New School Economic Review

A very welfare state: Austria

by Benjamin on November 23, 2010

Sorry for the lack of posting last week but I found myself in Vienna, Austria, for a work related conference. And let me tell you,  in the land of the Schnitzel people live well. I mean really well. So while the UK increased the pension age to 66 for women and men (from 60 and 64), or considers tuition fees in excess of $12,000 p.a., and the US struggles with double-digit unemployment or 14.6% of the population living below the poverty line, Austria has problems too… Never mind the two years of maternity leave (freely shared with father), or the one-week holiday  ’kur’ paid by the government – there has been a national strike !  Undergraduates were on strike all last year.

And what did they do?  My understanding is that they all went to lecture halls and sat down, declaring they would do nothing….. Having done that for a year and obstructed effectively nothing, politicians took mercy and listened. They decided that child benefit should not be reduced as planned.  I know what you are thinking – that’s very forward thinking of undergrads who don’t yet have children. But no. The reason they protested is the proposal to introduce tuition fees (a hefty $700 p.a.) and the fact that child benefits in Austria are paid until you are 27 if you are at university. Yes 27. Ah yes, austerity Austria.

That said the economy chuggs along, public debt is 66% of GDP and the deficit only $13bn – or around 3% of GDP. Good on them. As for Hayek, Haberler von Mises and Machlup, the founders of the Austrian school of economic thought that eschewed such social planning, Galbraith (1991: 191) nicely wrote:

None of this, alas, would have been possible had the great figures of Austrian economics in the 1920s and 1930s remained in commanding influence in their fatherland.

Thankfully they all came to the US and UK to help us set up our economy for far better things… Hmmm, might need to brush up on my German.

Keeping up with the Jones’

by Jeanne aka JStor on June 1, 2009

It’s a simple fact: the law just can’t keep up with speed of change. Last week, I read a book review on two books that discuss the problems the music industry is having with copyright infringement (i.e. free music downloading, file sharing, CD burning/copying). This obviously has taken a toll on the music industry. (I still like to buy some CDs since I am a huge fan of CD cover art.)

And obviously, the world of finance is facing it’s own problem.

The Levy Institute recently published a policy note by Professor Martin Shubik on The “Unintended Consequences” Game. It’s interesting to say the least. (You know how when someone asks you what you thought of something and you answer “It’s interesting.”? And it’s always a bad sign? Well, yeah this is probably one of those times …) I’m not quite sure what to make of it. Professor Shubik is partially right. When something bad happens (i.e. financial crisis), the public and the politicians look for a scapegoat and a quick-fix solution ASAP. And that quick-fix will end up having loopholes galore since it was obviously just thrown together. But his solution is really puzzling.

His solution: Continue Reading…

New Political Economy: History affects Development Policy

by Benjamin on April 27, 2009

“Listen up Economists: Why might history matter for Development Policy?” begins Prof. Ravi Kanbur‘s brief note on how history and, more importantly, a country’s perception of their own history has a significant effect on policy outcomes and policy making in developing countries, (and developed countries as well). Kanbur poses his argument within the framework of ‘new political economy’, where the old subject area – political economy – which includes history/politics/economy/economics is superimosed on the standard micro-economic model by way of a top layer of equations, so that “for those of us in the new political economy school, we might also try to endogenize the policy choice itself, by in turn modeling the policy and political process, the incentives of the different players (interest groups)”.

He criticisies policy models for not including political response, especially when theoretical work on this has moved forward, so “paradoxically, therefore, where it matters most we tend to ignore politics in the policy prescription, although these days our research papers are replete with models of rational choice politics” meaning that understanding the politics of the present and the influence of the past upon it, is very important for any development economist. Crucially,

It is the embedding of the past in the present’s perception of policy that is the transmission mechanism linking history to today’s development policy.

So history matters, politics matters, perceptions of the economy matter, all in-so-far as they can be incorporated into the typical micro economic model through a set of appropriate equations. This might be the achilles heel of the approach – at least for the moment – as we seem to be adding a rational optimising politician to the rational optimising agent. Can history then be worked into the agents utility function to make the politican redundant? Is that what the more ‘traditional’ micro-economist would argue? Either way, I guess people interested in institutions would encourage the seperation…

New Political Economy might not have the richness of Political Economy, but it does include the beginnings of a reply from microeconomics to the criticism of being a-historical and a-social, and therefore not very useful in the formulation of policy. I am not sure that it should be thought of as a ‘new’ political economy, but it is definetly a step in a new(ish) direction.

Scholars avoiding the policy world?

by Benjamin on April 25, 2009

It seems that fewer and fewer top people within academia on the international relations side of things want to go into policy making. The Washington Post (via Chris Blattman) article is an interesting read, but one paragraph in particular disturbed me:

Scholars are paying less attention to questions about how their work relates to the policy world, and in many departments a focus on policy can hurt one’s career. Advancement comes faster for those who develop mathematical models, new methodologies or theories expressed in jargon that is unintelligible to policymakers.

This sounds very much like a lot of the criticisms thrown at modern economics, and some have argued that the mathematization of the other social sciences is partly to blame on ‘economic imperialism’. It is  our methods (preferably the out-dated or standard ones) which are absorbed by other social sciences who also want to be seen as more ‘scientific’ and thus feel they should be more mathematical. A very extreme belief  is on display in Stanford’s Edward P. Lazear 1999 paper. This phenomena is often referred to as ‘physics envy’ after the very similar psychological ideas of Mr. Freud, and is  re-capped well by Physicist (turned economist at Columbia) Emmanuel Derman in two pages, and it boils down to the fact that the moral philosophy of the 17th and 18th century, the political economy of the 19th and early 20th holds not a candle to the magnificent mathematical beauty of modern micro. Maths may be all good and well, but to me, the fact that micro and macro cannot be unified in maths (at least not yet, as macro has become micro) and that when the macroeconomists are needed, as and when a crisis rolls along, we throw the maths to the curb for some empirical models and some macroeconomic linkages.

As other disciplines adopt our maths, I can’t help but feel that we as a discipline have taken some of the scientific rigour out of the political scientists, international relations scholars and anthropologists who followed in our optimistic micro footsteps. McCloskey always reminds us, that “science” means a systematic enquiry about a given phenomenon. It is the systematic enquiry, be it through text, data, books, experience, experiment and even mathematics, which makes a science scientific – not its mathematical aspect. Now our obsession is  keeping others away from the policy making world – much like many economists try to avoid large aspects of the real world – by moving our set of (skewed) academic values into their fields. Political Science rebelled against this move some years ago, but it doesn’t seem to have been enough.