New School Economic Review

It’s the Asian Century, according to Britain

by Benjamin on January 8, 2010

The British Secretary of State yesterday pre-launched a strategy for growth in Britain, and today his department will publish the full strategy. Odds are there will be a lot of interesting initiatives, both from an economic and election point of view. In his speech yesterday though he said something very catchy:

“We [Britain] did well in the American century. We can take little for granted in the Asian century.” (p. 15)

It seems the old superpower – the 19th century is often referred to as the ‘British Century’ – is getting ready for yet another change in global conditions towards Asia. Yes, I know it may be old-hat that there is an on-going shift towards Asia, and that the term has been around since the 1980s but even so, it is interesting to see a government taking a stand and developing its policies in such a light.

Hello 2010, goodbye Prof. Samuelson

by Benjamin on January 1, 2010

2010 has just about started across the world. It is 3.30pm in Delhi where I am typing, but it’s only 10pm in 2009 if you are on American Samoa (GMT -12). It is perhaps appropriate that we remember back and look forward at the same time. In the flat I am visiting in Delhi is an old issue of the Economist, which asks – “Where did our 3 Trillion dollars go?”. A special report on the banking systems failure and bail-out from the year that went. Nostalgic. The article suggests that banks will have to renew their social contract and re-think their structure. As we have seen in the last few months, relatively little reflection and none of this has come to fruition. As someone once quipped; “History has only taught us one thing: That no-one learns from History” – Amen.

2009 was also the year when a political scientist got the Nobel remembrance prize. The best quality work in economics again comes from non-economists, and in a crisis it is given to someone outside the ‘mainstream’. When Kahneman got the prize it was for an equally excellent body of work, which was read by more than just economists. When Merton and Scholes got it in 1997, they ruined the financial system. By 2001 the lesson was forgotten, I hope 2010 is not the year when the 2008-09 crisis is forgotten too, but lets see if Fama doesn’t get it next year. Then we’ll know.

Finally 2009 was the year we lost Professor Samuelson. A man who epitomized economics in the 20th century, not always for his theoretical ideas, nor for his (plaudable) approach to mathematics, but for introducing the textbook. Economics post-Samuelson became dominated by textbook instruction which for better or worse has spread economics much beyond a few specialised departments. Whether it needs re-thinking is a question posed in the latest International Review of Economics Education, but for now, lets look forward while remembering the past. In his excellent obituary in The Mint (India’s Wall Street Journal Partner), a fellow New Schooler has provided a good start to to doing just that, by remembering Prof. Samuelson. Happy New Year

Scroogenomics, Bah Humbug

by Benjamin on December 24, 2009

No-one likes being called a Scrooge – not even in these recessionary climates. So it is perhaps timely that Scroogenomics – the book – is published for the 2009 Christmas-present buying rush. Ironically it advises people not to buy presents for other people but rather give them cash, so as to maximize their welfare. Technically speaking there is something to that argument: When buying a present you will probably be unable to judge how much utility the recipient will receive from a given purchase, so you will over-pay and reduce consumer surplus – by up to 18% according to the author. Some commentators quite like this idea, and agree that cash-presents (or maybe gift-cards) would be a much better way to deal with gifts. The guys over at Freakonomics disagre, in their own bite-size Christmas book release [no really, it's an 8 hour read at the most]. They suggest that if you turn up at your mother-in-law’s house for Christmas dinner and then offer to pay $40 at the end of the meal, odds are you may have hit the cost-benefit balance but the consumer surplus will plummet pretty immediately. We mustn’t forget that money is not the end-all and be-all of life, present giving or social re-compensation. Money is hardly a social lubricant – a business lubricant for sure – but rarely successful when it comes to picking your close friends or raising your children. Similarly for presents.

British Midlands (airline) advertises that they won't be striking over Christmas - as opposed to threats from British Airways (BA)

We are not gathering for the holidays (be it Christmas, Hanukkah, Eid, Diwali etc. etc.) to swap cheques. The consumer surplus – sticking with the jargon – is not solely reliant on the cost-value of the present, but on the whole occasion. Presents are an not an expression of “Look, I think you’re worth me spending $60 on”. That’s why we take price tag of! We buy presents without the price-tag because we want to give something the recipient wants for fun or in need based on our experience of the. We may even make something from scratch – often more appreciated than store-bought presents, ask any mother who keeps a macaroni decorated jewelry box. Or, tellingly, we give an ‘experiential good’ that we have enjoyed (a book, film, theatre tickets) and thought the recipient would like. We might not always be right, but the thought goes a long way to making presents special. So my personal opinion about the arguments of Scroogenomics, Bah Humbug – but I can think of someone who’d probably love it, which is why I might buy it, despite the dire warnings of the author.

Long time no see – and merry Christmas

by Benjamin on December 19, 2009

“Finally the holidays are here – now we can all get some work done.” This was the first thing my supervisor told me many years ago, and it is a sentiment strangely, perhaps cruelly, reflecting reality in academia. The suggested undertone that teaching isn’t really work is one I disagree with, but a diatribe on teaching is not my intent here, rather it is to declare – happily – that the blog will once more be running on full steam: The thesis is in a reasonable shape and the new job’s learning curve has flattened out, and with the holidays upon us there is once more time for the real work: Blogging.

There is much to catch up on, but for the moment I just want to wish everyone a merry Christmas and suggest a very nice piece in the X-mas Economist out this week on ‘Progress and its Perils‘ (generously available for free) on how good we actually have it, despite our search for positional goods.

Thesis Throes

by Benjamin on October 20, 2009

My posting has been a bit sporadic of late, as I am now in the last week of writing before submitting what is a first final draft of my thesis – it sounds paradoxical doesn’t it? The good thing is that I feel like the story is coming together, the bad news is that I worry constantly if the text on the page will reflect what I think. After staring at my notes and monitor for days on end, there are a couple of things I wish I’d done while working on the thesis, and a couple I am very grateful that I did. I thought I might share these, during my five minute sanity break, as they might be useful if you’re also getting to grips with having to do a thesis:

-I wish, that on every draft which people have commented on, I’d written the date it was returned, the draft number and the name of who commented. Now I have a pile of useful comments, but no idea when or why they were made on an ocean of paper instead.

-I am happy that I wrote out each of my references as I went along. Especially when I have single sheets of paper with notes, even there I pasted in any bibliographical detail at the end. It’s great! Because whenever I add new material this week I only need to copy-paste the reference off the note sheet into the bibliography.

-I wish I’d have some way of shuffling each chapter reference section into a aggregate reference section. This seems like a lose-lose situation though. Because if you work with a ‘thesis bibliography’ from the start, it becomes a pain putting out papers for conferences as the work is on-going, and if you don’t you get the pain in the last week.

-I wish I had asked more people to read my chapters, and to read them earlier. I’ve had lots of great feedback, and a lot of it from outside sources. But each draft seems to make the point clearer, and each comment tends to sharpen the mind. “If it’s unclear to the reader, then your writing is unclear” – regardless of who the reader is. Rough but true.

-I’m glad I went to conferences every year. Why didn’t someone tell me in my first year that going to conferences means you’ll meet people who are interested in what you do, have expert knowledge, and are generally willing to read your stuff (because they’re interested) and give you comments and feedback. Fantastic.

I’m sure more will come to me as I finish the thing up – and it has to be done – and once this week is over there will be more recurrent blog posts from my side. I already have two or three very exciting things lined up :)

The Guardian on Ostrom

by Benjamin on October 14, 2009

The below is shamelessly lifted from Kevin Gallagher at the Guardian, with an encouraging overview of Ostrom being awarded the Nobel Prize and why it’s a good thing. Personally I think it’s good from the perspective that here is an empirically driven historical approach which uses fieldwork. But that’s me.

Also I find it encouraging that the bookmakers missed the point, as did every economist in our department who had placed a couple of names in the Nobel betting Pool. It came from Left-field this year, a year of crisis. I think the pattern continues!
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The economics profession is in such disarray that one of the Nobel prizes in economics this year went to political scientist Elinor Ostrom – the first woman to be awarded the economics prize. This is an excellent choice (in any year) not only because of what Ostrom has contributed to social theory but also because of how she goes about her work.

In a nutshell, Ostrom won the Nobel prize for showing that privatising natural resources is not the route to halting environmental degradation.

In most economics classes the environment is usually taught as being the victim of the “tragedy of the commons”. If one assumes, like many economists do, that individuals are ruthlessly selfish individuals, and you put those individuals onto a commonly owned resource, the resource will eventually be destroyed. The solution: privatise the commons. Everyone will have ownership of small parcels and treat that parcel better than when they shared it.

Many environmental experts also reject the tragedy of the commons argument and say the government should step in.

Ostrom says the government may not be the best allocator of public resources either. Often governments are seen as illegitimate, or their rules cannot be enforced. Indeed, Ostrom’s life work looking at forests, lakes, groundwater basins and fisheries shows that the commons can be an opportunity for communities themselves to manage a resource.

In her classic work Governing the Commons: The Evolution of Institutions for Collective Action, Ostrom shows that under certain conditions, when communities are given the right to self-organise they can democratically govern themselves to preserve the environment.

At the policy level, Ostrom’s findings give credence to the many indigenous and peasant movements across the developing world where people are trying to govern the land they have managed for centuries but run into conflict with governments and global corporations.
Some economists on the frontier of their discipline have started to use Ostrom’s insights in their work. In their recent book Reclaiming Nature: Environmental Justice and Ecological Restoration, James Boyce, Liz Stanton and Sunita Narain, show how communities in Brazil, India, West Africa and even in the United States have managed their resources in a sustainable manner when given their rightful access to their assets.

Indeed, Boyce and his collaborators find that communities should be paid for their services, since they can sometimes do a far better job than government or corporations at managing resources. Indeed, “payment for environmental services” has become a buzzword in development circles. Now even the World Bank has a fund for PES schemes across the world.

In terms of methodology, Ostrom proves her findings three times over. As opposed to many economists who never leave the blackboard, Ostrom often conducts satellite analyses of resource depletion to measure amounts of degradation. Second, she actually goes out into the field and performs case studies of human and ecological behaviour all across the world. However, she doesn’t stop there. When she gets back from her fieldwork she conducts behavioural experiments to see if random subjects replicate her findings in the field.

The Nobel committee should be applauded for recognising such rigorous theoretical and empirical work. Shining light on Ostrom is a call to economists to spend a lot more time analysing human behaviour, rather than assuming that we are all rational selfish individuals. It is also a call on economists to become more empirical and to find ways to validate their theories.

Adopting Ostrom’s approach will not only help us forge a better relationship with the natural environment, but will help us become more realistic about the economy in general. It’s time for a fresh approach to both.
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Nobel Season is upon us

by Benjamin on October 8, 2009

I have just been given a piece of paper with three blank lines and the heading “Who do you think will get the Nobel”?

This Monday, at 1pm CET, (11am GMT or 7am EST), the Nobel Memorial Prize in Economics will be awarded – but to whom? Our department will this year get everyone together and see the press conference live, and then hopefully listen to the cheers as a students out-guesses a professor… Maybe.

I wonder – who do you think will be on that list. I am thinking about it and will send my guesses tomorrow, but I am curious. I don’t see how a financial economist (of any bent) can get the prize this year, and I do not think the time is right for the modern ‘macro’ guys. Last year, after the crisis, Krugman picked it up. After the dot-com bubble burst it also went to people outside the ‘mainstream’ nominations  - 2001: Stiglitz and also Akerlof’s melons, 2002: Kahneman. Amartya Sen picked it up right after the Asian Collapse (in 1998), while historians Robert Fogel and Douglass North got it after the 1992 European collapse.

I am not suggesting that the committee doesn’t consider a scholars impact – all of the named people have been highly influential – it just seems that in times of crisis the nominations fall outside the usual suspects?

Could it be time for Benoit Mandelbroit? Axel Leijonhufvud? Deirdre McCloskey? Ben Bernanke? Nouriel Roubini? or is it back to the bookies who seem to be favouring Eugene Fama (2/1) [Ladbrokes], Paul Romer (4/1), Ernst Fehr, Kenneth R. French, William Nordhaus (6/1), Robert Barro (7/1) and further down we find Avinash Dixit, Jagdish N. Bhagwati and Robert Schiller all at 14/1.

No more Heterodoxy or Pluralism at Notre Dame

by Benjamin on September 30, 2009

The Heterodox economists, pluralists and historians of Economics at Notre Dame who were placed in their ‘own department’ in 2003; are being given the sack. One is reminded of certain ghetto creation schemes and the inhabitants later extermination. And this at a time when the favoured ‘mainstream’ is finding itself under repeated attacks for not being pluralist or inclusive enough. Another nail in the coffin of economists who are not much bothered with issues taking place in the real world. For Shame.

In 2003, the University decided to place the heterodox economists and other economists they did not think much of in the above Department. The then existing economics department was renamed as the Department of Economics and Econometrics and the only economists really allowed in it were mainstream economists of a very narrow sort. One of the reasons given for splitting the Economics Department in 2003 was the low ranking of the doctoral program. Recent research shows that at the time of the ‘splitting’ of the Department, the ‘heterodox-pluralist’ department had much better research productivity than the mainstream department. Thus, the powers at Notre Dame have opted for scholarly mediocrity over excellence. (This from Fred Lee, 17 Sep. 2009, More on this from Teresa Ghilarducci, open economics blog, The Observer and The Chronicle.)

The main ‘argument’ for getting rid of the economists were their lower journal ranking publications… I won’t go into the ranking debate here but it goes to show how important such things can be – even if they are artificial. In fact, only the other day I was chatting with another young lecturer who was telling me how he was planning to publish in a few ‘two star’ journals and then try to move up. ‘What are you trying to argue?’ I asked him rather naively. He looked a bit blankly at me and continued talking about just spending the next six months doing some new derivations of an older model… And so the progress of science marches on. Right.

UNCTAD says markets cannot find prices

by Benjamin on September 26, 2009

UNCTAD just released their annual Trade and Development Report with a launch talk at the LSE, and never shy of controversy, they announced in the launch talk that “Financial Markets never find the right price”, while linking the crisis with development and climate change.

The director of Globalization and Development, Heiner Flassbeck, argued that spot prices in the financial and commodity market is not driven by some underlying fundamentals. Prices were driven by fluctuations in the future markets, which are so heavily disturbed by trading noise that they have little to do with the commodity. Spot prices are then dragged up or down by forward expectations, sometimes for years, before causing a crash somewhere, and then being dragged off in a new distorted direction. The argument is interesting and his talk is worth a listen – you can download it here.

The report, and Dr. Flassbeck, goes on to debate the issue of climate change, arguing that there are no real ‘costs’ of switching to green production, there is  simply a change in preferences which will allow the market to find a new optimal distribution… I haven’t had a chance to read the report yet, but if anyone has a copy – let me know as the talk and following discussion was very interesting.

Richard Posner became a Keynesian Yesterday

by Benjamin on September 24, 2009

Richard Posner, One of the most influential legal minds in the USA and a lecturer at Chicago yesterday became a Keynesian… And here I am not talking new-keynesian, post-keynesian, bastard-keynesian or neo-keynesian… I mean, he picked up The General Theory, read it, and he likes it. He even agrees with it, when only recently:

I would not have been surprised by, or inclined to challenge, the claim made in 1992 by Gregory Mankiw, a prominent macroeconomist at Harvard, that “after fifty years of additional progress in economic science, The General Theory is an outdated book. We are in a much better position than Keynes was to figure out how the economy works.” We have learned since September that the present generation of economists has not figured out how the economy works.

So then… People are actually reading Keynes’s economics again. I guess it can’t hurt to start reading the old masters.