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    Maxine's Essays

    • 21st Century Regress
      Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it.
    • What Exactly Are We Crowding Out?
      The current economic downturn isn't a random draw of a black ball from an urn containing white balls and black balls. There's no sampling distribution. Very specific policies and actions landed us here. Now we must decide not only what policies need to be put in place to prevent it happening again, but also what policies would best drive us out of the ditch faster and sustainably.
    • I Wish It Were Only Butter
      We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.
    • Rational Health Investment?
      The obvious "market solution" is to improve the long run return on investments in health among the disadvantaged through meaningful and effective publicly funded education. The obvious short run "market solution" is to reduce the costs of investment and the shadow price of health for the disadvantaged by providing health insurance cover and reduced out-of-pocket costs.
    • The Socrates Parameter
      To the extent that our limbic systems respond to such engineering by over-riding the judgment of our frontal lobe and to the extent that our frontal lobe is deprived of the information it requires to make a rationally self-interested judgment, we are not only pigs and fools, we are slaves.
    • The Economic Rewards of Virtue
      If individual virtue tempers our "piggy" desires and conditions our choices to something that is both individually and socially better, then the economic rewards of virtue as embodied in and promoted by societal norms and institutions are far greater than we have ever suspected. As economists, we would do well to recognize this when we teach U max.
    • The Market for Morals
      Markets then are places where more is exchanged than goods and services, labor and product, credit, and interest. They are places where we also develop the personal virtues of temperance and prudence and the social virtues of benevolence and justice. When they function well, they produce trust, loyalty, and sympathy among those who trade there.
    • Post-Modern Applied Economics: It’s the Error Term, Stupid
      Maxine believes it’s time to refocus attention and discussion on the error term. It is often where much of the action is in our models. It is where unexpectedly catastrophic events dwell resulting in fat tails. It is where our animal spirits manifest and cause us to do the right thing or the wrong thing or the thing everyone else is doing rather than the self-interested, fully-informed rational thing. It is where God and miracles and chance dwell.
    • Intergenerational Win-Win: Health Insurance, Education, Environment, Infrastructure
      So when we’re talking about fiscal stimulus packages and we’re borrowing from our grandchildren to finance them, we should be thinking about how to use stimulus monies to create value for those grandchildren AND stimulate our economy.
    • Short-term Private Payoffs, Long-term Social Costs
      The real health reform discussion, the one we should be having, is “What must we do to create a health system that is both efficient and fair?” The answer will almost certainly include relegating the private sector to markets where market forces or regulation are effective at aligning short-term private incentives and goals with long-term societal interests. If such markets are scarce or non-existent in health, then the private health sector will be of limited value.
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    05/14/2010

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    The linked article by Richard Abrams was quite clear and interesting. Thank you.

    There are at least three meanings of the phrase “free market”:

    • an economic model of market behavior which can be subjected to analysis, the conclusions of which can be used — to the extent that the model is apt — to predict the behavior of real markets;

    • a market in which prices and production develop primarily as the net result of individual decisions rather than being determined by a political process;

    • a laissez-faire market, in which government does not atypically constrain the actions of buyers or sellers nor attempt to manipulate their choices through subsidies, tariffs, special taxes, tax exemptions or other means.

    Unsurprisingly, when a term with emotional resonance (which almost any phrase including the word “free” has in the United States) has multiple meanings, people shift between one meaning and another during the course of debate, often with no idea that they (and those whom they debate) are doing so.

    Abrams’ observation that “there is no such thing as a ‘free market’” almost certainly means that there is no real market that is described with complete accuracy by the “free market” economic model — an obvious and uninteresting statement. Of more interest — and probably still unanswered — is the question, “Under what, if any, conditions which might actually present themselves is a real market described well enough by the ‘free market’ model that the model will be useful for practical analysis and prediction?”

    In engineering, one sometimes constrains the design of a product not because it is known that other designs cannot work, but because the constraint makes it possible to analyze the design by known and computationally feasible methods. For similar reasons, it is possible that if we can determine that the free market model is applicable under certain conditions, we might choose to bring about those conditions simply because economists could then better predict the course of events.

    It's not even a phrase anymore - it's a chant for those who don't care to think very much.

    It's the same with energy independence: important people tell us that we need to drill everywhere in the US because it will lower our dependence on foreign oil.

    The last I checked, there was only one price for oil, and that was spot price. If you drive around looking for a gas station that sells gas made from American oil, you'll run out of gas because they don't exist.

    Colin Powell held up a vial of air and asked us to "imagine it contained..." and nobody caught the use of the word imagine. I lost my voice screaming that it was a trick, and that it only contained air.

    We have a deep thirst for fear and slogans; two things that have no dependence on truth.

    The comments to this entry are closed.

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