Economic & Political Weekly

Every once in a while, I notice popular and semi-popular journals in which ideas I find interesting are discussed. As I understand it, Economic & Political Weekly is an Indian journal. It was named Economic Weekly when it published Krishna Bharadwaj's 1963 review of Sraffa's book. I cannot speak to Indian politics. But I find two articles of interest in the 16 October number.

Ghose (2010) builds on Arthur Lewis's model of development. Lewis depicts undeveloped economies as exhibiting a kind of dualism in which capitalist and traditional (subsistence) sectors coexist. The traditional sector experiences disguised underemployment and can provide an infinite supply at labor at the going wage. Lewis mentions farmerss, casual workers, petty traders, domestic and commercial retainers, and woman in the household as sources of such a labor supply. Economic development is a matter of structural change in which the capitalist sector expands and replaces the traditional sector. My impression is that this distinction between structural change and a mere quantitative expansion used to distinguish the economics of development and of growth. Ghose suggests this perspective has been lost in development economics.

Sinha (2010) provides an appreciation of Sraffa's book. Sinha does not see Sraffa's prices of production as dynamically stable limit points of some sort of gravitational process governing market prices. Nor does he think an internal critique of neoclassical economics based on reswitching was central to Sraffa's project. He emphasizes Sraffa's standard commodity and likes Joan Robinson's reading of Sraffa as generalizing Ricardo's corn economy, in which the rate of profits is a physically specified ratio independent of relative prices. This reading resembles Bharadwaj's.

• Krishna Bharadwaj (1963) "Value through Exogenous Distribution", Economic Weekly (24 August): pp. 1450-1454. (Republished in Capital and Growth (edited by G. C. Harcourt and N. F. Laing), Penguin (1973))
• Ajit K. Ghose (2010) "Reinventing Development Economics", V. XLV, N. 42 (16 October): pp. 41-50.
• Ajit Sinha (2010) "Celebrating Fifty Years of Sraffa's Production of Commodities by Means of Commodities", V. XLV, N. 42 (16 October): pp. 61-65.

Bad Teaching By DeLong?

Brad DeLong has kindly made his lecture notes on General Equilibrium available online. I think he explicitly only asserts that equilibria exist (under certain conditions), not that any are necessarily stable. But I do not see how any student reading his notes cannot come to that conclusion. He never explicitly states that economists have found that General Equilibrium Theory imposes basically no limit on dynamics - this is an implication of the Sonnenschein-Mantel-Debreu results. I also don't care for DeLong's treatment here of Karl Marx, who was not writing about the allocation of given resources. (I think that a formalization of Marx's notion of prices of production is more like a Von Neumann ray without requiring labor markets to clear.)

Not being a teacher, I'm willing to entertain discussion of simplifications in teaching beginners. I can see why Joan Robinson thought that General Equilibrium Theory doesn't stand up long enough to be knocked down. The complete model postulates that enough markets exist such that you can trade any commodity for any other commodity across all time periods and all states of nature. This is wildly non-descriptive of any actual capitalist economies. But I can see how the introductory teacher might not get to point where this objection makes any sense.

West, East, And South

Peter Nobel, who is descended from Alfred Nobel, has come out against the Nobel Prize in economics. I want to focus on this part of his statement:

"With no knowledge of economics, I have no opinions about the individual economics prize winners. But something must be wrong when all economics prizes except two were given to Western economists, whose research and conclusions are based on the course of events there, and under their influence."

My question is which two prize winners does Nobel have in mind? I think Leonid Kantorovich, the Soviet co-inventer of Linear Programming, is obviously one. Is the other Amartya Sen? I think one might contrast the West with both Eastern block countries and the global South. If one counts the South as non-West, then Peter Nobel's count is not quite correct. One would also have to count Arthur Lewis, for his contributions to development economics.

Papers To Read

I seem to be very slow to either read these or write up a detailed explanation:

• Francis M. Bator (1958) "The Anatomy of Market Failure", Quarterly Journal of Economics, V. 72, N. 3 (Aug): 351-379. John Cassidy takes this paper as the authoritative definition in his book How Markets Fail: The Logic of Economic Calamities.
• Arindrajit Dube, T. William Lester, and Michael Reich (2008) "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties", forthcoming in the Review of Economics and Statistics. Generalizes the natural experiment approach of Card and Krueger to look at all cross-state local differences in minimum wages in the United States between 1990 and 2006. They find no adverse employment effects from higher minimum wages in the ranges examined. You can watch a video interview with Dube here. (The Wikipedia page on minimum wages also lists meta-analyses, by Stanley and by Doucouliagos & Stanley, more recent than Card and Krueger's meta-analysis.)
• Constantinos Daskalakis, Paul W. Goldberg, and Christos H. Papadimitriou (2009) "The Complexity of Computing a Nash Equilibrium", Communications of the ACM, V. 52, No. 2: pp. 89-97. Defines a complexity class between P and NP and proves that computing a Nash equilibrium is in that class. Thus, if P ≠ NP, Nash equilibria cannot be computed in polynomial time for arbitrary games. In other words, computing a Nash equilibrium in general is infeasible in practice. (Tim Roughgarden's "Algorithmic Game Theory" (Communications of the ACM, V. 53, No. 7 (Jul. 2010)) and Yoav Shoham's "Computer Science and Game Theory" (Communications of the ACM, V. 51, No. 5 (Aug. 2008)) are survey articles.)
• Colin F. Camerer (2006) "Wanting, Liking, and Learning: Neuroscience and Paternalism", University of Chicago Law Review, V. 73 (Winter). Argues that three neural subsystems in our brains process "wanting", "liking", and "learning" separately. I don't think this is quite what Ian Steedman and Ulrich Krause mean by a Faustian agent, but it seems to be related.

P.S. Commentator Emil Bakhum lists some objections to Sraffa's analysis from Alfred Muller. I do not agree that these objections correctly characterize Sraffa's analysis, a point to which I may return. I think I would like a more complete reference, although I might not be able to read it if it is in german.

A "Nobel" Prize For Epicycles In Labor Economics?

Peter Diamond, Dale Mortensen, and Christopher Pissarides won the "Nobel" prize in economics this year. I do not have Bill Mitchell’s expertise on search theory and labor economics. Nevertheless, I thought I’d record my reactions.

As I understand it, Diamond, Mortensen, and Pissarides think labor would be described by by the interactions of well-behaved supply and demand functions for labor if it were not for the heterogeneity of workers and jobs and the time to form matches between them. The orthodox theory would be wrong even if workers and jobs were homogeneous. So I find puzzling why I should approve of this year’s award. I think my opinion is consistent with some of Alessandro Roncaglia’s observations of trends in mainstream economics.

David Ruccio and Richard McIntyre & Michael Hillard (Hat tip to Nick Kraft) have been critical of this year’s award. Paul Krugman has praised it. Doubtless, one could find more praise in the blogosphere.

Grandpa's Giant Pancake

Ingredients

1/2 cup Flour
3 teaspoons baking powder
3 eggs
1/2 cup milk

(This is my uncle's recipe. My father uses 1 cup, 1 teaspoon, 1 egg, and 1 cup, respectively.)

1) Mix and stir. Pour in large, greased fry pan.

2) Cook on medium high heat until bubbles burst. Flip and cook other side.

My father eats this with lots of butter, not maple syrup. Makes 2 or 3 pancakes.

Weird Science III

I guess this is part of a series in which I describe oddities upon which I have stumbled. Here I focus on two phenomena in the measurement of gravity. Perhaps the theory of general relativity is wrong. (The link goes to an explanation of a different problem in physics). Of course, much more prosaic explanations are possible.

Maurice Allais, the recently dead "Nobel" laureate in economics, experimented with a paraconical pendulum during the 1950s. He discovered the Allais effect, which is a variation in the behavior of a pendulum during an eclipse. The plane of the pendulum rotated approximately ten degrees during the eclipse and then returned to the previously pattern. A number of scientists have tried to replicate this and similar effects with various experimental equipment during various eclipses. Some succeeded in replication and some failed. Allais’ explanation, apparently, was to revive the 19th century concept of the aether and argue that space is anisotropic.

Pioneers 10 and 11 were launched in 1972 and 1973, respectively. NASA was still in communication with them after they had passed beyond the orbit of Pluto and were more than 20 Astronomical Units away from the sun. (An AU is the average distance from the Earth to the sun.) Pioneers 10 and 11 have an anomalous acceleration towards the sun of an order of magnitude of 10^-7 centimeters per square seconds. In other words, as they move away from the sun, they are very slowly slowing down more than can be accounted for under the current (relativistic) understanding of gravity. Pioneers 10 and 11 are moving away from the sun at a rate of approximately 12 kilometers per second. (It dawned on me while writing the above that I am no longer sure how many planets are in our solar system.)

References

• Maurice Allais (1986). "The Concepts of Surplus and Loss and the Reformulation of the Theories of Stable General Equilibrium and Maximum Efficiency", in Foundations of Economics (edited by Mauro Baranzini and Roberto Scazzieri), Basil Blackwell.
• John D. Anderson et al. (1998) "Indication, from Pioneer 10/11, Galileo, and Ulysses Data, of an Apparent Anomalous, Weak, Long-Range Acceleration", arXiv:gr-qc/9808081v2 (1 October)
• John D. Anderson et al. (2005) "Study of the Anomalous Acceleration of Pioneer 10 and 11", arXiv:gr-qc/0104064v5 (10 March)
• Gibor Basri and Michael E. Brown (2006) "Planetesimals to Brown Dwarfs: What is a Planet?", Ann. Rev. Earth Planet. Sci., V. 34: pp. 193-216
• M. E. Brown, C. A. Trujillo, and D. L. Rabinowitz (2005) "Discovery of a Planetary-Sized Object in the Scattered Kuiper Belt", The Astrophysical Journal, 635: L97-L100, (10 December)
• Chris P. Duif (2004) "A Review of Conventional Explanations of Anomalous Observations during Solar Eclipses", arXiv:gr-qc/0408023 v5 (31 December)

Stephen Williamson, Again Is He A Fool Or A Knave?

Stephen Williamson writes some ignorant balderdash about heterodox economics. At least two of his commentators recognize the quality of his remarks.

If Williamson had a clue, he would know some scholars distinguish between the heterodox/orthodox distinction and the mainstream/nonmainstream distinction. Following Davis's taxonomy, I would classify North and new institutionalist economics as "mainstream heterodox". I do not think of either Paul Krugman or James Tobin as non-mainstream.

Non-mainstream heterodox economics do not all reject or dislike mathematics. Williamson doesn't seem to know about the existence of sraffians. Of course, he doesn't list feminist economics as a target of his ill-informed calumny. I think most heterodox economists would agree that one can make true and insightful statements about economics without using mathematics. One capable of a moment's reflection can see that that doesn't imply no mathematics can be be useful for economics. Williamson seems to think that the point of using mathematics is to seperate oneself from the hoi polloi. It is no legimate criticism of a paper that a graduate student can write out the model in twenty minutes. The questions one should ask oneself, in this case, are "Does this paper provide empirical and policy guidance for understanding some aspect of Japan's economy?" and "Is this paper original?"

Consider such journals as the American Economics Review or the Journal of Political Economy. And consider the Cambridge Journal of Economics, Metroeconomica, or the Review of Political Economy. The first set contains examples of mainstream economics. The second set of journals publish non-mainstream heterodox economists. An outsider will find journals in both set contain a mixture of natural language and mathematics. They both have both theoretical and empirical papers. The academics are not all from one university, they argue with one another, and they seem to have a variety of sources of funding. Clearly, non-mainstream heterodox economists are not "fringe" in the same sense that most are who argue for astrology, creationism, or a flat earth theory.

Some Reports

I haven't had time to read these:

• 2010 Ibrahim Index of African Governance: Summary (More here and here)
• Shadow Banking, a Federal Reserve Bank of New York Staff Report (h/t Kasey Dufresne)
• Findings Regarding the Market Events of May 6, 2010, a report by the staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) on the flash crash (press release) (h/t Rajiv Sethi)
• Symantec's "W32.Stuxnet Dossier" and the Industrial Control Systems Cyber Emergency Response Team's "ICS-CERT Advisory ICSA-10-272-01 - Primary Stuxnet Indicators"

Inside Job

National Public Radio broadcast an interview last evening with Charles Ferguson, the director of the soon-to-be-released documentary, Inside Job. It is apparently about recent financial shenanigans on Wall Street and the proximate causes of the global financial crisis. The director seemed to be struck about how unlikely it is that top financiers would be heading off to prison. He also was astonished about the pervasive advocacy and lack of ethics he found among economists. He mentioned economists writing articles to promote some industry and not disclosing funding, serving on corporate boards, and acting as expert witnesses in court cases.

NPR played a clip where Glenn Hubbard, the dean of the Columbia University School of Business, a former chair of the Council of Economic Advisors, and a Visiting Scholar (if you can call it that) at the American Enterprise Institute, basically threw Ferguson out of his office. Hubbard apparently did not want to talk about his outside sources of income.

Update: In the comments, Tomboktu links to the NPR piece. Elsewhere, Chris Bertram links to a piece by Charles Ferguson in the Chronicle of Higher Education.

Mainstream Economists: When The Storm Is Past The Ocean Is Flat Again

Did economists predict the possibility of the global economic crisis before it occurred? Did they describe sources of instability as they were building up? I think the following three papers are good for exploring these questions:

• Dirk J. Bezemer (2009) "'No One Saw This Coming': Understanding Financial Crisis Through Accounting Models".
• James K. Galbraith (2009) "Who Are These Economists, Anyway?", Thought and Action.
• Andrea Imperia and Vincenzo Maffeo (2009) "As if Nothing Were Going to Happen: A Search in Vain for Warnings about the Current Crisis in Economic Journals with the Highest Impact Factors" 13th Conference of the Research Network Macroeconomics and Macroeconomic Policies: The World Economy in Crisis - The Return of Keynesianism, Berlin (30-31 October.

The answer I get from these articles is mainly negative for orthodox economics. Robert Shiller receives praise. He could be said to be a mainstream economist. But, as I understand it, his analysis was based on behavioral economics and the rejection of the Efficient Market Hypothesis. The empirical evidence suggests macroeconomists should expand research following Wynne Godley's stock-flow consistent models. Imperia and Maffeo point to those who argued that financial innovation was leading to increased debt, an attempt to compensate for reduced aggregate demand resulting from increased income inequality.