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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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    11/20/2010

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    The Great Wall of Mynmahx

    There’s a weird foreign country called Mynmahx, where a high wall divides the land like the Great Wall of China, only much more effectively.

    On the one side are people with all the “stuff” – strong muscles, smart skilled minds, rich farmland and cunning machines, food plants and domestic animals, and children.

    It’s pretty noisy and crowded on that side of the wall. Look at them go! They distill the aluminum out of common rocks, breed pigs and cut up the chops, design fabric and create music and measure Paleolithic oxygen concentrations in Antarctic ice. There is hardly an effort or study that has not got its dedicated followers. These legions expend their time, energy and attention in creating the goods and services for the whole society. In fact, they create far more than they can use, so they give away or simply waste a lot of the fruit of their effort.

    Furthermore, they’re not all working – about one in four are still growing up, another 20% are elderly, winding down. Many are ill or injured or disabled. Additionally, quite a few simply have nothing to do at the moment. But that leaves about 60% of them, almost 200 million, buzzing away like honeybees.

    On the other side of the wall is a tiny, tiny group, maybe 300,000, the size of Toledo, Ohio, and they are pretty quiet. They don’t build or grow much of anything. All their necessities are imported through the wall. They have some specialized skills, but couldn’t support themselves particularly well if the doors in the wall were sealed up.

    1) On which side of the wall are all the decisions made about how resources are allocated in Mynmahx?

    2) On which side of the wall do people live 7 years longer than the other?

    3) On which side of the wall are there no people living in poverty?

    4) On which side of the wall is the rule of law elective rather than mandated?

    5) Why?

    Glaeser is quoted, “Economists are experts on tactics, not strategy — and the great budget challenge generally requires strategic choices, not tactical ones.”

    “Economists are experts on tactics” — really? “If you raise the estate tax, what will happen?” “...does forcing heirs of illiquid businesses to sell assets, such as land or physical plant and equipment, to pay estate taxes place the assets back into an asset pool where they can be purchased and used by others more productively...?” I’ll pose a more concrete question: “What would be the expected differential effects over the next six years of retaining the Bush tax cuts unchanged vs. letting them expire entirely?”

    Are there any of those questions to which the economics profession — not one or another individual economist, but the consensus of the profession as a whole — can give a coherent answer? Even a consistent qualitative, let alone quantitative, answer?

    As a non-economist, I’m going to guess not. I’ve yet to hear a single question about the “real” world with any possible policy implications on which there is anything that could be called consensus among economists. To this layman, it appears that economic “theory” is driven by each economist’s political philosophy, and there is little “fact of the matter” involved. Again, to an outsider: economics appears to be neither a science nor an art, but a form of religion, complete with competing faiths (freshwater and saltwater) and sects with their revered prophets (Keynes, Friedman). Answers to questions follow from beliefs and untested — probably untestable — principles; experience is something to be explained rather than something that generates new hypotheses to be validated or disproved.

    Maybe this is just a PR problem on the part of Economics; but if so, I submit that it is a serious one which greatly erodes the credibility of the profession in the eyes of the general public. You see, we know that we don’t know enough to judge the technical merit of an economist’s arguments. When economists can’t reach a consensus among themselves, all we can do is go by what “sounds right” to us — faith-based economics.

    This works well for conservatives in the United States, since here conservative ideas — Puritan values; protestant work ethic; no pain, no gain — tend to “sound right” to most Americans.

    What new information can economics add to moral inquiry when everything controversial politically is at least equally controversial within the field of economics? It seems to me it actually makes matters worse by adding fertile ground in which partisans can sow fear, superstition and confusion, none of which can be debunked effectively by a faith-based discipline.

    Would it have made sense to develop “medical ethics” while medicine still used leeches and tried to balance the four humors? I ask your forgiveness if that seems too blunt, but... isn’t that about where Economics is at present?


    “the great budget challenge”

    Can’t economists at least get together and clarify, once and for all, that the “balancing the budget” is a red herring? No, I guess not, because that superstition is helpful to the freshwater religion. One wouldn’t want to confuse the general public with the facts when common [non]sense works in ones favor.

    Interesting article. In my view, unfortunately very few people have BOTH the requisite mathematical and technical ability to jump through the hoop of graduate school in economics, and the empathy, intellectual curiosity, eloquence necessary to seriously explore the moral dimensions of public policy.

    Coises asks, "Are there . . . questions to which the economics profession — not one or another individual economist, but the consensus of the profession as a whole — can give a coherent answer? Even a consistent qualitative, let alone quantitative, answer?"

    I think there are actually many important questions for which the body of knowledge, which is economics, could supply coherent answers.

    Confiscatory inheritance taxes on very large estates is a pretty easy public policy choice, precisely because the economics "favors" it so strongly and unambiguously. Not that you would know that, looking for a public consensus among economists on the issue.

    Glaeser's elemental error isn't about the economics -- though he's wrong about that, too; Glaeser's big mistake is about the politics. The big value questions are not decided by the voters and their representatives; that's become a theatrical appendage, in our era of spokes-model politicians.

    Economics cannot be about tactics; it must be about strategy. We are all practical economists, (more or less) trained soldiers in the daily marketplace battles. It is the strategic choices that must be made at a higher level.

    We need economists as architects, structural engineers and urban planners, to design the system of systems within which the rest of us make our tactical choices.

    Unfortunately, Larry Summers and Ben Bernanke work for the banksters and plutocrats, in doing that job, and Edward Glaeser, no doubt, hopes for a similar, if less exalted, job.

    Meanwhile, those, who play economists on teevee do what people on teevee are paid to do: they disagree. Teevee doesn't educate; it entertains in the cheapest way possible: by portraying "reality" and "politics" in the cheap, cliched drama of staged conflict.

    A lot of very bad economists and very bad economics is kept alive for its political entertainment value in legitimating policy favorable to the corporate plutocrats, who either run the show, or pay it for through advertising.

    The political problem for a democracy is: how are the People to find and hire competent Economists as Architects of a fairer, more productive, less destructive political economy for a Democracy?

    "And he might have added this question: does forcing heirs of illiquid businesses to sell assets, such as land or physical plant and equipment,"

    or shares in the business.

    The comments to this entry are closed.

    Economics Blogs

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      Nice thoughtful blog with political, economic, ethical, and philosophical insights worth reading.
    • Adam Smith's Lost Legacy
      A much-needed website devoted to restoring Smith's legacy as one of our finest moral philosophers.
    • David Coates: Answering Back
      David Coates has created a "living book" that will be of interest to all progressives.
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