Quiggin's Optimism Of The Intellect

Quiggin says much in Zombie Economics: How Dead Ideas Still Walk Among Us I agree with. I see no reason, however, to believe that economists will follow this recommendation or that this is the best way for economists to model actually-existing more-or-less capitalist economies:

"A new project in the D[namic] S[tochastic] G[eneral] E[quilibrium] framework will typically, as Blanchard indicates, begin with the standard general equilibrium model, disregarding the modifications made to that model in previous work examining the other ways in which the real economy deviated from the modeled ideal.

By contrast, a scientifically progressive program would require a cumulative approach, in which empirically valid adjustments to the optimal general equilibrium framework were incorporated into the standard model taken as the starting point for research. Such an approach would imply the development of a model that moved steadily further and further away from the standard general equilibrium framework, and therefore became less and less amenable to the standard techniques of analysis associated with that model." -- John Quiggin, Zombie Economics: How Dead Ideas Still Walk Among Us (Princeton University Press, 2010)

I was inspired by this Crooked Timber thread to post this.

Picoeconomics: A New Vocabulary Word For Me

I have previously described models of agents divided in mind. And I have noted that akrasia is defined as the phenomenon of acting against one's own best judgement.

I find that George Ainslie uses the term picoeconomics to describe the study of the interaction of components of a mind in individual behavior and decision-making. Microeconomics is, in some sense, the study of the interactions of individuals in determining economic behavior. Picoeconomics is an analysis on an even smaller scale. I also found a website for this subject¹.

By the way, picoeconomics is not necessarily a non-mainstream field of economics. For example, Glen Weyl (2009), a very young mainstream economist trained at some of the most prestigious economics departments in the United States, adopts a model of an agent as a community. He uses this model to examine political individualism. If a community cannot have group rights and cannot have an unique ordering of choices², how can an individual have such rights when he may be just as divided in mind as a community?

One criticism of mainstream economists relates to their treatment of the literature. A mainstream economist can ignore long-established analytical tools to treat their subject, introduce some related analysis into orthodox models in an ad-hoc way, and never reference the previously-existing heterodox literature. I do not feel I have enough understanding of picoeconomics to say whether this criticism applies to mainstream and non-mainstream contributions to the field³.

Footnotes

• ¹ Is this Ainslie's website? I could not quickly find a name associated with the site?
• ² See the Arrow impossibility theorem.
• ³ I'm not even sure I know the field boundaries. My blogs posts on divided minds build on some literature by Amartya Sen. Some recent papers from Nadeem Naqvi and others build on later literature from Sen. They analyze agent decision-making, but, as I understand it, do not model the mind as composed of subagents. Does this literature fall within picoeconomics?

References

• George Ainslie (1992) Picoeconomics: The Strategic Interaction of Successive Motivation States within the Person, Cambridge University Press. (I haven't read this.)
• George Ainslie (2001) "Breakdown of Will" , Cambridge University Press. (I haven't read this.)
• G. Ainslie (October 2005) "Précis of Breakdown of Will" Behav. Brain Sci., V. 28, N. 5: 650-673.
• Arian Berdellima and Nadeem Naqvi (2011) "Existence of a Pareto optimal social interaction with with non-binary preferences".
• E. Glen Weyl (May 2009) "Whose rights? A critique of individual agency as the basis of rights" Politics, Philosophy & Economics, V. 8, N. 2: 139-171.

Monetarism And Marxism

I want to draw a parallelism between monetarism and marxist economics. I do not refer to the attempt by the United States Federal Reserve to implement Marx's theory of the reserve army of the unemployed. Rather, I think an analogy may exist between money and productive labor and their relationships to available empirical data.

If monetarists have a rigorous definition of money that picks out one unique time series, I do not know of it. Suppose they find some correlation between, say, M2 and a price level. And suppose that correlation subsequently breaks down. They need not take this as evidence against their theory. For they can always search for another time series for the quantity of money and a different price deflator.

Likewise, economists building on Marxism, as I understand it, have not settled upon a rigorous theoretical definition of the distinction between productive and non-productive labor. For example, I don't think Marx - especially in the first volume of Theories of Surplus Value - argues that all services are unproductive of surplus value. Rather, his distinction is between labor that produces surplus value and other labor. Duncan Foley finds a tighter correlation between real national income, excluding services, and non-farm employment than he does between all national income and non-farm employment. By my argument, I do not take this as dispositive evidence for Marx's distinction. I worry that which correlation works best can vary by time period and time series.

Nevertheless, I find Foley's analysis of interest. Finance, Insurance, and Real Estate (FIRE) certainly seems to need more analysis by economists in these days.

References

• Duncan K. Foley (2011) "The Political Economy of Output and Employment 2001-2010"
• James K. Galbraith, Olivier G. Giovannoni, and Ann J. Russo (2007) "The Fed's Real Reaction Function: Monetary Policy, Inflation, Unemployment, Inequality - and Presidential Politics"

Galbraith On Sociology Of Economics

I thought this short comment was interesting:

Figure 1: James Galbraith on Sociology of Economics

Provenance is, of course, no guarantee of the quality of art. But one thing that strikes me about dissenters and non-mainstream economists is that many have doctorates in economics from elite schools (e.g., Harvard, Yale, Cambridge), have taught at such elite schools, or might even be professors at such places. Is there any other discipline in which members treated as on the fringe have so many with such credentials?

Elsewhere

With the exception of the first two, these links seem more closely related than most I list. I ought to add something about the flash crash.

• Richard Thaler compares utility to aether, an imaginary substance that 19th century scientists thought existed.
• Matthew Yglesias misunderstands; he thinks Thaler’s comments apply only to macroeconomics.
• Donald MacKenzie describes the effects of automated trading algorithms on microsecond variations in stock market volumes:. Some of this sounds like network security applications. You have sniffers detecting what bots are doing, spoofers attempting to fool the sniffers, etc.
• Kieran Healy reviews MacKenzie's book describing finance theory as performative.
• A news story reports "Some Users Find the Speed of Light Too Slow for Their Networks", (IEEE Computer, V. 44, N. 4 (Apr. 2011): 18-19). These users are ones trying to decide where to locate their automated trading algorithms.
• K. J. Ray Liu describes how radio devices will use game theoretical algorithms to allocate spectrum. ("Cognitive Radio Game", IEEE Spectrum, V. 48, Iss. 4, Apr 2011: 40-56)

Models Building On Minsky

Some recent resources on Hyman Minsky:

• Gauti B. Eggertsson and Paul Krugman (2010) "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach"
• Steve Keen (15 March 2011) "The Debt Krugman Would Rather Forget", Business Spectator.
• Steve Keen (2011) "A Monetary Minsky Model of the Great Moderation and Great Recession", Journal of Economic Behavior & Organization
• Thomas I. Palley (April 2010)"The Limits of Minsky's Financial Instability Hypothesis as an Explanation of the Crisis", Monthly Review, V. 61, Iss. 11.
• Thomas I. Palley (2011) "A Theory of Minsky Super-Cycles and Financial Crises", Contributions to Political Economy.
• Lance Taylor and Stephen A. O'Connell (1985) "A Minsky Crisis", Quarterly Journal of Economics, V. 100, Supplement: pp. 871-885.

With some work, one can find downloadable copies of the above papers containing the formal models. In the more popular paper above, Keen criticizes Krugman for retaining flawed assumptions of mainstream macroeconomics. Why should anyone care at this point how a Dynamic Stochastic General Equilibrium (DSGE) model can be tweaked? Palley's Monthly Review article is also deliberately designed to generate controversy. He argues that Minsky's approach needs to be supplemented by more structuralist explanations.

Internet Sites For Discussing Economics

I find dispiriting the inability of most mainstream economists to discuss economics. Here are some emerging sites:

• Research Gate has a part set aside for economics.
• Stack Overflow has some proposed topics. (Apparently, mathematical economics occasionally comes up on Math Overflow.)
• Economics Questions apparently uses the Stack Overflow software.
• Quantitative Finance has its own Stack Overflow site.
• The Test Magic forum for PhD applicants in economics has been around for awhile.

Off topic: Matt Rognlie, who strikes me on first perusal as unjustifiably arrogant, casually dismisses Modern Monetary Theory.