## Sunday, August 11, 2013

### Musings...

Random things that have been on my mind

Security theatre
...and to be honest, theatrical displays more generally in society. By this I mean doing something just to give the impression of doing it rather than for the outcome. Maybe it is something to do with David Graeber’s idea of bull$#it jobs. Or maybe it had more to do with Erving Goffman convincing me we are mere actors in our own world. Think about this idea more generally. In any human institution we find procedures and processes, habits and social norms, that appear to be for a particular purpose, but in reality are mostly for the appearance of that purpose rather than the purpose itself. To take one recent example, finance approvals. But of course receipts can be easily doctored by computer, and the very fact we rely on this process will decrease suspicion. If someone wanted to scam they system it would be an easy target. Thinking like an economist You hear this phrase a lot. I am on a committee to develop national learning standards in economics for Australian universities, and during our philosophical debates about what is economics and what comprises and economics degree, I have been confronted with the idea that “aren’t we just trying to teach students how to think like an economist?” Unlearning Economics has a brilliant post about this concept. But I would like to add my 2 cents. For me thinking like an economist is about starting with the idea of a perfect market and rational choice as a starting point in any analysis and noting that anything that deviates from your newly constructed model to be a ‘market failure’. There are two main problems with this. 1. If you start with some kind of rational choice model, there is strictly never a justification to deviate if you accept the foundation premise. If people rationally make their own choices, and you deviate from this, the there is no guidance to how people behave - what sort of irrationality is there? 2. If you start with a perfect market model, there is strictly no reason to prefer markets over government allocation of resources. As Robert H Nelson writes in his book Economics as Religion, from Samuelson to Chicago and Beyond, “...if transaction costs were reduced to zero, government and market would be equally (indeed perfectly) efficient.” In a more general sense, if prices can convey all information, then there must also exist an alternative non-price method to convey that information which governments could use for an alternative allocation system. For economists' preferred role as policy advisors this is absurd. Furthermore, you won’t find these ideas in any undergraduate economic textbook, and if you do, they are squirrelled away so that no graduates will leave with this fundamental understanding. As I have said before, economics education is far too much like indoctrination. Take one recent example of this approach in action when discussing obesity . Here Frijters starts with the rational choice model and perfect markets for food, and struggles to find a reason to deviate from his ‘real obesity cycle theory’ of the opesity epidemic. Now I know Frijters well enough that he thinks far differently about these cultural phenomena, but the fact he feels compelled to ‘think like an economist’ and start from this point is absolutely absurd. Another more relevant in this current economic period is blog superstar Noah Smith, who tries to wrap his mind around the notion that public deficits equal private surpluses in the national accounts. And at a deeper level, he struggles with the idea of ‘saving’ at a macro-economic level. So what does a freshly trained economics PhD do? Thinks like an economist and undertakes a little bit of introspection based on Robinson Crusoe style analogies of the macro-economy. Such analogies are dodgy at the best of time in economics, but are totally absurd in macroeconomics and national accounting. Libertarians They bug me. So self-righteous. It might have been my own stupid choice to watch Sh&t$ville Express, or ever look at Catallaxy Files, but I did. Please read anything by Matt Bruenig and escape your fantasy world before it’s too late.

A big plug for Unlearning Economics who is now writing with some other fantastic people at Pieria (including John Aziz). One of my favourites on making history is here , and a beauty on ‘free‘ trade is here.

Expectations, norms and cooperation I’ve been running experiments in the lab on group cooperation - particularly on alliance formation by means of trust (which I interpret as the level of accuracy of predicting responses by others to your behaviour). I also attended a workshop in experimental and behavioural economics last week.

The main thing that struck me is that explaining deviations from rationality in almost any cooperative game relies on trust, or more specifically, accurate expectations of others. Moreover, when we repeat games we provide the opportunity to generate trust (expectations) in the lab to levels that might be reflective of reality.

The big puzzle then is how we ensure continued trust in society - a general pattern of behaviour and social norms that facilitates trade and investment and ultimate a fair distribution of the economic surplus.

I guess my thinking on this idea has moved into the realm of path dependency, and ultimately some kind of chaos. The norms we have a result of previous norms, which constantly evolve (are selected) by contemporary conditions. There are no right or wrong norms, but some are more conducive to economic investment than others, some are more conducive to equality than others.

A real puzzle for policy makers is to enhance these ‘free’ norms for social gain.

Capital - still controversial
I honestly can’t believe that the economic profession has not fully grasped the importance of the Cambridge capital debates, nor is it a prime feature of economics degrees.

One particular problem here is the way most economists still believe that the interest rate is somehow the ‘price’ of capital, while completely ignoring the capital value itself. It’s like saying that housing gets cheaper when interest rates fall, yet we use that exact policy to increase the value of capital relative to its nominal income stream.

Arbitrary
If aliens landed during a war, how would they decide which side of the war was 'in the right'.  There is never a moral right and wrong by any objective standard.

Lastly, statistics are an arbitrary human construct. Be wary.

#### 1 comment:

1. Good musings. Have been back here a few times to ruminate.