lavendersparkle: (queens')
I've just read a paper called A pluralist approach to microeconomics from the book The Handbook of Pluralist Economics Education. I read it because I make pin money supervising undergraduates for the compulsory microeconomics classes in first and second year. Like most supervisors, the courses I teach have almost nothing to do with my research. Also like many economics supervisors, I believe that a lot of what I teach is complete bollocks, with either no applicability to the real world or completely misleading conclusions. When I started I didn't mind so much. I figured out quite quickly that I should really view the undergraduate course as some very long in depth transferable skills course. Economics graduates are very employable, not because they have any particular knowledge about how the economy works, but because it's one of the few degrees which combines some quite advanced mathematical and statistical skills with written communication. Economics degrees also value a particular kind of brightness, which can be useful in some jobs. I was happy with all this until the financial crisis increasingly made me worry that a part of the problem might be that we'd been sending out economics graduates armed with nonsense ideas of the economy for decades. I started to feel complicit. Now, I still recognise that I'm being paid t get them their highest grade possible in their exams. It would be unfair to them not to do that and I remember as an undergraduate getting frustrated with supervisors thinking "Yes, I know this model is nonsense but I need to understand it to get through the exam". Still I wanted to slip in a bit if dissent, some things which, if they have the inclination, they can follow up in their own time to give a different picture of the world. Something to make them feel a little uneasy about smug pronouncements about efficiency. So I'm making notes on useful things to bring up in supervisions. I thought I'd put them here so anyone else interested can see them.

Perfect competition
Keen did a computer simulation to show that Friedman's claim that however firms actually chose how much to produce, the competitive process would ensure that they produced where price was equal to marginal cost. In the simulation with 10,000 firms he found that they actually the competitive market produced the same as the monopolist if all of the firms followed a simple strategy of randomly increasing or decreasing quantity supplied a bit and then keeping going in the same direction if it increased their profits. The reason for this result was found in Stigler (1957) "Perfect Competition, Historically Contemplated" in which he showed through simple chain rule that the demand curve faced by a competitive firm is not horizontal but rather the market demand curve. Keen provides an appendix on how to calculate the true profit maximising choices by competitive firms not acting strategically.

Market Demand curve
The assumption that the aggregate market demand curve is downward sloping like individual demand curves requires the assumption that an extra unit of purchasing power would be spent the same way no matter to whom it was given. This would require both a) that all Engels curves were straight lines and b) that all consumers had parallel Engels curves. If either of these assumptions do not hold (as they don't) well behaved preferences and individual demand curves can result in non-downward sloping market demand curves because price also influences the income distribution of consumers.

He then suggests a game to raise questions about the capitalist system and models. He talks about the importance and availability of data on firms. Firm size in the US has a scale free distribution. Only 11% of US GDP is produced in conditions of rising marginal cost (Blinder et al 1998). Most firms are price setters. Most sales are for 'intermediate goods'. 85% of sales are to existing customers. Most firms operate at roughly constant average cost.

Revealed Preference
Sippel 1997 "Experiments on the Pure Theory of Consumer Behaviour" found that even in a relatively simple set up SARP was violated by over 75% of participants and GARP by more than 50%.

He suggests Schumpeterian analysis of competition and Kalecki and Sraffian analysis of price setting as alternative approaches to microeconomic issues which could be discussed.

Game Theory
Points out that if duopolists do not know each other's cost structure and choose quantities by trial and error they may end up in cooperative outcome.


Oct. 3rd, 2009 10:56 pm
lavendersparkle: Jewish rat (Default)
It's time to give some money to charity again so I'm having a think about who to give it to. Previously I've tended to give money to Oxfam, as it seems like the charity to give money to if you want to help the neediest people in the most cost effective way. The think that's given me pause on this approach was a session I was in at Limmud last Christmas where mention of Oxfam led to the kind of reaction of tuts which signals that an organisation is seen as 'against us'. Looking at it I can't pin point a lot that Oxfam has done to deserve this branding. It has criticised a lot of stuff Israel has done and to by honest I don't agree with a lot of the things it's criticised. It's not as anti-Israel as a lot of Christian humanitarian NGOs. Oxfam Belgium advocated a boycott of Israeli products with a pretty pretty nasty poster. I'm not sure whether that should influence my giving to Oxfam UK. They do the NGO thing criticising Israel lots because it's easy and Israel isn't going to boot them out for doing it and it goes down well with certain sections of the population who might donate to them. Is that enough to put me off donating to them? On the other hand Oxfam isn't the only charity help the poorest so if I'm feeling uneasy maybe I should go with one which definitely doesn't get involved with Israel.

One which impressed me was Microloan Foundation. I like this for a number of reasons. The first is that it operates to improve things in Malawi, which is one of the poorest countries in the world. Microfinance appeals to me, both as an economist and as a Jew, as I think helping someone get to the point where they can make their own living is one of the highest forms of charity in halacha. Most of all it appeals to me as a feminist because enabling women to earn and control their own economic livelihoods can empower them in every aspect of their lives. Helping to increase women's economic power also tends to improve the health and welfare of children.

Alec is keen on Book Aid International. Both of these charities got good reviews on a 'which charities are good value for money' website.


Aug. 11th, 2009 12:28 pm
lavendersparkle: Jewish rat (Default)
I think I may be becoming a Post Keynesian, or rather a Keynesian, as I've been won over by his own writings rather than those of his followers. I've never previously had much of an interest in macroeconomics. I think this may be because the macroeconomics I was taught tended to be tosh. It would be an insult to the intelligence of a small child to try to get them to buy the idea that the economy is always efficient and all unemployment is voluntary, so trying to convince Cambridge undergraduates of such things is ridiculous. Of course we need to know of such theories so that we can accurately mock critique them.* One of the thing which annoys me is how badly the few ideas of Keynes we were allowed to hear were distorted in the retelling. I clearly remember a lecturer claiming that Keynesian economics were silly because it claimed that people always saved a fixed proportion of their income. This is completely false. Having just finished reading The General Theory of Employment, Interest and Money I can tell you that he doesn't claim that. He makes the quite reasonable claims that a) people tend to consume more when their income is higher and b) richer people tend to save a larger proportion of their income than poorer people. He also includes a complex of analysis of what factors, economic, cultural, social, influence people's decisions to consume and save. I'm not sure whether they just simplify everything because all economics has to be in terms of equations to be allowed in an undergraduate lecture course or they are purposely misrepresenting Keynesian economics to provide a straw man.

*One of the most amusing things about these models is the ways they try to find 'empirical evidence' for their theories. Not put off by the argument "but there is such a thing as involuntary unemployment", a fact which is felt particularly pertinently by my third year undergraduates, they tend to do this thing where they set up a stochastic mathematical model, run it a shit load of times, and then proudly declare that, once they calibrate their variable correctly, that the mean and standard deviation of various economic variables is the same as that for the real economy. If I were a journal editor I would publish their paper next to one in which a stochastic mathematical model of how the flying spaghetti monster controls the economy manages to come up with the same mean and standard deviation for pertinent economic variables.
lavendersparkle: Jewish rat (Default)
I went to a conference a couple of weeks ago and it inspired me to read The General Theory of Employment, Interest and Money. I tried to read it a few years ago and gave up around chapter 4 or 5 which involves defining lots of different types of cost and is a bit muddling if you never make it to the bit where you see how these different types of cost fit into the rest of the theory. This time I've nearly finished it and I've very much enjoyed it. Like Shakespeare, it feels a little bit like reading a lot of quotations because I've heard bits of it quoted before.

I think it makes a lot of sense. I've never previously had much interest in macroeconomics. Now I think that this was partly because the economy had been pootling along happily for years and how things work is less interesting when they don't need fixing. I think the major part of it is that a lot of macroeconomics I was taught was just so blatantly nonsense that I just couldn't bear to clutter my mind with it. I'm finding that The General Theory is a lot better at explaining how it all works and what's gone wrong. It also seems a lot more intelligent than the stuff I was taught as an undergraduate, not in a physics envy way, more in a coming to a complex nuanced understanding of an issue way. I feel like bits of the book manage to reasonably successfully refute economic theories which were developed after it was published.

Anyway, interesting stuff.
lavendersparkle: Jewish rat (Default)
I keep on getting confused with some of the rhetoric I hear about the place about poverty and healthy life style. So, first of all, I'll explain some ways in which poverty obviously does impact upon one's ability to have a healthy lifestyle. Firstly, access to healthcare. In the US healthcare actually costs money. In the UK healthcare is free at the point of demand for most services but there are still costs to obtaining healthcare, such as travel expenses and topping up NHS care from the private sector. Housing is another big thing. Housing which is cold or damp or contaminated with toxins is cheaper and likely to cause health problems. There's also the problem of work hazards, as if you are poorer you have less opportunity to avoid dangerous work environments or demand appropriate health and safety practice.

With that on board, I want to talk more specifically about areas of health which are usually closely related in public dialogue: diet and fitness. Poverty is associated poor diet, or at least this is what I have heard from t'internets. There are some possible good reasons for this. The first is accommodation. If you are living in very poor quality accommodation you may not have any cooking facilities. You may not have a fridge or a freezer. This makes it very difficult to eat anything which requires cooking or cool storage. Crisps, biscuits, take-aways can be eaten in these circumstances. This leads to another of the 'can't afford to be poor' situations, because these types of food are more expensive than home cooked food, so buying some cooking equipment would work out cheaper in the long run, but if there's nothing left of the pay cheque each week there's no way you can make that investment.

Another issue, which I suspect is more of an issue in the US, is time poverty. I get the impression that because of differences in the tax and benefit system, single parents working three jobs to make ends meet is more common in the US. If you're time poor and get home exhausted, it's much harder to cook. Similarly, if one has not been taught to cook before leaving home, the risk of experimenting with an unfamiliar recipe to gain the skills and confidence to cook, is too much if you will have to go without dinner if the cooking goes wrong.

Access to shops is something I've heard a lot about. Mainstream supermarkets aren't so keen to open in council estates and even when they do they tend to open smaller shops with higher prices and more restricted range. I get that. The thing that confuses me is that in the past when I've talked about eating more vegetables and wholemeal bread I've heard people say that they'd like to but they don't have an organic store near them or the organic store is so expensive. There definitely seems to be a big meme, at least of LJ, that eating healthy food requires access to an organic shop. This completely flummoxes me. I eat a pretty healthy diet, and it is almost entirely bought from Tesco. Do US supermarkets not sell vegetables or wholemeal bread? Does the US allow such noxious chemicals to be sprayed on their crops that it's really better to eat ready meals than non-organic veg? Please explain because every time I ask I'm told that I'm an evil privileged middle-class vegan who should STFU.

On a related not, what's the deal with the whole "I can't exercise because I can't afford to join a gym" meme. I can see the advantages of belonging to a gym for some people. If you want to build particular muscles or train for a particular activity then the gym can provide expert advise and machinery. If, on the other hand, you just want to improve your general level of fitness, you can get most of the benefits of the gym for free. You could turn on the radio and dance around your apartment for half an hour. You could run up and down the stairs, if you have stairs. You could even just make small lifestyle changes to be a bit more active: walk rather than drive on short errands, take the stairs, get off the subway a stop early and walk the rest. These things aren't going to get you ready to run a marathon but they will get you a bit fitter and healthier. Of course, as with preparing food, time poverty will put a big spanner in the works.

A thing I've noticed in common between both diet and exercise is that in both these cases unnecessary purchases have become necessary in the mind of the public. I'm increasingly coming to think that this is a central feature of consumerist capitalism. Activities which don't require much stuff, such as sex, or are initially carved out as a space separate from consumerism, are very quickly colonised with consumer goods, the purchase of which we are convinced is essential to the activity. A healthy lifestyle is relatively cheap and easy if one is not impeded by the issues I've mentioned above: less salt, sugar, fat, alcohol, caffeine, nicotine; more vegetables, fruit, complex carbohydrates, movement, water. However there is a multi billion dollar industry trying to sell us the 'secret' to all this. At its best it's just a waste of money and resources to, for example, drive to a gym, walk on a tread mill, and drive home. At its worst, the effort to make profit from those who can afford it requires convincing those who can't that they therefore can't afford to participate in activities which shouldn't cost anything.
lavendersparkle: Jewish rat (Default)
I just wanted to tell you all abut the start of a new series which is what all journalism would be like if I were omnipotent broadcasting doctator. The show is More of Less on Radio 4, which can be down loaded as a podcast from their site. It bills itself as a show to looking behind the statistics we hear on the news.

This week was an example of the intelligent, reasonable journalism it exemplifies. They tackled drugs and religion without the need for shouting matches or hyperbole. They brought on the author of a study estimating the costs of drugs prohibition. He immediately admitted to the limitations of any kind of study of this kind and that his figures were highly speculative. They couldn't get anyone from the home office to speak against him so they brought in another academic from the field, whose main criticism was that he didn't feel that the 'worst case scenario' from the study was bad enough as one could argue that heroin consumption might more than double if it were legalised. They then had a very reasonable and accessible discussion about how one could estimate the effects of legalisation upon consumption, compare usage across countries, compare usage across substances or look at historical events like China during the opium wars.

On to religion, and the figures quoted about church attendance and how newspapers managed to come up with the idea that Muslims would outnumber Anglicans in England in a few decades. The different ways of measuring Church of England members were explained leading to the less exciting revelation that Church of England attendance has pretty much levelled out, after a sharp decline a decade or so ago, and anyone who thinks that half of all English Muslims regularly attend the mosque should go and speak to an average imam.

Just for fun there were some bizarre allegories for the credit crunch and correcting a former minister for education about his maths.
lavendersparkle: Jewish rat (Default)
Increasingly lately I've been thinking that what we really need to do is work less. What I mean by this is that, given that developed countries have reached a level of wealth where we can afford to fill our bellies many times over, and that climate change seems to be one of the greatest threats facing us, wouldn't it be better if we all worked a bit less on average. We can fit renewable light bulbs and turn our televisions of standby but the best way to reduce our carbon foot print is to reduce our consumption and if we're going to buy less stuff, surely it makes sense to earn less money and make less stuff. I know the protestant work ethics retort to this argument. It goes "How could you advocate a life of leisure when there are starving babies in Africa?" but we don't spend very much of our money of feeding the starving in Africa, we spend it on iPods and shoes and other shinies. Maybe if we got out of the cycle of earning more money to buy more shinies we'd take more seriously the idea of actually having a serious crack at alleviating poverty.

I've always felt a bit out of sink with the rest of the world for thinking this way. It always struck me as really odd that per capita GDP was so much higher than it had been in the past but people kept on claiming that we couldn't afford things. I always found it odd that during the 20th century hours of employment have increased even though hourly wages have increased. Last week I mentioned it to a fellow Cambridge economist and he mentioned a paper written by Keynes nearly 80 years ago about what the world would be like in 100 years time. Luckily some nice person put it on the internet.

Maybe it'll inspire you to take part in a very quiet revolution. Think about whether the shinies are really worth the hours of your life it takes to buy them. If they aren't, work less and enjoy life more.
lavendersparkle: Jewish rat (Default)
"As the author or co-author of some one hundred large volumes of writings, he could hardly fail to have formulated some sentences that are correct."

From "Where Marx was right: towards a more secure foundation for heterodox economics" by M. C. Howard and J. E. King
lavendersparkle: Jewish rat (Default)

Except mainstream economists don't seem to get that their approach isn't working and just try using hardercore maths.
lavendersparkle: Jewish rat (Default)
So, I've dragged myself into the faculty to work on my hated econometrics project. I fiddled with it a bit yesterday but didn't really get any results. I think that I need to do what professional econometricians do and just run shit loads of regressions until one of them comes out as vaguely statistically significant. Of course, this is a completely statistically invalid way of doing things as, 5% confidence intervals mean that if you ran a regression between two completely unrelated things there would only be a 1/20 chance of it being within the 5% confidence interval. So, if I spent all day here and ran 100 regression on unrelated things I'd expect about 5 to just happen to be statistically significant by fluke. If I were an econometrician I would then forget about all the regressions I ran that weren't significant and write a nice paper about how sun spots actually influence the exam results of second year undergraduate anthropologists.

Well, the course booklet did say we were supposed to write a paper like one that would be published in an academic journal so I suppose I better get on with data mining just like real econometricians do.
lavendersparkle: Jewish rat (Default)
People who did not do undergraduate economics at Cambridge will not get the significance of this but I just saw Tony 'grumpy' Lawson smiling. This was because instead of trying to lecture to a bunch of first years who still don't get the t test he was giving a seminar on his baby, critical realism. This is a branch of methodology that seems to consist of him and a few other people from Cambridge who meet sometimes at CRASSH and more often at the pub.

I went along because I'm interested in doing his paper in methodology in economics. I've been reading one of his books, Reorienting Economics that is the core text for the course and it's rather exciting. It speaks to the niggling feeling I've been having that, whilst I enjoy mainstream economics, it has about as much practical application as a Sudoku puzzle and, were it for the fact that I can't get government funding to solve Sudoku but I can get funding to construct hugely complex mathematical models with random assumptions and absolutely no explanatory power, I may as well do that.
lavendersparkle: Jewish rat (Default)
All summer long the Grasshopper consumed and the Ant invested. 'You are acting very irrationally', the Ant warned, 'and you will be sorry when winter comes.' 'I shall be very sorry', replied the Grasshopper with a chirrup, 'but I am not acting irrationally. To be rational is to do what one most values at the time, and I value present delight above its cost in future sorrow. Surely you too would rather sit in the sun and sign?' 'Much rather', said the Ant, 'but to be rational is to what best promote's ones interests over a lifetime. Future grief has constant weight (where there is no uncertainty about it). So, being rational, I must continue investing against winter.'

Winter came and the Grasshopper was hungry. He appealed to the Ant for help. 'I wish I could', said the Ant; 'there is nothing I would like better. But, being rational, I cannot prefer your interests to mine, and you have nothing to offer in return. Are you sorry you sang all summer?' 'Very sorry', the Grasshopper sighed, 'just as I knew I would be. But now is now - I acted rationally then. It is you who is irrational, in resisting your present desire to help me.'

The Ant reconsidered but found that he had only just enough in store to last him until it was time to start investing again. 'Now is every time', he explained, 'but I can help you in one way. Do you know the leaves of the Epicurus plant over there? They are nourishing and delicious. I would eat them myself (and save the trouble of making my own granary), but it makes insects very ill after a time and, being rational, I cannot abuse my lifetime's interests. For you, however, the present ecstasy would outweigh the consequences, silly fellow.'

So the Grasshopper sampled the Epicurus leaf and found it excellent, but was soon in agony. 'Is it worth it?' asked the Ant. 'No it isn't', the Grasshopper groaned, 'but it was.' 'Then I have bad news for you - there is an antidote.' 'Quick, quick', begged the Grasshopper. 'It is no use to you' the Ant lamented, 'since taking it makes your present distress far worse, even though it works rapidly thereafter.' 'Bad news indeed! I cannot invest. Farewell!'

The Grasshopper expired and the Ant lived on into grey old age without ever once doing anything which caused him a moment's overall regret. 'It is hard never to be able to do what one most wants to do', the mused arthritically, 'but then the life of a rational being is a hard life.'

Moral: It is hard to be wise, but there are many ways to be foolish.

(M Hollis 'The Cunning of Reason' 1988 pp95-96)


lavendersparkle: Jewish rat (Default)

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