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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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    Great points. Due process is, perhaps, the most important component of government action or regulation of private enterprise. At least the defendants in Kelo v. New London had such due process on their side - and the Supremes still nixed the action as a "taking."

    I was reflecting on this the other day, when a car rental agency tried to hard-sell me collision insurance at 60% of their rental price for the vehicle. They had their hard-sell tactics in line and these included veiled threats; it was obvious that they'd been trained in them. I expect that, should there be damage to the vehicle, they will carry through on their threats, and I will have some hours or days of work clearing up the mess they would make.

    Our relations with major businesses take on a more and more extortionate character. I wonder how long it will be before they return to threats of physical violence.

    Hey, more food for corvids!

    Economics has some serious deficiencies as a framework for analysis, and one of the most serious, is that abstract convenience, the production function: the assertion that output is a function of inputs depends on the assumption all the technical and managerial and organizational and administrative problems of production are magically solved. It's a convenience when you want to focus analysis exclusively on the problems of allocative efficiency. It's an obstacle to understanding, when, as in the present case, you are interested in problems of some species of technical efficiency, such as administrative efficiency.

    The intro course models of perfect competition and monopoly are absurd, and obviously wrong-headed in more ways than I can count, and they are lousy guides to the constraints and forces, which shape the actual economy.

    Perfect competition rests on an assumption of zero strategic behavior -- an obviously impossible condition. Monopoly doesn't work, either -- restraining output to raise price is practically impossible for a durable good, and suboptimal in all other cases.

    Most firms have a technical cost structure, which is heavy on sunk and overhead costs, so marginal cost is less than market price, regardless of the competititive environment, and in many, if not most, cases, marginal cost will be *declining* at normal rates of output. Price discrimination schemes will finance monopoly over-production, if anything. Some poor sucker is paying $500 for a license for Microsoft Office even as I write, and that product has a marginal cost of production somewhere south of $10/unit.

    But, all of that discussion of so-called "market" price -- when most observed prices are administered -- is ultimately irrelevant to the problems of administrative procedure and bureaucratic organization, which were assumed solved by the theory of the production function, aforementioned.

    The problems of technical efficiency, of course, can not be assumed to be solved, as a practical matter, as they can be in speculative analysis. In the real world, they loom large, and vast bureaucracies, public and private and in-between, are created and driven forward in search of good-enough solutions (we hope) and profitable failure (we fear).

    The power of giant, rule-driven bureaucracies is not born of a market "monopoly", per se; power is, as Hannah Arendt observed, a product of organization. It is the ability to coordinate activity, in a command-and-control hierarchy that generates "power". The great and powerful business corporations are not monopolies in the economist's arid sense -- they are vast, strategically driven octupus (octopi?), able to coordinate their actions and policies, with the goal of controlling production and distribution processes. That would be "control" in the cybernetic as well as political sense.

    In economics, unfortunately, you teach nothing relevant. Recognizing that might a good first step toward remedying the deficiency.

    Does this happen elsewhere? I have never heard of anyone being able to register the sale of a house they did not own in Australia - but then we have single, universal government registries for almost all property (and have had for 150 years). Point is - why are not simple ideas like this always replicated? What are the advantages of inefficiency?

    Peter T,
    I believe the advantages of this particular inefficiency are private financial gains.

    The comments to this entry are closed.

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