soft left as worse, for Kautsky, according to Lenin, had previous achievements, including in theoretical works.

The context of this argument was Lenin arguing with those to his left. I think he is talking about anarchists and anarcho-syndicalists. He was criticizing them for arguing that, as a matter of principle, communists should not participate in such compromised institutions as parliaments and labor unions. Lenin asserts that this rules out the tactical flexibility the Bolsheviks exhibited in Russia through the 1905, February 1917, and October 1917 revolutions and so on. Lenin thinks British communists should support Labour, although he does say this support should be like the noose supports the hanged man. He continues the Marxist view that anarchism is a petty bourgeois tendency.

Lenin always wanted to agitate everywhere and on everything, including in labor unions, in parliaments, on economic questions, on land redistribution, on non-economic issues. The working class, according to him, need an external vanguard to elevate their consciousness from just trying to get more under capitalism, instead of throwing over capitalism. This approach worked for Lenin. But perhaps his attempt to generalize from Russia to Western Europe exhibited the need for the development of Antonio Gramsci's ideas.

References

Saturday, March 02, 2019

Scholars on Neoliberalism

The literature on neoliberalism is large. Here are some scholarly books on this subject or on related matters:

I think this literature has some common themes:

  • Neoliberalism was always a global project. (Is there a whole literature on Latin America I am missing?)
  • Markets are not natural, but a society organized around such must be created by a system of laws, along with instilling a "common sense" in the population so governed.
  • Neoliberalism must be accompanied by control on or limitations of democracy.
  • The development of neoliberalism was funded by extremely wealthy individuals around the world, who sought to prevent their project from receiving public scrutiny.
  • Those academics funded to develop apologetics and guidance were always interdisciplinary, including those specializing in law and international relations, as well as in economics.

The literature also contains disagreements, including what institutions, groups, and individuals to emphasize in telling the story of the project of imposing neoliberalism on the world.

Tuesday, February 26, 2019

"The Microeconomic Foundations of Aggregate Production Functions"

Figure 1: A Production Network

I here comment on Baqaee and Farhi (2018). I am still trying to absorb it. I suppose that it is nice that an economist at Harvard is revisiting the Cambridge Capital Controversy (CCC). (Where is Michael Mandler these days?)

My major criticism is they do not do what their title claims. That is, their supposed microeconomic foundations are still up in the air.

In many CCC examples, technology is specified in terms of fixed-coefficient production processes. Sometimes, more than one process is available for producing a specified commodity. This structure gives rise to a choice of technique. If one wanted, one could formulate a programming problem, in each sector, whose solution is a production function for that sector. This production function would not be differentiable everywhere.

Baqaee and Farhi, on the other hand, assume the existence of continuously-differentiable microeconomic production functions in each sector. In this paper, these production functions are specifically Constant Elasticity of Scale (CES) production functions. (As should be the case, their inputs and outputs are specified in physical units, not in price terms.)

I am willing to be convinced that this difference in starting points is a technical matter. Or that Baqaee and Farhi are making some progress towards a more complete framework that will include models of the production of commodities by means of commodities. I have some challenges, however.

There is a theorem whose status I am not sure of. It states that, given a continuously differentiable production function for a commodity that is basic, in the sense of Sraffa, for all techniques, reswitching is not possible. (Stephen Marglin was not the first to offer a proof of this theorem.) Thus, Baqaee and Farhi rule out, by assumption, many (most?) of the reswitching examples and much of the structure in the literature on the CCC. As they note, their assumptions do include an example from Paul Samuelson, in his 1966 "Summing Up" article. That example, had a flow-input, point-output structure, with no commodity basic in any technique.

Second, I gather Baqaee and Farhi think of themselves as starting with microeconomic data that is in principle empirically observable. These would be elasticities of substitution at points on factor demand curves that are chosen at an instance of time. Part of the point of the CCC is to question the existence of factor demand curves, including for intermediate inputs. In a comparison of long period positions, it is an incoherent thought experiment to vary one price at a time. On the other hand, as Han and Schefold have shown, empirical work can be based on given fixed coefficients processes. I think if Baqaee and Farhi were to take this point, they would have to rewrite a lot of their paper, including sections talking about the bias of technical change and macroeconomic elasticities of substitution between factors.

Baqaee and Farhi do have an interesting suggestion for visualizing a production network in logical time. (I've previously presented a less detailed approach from Bidard.) My diagram above is an attempt to expand on Baqaee and Farhi's approach. For each time period, four processes (a, b, c, and d) exist for producing one of two commodities from inputs of labor and those two commodities. The first two processes have the first good as output, and the second two processes produce the second good. The second commodity can be used for consumption, as well as a capital good in the production of either good. This is basically the technology for the examples in Vienneau (2005). The diagram could be simplified by not explicitly showing the demultiplexers and the summations.

References
  • David Rezza Baqaee and Emmanuel Farhi (2018). The Microeconomic Foundations of Aggregate Production Functions. 26 November.
  • Robert L. Vienneau (2005). On Labour Demand and Equilibria of the Firm. Manchester School 73(5): 612-619.

Thursday, February 14, 2019

Some Contradictions Of Capitalism

I tend to be doubtful, albeit sometimes amused, by comments drawing on Hegel. But I thought I would adopt some of that sort of language for a post.

Capitalism constantly revolutionizes production, leading to a fantastic increase in productivity. An ever more diverse set of commodities is produced, including for consumption. Machines for making, controlling, and communicating with other machines, are constantly being introduced, reducing the labor time needed to produce any commodity.

For the diversity in commodities to be sold, workers, who constitute the most part of consumers, must develop their abilities to appreciate as much as possible. Likewise, they must developers their capabilities to be able to change the industry in which they work:

But if, on the one hand, variation of work at present imposes itself after the manner of an overpowering natural law, ... modern industry, on the other hand, through its catastrophes imposes the necessity of recognising ... variation of work, consequently fitness of the labourer for varied work, consequently the greatest possible development of his varied aptitudes... Modern Industry, indeed, compels society ... to replace the detail-worker of to-day, grappled by life-long repetition of one and the same trivial operation, ... by the fully developed individual, fit for a variety of labours, ready to face any change of production, and to whom the different social functions he performs, are but so many modes of giving free scope to his own natural and acquired powers. -- Karl Marx, Capital, Chapter 15, Section 9.

In this chapter, Marx also quotes from the Communist Manifesto, "All that is solid melts into air..."

But, yet, the time in which the worker is enjoying himself is time that he is not generating surplus value for the capitalist. And it is an accidental distinction that some goods can be marketed and some cannot. Furthermore, higher wages is a threat to maintaining the rate of profits. So the evolution of capitalism puts some constraints on what and how the workers can develop their selves. Furthermore, the development of flexibility in production capabilities is accompanied with anxiety at being made redundant in one's job, of recurrent unemployment, and the continual recreation of the army of the unemployed.

(Fans of Pierre-Joseph Proudhon might be interested that, around where the above passage appears, Marx talks about the "good side" and the "bad side" of these contradictions in the development of capitalism, in quite a different tone than in The Poverty of Philosophy.)