Joseph Stiglitz: not a gliberal economist

Stiglitz prefaced his 2001 Memorial Prize Lecture with a clear explanation of what motivated his study in economics:

When I began the study of economics some forty one years ago, I was struck by the incongruity between the models that I was taught and the world that I had seen growing up, in Gary Indiana, a city whose rise and fall paralleled the rise and fall of the industrial economy. Founded in 1906 by U.S. Steel, and named after its Chairman of the Board, by the end of the century it had declined to but a shadow of its former self. But even in its heyday, it was marred by poverty, periodic unemployment, and massive racial discrimination. Yet the theories that we were taught paid little attention to poverty, said that all markets cleared – including the labor market, so unemployment must be nothing more than a phantasm, and that the profit motive ensured that there could not be economic discrimination. If the central theorems that argued that the economy was Pareto efficient – that, in some sense, we were living in the best of all possible worlds – were true, it seemed to me that we should be striving to create a different world.

Stiglitz is treated with much derision by other economists these days.  Some say it is because after the prize he became too populist.  As compared to who? Friedman? He went populist way before he got his memorial prize.

I suspect Stiglitz’s sins are rather the same as they have always been.  He came to study capitalism not defend it.  The new classical, Chicago (fresh water) side of the profession came to defend capitalism not understand it.  In a weird twist Stiglitz, a liberal economist, who attempts to understand capitalism is denounced as unscientific while those who merely came to obscure, cloak themselves in the garb of the scientist.  Such is often the case.

Fuck em, they don’t count.  Besides being brilliant Stiglitz was (still is) prolific.  Below I have reproduced his entire publication record until the date of his prize.  Next time you hear an economist slag Stiglitz ask for a copy of their publication record:

Stiglitz, J. E., “A Re-Examination of the Modigliani-Miller Theorem,” American Economic
Review, 59(5), December 1969a: pp. 784–793.
–, “Rural-Urban Migration, Surplus Labor and the Relationship Between Urban and Rural
Wages,” East African Economic Review, 1–2, December 1969b: pp. 1–27.
–, “On the Optimality of the Stock Market Allocation of Investment”, Quarterly Journal of
Economics, 86(1), February 1972a: pp. 25–60.
–, “Some Aspects of the Pure Theory of Corporate Finance: Bankruptcies and Take-Overs,”
Bell Journal of Economist, 3(2), Autumn 1972b, pp. 458–482.
–, “Approaches to the Economics of Discrimination,” American Economic Review, 62(2), May
1973a, pp. 287–295. (Reprinted in W. Darity and C. Boshamer (eds.), Economics and
Discrimination, Edward Elgar Publishing, 1993.)
–, “Taxation, Corporate Financial Policy and the Cost of Capital”, Journal of Public Economics,
2, February 1973b: pp. 1–34.
–, “Alternative Theories of Wage Determination and Unemployment in L.D.C.’s: The
Labor Turnover Model,” Quarterly Journal of Economics, 88(2), May 1974a, pp. 194–227.
–, “Incentives and Risk Sharing in Sharecropping”, Review of Economic Studies, 41, April
1974b: pp. 219–255.
–, “On the Irrelevance of Corporate Financial Policy,” American Economic Review, 64(6),
December 1974c: pp. 851–866.
–, “Theories of Discrimination and Economic Policy,” In Patterns of Racial Discrimination, G.
von Furstenberg, et al. (eds.), D.C. Heath and Company (Lexington Books), 1974d, pp.
5–26.
–, “Incentives, Risk and Information: Notes Toward a Theory of Hierarchy,” Bell Journal of
Economics, 6(2), Autumn 1975a, pp. 552–579.
–, “Information and Economic Analysis,” in J.M. Parkin and A.R. Nobay, eds. Current Economic
Problems (Cambridge: Cambridge University Press), 1975b: pp. 27–52.
–, “The Theory of Screening, Education and the Distribution of Income,” American
Economic Review, 65(3), June 1975c: pp. 283–300.
–, “The Efficiency of Market Prices in Long Run Allocations in the Oil Industry,” in Studies
in Energy Tax Policy, G. Brannon (ed.), Cambridge: Ballinger Publishing, 1975d, pp.
55–99.
–, “The Efficiency Wage Hypothesis, Surplus Labor and the Distribution of Income in
L.D.C.’s,” Oxford Economic Papers, 28(2), July 1976: pp. 185–207.
534
–, “Monopoly, Non-Linear Pricing and Imperfect Information: The Insurance Market,”
Review of Economic Studies, 44, October 1977a, pp. 407–430.
–, “Symposium on the Economics of Information: Introduction,” Review of Economic Studies,
44(138), October 1977b, pp. 389–391.
–, “Equilibrium in Product Markets with Imperfect Information,” American Economic Review,
69(2), May 1979a: pp. 339–345.
–, “On Search and Equilibrium Price Distributions,” In Economics and Human Welfare: Essays
in Honor of Tibor Scitovsky, M. Boskin (ed.), York: Academic Press Inc., 1979b, pp. 203–
236.
–, “Pareto Optimality and Competition,” Journal of Finance, 36(2), May 1981, pp. 235–251.
–, “Alternative Theories of Wage Determination and Unemployment: The Efficiency Wage
Model,” in The Theory and Experience of Economic Development: Essays in Honor of Sir Arthur
W. Lewis, M. Gersovitz, et al. (eds.), London: George Allen & Unwin, 1982a, pp. 78–106.
–, “The Inefficiency of the Stock Market Equilibrium,” Review of Economic Studies, XLIX,
April 1982b: pp. 241–261.
–, “Information and Capital Markets,” in Financial Economics: Essays in Honor of Paul Cootner,
William F. Sharpe and Cathryn Cootner (eds.), Prentice Hall, New Jersey, 1982c, pp.
118–158.
–, “Ownership, Control and Efficient Markets: Some Paradoxes in the Theory of Capital
Markets,” in Economic Regulation: Essays in Honor of James R. Nelson, Kenneth D. Boyer and
William G. Shepherd (eds.), Michigan State University, 1982, pp. 311–341.
–, “Self-Selection and Pareto Efficient Taxation,” Journal of Public Economics, 17, 1982e: pp.
213–240.
–, “The Structure of Labor Markets and Shadow Prices in L.D.C.’s,” in Migration and the
Labor Market in Developing Countries, R. Sabot (ed.), Boulder, Colo.: Westview, 1982f, pp.
13–64.
–, “Utilitarianism and Horizontal Equity: The Case for Random Taxation,” Journal of Public
Economics, 18, 1982g, pp. 1–33.
–, “Risk, Incentives and Insurance: The Pure Theory of Moral Hazard,” The Geneva Papers,
January 1983, 8(26), pp. 4–32.
–, “Information, Screening and Welfare,” In Bayesian Models in Economic Theory, Marcel
Boyer and Richard Khilstrom (eds.), Elsevier Science Publications, 1984a, pp. 209–239.
–, “Price Rigidities and Market Structure,” American Economic Review, 74(2), May 1984b: pp.
350–356.
–, “Credit Markets and the Control of Capital,” Journal of Money, Banking, and Credit, 17(2),
May 1985a: pp. 133–152.
–, “Economics of Information and the Theory of Economic Development,” Revista De
Econometria, 5(1), April 1985b: pp. 5–32.
–, “Equilibrium Wage Distribution,” Economic Journal, 95, September 1985c: pp. 595–618.
–, “Information and Economic Analysis: A Perspective,” Economic Journal, 95(0), 1985d, pp.
21–41.
–, “The New Development Economics,” World Development, 14(2), 1986a: pp. 257–265.
–, “Theories of Wage Rigidities,” in Keynes’ Economic Legacy: Contemporary Economic Theories,
J.L. Butkiewicz, et al. (eds.), New York: Praeger Publishers, 1986b, pp.153–206.
–, “Theory of Competition, Incentives and Risk,” in New Developments in the Theory of Market
Structure, J.E. Stiglitz and F. Mathewson (eds.), MacMillan/MIT Press, 1986c, pp.399–449.
–, “The Causes and Consequences of the Dependence of Quality on Prices,” Journal of
Economic Literature 25(1) March 1987a: pp. 1–48.
–, “Competition and the Number of Firms in a Market: Are Duopolies More Competitive
Than Atomistic Markets?” Journal of Political Economy, 95(5), 1987b, pp. 1041–1061.
–, “Design of Labor Contracts: Economics of Incentives and Risk-Sharing,” in Incentives,
Cooperation and Risk Sharing, H. Nalbantian (ed.), Totowa, NJ: Rowman & Allanheld,
1987c, pp.47–68.
535
–, “Learning to Learn, Localized Learning and Technological Progress,” in Economic Policy
and Technological Performance, P. Dasgupta and Stoneman (eds.), Cambridge University
Press, 1987d, pp. 125–153.
–, “On the Microeconomics of Technical Progress,” in Technology Generation in Latin
American Manufacturing Industries, Jorge M. Katz (ed.), The Macmillan Press Ltd. 1987e,
pp. 56–77.
–, “Efficient and Optimal Taxation and the New New Welfare Economics,” in Handbook on
Public Economics, A. Auerbach and M. Feldstein (eds.), North Holland: Elsevier Science
Publishers, 1987f: pp. 991–1042.
–, “Sharecropping,” in The New Palgrave: A dictionary of Economics, MacMillan Press, 1987g.
–, “Technological Change, Sunk Costs, and Competition,” Brookings Papers on Economic Activity
3, 1987h.
–, “The Wage-Productivity Hypothesis: Its Economic Consequences and Policy Implications,”
In Modern Developments in Public Finance, M.J. Boskin (ed.), Basil Blackwell, 1987i,
pp. 130–165.
–, “Human Nature and Economic Organization,” Jacob Marashak Lecture, presented at Far
Eastern Meetings of the Econometric Society, October 1987j.
–, “Economic Organization, Information, and Development,” in Handbook of Development
Economics, H. Chenery and T.N. Srinivasan (eds.), Elsevier Science Publishers, 1988a, pp.
185–201.
–, “Money, Credit, and Business Fluctuations,” Economic Record, 64(187), December 1988b:
pp. 62–72.
–, “On the Relevance or Irrelevance of Public Financial Policy,” in The Economics of Public
Debt, (Proceedings of the 1986 International Economics Association Meeting), Macmillan
Press, 1988c: pp. 4–76.
–, “Why Financial Structure Matters,” Journal of Economic Perspectives, 2(4), 1988d: pp.
121–126.
–, The Economic Role of the State, A. Heertje (ed.), Basil Blackwell and Bank Insinger de
Beaufort NV, 1989a, pp. 9–85.
–, “Financial Markets and Development,” Oxford Review of Economic Policy, 5(4), 1989b: pp.
55–68.
–, “Imperfect Information in the Product Market,” in Handbook of Industrial Organization, 1,
Elsevier Science Publishers, 1989c, pp. 769–847.
–, “Incentives, Information and Organizational Design,” Empirica, 16(1), January 1989d: pp.
3–29.
–, “Markets, Market Failures and Development,” American Economic Review, 79(2), May
1989e: pp. 197–203.
–, “Monopolistic Competition and the Capital Market,” in The Economics of Imperfect Competition
and Employment – Joan Robinson and Beyond, G. Feiwel (ed.), New York: New York
University Press, 1989f, pp. 485–507.
–, “Mutual Funds, Capital Structure, and Economic Efficiency,” in Theory of Valuation –
Frontiers of Modern Financial Theory, Vol. 1, S. Bhattacharya and G. Constantinides (eds.),
Totowa, NJ: Rowman and Littlefield, 1989g, pp. 342–356.
–, “Principal and Agent,” in The New Palgrave: Allocation, Information and Markets, J. Eatwell,
et al. (eds.), MacMillan Press, London, 1989h, pp. 241–253.
–, “Rational Peasants, Efficient Institutions and the Theory of Rural Organization,” in The
Economic Theory of Agrarian Institutions, P. Bardhan (ed.), Oxford: Clarendon Press, 1989i,
pp. 18–29.
–, Reflections on the State of Economics: 1988,” Economic Record, March 1989j, pp. 66–72.
–, “Using Tax Policy to Curb Speculative Short-Term Trading,” Journal of Financial Services
Research, 3(2/3), December 1989k, pp. 101–115.
–, “Some Retrospective Views on Growth Theory presented on the occasion of the
Celebration of Robert Solow’s 65th Birthday,” in Growth/Productivity/Unemployment, P.
Diamond (ed.), Cambridge, Mass.: MIT Press, 1990a, pp. 50–68.
536
–, “Peer Monitoring and Credit Markets,” World Bank Economic Review, 4(3), September
1990b: pp. 351–366.
–, “Another Century of Economic Science,” Economic Journal Anniversary Issue, 101(404),
January 1991a, pp. 134–141; The Future of Economics, J.D. Hey (ed.), Blackwell Publishers,
1992, pp. 134–141.
–, “Development Strategies: The Roles of the State and the Private Sector,” in Proceedings of
the World Bank’s Annual Conference on Development Economics 1990, 1991b, pp. 430–35.
–, “Introduction to Symposium on Organizations and Economics,” Journal of Economic
Perspectives, 5(2), Spring 1991c, pp. 15–24.
–, “The Invisible Hand and Modern Welfare Economics,” in Information Strategy and Public
Policy, D. Vines and A. Stevenson (eds.), Oxford: Basil Blackwell, 1991f pp. 12–50.
–, “Some Theoretical Aspects of the Privatization: Applications to Eastern Europe,” Revista
di Politica Economica, December 1991d, pp. 179–204.
–, “The Economic Role of the State: Efficiency and Effectiveness” Efficiency and Effectiveness
in the Public Domain. The Economic Role of the State, T.P. Hardiman and M. Mulreany (eds.),
Institute of Public Administration, 1991e: pp. 37–59.
–, “Banks versus Markets as Mechanisms for Allocating and Coordinating Investment,” in
The Economics of Cooperation: East Asian Development and the Case for Pro-Market Intervention,
J.A. Roumasset and S. Barr (eds.), Westview Press, Boulder, 1992a, pp. 15–38.
–, “Capital Markets and Economic Fluctuations in Capitalist Economies,” European Economic
Review, 36, North-Holland, 1992b, pp. 269–306.
–, “Contract Theory and Macroeconomic Fluctuations,” in Contract Economics, L. Werin and
H. Wijkander (eds.), Basil Blackwell, 1992c: pp. 292–322.
–, “The Design of Financial Systems for the Newly Emerging Democracies of Eastern
Europe,” in The Emergence of Market Economies in Eastern Europe, C. Clague and G.C.
Rausser (eds.), Cambridge: Basil Blackwell, 1992d pp. 161–184.
–, “Explaining Growth: Competition and Finance,” Rivista di Politica Economica (Italy),
82(169), November 1992e, p. 225.
–, “Introduction: S&L Bailout,” in The Reform of Federal Deposit Insurance: Disciplining the
Government and Protecting Taxpayers, J. Barth and R. Brumbaugh, Jr. (eds.), Harper Collins
Publishers, 1992f, pp. 1–12.
–, “Methodological Issues and the New Keynesian Economics,” Alternative Approaches to
Macro-economics, A. Vercelli and N. Dimitri (eds.), Oxford University Press, 1992g, pp.
38–86.
–, “Prices and Queues as Screening Devices in Competitive Markets,” in Economic Analysis of
Markets and Games: Essays in Honor of Frank Hahn, D. Gale and O. Hart (eds.), Cambridge:
MIT Press, 1992h: pp. 128–166. (IMSSS Technical Report No. 212, Stanford University,
August 1976.).
–, “Notes on Evolutionary Economics: Imperfect Capital Markets, Organizational Design,
Long-run Efficiency.” Paper presented at a conference at Osaka University, 1992i.
–, “The Role of the State in Financial Markets”, Proceeding of the World Bank Conference on
Development Economics, Washington, D.C., World Bank, 1993a: pp. 41–46.
–, “Consequences of Limited Risk Markets and Imperfect Information for the Design of
Taxes and Transfers: An Overview,” in K. Hoff, A. Braverman, and J. Stiglitz (eds.) The
Economics of Rural Organization: Theory, Practice, and Policy. New York: Oxford University
Press for the World Bank. 1993b.
–, “Perspectives on the Role of Government Risk-Bearing within the Financial Sector,” in
Government Risk-bearing, M. Sniderman (ed.), Norwell, Mass.: Kluwer Academic Publishers,
1993c: pp. 109–30.
–, “Some Theoretical Aspects of the Privatization: Applications to Eastern Europe,”
Privatization Processes in Eastern Europe, M. Baldassarri, L. Paganetto and E.S. Phelps (eds.),
St. Martin’s Press, Rome, 1993d, pp. 179–204.
–, “Economic Growth Revisited,” Industrial and Corporate Change, 3(1), 1994a: pp. 65–110.
–, “Endogenous Growth and Cycles,” Innovation in Technology, Industries, and Institutions, Y.
Shionoya and M. Perlman (eds.), The University of Michigan Press, 1994b, pp. 121–56.
537
–, Whither Socialism? Cambridge, Mass.: MIT Press, 1994c.
–, “Interest Rate Puzzles, Competitive Theory and Capital Constraints,” in Economics in a
Changing World, Fitoussi, Jean-Paul ed., (Proceedings of the Tenth World Congress of the
International Economic Association, Moscow, Volume 5. Economic Growth and Capital
and Labour markets.) IEA Conference Volume 111, New York: St. Martin’s Press, 1995a:
pp. 145–75.
–, “Social Absorption Capability and Innovation,” in Social Capability and Long-Term Economic
Growth, Bon Ho Koo and D.H. Perkins (eds.), New York: St. Martin’s Press, 1995b, pp.
48–81.
–, “Some Lessons from the East Asian Miracle,” World Bank Research Observer, 11(2), August
1996, pp. 151–77.
–, “The Role of Government in Economic Development,” in Annual World Bank Conference
on Development Economics 1996, M. Bruno and B. Pleskovic (eds.), The World Bank, 1997a.
pp. 11–23.
–, “The Role of Government in the Economies of Developing Countries,” in E. Malinvaud
and A.K. Sen, eds. Development Strategy and the Management of the Market Economy. Oxford:
Clarendon Press, 1997b, pp. 61–109.
–, “More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus,
The 1998 Wider Annual Lecture, Helsinki, January, 1998a .
–, “Towards a New Paradigm for Development: Strategies, Policies and Processes.” 9th Raul
Prebisch Lecture delivered at the Palais des Nations, Geneva, UNCTAD, October 19,
1998b.
–, “Pareto Efficient Taxation and Expenditure Policies, With Applications to the Taxation
of Capital, Public Investment, and Externalities,” presented at conference in honor of
Agnar Sandmo. January 1998c.
–, “Interest Rates, Risk, and Imperfect Markets: Puzzles and Policies”, Oxford Review of
Economic Policy 15(2), 1999a, pp 59–76.
–, “Knowledge for Development: Economic Science, Economic Policy, and Economic
Advice”, Proceedings from the Annual Bank Conference on Development Economics 1998. World
Bank, Washington D.C. Keynote Address, 1999b: pp 9–58.
–, “On Liberty, the Right to Know and Public Discourse: The Role of Transparency in
Public Life” (Paper presented at Oxford Amnesty Lecture), 1999c.
–, “Toward a General Theory of Wage and Price Rigidities and Economic Fluctuations”,
American Economic Review 89(2), May 1999d: pp. 75–80.
–, “Responding to Economic Crises: Policy Alternatives for Equitable Recovery and
Development.” The Manchester School 67(5) Special Issue 1999e, pp. 409–427.
–, “Whither Reform? Ten Years of the Transition”, Proceedings of the Annual Bank Conference
on Development Economics 1999, Washington, D.C.: World Bank, 2000a: pp. 27–56.
–, “Capital Market Liberalization, Economic Growth, and Instability” in World Development,
Vol. 28, No. 6, pp. 1075–1086, 2000b.
–, “Formal and Informal Institutions” in Social Capital: A Multifaceted Perspective. P. Dasgupta
and I. Serageldin (eds.), The World Bank: Washington, DC, 2000c: pp. 59–68.
–, “The Contributions of the Economics of Information to Twentieth Century Economics,”
Quarterly Journal of Economics, November, 2000d, pp. 1441–1477.
–, “Democratic Development as the Fruits of Labor,” Working Paper, Progressive Economics
Papers, January 2000e.
–, “Some Elementary Principles of Bankruptcy” in Governance, Equity and Global Markets
(Proceedings of Annual Bank Conference for Development Economics in Europe June 21–23, 1999) La Documentation Francaise, 2000f.
–, “Challenges in the Analysis of the Role of Institutions in Economic Development,” Villa Borsig Workshop Series 2000: The Institutional Foundations of a Market Economy. Gudrun Kochendorfer-Lucius and Boris Pleskovic (eds.), German Foundation for International Development (DSE), 2001a: pp 15–28.
–, “From Miracle to Recovery: Lessons from Four Decades of East Asian Experience,” Rethinking the East Asian Miracle. Shahid Yusuf ed. World Bank, Washington, D.C., 2001b. 538
–, “Principles of Financial Regulation: A Dynamic Approach,” The World Bank Observer 16(1), Spring 2001c: pp. 1–18.
–, “Crisis y Restructuración Financiera: el Papel de la Banca Central” Cuestiones Económicas 17(2), 2001d: pp. 3–24.
–, “Quis Custodiet Ipsos Custodes?” in Governance, equity, and global markets: the Annual Bank Conference on Development Economics, Europe, J. E. Stiglitz and Pierre-Alain Muet (eds.)
World Bank, New York, Oxford University Press. 2001e: pp 22–54.
–, “New Perspectives on Public Finance: Recent Achieves and Future Challenges”, Journal of Public Economics (84), forthcoming, 2002.
Stiglitz, J. E. and A. Weiss, “Credit Rationing in Markets with Imperfect Information,”
American Economic Review, 71(3), June 1981: pp. 393–410.
–, “Alternative Approaches to the Analysis of Markets with Asymmetric Information,”
American Economic Review, 73(1), March 1983a, pp. 246–249.
–, “Incentive Effects of Termination: Applications to the Credit and Labor Markets,” American Economic Review, 73(5), December 1983b, pp. 912–927.
–, “Credit Rationing and Collateral,” in Recent Developments in Corporate Finance, Jeremy
Edwards, et al. (eds.), New York: Cambridge University Press, 1986, pp. 101–135.
–, “Credit Rationing: Reply” , American Economic Review, March 1987, pp. 228–231.
–, “Banks as Social Accountants and Screening Devices for the Allocation of Credit”, Greek Economic Review, 12(0), Supplement, Autumn 1990, pp. 85–118.
–, “Asymmetric Information in Credit Markets and Its Implications for Macro-economics,”
Oxford Economic Papers, 44(4), October 1992, pp. 694–724.
–, “Sorting Out the Differences Between Screening and Signaling Models,” in M.O.L.
Bacharach, M.A.H. Dempster and J.L. Enos, eds., Mathematical Models in Economics. Oxford
University Press, Oxford, 1994.
Stiglitz, J. E. and M. Wolfson, “Taxation, Information, and Economic Organization,” Journal of the American Taxation Association, 9(2), Spring 1988, pp. 7–18. (Paper presented for delivery to the American Accounting Association, August 1987.).
Stiglitz, J. E. and S. Yusuf “Development Issues: Settled and Open” in Frontiers of Development
Economic: The Future in Perspective, Gerald M. Meier and Joseph E. Stiglitz (Eds.), Oxford University Press, May 2000, pp 227–268

The economy lab, the dark age of free trade theory, and the naive view on natural resources and economic development

Over at the Economy Lab in the Globe which Failed, which itself has gone from bad to worse, one of the economists they keep in their stable has either produced an extraordinarily naive analysis or a dishonest one.  I am going to go with naive for the sake of professional courtesy.  Not that that is the MO of economists but I am atheist fan of Jesus and not an economist…so here goes.

To be honest I can’t figure out which vintage trade model Gordon is using.  My informed gut tells me something like an off the shelve H-O-S intro text book model of free trade.  That would fit with his own vintage and the fact that he is an econometrician.  Although that creates a paradox because, as surely Gordn knows, the H-O-S free trade theorem preforms dismally–by even economic standards–in econometric work outs.  In layman’s terms: the work-horse model of free trade which is standard in introductory economics texts fails at a predictive level.

There are any number of reasons for this but just for fun here are few in no particular order:

1. The economies entering into trade were in a state of autarky (self sufficiency) and full employment.  Both of which are patently false.  More often than not nations pursue trade in the search for a remedy to chronic underemployment and unemployment and have already been engaged in trade.
2. Product and capital markets are perfectly competitive.  Again patently false.
3. Factors (capital and labour) are perfectly mobile within a national jurisdiction but not between.  You might get me to agree on labour but the whole point of neoliberal globalisation and its animating quintessential core is the free movement of capital.
4. As a corollary, capital (investors) is made up of 100% domestic nationals.  Extremely dubious assumption with respect to mining, oil and gas and a whole host of other sectors.
5. There are no firms.  While capital and labour are the only inputs (and resource endowments) there are no firms.  Just one large something or other allocating labour and capital according to their scarcities.  A model without firms that actually do the trading?  Bizarre me thinks.  This becomes particularly important with respect to determining who benefits from the gains of trade.
6. Capital is a natural endowment.  Which translated means that for the standard model the explanation is that some countries have lots of capital some do not.  Why that is; the model does not care.  But saying that you don’t care is far cry from saying anything remotely interesting.  Capital is after all nothing other than produced means of production in its physical form and its ephemeral and essential form a complex social relation.  Sorry I can’t really simplify that at this time.  But to get a sense of what I am getting at just recall that the origins of Canada is a colonial enterprise in which colonial settlement was driven by the desire to expropriate natural resources from the original inhabitants.  The origins of Canada, and its rich endowment of natural resources is thus the history of politically constituted property and not some “natural” process of economic development.

O.k. so that is that.  Of course the OEM version of free trade theory is going to be a predictive disaster.  Why anybody bothers to teach it outside of using it is an example of what happens when liberal geeks go wild is beyond me.  But let me do a real world work-out.

Let us take Newfoundland and Labrador as a historical case in point.  Here is region that has leaped from one natural resource boom to another and it has always ended in some form of administration.  The failure to develop a modern diversified economy in which resources play a role but not the primary role.  Contrast the fortunes of early diversifiers in the union, who did so via a tariff wall and you get the picture.

In Newfoundland and Labrador Gordon’s advice is being followed as the mining and oil and gas sectors account for around 40-45% of provincial output but only 4-5% of direct employment including temporary construction employment.  Neither the oil, nor the profits touch land (outside of royalties taxes and wage payments which are all relatively low) in that province because of the weak to non-existent processing of raw materials.

Gordon thinks this is the road map to economic success, I think it leads to ruin.  He is willing to bet standard trade theory on it, I am going with history.

Here is why.  Two seconds of reflection will reveal that in Newfoundland and Labrador almost every single assumption built into the standard free trade model is violated: most certainly 1 through 6 outlined above.  Perhaps most interestingly is that Newfoundland and Labrador would not have a comparative advantage in oil and gas had it not been for the federal and provincial governments.  I am sure Gordon was decrying Hibernia as white elephant back in the day.  The problem is today the two levels of government are fighting over the allocation of royalty payments as the project is paid in full and is churning out lucrative profits for all involved.

Maybe Gordon can write something about that in his next post to the Economy Lab.  I won’t hold my breath.  My discipline right or wrong and all that jazz.

The Rebel Letter to Mankiw and some thoughts on education in economics

Yesterday I noted that 10 percent of Mankiw’s students walked out of his class to protest what they, rightly believed, to be a heavily biased introduction to economics.  I think the students are right.  Introductory courses are meant to introduce students to the discipline– both its orthodox core and its dissenting periphery.  Krugman has been consistently bemoaning the “dark age of economics” on his daily blog.  What is interesting is that I suspect Krugman is likely as guilty as Mankiw for the thin gruel that gets passed off as intellectual pluralism in the discipline of economics.  RatEx + sticky prices is hardly a different intellectual paradigm: it is a tweak.  Keen hits on some the ontological problems here.

I empathize with these students because like them when I took my intro to economics I was left asking myself if I could continue on studying a subject in which certain truths were baked in from the get go.  Here are a couple:

1) Minimum wages are bad because they decrease the level if employment and thus hurt low skilled workers.

2) Unions are bad because they similarly decrease employment via the premium on union wages.

3) Rent control is bad because it lowers rent and thus decreases private investment in housing leading to a shortage of housing.

In the end I simply quit the discipline and chose political science instead and then took as many credits as I could in the history of economic thought and directed readings with heterodox economists as I could shoe horn into my three degrees. In the end I pieced together a decent education in heterodox economics.  Although I wish I could have found an economics department where I could have been exposed to the best of heterodox thought along side the best of orthodox thought: Rowe, Steadman, Shaikh, Waldman, Mitchell, Dumenil, Lebowitz, Bowles, Fine, Hodgson, Lawson, Mirowski etc.

It is sad state of affairs that Intro to economics is not really and introduction to economic thought but rather an introduction to neoclassical economics.  The equivalent would be an introduction to political science where only rational choice theory was taught.  Political science is already a fairly conservative discipline and I recoil when I think about how much more conservative it would be if rational choice was the only intellectual paradigm I was seriously exposed to and if that paradigm dominated 85 95% of all hiring in the discipline.

From Mankiw’s perspective, and perhaps Krugman’s, I suspect the fact that 10 percent of the students self-identified as having heterodox instincts and declared their reluctance to continue on in economics as a feature and not a bug of the standard intro econ curriculum.

What a shame.  Below is the Rebel letter to Darth Vader Mankiw.

Dear Professor Mankiw—

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.

A legitimate academic study of economics must include a critical discussion of both the benefits and flaws of different economic simplifying models. As your class does not include primary sources and rarely features articles from academic journals, we have very little access to alternative approaches to economics. There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.

Care in presenting an unbiased perspective on economics is particularly important for an introductory course of 700 students that nominally provides a sound foundation for further study in economics. Many Harvard students do not have the ability to opt out of Economics 10. This class is required for Economics and Environmental Science and Public Policy concentrators, while Social Studies concentrators must take an introductory economics course—and the only other eligible class, Professor Steven Margolin’s class Critical Perspectives on Economics, is only offered every other year (and not this year). Many other students simply desire an analytic understanding of economics as part of a quality liberal arts education. Furthermore, Economics 10 makes it difficult for subsequent economics courses to teach effectively as it offers only one heavily skewed perspective rather than a solid grounding on which other courses can expand. Students should not be expected to avoid this class—or the whole discipline of economics—as a method of expressing discontent.

Harvard graduates play major roles in the financial institutions and in shaping public policy around the world. If Harvard fails to equip its students with a broad and critical understanding of economics, their actions are likely to harm the global financial system. The last five years of economic turmoil have been proof enough of this.

We are walking out today to join a Boston-wide march protesting the corporatization of higher education as part of the global Occupy movement. Since the biased nature of Economics 10 contributes to and symbolizes the increasing economic inequality in America, we are walking out of your class today both to protest your inadequate discussion of basic economic theory and to lend our support to a movement that is changing American discourse on economic injustice. Professor Mankiw, we ask that you take our concerns and our walk-out seriously.

Sincerely,

Concerned students of Economics 10

UBC economist Milligan throws cake at educated, unemployed youth

I tuned into a rebroadcast of this morning’s the CBC’s the Current while cleaning the kitchen this evening which had an unusually good documentary on the problem of youth unemployment; specifically, the problem of university undergrads in finding jobs.  As someone who suffered the 90s recession in spades (really you should see my work history I can sharpen your kitchen knives and the teeth on your chainsaw to a fine edge of efficiency*) I was very much in sympathy with these newly minted baccalaureates.  Personally I pursued my education as an end in itself.  If I had become a logger full time I would a least be able to attempt to make sense of something beyond the hill.  That said I can totally understand why so many of those interviewed in the documentary felt let down: they did what they were told; they followed the path as laid out by parents, teachers and councillors; they volunteered; they studied hard and upon graduation the ambitious among them took jobs as servers.

One of the newly minted graduates arrived to a jobs fair with 40 resumes in hand, another paid a months rent to get a professionally designed CV worked-up.  All for nigh.

In any event a very sobering documentary about the problems facing the educated unemployed youth.  That was until they finally interviewed the economist Kevin Milligan from UBC.  In true Victorian form, Milligan’s bottom line was that however this documentary might tempt you to think something can be done for these wayward educated unemployed forget about it:  Denmark tried it in the eighties and it was a disaster.

Let us just forget about the fact the eighties and early nineties brought all kinds of ideas to the rocks of reality and let us similarly forget that Denmark is a small open economy (this will work in my favour below), what Milligan fails to do and what an economist ought to be able to do and suggest the form that public policy could take to ameliorate the situation.  But that is the rub, the mainstream of the profession takes a do nothing position as the default optimal policy stance with respect to unemployment.  As a nod to their objectivity I suppose I should say their glib nature is not particularly directed at the youth: if the 55+ cohort was suffering above average unemployment rates Milligan’s response would be FIF you too.

Ok so those are the preliminaries.  What Milligan fails to mention is that instead of admitting defeat Denmark learned from its mistakes and doubled down and developed a different strategy to combat youth unemployment.  This time they coupled income support with training and an integration of training with private sector demand.  In short they revamped both their retraining regime and welfare state institutions to match incentives and crucially demand.  So at the height of the down turn in 2009 the youth unemployment rate was fully 4% higher (12 vs 16) in Canada with an overall unemployment rate of 7.2 vs 8.6.  What does that mean? It means with some policy effort that both the general rate of unemployment and the youth rate of unemployment can be lower.  In short, instead of throwing cake, you can have your cake and eat it too.  Serious economists would do well to concentrate their efforts on making the world better rather then resting with lame ideological proclivities to leave it as is; and those of us who pay their salaries would be well advised to demand the same.

Cake just don’t cut it any more.

*In the abstract the sharpest blade would have a length but no width.  It would therefore be a line.

Why most economists including Krugman must be against unions

The assumption of my title is that the profession of economics is limited to New Keynesians and New Classicals.  I think it is a fair assumption given the majority of economists working in universities, in economics departments, are one of the two neoclassical varieties.

I find two things interesting about Nick Rowe”s recent post Why New Keynesian macroeconomists are against labour unions

On the one hand,  that his observation should be at all controversial is odd.  From the  outside of the profession, it is obvious that neoclassical economics is hostile to unions.  It is baked into the fundamental model which they were both weaned and teach year in year out.

On the other hand, Rowe’s observation should be controversial because it confirms that economics is dominated by an ontological vision that is consistently against unions (and almost any non-market based forms of cooperation).  I can’t think of any other discipline in the social sciences that manages to maintain such a homogeneous world view.  Put differently, all other disciplines are staffed by a plurality of ontological visions.  And most departments would defend this plurality on the basis of a recognition of the existential fact of human existence and the social sciences.  Pluralism is not loved for the sake of pluralism but rather on the deep understanding that all ontological visions are limited and partial and thus part of a healthy academic / intellectual life requires interaction with radically different paradigms.  In short, it accepts that scientific progress in the social sciences needs more than internal critiques.  That is, progress requires exogenous critiques.

Perhaps when economists Like Krugman, Delong and Stiglitz refuse to be anti-union it is because they do not really buy the ontological model as correct but nonetheless use it because a) it was the price of the dance for admission into the profession; and b), find it helpful on a narrow, well specified, range of questions.

This would suggest a very different relationship to the core model by New Keynesians than their New Classical counterparts.  It may not be pluralism proper but at least it is something.

Maybe economics departments need to hook-up potential candidates to lie detector tests to establish whether or not the candidate really, really, really believes the model.

I am a Homo and a Sapien* what is Paul Krugman?

Krugman is sometimes a dull example of all that is both right and wrong with mainstream liberals in North America.  Today Krugman auto deconstructs:

Ideas Are Not The Same As Race

I would get into the specifics of his post but the headline is so atrocious and such a shining example of why economists are simply undereducated in the social sciences, humanities and hard sciences.  Here is the short of it, both race and gender are ideas in that they have no scientific merit.   Take a look at this little graphic from wikipedia

See anything missing after species?  Yep, lower than that and they are just ideas, not necessarily nice ideas but ideas nonetheless.

His title is thus a non sequitur wrapped inside a false antithesis.

Sad really.

*Excuse the botched singular.

No. 8: We got effeciency here

For some I know this will seem a little too low on the list, but it is low because it really is low. When you are trapped inside GET (general equilibrium theory) reality is your enemy. Inside GET everything is tranquil–like a heroin addict after the needle is in and the payload delivered. In this exotic den of opium everything is tractable (well no really, Nash cooked this dream off like a poet in the night). Take a brave step away and not all that starts well ends well–and here we are not just talking about aggregation problems.

The efficient market hypothesis (EMH) not only claimed that financial markets were narrowly efficient as in they embodied all the relevant information and said information was conveyed in usably due time, but, also, that following Hayek such information was superior to any information that could be gathered and thus regulated by a central authority.

The outside play here was that ay attempt to regulate financial markets was doomed to failure because market participants would necessarily have at their disposal timely and thus superior information than public regulators. This argument got pushed so far that it was even argued that self regulation by private individuals would be superior as private actors would have better information. This logic of course suffered from a begging the question problem as in: if information is rapidly disseminated by market actors why can’t the state access that information and evolve policy and regulations in lock-step? That is to say, if information is efficiently conveyed why can’t regulators access and then use this information to regulate.

Two defences are available to the apostles of EMH. The first would argue that because the state is not a direct player in markets it in fact does not have access to this information. This is likely true, but the problem is that such a defence invites government participation in financial markets precisely so it can monitor and regulate the industry. YET, this conclusion is exactly the one EMH was designed to trounce. EMH was above all about the capacity of markets to auto-regulate. Why after all is the state needed when private markets are already efficient.

The second, and preferred, line of defence is then the argument that markets were efficient but the quality of the information was bad and that in time markets self corrected via what layman have come to call the Great Financial Crisis (GFC). Here the GFC is painted not as a crisis but an updating from poor information to good and is thus a confirmation of the EMF.

This second line of defence of course suffers from the obvious wrinkle that it boils down to the proposition that markets get things hopelessly wrong and that they can do so for such a prolonged period of time that the whole economy (not just finance) gets sucked into the vortex of ignorance. Presented as such the second line of defence is rather effervescent. For if the updating process takes such a long time and is capable of spreading bad information across a whole host of different markets from housing through to food and energy then the case for government regulation would seem strong.

But alas no! No because we only need to default back to defence one which is that the state does not have any better information than markets. But this only begs the question about the role of the state not just in terms of the regulator but in terms of a participant. In principle there is nothing that stops the state from becoming a significant player in financial markets: taking in information and then asking prudential third party questions.

In a nutshell those who would defend EMH via the second stratagem did so to avoid increased state involvement but then they have to defer to stratagem one in order to salvo the second. But stratagem one begs the question.

None of this is gainsaid by the obvious blooper that calling something efficient which demands that entire economies suffer the pain of “updating” is incredibly glib. Auto-regulation ought to imply smooth processes of adjustment. IF what EMH boils down to is that good information is turbulent which is eventually self-correcting after long period of pain then we really are back to the debates which raged before and after the Second World War.

My bet is this: Diamond and Fama will never win the Swedish bank prize but many economists will retain the ontological model in the back of their heads and demand no less from their graduate students.

A pity really.

And guess what: heterodoxy is working a whole lot better than orthodoxy.

Who said that? Karl Marx? No. Joan Robinson? No. Kalecki? No. Implied by all three but actually said by no less than Paul Krugman the new fringe of of the economics profession.

Welcome aboard chappy!

On thinking and conclusions

Mr. Krugman has recently come to be gobsmacked that any well trained economist could sign this; he will then go onto say that the training of the economists in question is in question given their track record. Not satisfied Krugman has now twice called on well trained economists to respond to this nonsense. Problem is that Mr. Mankiw already did and this is what he had to say.

For those who do not get the reference I will spare you an explanation of the school boy antics and just say that this is not the first time Mr. Mankiw has observed the royal prerogative that if thinking brings you to the wrong conclusion: don’t do it.

And thus Mr. Mankiw is here by bestowed jack-ass of the year award.

Funny I thought the jack-ass was the symbol for the democrats.

Update:

Mr. Mankiw has officially stated his tepid support for QEII. A small ray of hope in otherwise dismal state of affairs.

The fringe responds to Krugman and wins Jack-ass Economist of the year 2010 prize

I do not know nor have I read, nor do I have any friends who know or who have read Stephen Williamson. Apparently he graduated from Rochester. Who cares? What is sad about his post is that he gets almost everything wrong–to get everything wrong would be a triumph of sorts. No heterodox economists do not hate math. The most significant elements of the heterodox community have been both well versed in both math and linux (sadly). The Sraffians for example are a very math oriented bunch so much so that given the weight of their critique and mathematical proofs the lauded Samuelsonian school had to beat a hasty retreat into of all things hermeneutics to defend orthodox capital theory. Marxist economists have long been enamoured with math. You just do not get a calculation debate without math. Moreover all the new solutions to the so-called transformation problem have been fought out using math. Further the most recent high profile heterodox economist Steve Keen has been championing hard math for analysis of capitalist economies. Some might even say his reliance on hard math is the Achilles heal of his hard predictions.

There is no shortage of math on the so-called heterodox side of the economics profession there is, however, a shortage of insecurity masquerading as self-assured arrogance which truth be told is the real dividing line between the orthodox and the fringe.

PS. What a shameless display of disrespect to Douglas North who by the fringes’ account is one of the chief protagonists of neoclassical imperialism. Williamson does not even know who his own ideological generals are. But I guess that is what you get when you purge historical memory from orthodoxy.