New School Economic Review

Back from holidays, with orthodox neoclassicism

by Benjamin on September 6, 2010

This blog, like many others has been quiet over the summer months. But now school’s in, and so is Peter Radford’s (2010: 112) term “orthodox neoclassicism.” We used to speak of the economic orthodoxy and that was the neoclassical school of economics… But with a crisis and the amazing adaptability of neoclassicism, we now have orthodox neoclassicism. So there must be some heterodox neoclassicism out there as well? Of course there is. Behavioural economics, imperfect information analysis and feminist economics could all – I think – fall into the category of micro-based analysis from one or two utility maximizing agents representing the world. The danger with all this, is that any dissent towards this type of model will be lost in what is becoming a theoretical debate between one type of neoclassical economics and another, as Hugh Goodacre points out, in reference to Stiglitz’s 20 August FT article:

The attempt by Joseph Stiglitz to portray himself as an intellectual underdog is unconvincing. He represents the “mainstream” paradigm against which he claims to be rebelling in caricature terms as the crudest possible version of the “efficient markets hypothesis”… Prof. Stiglitz’s “new paradigm” is in fact just an updated version of the market fundamentalism it claims to replace: have faith in markets – if they break down, you can fix them. (Goodacre, 23 Aug. 2010, in the Financial Times)

There is a danger here: Just like the perfectly informed rational agent was replaced by a ‘revolutionary’ backward looking agent – changing little of substance in the theory. We may now be watching a change from one neoclassical doctrine to another. One that will be more informative and interesting I am sure, but one which will continue to propagate the same old myths, with the same old disdain for empirical investigation and fieldwork. I could be wrong. I hope so. Welcome back  :)

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.

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.