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    February 2011

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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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    The real test of a religion is whether the truth is judged on the basis of WHO said something, or on the basis of the objective facts that can be gathered to support the claims made.

    Economics in my view spends to much time worrying about what Adam Smith said. And what Friedrich von Hayek said. (Touche?)

    No, not nearly enough time contemplating what Adam Smith wrote or how he thought about what he wrote.

    By the way of course what I am talking about is called "argument from authority". I'm not saying Adam Smith may not have had some good things to say, but the things that he said are not good just because he said them.


    This is a very interesting post - I find it similar to Nietzche's discussion in the "Genealogy of Morals" about scientists as being the "new priestly class".

    This is a tension consistently in my own (Christian) tradition, because of course at the center of our tradition is a man who we claim to be God, but who died the most shameful deaths possible in the Roman world. You would think that if your God identified with the slaves, outcasts, and rebels to the Empire, that it would be hard for your adherents to fit themselves to the powers that be! But so it happens.

    What you're talking about dervies from Calvin. He said that humans are a "perpetual factory of idols" (and by the way, those clergy from Holland, Geneva, Scotland, etc, were Calvinists), and so that it is impossible to trust ANYONE 100%. This means that there must be checks and balances, there must be some structures that can hold people accountable. Even though people called Geneva a "theocracy" (and it was), it was really a socialist theocracy - no one went hungry in that city, and no one was extravagant. No one social democracy started in Calvinsts countries!

    I agree with this post.

    Back in May of 2009 I wrote these words which got me banned from Mark Thoma's site.

    To be clear, my criticism is not directed at every INDIVIDUAL economist, rather it is directed at those who either support or remain silent while others provide highly complex technical reasons for barbarous behavior. Much of economics today isn't about truth or near truth, it's about justifying the rape of less fortunate and the planet itself. Religion once filled this role, but tiring of the indefensible, they've turned the dirty work over to "Economics".

    There's a lot in this post, and while it works on the general level of analogy, it works perhaps less well in its historical context.

    Smith was a Scottish Presbyterian and is offering a fairly standard Reformation critique of Catholicism as dogmatic, obscure, corrupt, etc. etc. It's part of a polemic with long lineage. This he contrasts with the more open, egalitarian element of Protestantism (vernacular bible, smaller clerical holdings, etc. etc.).

    Pain or penance, per se, didn't enter into the distinction, except as criticism of various "superstitious" practices such as self-mortification. But, as Weber pointed out, self-denial was a key element of Smith's Protestantism, and especially of Smith's Scottish Presbyterian variant. And it had economic consequences in its view of saving. Malthus (I believe) criticized Smith for making the individual virtue of saving a general social obligation (even when efficient demand required spending). (Smith, however, also believed that countries with high wages (like England) were happier and more prosperous.)

    Maybe I'm just being a nit-picky historian. I agree, on an analogical level, that the qualities you describe are those of current practitioners of classical economic theory. But you might as well have called them mandarins in the classical Confucian tradition, which is highly secular.

    Contemporary economics is really an ideology, among all the others. We should reserve the term religion for belief in supernatural beings and causes. And, even for an atheist, using the term "religion" in a pejorative sense to mean "wrong thought" often leads to unproductive debates about nomenclature rather than clarifying the moral problems underneath. You're sure right about those. . . .


    Adam Smith is well worth a read and a re-read. But the historical story given here - about feudalism, the market, or even religion - has been obsolete for 50 years or more. No competent modern historian would accept this version of history. Which is a pointer to a major issue with economics. By divorcing itself from history, the study tends to drift away from the complexity of the real world, and the multiple interactions that shape it.

    You might, in your next spare moment, read something like Kenneth Pomeranz The Great Divergence, and note the use of evidence there - part quantitative, but using all the specialist studies available to make rounded judgements. Or the splendid Susan Reynolds on feudalism.

    jcb, yet Smith's major focus was on "opulence" and how it could be achieved, the political, economic, historical, and moral forces that led naturally to it. It is true that he saw prudence and frugality as virtues that naturally derived from interdependent exchange relationships, but it seems clear that this was in a context in which he saw them ultimately producing more, not less, for individuals and the society in which they live. As to the use of the term "religion," I don't see it as meaning "wrong thought" so much as "faith that one is "right" in the face of all evidence to the contrary." As to a requisite belief in supernatural beings or invisible forces, I will only remark that steadfast commitment to and belief in the myth of the invisible hand must surely qualify.

    Peter, the point is not that Smith in the 18th century had a view of history and the wealth of nations that would meet the standards of a 21st century historian. The point is that he paid attention to both history and political economy and the likely causal forces that shaped the wealth of individuals and nations, i.e., he did not divorce himself from history. In doing so, he provides us with some observed characteristics of a religion married to political power. My point was simply to note the similarities between Smith's description and what we observe today with "market fundamentalism" married to political power. Thank you for the reading suggestions. I will look forward to reading them next summer. :-)

    Thanks to everyone for your thoughtful and thought-provoking comments.

    The comments to this entry are closed.

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