Reading P3 and mt I got stuck at

…economics makes grandiose claims to be the science of collective behavior, or even the science of collective happiness. Yet it dismisses any philosophically interesting aspects of these questions in favor of counting dollar-denominated transactions. Nevertheless, it claims for itself a unique position among the sciences, as the crux, the central weighing mechanism, for all public decision-making.

Leaving to the side, if I can for the moment, the “philosophically interesting” aspects I’m interested in the “central weighing mechanism” point.

It isn’t clear to me if mt is rejecting (a) the idea of having a weighing mechanism, or (b) the idea that economics is it?

I don’t think (b) is plausible – economics is, pretty well by definition, the weighing mechanism. Assuming you believe in one.

That leaves (a) (I think. Are there other options?). I think that’s a bad choice – the only alternative to a central mechanism is a decentralised mechanism, where everyone uses their own prejudices. Which is the bad bits of the current political mess (if you want an example of decision-making not based on economics, then try this or more generally). I think you want more economics, not less, but done properly.

Once upon a time I think I would have rejected (a), or perhaps I would have not got past my reservations over it. There are still immense problems with reducing everything to a common monetary unit (e.g. Stern is broken). But I now think that to refuse to accept (a) is just to stick your head under a blanket. These decisions and trade-offs will be made anyway; its impossible not to make them. So they should be made in the best way.

[Update: if you want an example of why doing things non-economically is a bad idea, try this].

Refs

* Carlyle and the Racist Origins of the Idea that Economics was “the Dismal Science”
* The crash wasn’t derivatives and it wasn’t big banks: as Spain shows
* Covered in Bees finds mt a bit hand-wavy too.

Comments

  1. #1 mt
    2012/05/08

    I accepted prop (a) back in the usenet days for exactly the reasons you posit, and haven’t gone back on it. My issue is with (b).

    The trouble is that there is a sleight of hand involved. There are two definitions of economics and they are being conflated. One is: economics is the science of collective decision-making and the other is: economics is the stuff economists talk about. I am absolutely unconvinced that these are identical. This claim of identity, pretty much lacking a serious challenge, is a big part of what that causes the stuff economists talk about to be grossly overvalued in the actual, real decision-making process.

    The issue is one of nomenclature.

    I find it clearer to define economics as “what economists talk about” and say that this is only a part of a complete theory of how we decide things. Otherwise I would need to go to great verbal lengths to avoid implicitly accepting what I think is an excessive claim by the economics community as it stands as being the anointed king of applied science, and come up with a name for that subset of collective decision-making theory that is, to some extent, in actual fact covered by their discipline.

    Under the broader definition which you propose to accept, I would simply say that “economics” writ large is only loosely related to that which people calling themselves “economists” think about. If we continue this conversation in those terms, we need a name for “that which economists talk about”. You can then proceed to make a case that the two are identical, but as things stand I don’t believe it.

    [When you say "...what economicsts talk about..." do you mean: the talk you hear currently? (In textbooks? In paper? In blogs?). Or do you mean "everything covered by basic theory"?

    What I'm trying to get at is: if you defined climatology as "what climatologists talk about" you find that, errm, say, the Ferrel cell isn't part of climatology, cos hardly anyone talks about it -W]

  2. #2 Tom Curtis
    2012/05/08

    I would reject both (a) and (b). Logically, my reason for rejecting (a) depend on my reason for rejecting (b), so I will discuss that first.

    As an weighing mechanism, economics has (at least) two crucial flaws. The first thing is that something we value very highly cannot have their value expressed on monetary terms. For something to be valuable in monetary terms, there must always exist a parcel of material goods which we would exchange for that thing if the parcel was sufficiently large. But that is certainly not true. Put simply, not everyone has his price. Honour, freedom, democracy, are in my opinion beyond price. No bundle of physical goods could be large enough to make them worthwhile giving up. Likewise the lives of my children, or my relationship with my wife.

    Further, even among things which can have monetary value, economics is necessarily unjust in resource allocation.

    [Interjecting: notice that you have assumed a definition of justice here. Reading on, I can effectively get some idea of what your definition is. It conflicts with Hobbes's, which is the one I use -W]

    This is because resources are allocated based on demand, which is a function of desire plus purchasing power, rather than based on desire alone. If follows, for example, that Donald Trump’s mild desires for titillation trump, in the current example, Somalian needs for food and medicine. Nor is it possible to justify this skewed resource allocation on the basis that wealth is acquired by satisfying demand, for that means satisfying the desires of the wealthy rather than the needs of humanity.

    This does not mean that economics is not a very useful weighing mechanism. It is. But it cannot be the sole weighing mechanism, or even the dominant weighing mechanism without sacrificing the needs of the many for the whims of the few. We need alternative weighing mechanisms which can trump mere economic considerations at need. Further, we need explicit weighing mechanisms which are imposed as constraints on economic valuations to correct the distortions that pure economic valuation imposes (ie, restricting extremes of income disparity so that satisfying demand better approximates the equal satisfaction of desires) which are insisted on even though they impose economic costs in terms of “economic growth” simply so that the economic weighing mechanism becomes complimentary to our needs rather than antithetical to them.

    Given the above, IMO, what is needed is not “a” central weighing mechanism, but several overlapping mechanisms with more central mechanisms (morality, justice) trumping lesser mechanisms at need. This does not mean the higher order mechanisms should be conducted in ignorance of economic considerations – but that they should not be decided by them.

    [Unfortunately, by saying "several overlapping mechanisms with more central mechanisms (morality, justice)" you are (1) using ill-defined words and (2) you cast us back into the pit of allowing the politicians to use their own personal prejudices (or those of the loudest-shouting special interest group) when making decisions. Because that is what "this is the correct economic choice, but my personal morality says we must do X instead" amounts to -W]

  3. #3 mt
    2012/05/08

    W, your response to Tom’s point above provides me my answer to your response to mine.

    It is indeed the case that rejecting (a) puts us at the mercy of various manipulative techniques at the expense of a well-reasoned strategy. On this I agree. But while the claim that “this is the correct economic choice, but my personal morality says we must do X instead” is fraught with risk, the claim that “this is the correct economic choice, but the shared morality of civilization says we must do X instead” is the one I wish to examine.

    [OK, so "the shared morality of civilization" is a good point. I think I have to admit that in my scheme, that is wrapped into the economics; though I'd rather pretend it didn't exist (saying that brings up a weird sense of deja-view; I'm sure we've done this before). However, you haven't demonstrated that "the shared morality of civilization" exists. Indeed, I can make a strong case that it doesn't, in crude terms: the US wants far more environmental protection than the Chinese do, at the moment, for example -W]

    Under your definition of “economics” such a claim is an oxymoron. Under mine, it is perfectly reasonable. Under your definition, that is, our collective ethics are expressly part of “economics”. But then your claim for any realistic nontrivial matter (e.g., greenhouse gas policy) that “this is the correct economic choice” becomes extremely difficult to defend.

    I may pretty much never mention or think about the Ferrell cell after my comprehensive exam (this may actually have been the case until this morning) but if I do mention it, it is not to handwave away any controversy about its existence. If pressed, I can come up with plenty of empirical evidence for it.

    But if your use of the word “economics” subsumes everything about objective decision making, then you need to show me where and how it does it. Tom’s arguments that, by virtue of reducing everything to trade it cannot, are not obviously unsound. I have some other ways of putting it that are in some ways similar.

    Remember Einstein’s quotation about drilling where the wood is softest rather than where the holes are needed? In dealing with the largest issues, macroeconimics in practice seems to be doing just that. But my ignorance on the subject is substantial. You can prove me wrong by showing me just how and where these needles are threaded. But doing it by grand assertion has no utility.

    [My knowledge of econ is similarly lacking. But I'm still not clear what you think econ is lacking, or what elsewhere would do it better -W]

    If we really had an objective model of optimal decision making, then it is a tautology to say that it would be stupid to ignore it. But, (and please do correct me if I’m wrong) we don’t, do we?

    In fact, we are so far from it, that calling such a hypothetical model “economic” concedes far too much to the community of economists that we have, in my opinion. Whence our difference over nomenclature.

    [That gives me the impression that you're reluctant to cede decision making to the economists, because you dislike them, or their products. And in that case I'd agree that we shouldn't. Economists get to build the models, but "we" have to populate the models with our choices; the economists can't do that by themselves -W]

  4. #4 Byron Smith
    2012/05/08

    I don’t think (b) is plausible – economics is, pretty well by definition, the weighing mechanism. Assuming you believe in one.

    Of course there is another option: practical reason, phronesis, wise judgement. Not every judgement can be translated into quantities. Sometimes, careful conceptual analysis and the exercise of practical reason are paramount. Indeed, insofar as economics is of use, it is as a tool of practical reason, to help calculate those aspects of public deliberation that are indeed amenable to calculative reasoning.

    [Unfortunately, this raises the question of "whose practical wisdom shall we use"? and the answer will always be: the politicians (unless you're assuming some vast upheaval when we return to Utopia). Which is, IMO, bad.

    The goal of the design of the system should be to survive unwisdom in those making decisions; not to assume that those making decisions are wise -W]

  5. #5 Eli Rabett
    2012/05/08

    What great timing. As xkcd puts it by dubbing econ “dismal science” adherents exaggerate. The “dismal”‘s fine it’s “science” where they prevaricate

  6. #6 Eli Rabett
    2012/05/08

    So the issue is, can you buy happiness? Sometimes

    [Render unto Ceasar. Those things that are orthogonal to money don't need to be considered -W]

  7. #7 Dan Olner
    2012/05/08

    [engaging terse non-essay length reply mode]

    MT: “There are two definitions of economics and they are being conflated. One is: economics is the science of collective decision-making and the other is: economics is the stuff economists talk about.”

    Who’s doing the conflating?

  8. #8 mt
    2012/05/08

    “Economists get to build the models, but “we” have to populate the models with our choices; the economists can’t do that by themselves”

    No, this is exactly the point. By building in concepts like “discount rate”, they limit our choices.

    [No! You are entirely wrong. A concept like "discount rate" is valuable, and most certainly should be built in. The question then is, "what value should it have?" that isn't built in. You're sounding (apologies for being harsh, you know I have the best of motives) like those septics who say that GCMs have their climate sensitivity built in, or have their WV feedback built in, or whatever -W]

    To get all pedantic about this, the difference between parametric uncertainty and epistemic uncertainty is key to understanding misunderstanding.

    That is to say, you are suggesting that the economic community is tasked with providing a model with lots of knobs, and that we are free to tweak the knobs. That is, you claim that there is freedom to set parameters but you imply that there is no confusion about the system we are parameterizing. I claim that there is plenty of confusion, and that the economics community is not equipped to deal with it.

    [And I think that the econ community would answer much like the GCM community: yes, we're well aware that our models aren't perfect. But arguing that "imperfect model implies worthless model" is what the septics do; the response, obviously, is "well, what do you think we've forgotten that is so important, then?" -W]

    I am reasonably confident that the models the mainstream provides are currently providing are only contingent on a certain regime.

    This is perfectly ordinary fluid dynamics, but a lot of other fields simply don’t get it – they think they are dealing with fundamentals and not with simplifications of real but limited validity.

    A particularly salient example, to be specific, is that you can’t use a discount rate when you don’t believe in the sustainability of growth, or even if you believe that the sustainability of growth is contingent on decisions that might not be made.

    In the regime dominant from 1700 to 2000, roughly, a presumption of growth works well. But once resource-based limits hit, it works badly. In one regime, resources can be neglected as a minor factor. In the other, they cannot. A model that has utility in one regime has no guarantee of being useful in another.

    [I think you've assumed too much here. You think I believe in your resource-limited growth idea, for example. But I don't; or at least, I'm not convinced by it. You'll need more than hand-waving -W]

    In fluid dynamics, we go back to the primitive equations and re-simplify for the dominant terms of the new balance. In economics (by which I mean the existing discipline), there is no fundamental physical theory and thus no methodology for rederiving the appropriate simplification for new conditions.

    [I don't think I believe that - again, I think you're assuming too much -W]

    PS – please update your blogroll, thanks…

    [Aww, no-one pays any attention to blogrolls any more. People click-n-follow the comments of those who make intelligent points -W]

  9. #9 daves
    2012/05/08

    “[Render unto Ceasar. Those things that are orthogonal to money don't need to be considered -W]” Or as Barrett Strong so wisely put it,
    “The best things in life are free, you can give that to the birds and bees but gimme money, that’s what I want.”

    Perhaps you’re confusing economics with the economy, stupid? Undoubtedly the economy will resolve matters one way or the other, with shifting patterns over time, but the dismal “science” of economics has a much worse track record than climate science. For good economic reasons, of course: looking at todays newspaper, a witty column comments on how economists nowadays aren’t rocking the boat…
    http://www.guardian.co.uk/commentisfree/2012/may/07/academics-cant-answer-criticism-analysis

    [Is that intended as a joke? "I discussed this absence and the dearth of sociologists and other non-economists analysing how we got into this mess. Nothing particularly controversial there, I thought, upon filing the piece, especially since I had canvassed opinion from a number of academics and presented the argument to a broadly supportive forum of sociologists at the LSE." And then again "I tried talking to the British Sociological Association, but no one would agree to a chat on the phone. Their spokesman claimed they were "wary" after my previous criticism – hardly the spirit of academic debate. The only thing on offer was an email exchange. " I can't see anything there of value - what am I missing? -W]

    The weighing machine appears to be evading weighing.
    Perhaps a result of sado-monetarism:
    http://www.guardian.co.uk/commentisfree/cartoon/2012/may/08/steve-bell-cartoon-francois-hollande-agela-merkel

  10. #10 Eli Rabett
    2012/05/08

    Air, water, pollinators (not the ones for hire), those sort of things. You can moneitorize some of them, somehow, but it often is a dancing pig act.

  11. #11 jimmywitz
    2012/05/08

    I don’t understand this whole discussion. Economics does not try to put a value on anything. It merely tries to explain what is happening in any particular economic system.
    For instance, in micro-economic theory, it tries to explain utility, and why, if you have just drank deeply, the marginal utility of one more glass of water is very low. And in macro-economics, it tries to explain, for instance, if you cut government spending, how much the unemployment rate will rise in the short term. It does not really make a judgement whether a higher unemployment rate is a good or a bad thing, except as to the extent that it will affect future economic growth prospects or not. It merely tries to impart a better understanding of the system.
    The problem at the moment is that economics has become co-opted by politics and religion. So that people are making economic pronouncements based not on a rigorous analysis of the empirical data, but on the rigorous committment to their own particular prejudices. But that misuse of the science does not mean that the science itself is not useful. On the contrary, anything which helps us understand how a particular system works can only help us make better decisions.

    [Yes, this is part of the problem: we don't all mean the same thing by "economics". To some people it means rational-resource-allocation. To others, it means the evil capitalist system throwing people out of work whilst rewarding bankers. Its hard to make any progress, or have a viable conversation, between people in that case -W]

  12. #12 Hank Roberts
    2012/05/08

    http://imgs.xkcd.com/comics/every_majors_terrible.png
    ————–
    By dubbing econ
    “dismal science”
    adherents exaggerate.

    The “dismal”‘s fine —
    it’s “science” where they
    patiently prevaricate.
    ————–
    and
    ————–

    As Pratchett said,
    Geography’s just physics
    slowed with trees on top.

  13. #13 Eli Rabett
    2012/05/09

    If the thing that are orthogonal to money don’t have to be considered, why let us send the kids out to work in the mines. Education and food are expensive. And, oh yes, those church like objects. Clearly useless.

    [Oh come now, you're trolling. "considered" was in the context of "in the economic calculation" -W]

  14. #14 mt
    2012/05/09

    William:

    “Yes, this is part of the problem: we don’t all mean the same thing by “economics”. To some people it means rational-resource-allocation. To others, it means the evil capitalist system throwing people out of work whilst rewarding bankers. Its hard to make any progress, or have a viable conversation, between people in that case.”

    Oh please, is there anything else on the menu?

    Look, I’m trying to get a clear definition so we can make progress. Caricature is counterproductive. Let’s try to engage on nomenclature first so we can have a conversation.

    ===

    mt: “There are two definitions of economics and they are being conflated. One is: economics is the science of collective decision-making and the other is: economics is the stuff economists talk about.”

    [I don't think these defns conflict, strongly. I need to re-write your defns though: econ clearly isn't (a) the science of collective decision-making, because that would include politics. But something like (A) the science of rational collective decision-making based on cost-benefit and revealed preferences, might do.

    You have a second part, (b) the stuff economists talk about. You assert that this conflicts, or is not the same as, A. But I don't think you've provided any good evidence for this. Give an example of something in A that isn't in b -W]

    Dan O: Who’s doing the conflating?

    ===

    Why William is, for one. Consider:

    – Those things that are orthogonal to money don’t need to be considered. … “considered” was in the context of “in the economic calculation”

    but

    – “rational-resource-allocation”

    [That's too brief for me. Do you really not understand what I meant? -W]

    ===

    Are we considering rational resource allocation in the light of all evidence, or are we considering only those aspects which project directly onto the money exchanges we have under the present system?

    Eli’s point stands. Slave labor and child labor are “rational resource allocations” by the people with capital.

    [Slave labour and child labour are illegal. All of econ assumes a legal background. If we were having this discussion in antient Rome, the legal background would be different -W]

    If one capitalist has access to them and another doesn’t, the latter will be at a competitive disadvantage. It is part of the (admittedly limited) shared ethics of civilization that we don’t do those things. But that is not because they are uneconomical. There are plenty of arguments to be found from the plantation owners in the Antebellum cotton plantations in America that an end to slavery was totally uneconomical. Those arguments were perfectly sound and the southern aristocracy never recovered from the blow. But we stopped doing that because it was evil.

    [I'm dubious that we stopped doing it because it was evil. And the point about things being Forbidden vs Discouraged is discussed in my post about carbon taxes. I think that emitting carbon comes into the class of things that are Discouraged, not Forbidden. In which case, if you agree, your arguments about slave labour are besides the point.

    If you disagree, then we do indeed have a fundamental difference, which needs to be recognised. It is true that not all things are subject to cost-benefit: you can't kill people and pay for it afterwards, for example, no matter how rich you are (at least in theory) -W]

    Rational resource allocation can be approached in two ways. One, you can consider ethics part of the problem. The other, is you can factor ethics out of the problem.

    In order to proceed, I would like to know whether your definition of economics is inclusive or exclusive of ethics.

    [My version of economics includes valuing things by peoples revealed preferences. Thus it includes ethics, at least partly -W]

    In common economic practice, ethics is excluded from the calculation.

    [You can't say that as though it was obvious. Where does your statement come from? -W]

    But that means that we are back in the dreaded “pit of allowing the politicians to use their own personal prejudices (or those of the loudest-shouting special interest group)”. We have no choice.

    I am okay with either definition, or any other clear definition. But I am not okay with somehow implying that we can have some sort of ethics-free technocracy.

    I am astonished to see you falling, or seeming to be falling, into the neocon trap which looks like this.

    1) we need rational decision making, and we’ll call that economics
    2) rational decision making requires a formal cost function
    3) we cost things in money
    4) so everything orthogonal to money is excluded from rational decision making.

    That is exactly the argument for slavery.

    [Your argument doesn't work, for the reasons I've given: everything is subject to the law. That, effectively, takes certain ethical decisions out of the question: we don't allow people to sell themselves (some libertarians would, I think). But I would argue for less law (here is an example of an extremely bad proposed law) -W]

    If your conclusion is wrong, (and since it reaches an ethically untenable conclusion, it must be wrong) your argument must be wrong. You do not get to wring ethics out of the problem this way.

    I think the main problem is between steps 2 and 3. Most people think with Tom Curtis that the main problem is step 2 itself.

    So what I’m proposing is a bit unusual; I agree with the economists on point 2 but want to go very carefully on from that point. (I argue that it is apparent that cash is increasingly a poor measure of economic success in the aggregate.)

    But either way ignoring everything orthogonal to money is the problem, not the solution. Otherwise your argument justifies injustice.

    [As I say, your conclusion is broken, because you've forgotten the law. You've forgotten the distinction between Forbidden and Discouraged. It isn't clear if that resolves our disagreement. You could try recasting your argument to take it into account -W]

  15. #15 Marlowe Johnson
    2012/05/09

    Weasel I suggest you pay a little more attention to what Mr. Curtis has to say and consider the remote possibility that your beloved Hobbes doesn’t exactly represent the pinnacle of moral philosophy.

    [You can suggest it all you like, but without a bit more substance it will just bounce off; I'm a busy mustelid. I was hoping Mr Curtis would come back and defend his implicit definition of justice, but he didn't. Can you? -W]

    in the old days it used to be called political economy btw. more recently, the fetish for quantification has redirected the discipline away from it’s more normative roots towards theories of involving significantly greater levels of abstraction. this is a bad thing I think, and so did Robert Heilbroner, who has written many interesting things on the subject.

  16. #16 mt
    2012/05/09

    In practice, Forbidden means, in the limit of ineffective lawyers, that rich people and profitable institutions are penalized equally for an action, while Discouraged means poor people and marginal institutions are penalized significantly more effectively.

    [I disagree. I can accept that in the real world we live in, the richer you are means the better lawyers you can afford means the less the law effectively applies. But within limits. The rich, in the West, can't go around killing people. Or even doing trivial things like speeding. But in Russia, things are different. We have law; they don't, really -W]

    Such inequality is what makes a more complex regime conceivably more attractive in utility terms than a simple carbon tax, the more so the greater the underlying inequality. The increased complexity, as you point out, leaves plenty of room for gaming the system and reducing net utility, and in practice may well be worse than a simple tax, as the Waxman-Markey proposal in the States was.

    But if fuel prices triple as a result of Discouragement, the suburban professional has a trifle less money in his retirement account, the rural tradesman is severely inconvenienced, and the Haitian child starves. Awkwardly exactly the opposite of the desired effect, since the Haitian child’s gruel was not a big player in the impact picture.

    [Disagree. The burden isn't shared equally, true, but that's tough. Access to fossil fuels is not a basic human right -W]

    I’m not sure how any of this invalidates my argument. If we are optimizing utility over rule sets, Forbidment and Discouragement are simply among the variables to choose.

    [Again, disagree. There is a fundamental difference between the two; if you won't see that, or engage with that, you're left talking (irrelevantly) about slavery -W]

    You seem to be saying first we forbid everything we choose to forbid, and then we tax externalities, and then everything will work itself out. It certainly has the benefit of simplicity. And it does have some very attractive feedback loops. It does tend to punish the innocent and reward the guilty during the transition, which is no small matter. But that’s not even the issue at hand.

    It begs exactly the question I am raising. What is the utility we are maximizing, and how do we know that this approach does that?

    [If that was your question, then you should have raised it explicitly. I don't think we are maximising a utility - that's too teleological. We don't know where we're going; there is no guiding hand. Better is to say that we're minimising inutility. If you haven't read Popper - the Shadow of Plato, I think - then you should -W]

    It seems a matter of faith in some circles.

    [I'm not sure what you think is this article of faith - the utility-maximisation? I'm dubious that real economists believe it. As I've said above, its not what I'm arguing for -W]

    I think it was a reasonable approximation of true in a resource-rich labor-poor context. (I include waste sinks, such as the environment’s capacity to absorb excess CO2. under resources here.) But now that both of these crucial contextual facts are (at least arguably) reversed, I have no confidence that it’s the case anymore.

    Many large-scale trends of the past twenty years confirm that resources are worth far more, and labor far less, than in the past.

    [Again, you're making large claims with no backup. If you look at revealed preferences - prices - you find precisely the opposite: labour is worth more, and resources less. OK, I haven't backed that up either, true -W]

    These trends show no sign of abating. Since the old system and the theory behind it both arose in the opposite context, there is no guarantee that it will work into the future. In fact, the reasons that it might not are fairly obvious.

  17. #17 Eli Rabett
    2012/05/09

    Eli’s point stands. Slave labor and child labor are “rational resource allocations” by the people with capital.

    [Slave labour and child labour are illegal. All of econ assumes a legal background. If we were having this discussion in ancient Rome, the legal background would be different -W]
    =======================

    Today.

    In the West

    Child labor is still legal in many countries and was so in the US till about 1925.

    Slave labor still persists in backwaters of the Arabian Peninsula.

    In terms of economics, these are merely externalities anyhow.

  18. #18 Eli Rabett
    2012/05/09

    You really don’t want to go that way either, because if you say that “As I say, your conclusion is broken, because you’ve forgotten the law. You’ve forgotten the distinction between Forbidden and Discouraged. ” than law is external to economics and economics has nothing useful to say about law or regulation, but if you claim that it does, we are back to slavery and child labor.

  19. #19 mt
    2012/05/09

    I fear I’m missing your point altogether. Let’s regroup. What is the difference, in your view, between “rational decision making” and “utility maximization” which I have been using interchangeably?

    What I think we are discussing is how to design the conditions under which a sustainable society may maximally thrive.

    [I'd thought that "teleological" was the answer to that; the analogy I'm drawing is to evolution. You appear to be thinking in terms of directed evolution; I'm thinking of survival-of-the-fittest. I don't think that aiming for "maximal thriving" makes sense; I'm designing for maximal freedom instead. Again, see Popper. So, there is another constraint on my theory, which I think is implicit in the economics bit though I didn't mention it: that you avoid constraining freedom where possible -W]

    The variables we can design are the legal and social constraints we collectively place on ourselves as individual actors, which run a wide gamut including taxes, subsidies, prohibitions, regulations, obligations, standards, infrastructure design, and social norms.

    I do not understand the sharp division you want to put up around legal prohibitions in this sphere.

    Nor do I understand how this answers my original complaint that prompted the discussion, which is that economics as it exists makes grander claims for its applicability than it can justify.

    [But... this is just another claim, not backed up. What claims does economics make that it can't justify? -W]

    I want to think about how to design a sustainable and thriving society.

    [You've dropped "maximal". So now I'm happy -W]

    So I am trying to talk about that hypothetical-economics-in-the-ambitious-sense, and explain why the actual-real-economic-theory disappoints.

    [Ah. But I think your explanations are weak, and sketchy to the point of non-existence. Take the original post for example. There is far too much broad-brush there, and no real explanation of why actual-real-economic-theory disappoints. And I don't think you've offered any here. If you were trying to assert that our current economic-n-political system disappoints, then I'd have no problem agreeing with you. But that isn't your point, I think: you're asserting that the economic theory disappoints. But I still don't know why you think it does.

    Should we try taking a concrete example, perhaps? In what way do you think current economic theory, as applied to the question of carbon taxes, is invalid / missing / disappointing / unsatisfactory? -W]

    As far as I can tell, your claim is that these are identical. That we already have economics writ large, i.e., a theory of how to make rational decisions. That there is and can be nothing missing from that theory.

    [That would be too large a claim. That would be like arguing that climatology is complete, nothing is missing, nothing imperfect. We know it isn't. But we - you - happily argue that we should nonetheless use it as a (good) guide -W]

    Eventually you admitted a sole exception: legal prohibitions against things universally regarded as Bad. But otherwise, you seem to be claiming that we have a theory of rational decision making. And to justify the specialness of your exception, you insist that prohibitions have a special status among social and collective mechanisms. And that everything ELSE not only can be but should be decided by the marketplace.

    Is that right?

    [Cautiously, yes, though I have to omit your last sentence at this point. I can't think of any obvious exceptions though -W]

    And yet this theory of rational decision-making does not optimize utility.

    Is that right?

    Probably not, I suppose. I apologize for being obtuse. I’d appreciate clarification.

    [As I've said above, I'm not convinced that "optimising utility" really makes much sense, except perhaps locally. So I'd prefer not to answer that question. OTOH, you (I take it) clearly believe that economics fails badly to optimise utility. What proof do you offer? If you tell me "the current state of the world", I'll reply "that's politics, not economics" -W]

  20. #20 Marlowe Johnson
    2012/05/09

    Ask and ye shall receive.

    [I don't think a pile of undigested Rawls is going to help much. HE had, I think, two good ideas. the first is a rhetorical trick - calling his theory "justice as fairness". And the other is the veil of ignorance. But he wraps these in so many turgid words that its painful. And his theory appears to have no consequences, so I'm not sure why you bring it up.

    For example "social unity is understood by starting with the conception of society as a system of cooperation between free and equal persons". Well, yes and no. Its a nice idea, but obviously if you measure people by wealth, health, height or chances in life: no, we're not all equal. And you can make a good case that we're not all free. So, we retreat to the idea that Rawls is talking about an idealised society. Which is very nice, but not very helpful -W]

    I’m reluctant to get into all the reasons why I find revealed preference theory to be slightly more useful that my slapchopper, as a certain economics professor with really bad hair might take notice and bitch at me to change my name ;-)

    Ah fuck it. start here and we’ll talk in the morning.

  21. #21 grypo
    2012/05/09

    The end of slavery came about first in Europe due to economic issues such as cheaper crops (like sugar) from Central and South America. Also, there were several slave revolts and some political upheaval. Had slavery remained economical in certain crops, it likely would have taken longer, like it did in the South in the US, even in the face of activism.

    In the US, it took much longer to get slaves freed in the south (save for lawful workarounds by Pennsylvania) because of the type of crop that grew, and the plantations used.

    There were many reasons to end slavery, but it only became acceptable to those in power when the economics allowed it.

    [That was kind-of what I was alluding to. Also, that slavery wasn't "economic", it was coerced. Its possible to imagine a society that permits economic slavery - i.e., you're allowed to sell yourself. At the moment, we're so far away from this that I don't see any discussion (though I'm sure there are academic papers on it) though there is a related issue - being paid for organ donation, or for surrogate motherhood - that does come up, and is effectively the same question but smaller: can you sell bits of yourself -W]

  22. #22 Marlowe Johnson
    2012/05/09

    You better be careful Rabett. You keep talking about child and slave labour and you’ll be branded a marxist-commie-greenie. well too late for the last bit, but why add targets to your back eh?

    It seems to me that our gutter-loving host is trying to drag the rest of his foragers down into the muck with him where he is most comfortable.

    To clarify the discussion we need to separate is from aught. Using arguments about the former to justify the latter amounts to that tired old bore, the naturalistic fallacy, aka Hobbes . Meh.

  23. #23 Paul Kelly
    2012/05/10

    MT has the same problem with economics that Eli has with journalism. With regards to public policy, he is correct that economics – narrowly defined – is not the central weighing mechanism.

    “this is the correct economic choice” is easy to defend.

  24. #24 Hank Roberts
    2012/05/10

    > All of econ assumes a legal background.

    China learns the wrong lesson, falling for the easy answer that doesn’t work — more and more rigid regulation:

    “… institutional arrangements … spur the demand for and supply of accounting information with low quality, especially illegally false accounting information …. instead of urging for the high quality of accounting information, the current institutional arrangements, especially loose enforcement, induce illegal fake accounting information. Therefore, improving quality of accounting information should focus both on the setting of scientific accounting standards and rigid enforcement of relating laws.”

    http://en.cnki.com.cn/Article_en/CJFDTOTAL-KJYJ200107001.htm

    USA teaches how the rules work when experts apply them:

    “Recent high profile events indicate that the accountants and auditors involved have followed rule-based ethical perspectives and have failed to protect investors and stakeholders – resulting in a wave of scandals and charges of unethical conduct. In this paper we describe how the rule-based traditions of auditing became a convenient vehicle that perpetuated the unethical conduct ….”

    Yes, indeed, “All of econ assumes a legal background.”

    Blake explained it: “You never know what is enough unless you know what is more than enough.”

    [I hope you're just trolling. One of China's problems is that they don't have the rule of law; they have arbitrary rule. Don't mistake that for regulation. Argentina has some of the same, in the way they've just stolen Repsol. Note the distinction between rule-of-law and rule by passing laws; they are different -W]

  25. #25 Tim Worstall
    2012/05/10

    “Eli’s point stands. Slave labor and child labor are “rational resource allocations” by the people with capital.”

    Not entirely convinced that stands. For the reason it’s called the “dismal science” is precisely because the assumptions made by Smith and JS Mill meant that Carlyle didn’t get to say slavery was a good idea.

    http://www.victorianweb.org/authors/carlyle/kennedy1.html

    “The first thing is that something we value very highly cannot have their value expressed on monetary terms. For something to be valuable in monetary terms, there must always exist a parcel of material goods which we would exchange for that thing if the parcel was sufficiently large. But that is certainly not true. Put simply, not everyone has his price. Honour, freedom, democracy, are in my opinion beyond price. No bundle of physical goods could be large enough to make them worthwhile giving up. Likewise the lives of my children, or my relationship with my wife.”

    You’re misunderstanding what an economist considers a price. That freedom and democracy bit for example. Would you be willing to fight, to risk your life, possibly die, in order to either defend or gain those things?

    You would? That’s a price. You wouldn’t? That’s a price also. Hundreds of millions of human beings the world over have taken either side of that price over the centuries.

    There is absolutely no assumption at all that a price has to equal some bundle of material goods.

    Where the confusion comes in is that in order to measure that price an economist might compare it to a bundle of material goods. By reducing that price to a $ number. But the economist is most certainly not assuming that if confronted with the direct choice you’ll take the goods and not the freedom, nor vice versa.

    Take, for example, something alluded to above, Stern’s calculations. In this case, the value of a life. The general value assigned to a statistical life in the US is around the $5 million mark. We do not, at all, think that someone is willing to line up to be killed in return for them, or their heirs, to get $5 million.

    However, observing the extra risks that people do take in return for higher wages (and yes, we can see this in wages for fisheries, lumberjacks, steelwalkers and so on) we can come to some approximation of what people think their own lives are worth. People actually do accept slightly higher risks of death in return for higher wages.

    Similarly, we do not think that poor people in poor countries are less of worth than rich people in rich countries (Smith’s and JS Mill’s point that so disturbed Carlyle in part). However, we do observe that poor people in poor countries are willing to take those higher risks for less money than rich people in rich countries. Not that this should be a surprise to anyone.

    These calculations of the value of a life are not, therefore, either of these two things: a bundle of goods for which people will happily lay down their lives, nor a determination by pink rich people that poor brown people are worth less.

    They are a measurement of what people appear (as best we can) to value their own lives at on a purely statistical basis. And the reason we do this is so we can do sums.

    For example, should we spend $10 vaccinating kids whose lives are, without vaccination say, 30% going to die when their parents value those kids lives at $5,000?

    Yes, obviously.

    Should we spend $5 billion per statistical life saved on cleaning up some trace pollutant in water? No, obviously not.

    The reduction to these monetary values is simply a decision making tool.

  26. #26 J Bowers
    2012/05/10

    “People actually do accept slightly higher risks of death in return for higher wages.”

    Some do, not all.

    [So what? The point is, people don't put an infinitely high value on their life. They make an - admittedly imprecise - evaluation of risk and reward -W]

  27. #27 grypo
    2012/05/10

    The EPA values life on what people are willing to pay to avoid certain risks. Because this comes from an average over the population, it depends on a people’s ability to afford it. Therefore, wealth distribution and amount of wealth throughout are prime factors in the value of life. So it is the system that dictates the value, not individual preference. Without an equitable distribution of resources, the value of life is distorted by ability to pay.

    [You've jumped too far, I think. Clearly the amount of money people have affects the value they can put on lives. But the risk premium people demand for dangerous jobs isn't like that - you can demand as much as you like, independent of your wealth. Of course, if someone demands less, they get the job -W]

  28. #28 grypo
    2012/05/10

    ” But the risk premium people demand for dangerous jobs isn’t like that – you can demand as much as you like, independent of your wealth.”

    This is only possible in a system that forces power downward from the top, where wealth is distributed according to need. A person will take any dangerous job when hungry because the risk of starvation is higher than dying in the coal mine.

    [But your argument falls apart: in the West, it is easy to not be hungry -W]

    Only when a system forces democratization of the work place through law or union does this point outdo my point about power distribution. That is why throughout history dangerous jobs paid poorly until unions/law increased the value of life and/or power to the worker. A well disciplined, non-union workforce has little choice in a pay versus risk equation.

  29. #29 mt
    2012/05/10

    A quick comment. I’m genuinely shocked at the extent to which human dignity is factored out of this conversation. Admittedly it was not the people with the most to lose by Abolition who became Abolitionists, but the suggestion that there was no ethical component to their quest is a shabby and demoralizing misreading of history.

    [No-one has made that suggestion -W]

    Again, I am not discussing “economics” per se. I am trying to determine the extent to which “economics” is a guide to governance. William, who seems to have become a neocon somehow, continues to beg the question.

    It may be the case that human dignity and kindness and decency factor out of “economics” totally or can be handled as a minor fudge factor for all I know. But if that is the case then economics is a small part of how we should govern ourselves.

    Rather than assuming that *everything* can be subsumed into market forces, he says we can maximize freedom and reach tolerable governance by proscribing certain obviously wrong behaviors and then letting the market do its thing. And that this is what we *should* do. And then he asks me to prove the contrary, as if this assertion were the most reasonable starting point!

    Of course, we are allowed to add disincentives to things which have externalities. Let’s leave aside the awkward question of whether ethics enters into evaluating externalities.

    Still, how do we get schools, libraries, safe medicine, safe airplanes, etc. out of this astonishing simplification? Where would the internet have come from? Hell, where would the financial system have come from? This leaves aside the issue of national sovereignty and its associated weight of military calculations. What proscriptions and what externalities would cause the system to provide these things on which we now depend?

    [Ah, OK, at last we have your list of things that deciding things via economics will miss.

    - The financial system: well, that just grew up. Government was largely a client, at least in the version of history I have. It is, nowadays, "responsible" for regulation, a role it arguably does badly. I wouldn't remove all its regulatory role, though.
    - schools: again, they started as commercial entities. They still exist as such. It is hard to see the entire school system being entirely funded on a market system independent of taxes, though. I didn't realise you thought I was suggesting that, though.
    - safe medicine: comes within the "forbidden" category (i.e., you're not allowed to sell unsafe medicines, unless they're natural, of course) so not a problem.
    - planes: ditto -W]

    I see little if any space between William’s position and naive libertarianism. The idea that we can sign a social contract and then pretty much abandon governance is wishful thinking, and the idea that ethics had and will have no role in history is pointlessly demoralizing and dehumanizing.

    [I think you're being far too naive and literal in interpreting my position. Though I do indeed incline towards the libertarian view. It would make more sense, I think, if you find something ridiculous in it, to stop and see if you've misinterpreted.

    Anyway, I've answered all your key problems of what-would-n't-we-get-with-markets; what next? -W]

  30. #30 guthrie
    2012/05/10

    The finance system just grew up? That’s rather a simplification; finance and government have been intertwined for thousands of years, since before even the invention of coinage. Sure, banking per se after the medieval period grew up to a large extent unregulated, but before that the monarchy had dealt with the currency as they saw fit, e.g. Henry 8th devaluing it.

    [Well yes, but thats hardly an argument in favour of govt and against the markets -W]

    When the banks grew up it wasn’t long before they started to get themselves into trouble, and since the ruling class was becoming enmeshed in high finance, the government ended up becoming involved in order to bail them out and deal with the fallout. Find a good history of the 18th and early 19th centuries.

    [And again: that isn't an argument against the markets. Its a demonstration that govts always find themselves drawn in to fiddle with things -W]

    Economics is also used as an excuse – “Oh we can’t do that, the numbers don’t add up”, carefully ignoring the book cooking going on in the background. This is not of course a purely governmental thing to do – I’ve seen private companies waste millions on things that were obviously going to be problematic before they even started building, but the management were too much invested in them.

    [Yes, fine, but that's besides the point: at this point we're in a semi-theoretical mode -W]

    Anyway, the main problem is that the version of economics followed by sections of the rich and powerful is limited, frequently wrong and always tries to be self serving. There are other areas of economics, but they tend to get shut out of the discussion because they do not say what the rulers want them to say.

  31. #31 grypo
    2012/05/10

    But your argument falls apart: in the West, it is easy to not be hungry -W

    I don’t believe it falls apart at all. My argument is based on a wide range and 1) wouldn’t end in the West and 2) hunger is but one example of risks to life and health of having zero income. And yet the fact that it is easier to not starve in the West is precisely my point, as the safety net and taxation laws spread wealth downwards, unionization democratizes the workplace more, etc. Now, these labor fortunes have likely peaked (the US in the 60’s and Europe more recently), and capital likes to run away from undisciplined work-forces, so we are now experiencing a bit of capital blowback and the gaps in wealth distribution are way out of control. Put this together with a constant recession and we are regressing, so I suppose my ideas will be put to the test. So far, austerity, privatization, and debt reduction are all that’s on the menu.

  32. #32 Eli Rabett
    2012/05/10

    Food security in the developed world is not wall to wall and it has gotten considerably worse in the last four years.

    [The long term trends are slight. But even so the numbers are far higher than I'd expect -W]

    In a funny way this is sort of the late John McCarthy deja vu. John never crossed 101 into East Palo Alto.

  33. #33 Paul Kelly
    2012/05/10

    William,

    Fine work. You’ve reduced MT to accusations of libertarian leanings. He has little understanding of and great antipathy for markets; so he sees no possible value for markets in mitigation, no distinction between highly regulated Western state economies and theoretical laissez faire.

    [I'm hopeful that a large part of my disagreement with mt is over definitions, though philosophically we seem to be far apart. from my viewpoint, what is disappointing from mt is the apparent cocoon he has been arguing in - in that it seems to me that he has got used to saying the various things I've been objecting to, and having no-one object to them -W]

  34. #34 Hank Roberts
    2012/05/10

    Not intentionally trolling, no — I don’t have answers, just observations and concerns. That Fermi Paradox bugs me. So does Meadows’ observation that we are very good at knowing the leverage points and at pushing them the wrong direction.

    As with economics, so with ecology and climatology, I fear.

    China, from that article, is experiencing something like the US did in 1880-1930 span — rapid development with little law or regulation, and much corruption. The US had an unexploited continent to get value from; China has the US.

    [Yes, China doesn't have the rule of law. This is a problem for it. But its important to be clear: that problem is totally distinct from the one this post is talking about. I'm not complaining about you wandering off topic, which is fine; I'm complaining about you (apparently) not realising you've done so -W]

    In the US those years were “The Gilded Age” for those who benefited. My parents were teenagers in the last years of that economic boom time and became adults during the crash. People starved in their homes, too proud to beg. It was another time.

    I heard stories.

    Laws and regulations can focus on results, or on “disclosure” and “procedures” — result requirements are harder to suborn and so anathema to the business lobbyists. Disclosure and detailed procedures are much easier to complicate beyond usefulness, and so much beloved of the loopholengineers.

    Try this; it’s a classic study. Used to be online full text, now paywalled but search and you might find it or related work
    http://dx.doi.org/10.1006/cpac.2000.0432
    http://www.sciencedirect.com/science/article/pii/S1045235400904325

    Abstract:

    “… examined passage of securities regulation in the United States in the 1930s, concluding that the regulation should be viewed as symbolic (i.e. not expected to result in significant changes in distribution of economic resources), a means of restoring investor confidence and preserving the status quo….. passage of the securities legislation must be examined as a response to a moral crisis of capitalism, generated by the “immoral behavior” of the capitalist elite.

    … the first priority of any regulation had to be to establish the moral legitimacy of capitalism by restoring trust in the existing system…. radical change was needed, otherwise it would merely be symbolic and used as propaganda to maintain the status quo.

    We then focus on the framers of regulation and the accounting profession. We do this by examining the private correspondence and the actions of the regulators during the early years of the SEC act….

    … We interpret the historical evidence as a desire by the regulators to maintain the status quo. Thus, even if we believed the legislation was intended to cause a “real” change, the enforcement was not performed in an activist manner to initiate the change.

    … the New Deal was doomed to failure since it would be viewed as protecting the status quo …. as to the securities regulation and the behavior of Douglas; (iv) Douglas appears to act in favor of the status quo due to his close relations with the accounting profession, and, in our view, being “captured” by the profession and (v) we support our thesis by examining several SEC actions during Douglas’s tenure.”

    That’s not commiesocialists, it’s accountants studying their own profession. They do that a lot, actually, though their perspectives on their work are little read outside the field.

    [Without knowing the details: yes, trust is important. In financial matters that tends to mean transparency, or in-principle transparency. For example, short-sellers have a valuable part to play. The Govts job is, or should be, mostly to enforce that transparency.

    Your piece calls the New Deal a failure, which will surprise some. Suppose you were one of the many people that knows it was a success; would that mean you'd reject your piece, since its conclusion was wrong? -W]

  35. #35 Paul Kelly
    2012/05/10

    Some of his assumptions are off, so MT finds himself encircled by his own arguments. It could happen to anyone. Better for him to concede your points on the value of markets and ask why markets do not seem now to be addressing the problem.

  36. #36 mt
    2012/05/10

    Re W’s response to #31: I am both appalled and delighted by how far Wm and I have drifted apart. I am sure we continue to respect one another’s wit and good will. It is hard to imagine that a mere difference in nomenclature separates our thinking. Perhaps we’ll manage a proper argument, such a rarity these days. And perhaps even a synthesis of sorts at the end.

    In short we seem to have arrived at opposite conclusions about the law. He believes it should be deontological and consist as nearly entirely of hard limits as is practicable, and leave everything else to be sorted out in something called “the marketplace”.

    The disagreement seems to amount to one of provenance. The market libertarian idea is that a marketplace is a natural phenomenon, trying its best to emerge and succeeding best where least pinched by law and regulation. The idea which I hold, whose name I do not know but which I associate with Canadian Liberalism, is that the marketplace is an artifact of the common will, and the best government is the one which maximally influences the economy toward the well-being of the public.

    [The marketplace is people buying and selling. That (as I understand it) is the economic view. I don't see how that differs from your "the marketplace is an artifact of the common will". Where we do disagree, though, is on the politics. Mine is that the aim of govt should be to allow that to occur "fairly", under a very limited defn of fair. Yours is one in which the govt seeks to influence the economy for directed ends. And (before we have another misunderstanding) just as your version does allow some activity to occur without direct govt pressure, mine does allow the govt to apply some pressure -W]

    That this is in fact the case is demonstrated by the enormous importance of the Chairman of the Federal Reserve in America, who controls a knob, ominously called The Prime, in what he in his ineffable Chairmanship believes is the best interest of the country. This is not a marginal aspect of the system, and it is not deontological or binary, but a continuous control among tradeoffs consciously exercised by an agent of the public.

    [There are two answers to that. The first is that controlling the overall interest rate, whilst very important, is very different to directing investment into certain companies; or trying to pick winning sectors, or offering discounts for solar panels. The second is that (at least in the UK) the interest rate isn't set by the govt, but by the Bank of England. That appears to be the case in the US too, though as usual its rather tangled: "Although the FED is an independent government institution, the American central bank is owned by a number of large banks and therefore not by the state. The main governing body of the FED is the Board of Governors which consists of 7 members who are appointed by the President of the United States." -W]

    I think the past successes of the marketplace have been extraordinary and very much worth celebrating, but they need to be understood as well. The Easter Islanders have lessons to teach us here. Past success is no guarantee of future performance.

    And I argue that the world is best modeled not as a set of principles but as a series of tradeoffs. The best control on a tradeoff is a continuous one, not a law-based one. How much guns, how much butter. How many windmills, how many cars. These things never mattered much before but they matter now.

    [Yes, hard limits should be minimised, they are bad for control systems, I agree. But that doesn't apply to, say, transparency in accounting. But it isn't clear to me in what different way our two different systems deal with this, or at least not in a way that speaks well for your side. For example, the ?CAFE? vehicle-efficiency laws are hard limits, not trade-offs (I'd have done it with fuel taxes). Or the mandating a certain portion of biofuels. These are things that "your" system has done (badly) -W]

    The question is fundamentally an economic one. Will the marketplace automatically optimize for the right thing? I think it will, under the circumstances that are vanishing. This is no coincidence.

    [Again, the teleology. I keep saying this and you never answer. Are you not interested? Do you just not have an answer? Asserting, as you appear to, that these is a known "right thing" towards which we're going is I think wrong -W]

    Like the Moai culture on Easter Island, it emerged under the conditions that are vanishing. The Easter Islanders failed to adjust their culture to new conditions, but they could not have fully understood them. We have the tools of history and of science to guide us.

    We now know that humans are brilliant at taking advantage of rules which encourage certain behaviors. Our challenge is therefore to find the right rules. The smallest set of rules is not necessarily the best, although I would agree that the rules need to be stable and transparent.

    I’ll try to answer the myriad questions William has thrown at me. I appreciate them. But there are several other items in the queue at present, two of them with news hooks, so I’ll come back to this all later.

  37. #37 David B. Benson
    2012/05/10

    In my admittedly limited sampling over many years, ocean fishermen will take work on land as soon as they can find it; better paid as well as less hazardous. Similarly for working in the woods in Idaho; mill work pays more as well as being safer. (Of course in Idaho there are no unions and I’ve never heard of unions for fishermen, anywhere.)

    On economic theory, read “For the Common Good”. There are many worthwhile commutarian (not Communist) ideas, some of which seem similar to the rather successful Mondragon cooperatives of northeastern Spain and now just across the border in France. But in particular the book provides a devestating critique of Adam Smith and Davud Ricardo with regard to modern society, although pointing out why they were right at the time of writing.

    [Most "devastating critiques" of Smith turn out not to have read him. Claiming such a critique is easy -W]

  38. #38 J Bowers
    2012/05/11

    W — “The point is, people don’t put an infinitely high value on their life.”

    What’s your evidence for that? Anecdote? What you would personally do? Is everybody a firefighter or in the Army?

    [Tim has already discussed some of it. There is a huge academic literature. I suppose I could find references to it. But is there any point? Are you really doubtful about this? You're really asserting that a substantial portion of the populace put simple preservation of their own life above everything else, including quality of same? I find it hard to believe that is what you're saying -W]

  39. #39 Paul S
    2012/05/11

    The marketplace is people buying and selling. That (as I understand it) is the economic view.

    I disagree with this definition, though I’m not sure it affects anything else you’re saying. People buying and selling is trade. The marketplace represents the conditions under which trade occurs. Many elements contribute to defining those conditions, including government and law.

    [OK, you're right, in that markets include the law under which they run. Though so, I think, does all trade -W]

  40. #40 Eli Rabett
    2012/05/11

    Clearly Hank and Eli are one generation from the Depression. The habits of their families emerging out of that experience were passed on to them, including the knowledge that really bad stuff happens. MT, from what he said is pretty close to that. The Weasel, he is younger, and hopefully never has to learn that lesson. Wm. the market is not your friend. It would as soon serve you up for lunch as invite you over.

    [And the French were so scarred by WWI that they built the Maginot line. And the US has been scarred by Vietnam. Being ready to re-fight the last war, or irrationally scared of a repeat of the last war, isn't good -W]

    WRT to hunger, the stress on food banks and the various government programs in the US has been enormous in the past four years. The fact that food insecurity is not much worse is a function of these programs providing more, something that the libertarians hate, esp the government programs.

    Try and use your analysis to evaluate school lunch programs, food stamps, etc. and you see why Eli ain’t buying.

    [I don't object to free school meals (am I supposed to?), which we have over here (though we don't qualify). We don't have food stamps -W]

  41. #41 J Bowers
    2012/05/11

    W — “You’re really asserting that a substantial portion of the populace put simple preservation of their own life above everything else, including quality of same?”

    It’s not like offering overtime for extra hours worked, but the subject entirely hinges on motivation. The claim was that we will willingly take physical risks in return for extra money, while the examples given were those jobs that appeal to those who are predisposed to taking physical risks in the first place, or have no other option due to geographical location and little chance of upward economic mobility.

    [No, the claim was that it is possible to gather information from people's revealed preferences.

    If you ask people "how much do you value your life, in dollars" you'll probably get a meaningless answer. If you observe people crossing the road, you'll see them clearly taking life-threatening risks that could be avoided by a few moments delay -W]

    One highly experienced frontline soldier I know has told the Army to take a hike despite the financial and career incentives thrown at him to go back to Helmand, but it’s not even as if our squaddies are paid a fortune, and the extra they get for combat duties is, quite frankly, laughable. Do mercenaries/’private contractors’ do it for the big money? It’s a factor but hardly the only one: it’s a highly unregulated job to be in, and an “anachronism” (US Secretary of State, Juan Carlos Zarate). The Wild Geese of the 60s and 70s even tended to be individual “adventurers” with no coporate backing. Did Blackwater contractors “interrogate” prisoners the way they did for the money?

    [I agree that people who become soldiers likely do it for other reasons as well. But that misses the point -W]

    “There is a huge academic literature…. Are you really doubtful about this?”

    Of course there is, but there’s also a huge amount of literature showing how intrinsic motivation produces greater productivity than financial (extrinsic) motivation (Hall, Murphy, Rynes). Mainly financial incentives lead to an increase in unethical decisions, greater staff turnover (reduction in loyalty), less internal collaboration, pay inequality and resentment within the workforce, and poor risk assessment for short term gain (Schweitzer, Jensen, Tavris & Aronson, Page & Brin, Bloom, Siegel, Hambrick, Lepper).

    [OK, great. You already know about the literature, I'm glad I didn't bother go look it up. But you seem to be attacking the strawman that money is people's only motivation -W]

    Individuals, by and large, do not rise to challenges for money.

    [I don't agree -W]

    As long as your workforce can tick autonomy, mastery, purpose and connection in their jobs, you will have a highly motivated workforce who will be very loyal to you, their peers, and to the clients. As a rule, those in high risk jobs have far more autonomy, responsibility, sense of purpose and peer respect than someone working in sales or McDonalds. And then there’s that which Adam Smith writes of, and applies to much of the non-military but still high risk jobs:

    “How selfish soever man may be supposed there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary to him, although he derives nothing from it except the pleasure of seeing it.” — Adam Smith, A Theory of Moral Sentiments

    [I'm glad to see you, too, defending standard economics -W]

  42. #42 Eli Rabett
    2012/05/11

    And some people were scared that the real estate bubble would burst. You were saying?

    The year 2000 thing is a good example, if you perceive a problem and act to avoid it then the Weasels will say there was no problem. . . :)

    [No, I remember CFCs -W]

  43. #43 J Bowers
    2012/05/11

    W — “If you observe people crossing the road, you’ll see them clearly taking life-threatening risks that could be avoided by a few moments delay”

    Because they were actually aware that they were taking a risk, or because they didn’t evaluate the risk before stepping into the road (on their mobile phone, for instance)? In most cases I’d say the latter (but not explicitly because they’re texting).

    “But you seem to be attacking the strawman that money is people’s only motivation”

    I’m highly sceptical of the notion that money is pretty sure to persuade people to further put themselves in harm’s way. I see no references to support the claim in Tim Worstall’s comment.

    As for the Adam Smith quote, it shows that even he could see that motivation can be purely altruistic. I am no fan by a long chalk, but that does not mean he had no insights to offer on anything.

    W — “I don’t agree”

    Rewards often undermine motivation to work on challenging tasks because the task then becomes extrinsic: the task’s worth is external and relative to the reward, and not self-determined or autonomous with internal rewards. Generally speaking, highly successful entrepreneurs push themselves beyond the point where they have guaranteed financial security for life and rise to challenges (usually self-declared) because they gain the most satisfaction in what they do through its intrinsic values, not the extra cash.

  44. #44 mt
    2012/05/11

    “The marketplace is people buying and selling. That (as I understand it) is the economic view. I don’t see how that differs from your “the marketplace is an artifact of the common will”.

    It’s completely different. I say, people make governments, and governments make the conditions of “trade”, which is to say, not trading at all any more, but exchange of currencies which are artifacts of government. In the absence of government, people would have to go back to barter, for which there is a nontrivial constituency in the US, by the way (Ron Paul wants to return to gold-backed currency.)

    [How have you got to "in the absence of govt"? No-one that I know of (not even the libertarians) is proposing that.

    So I still don't see the justification for your "its completely different" -W]

    You seem to be saying what Ron Paul is saying, that the issuance of currency (as opposed to the minor service of keeping the gold available “on demand” as the notes used to say) is interference.

    [Nope, I didn't say that -W]

    “Asserting, as you appear to, that these is a known “right thing” towards which we’re going is I think wrong”

    A long story and one which is not complete. In a sense, this is exactly the conversation I am hoping to start. But arguing that we are going toward a “wrong thing” with the current system is easier.

    [Right. So if this is a conversation you're hoping to start, you obviously can't begin, now, by assuming it. And yet you are. So, why are you assuming I'll have understood the full context of a conversation you haven't even started? -W]

    The brilliance of the marketplace is that it puts each person into a cybernetic context, seeking a strategy to maximize their own well-being. The foolishness of it is that nobody seeks to control the aggregate, simply hoping for the best. I believe that this was a good enough global optimization in the labor-scarce resource-rich world. But now that these are flipping state, it is causing us to artificially maximize employment

    [Whoa! Hold on there. Its *governments* that seek to maximise employment, cos it makes people happy and they then vote for them. Not markets. You have this backwards -W]

    to simulate the older working of the system, and to thereby maximize throughput of materials, which is exactly the opposite of what we collectively need.

    That is, we have tuned a system for circumstances that no longer exist.

  45. #45 mt
    2012/05/11

    “why are you assuming I’ll have understood the full context of a conversation you haven’t even started?”

    You just jumped into the middle of it. But it’s worth starting at the top.

  46. #46 Eli Rabett
    2012/05/11

    S Fred is still moaning about cfcs, environmental smoke and what have you

    [Well, he has nothing else to say -W]

  47. #47 Hank Roberts
    2012/05/11

    > calls the New Deal a failure, which will surprise some.

    No, that was published a few years ago; it suggested the problems weren’t solved but rather covered up, that the New Deal restored the illusion that the marketplace wouldn’t screw up.

    The banks worked for 40 years to overturn the New Deal rules, successfully for the most part, starting with the late 1970s bank law changes, and subsequent further loosening.

    > Suppose you were one of the many people that knows it
    > was a success; would that mean you’d reject your piece,
    > since its conclusion was wrong? -W

    Which part do you think was wrong?

    [The bit that asserted the new deal was a failure. I haven't read the details, but you piece appears to call the new deal a failure, because it didn't solve all the worlds problems -W]

    They say the New Deal’s approach to financial transactions was to require disclosure — by public accounting rules — rather than to impose actual trading rules, to restore public confidence so people would put money back into the market, but didn’t forbid the behaviors that led to the financial crashes of the 1800s through the 1930s.

    They suggested the risky financial transactions that caused the crash, not having been made illegal, would continue — that “disclosure” — as you say “transparency in accounting” — would not be sufficient to prevent another great crash.

    Well?

    [I think its twaddle, to be blunt. You can't just make "risky financial transactions" illegal. Who are these people, anyway? We don't even really know what caused the current problems, though there are more than enough theories to go round. People don't even agree what caused the great depression -W]

  48. #48 David B. Benson
    2012/05/11

    [Most "devastating critiques" of Smith turn out not to have read him. Claiming such a critique is easy -W]

    That was certainly a cheap shot, done clearly without even have bothered to check the book. I assure you that Herman E. Daly & John B. Cobb Jr. know and deeply understand the writings of Smith and Ricardo.

    Read first; carp later.

    Neither Smith nor Ricardo’s analyses survive in the conditions of modern worldwide communication, transportation and commerce.

    [You're still just claiming this. Do you have, perhaps, a brief summary of exactly why Smith / Ricardo is broken, or a link to same? -W]

    So it is no surprise that, as participants still are under the misconception of an invisible hand that the markets fail to stabilize, instead requiring government interventions (often badly done) ever more frequently.

  49. #49 Hank Roberts
    2012/05/12

    > People don’t even agree what caused the great depression -W]

    Well of course not.

    Those who profit from a financially risky move that has a huge downside for others will never not say they caused it.

    You want to wait on agreement, you wait a very long time.

    There’s a consensus that gambling was involved — in the 1920s, in the 1880s, and more recently.

    Early on:

    How Mortgages Turned into a Trillion Dollar Disaster

    Shocking Fraud from Financial Scum

    If you don’t like the longhair computer guy’s opinions there’s a George Mason guy with short hair:
    Gambling with Other People’s Money

    Enough. Just saying, economics rests on not just laws and regulations but on ways of evading them and taking responsibility for others’ money and gambling with it is a problem, has been all along. Rulemaking doesn’t cut it.

    Transparency might.

  50. #50 outeast
    2012/05/12

    William,

    I may be being obtuse here. But you’ve talked a lot about economically-weighed decisions being subject to legality. But isn’t law a matter of public decision-making in itself? Seems a bit circular… Presumably you’re not arguing that the passing of laws should not itself be weighed by economics (or are you?). But if laws come under the rubric of public decision-making (to be weighed by economics), then the question of legality seems to be a bit moot. How are laws and policy distinguished?

    [If you know a way of deriving everything from first principles without circularity, do share it. In the meantime, I think you have to accept that all theories of economics or politics are bound to be a touch vague.

    What I'm actually trying to say is that law should restrict itself, insofar as possible, to black/white things like "thou shalt not kill"; "thou shalt not bear false witness" and "thy trades shall be disclosed". The law should avoid stuff like "thy car shall do at least X miles per gallon", because that is stupid, instead preferring "thy carbon emissions shall be taxed".

    As to "How are laws and policy distinguished?", govts (as well as passing far far far too many laws) do many things that aren't strictly laws. Once upon a time, for example, the govt here ran the phone service! How weird is that? -W]

    In other words, where is the difference between, say, an antislavery law – to use the fashionable trope around here – and a law capping carbon emissions? Why is one to be ideally weighted in economic terms, the other not?

    [Tricky. We as a society have decided - for reasons that we call moral - to impose an absolute ban on slavery. I'm not going to argue against that. We've also - but not quite - decided we need to do something about our CO2 emissions. Economics, as it happens, provides a number of possible responses, of which the cleanest (IMO) is carbon taxes. In my ideal-and-never-to-be-realised world, we wouldn't have a law about carbon taxes: we'd have a more general law about internalising externalities, once they've reached some threshold of being worth bothering about -W]

  51. #51 mt
    2012/05/12

    OK, so we are solving different problems.

    The question that interests me is how to design society so as to maximize the probability of the earth sustaining dignified and pleasurable human life for the longest possible time.

    [Hmm. I keep responding in the same way to your use of "maximise" and you keep ignoring me. Please don't, its offensive. Either answer my point - I've raised it several times now, you can't possibly have missed it - or just state clearly that you refuse to. Though ideally you'd also give a clear reason -W]

    ( I take the sustenance of natural ecosystems to be a corrolary.) Thus, the time scales of interest to me start at a century and go up to the order of a billion years. I claim that the systems which have merged, unsurprisingly, are ill-designed for that, because the hard knocks of the aeons have yet to have any impact on our system, which is arguably less than a century old, and surely less than a millenium old.

    [I think that "designing" for timescales much longer than a century is a mistake. Climatesight is an example. What I said there got no good answers -W]

    You are dividing the system that we have into “market” and “non-market”. You have somehow convinced yourself that “market” works better than “non-market” for most purposes, though I seem to have little trouble coming up with exceptions that trouble you, and you seem reluctant to specify what purposes you are discussing. (And you say I’m the one who is handwaving!)

    [Handwaving? Yes, indeed. And looking at the statement I began with (Nevertheless, it claims for itself a unique position among the sciences, as the crux, the central weighing mechanism, for all public decision-making) I now realise I let you off lightly, since it is so obviously false - the laws we have about murder are public decision-making and there is no economic influence there at all. But, there is worse about your hand-waving - I have another post coming on that -W]

    You keep trying to drag me back to your problem, but your problem as specified is in principle (though not in practice) trivial. In order to maximize the component of society in markets and minimize the component in other sectors, you identify particular goals in the other sectors, find the least complex way to monetize them, and stand back. e.g., apply a price to externalities.

    I have no objection to pricing externalities. In the case of carbon it would be a hell of a lot better than what we have and is probably the best long-term target.

    (There are practical problems of course, one practical trouble being that it would harden opposition among the rural-centric population in the US that has been and promises to be a dominant force in opposing progress. And indeed one could argue that it would be especially disruptive to them, which has much to do with why fuel taxes are so low in America compared to elsewhere.)

    But while carbon taxes solve the immediate crisis, they do not solve the problem, which is that the system we have not only promotes growth, it utterly relies on it, while the physical world on which the growth takes place is stubbornly limited in size and extent. (Allow me to factor out space colonies, which would have no such constraint. I’m speaking of economic growth on the surface of the biosphere.) Hence we are going to eventually break the system unless we have something in place to transition to.

    [Aiee, this is so broken its hard to know where to start. Economics does not rely on growth. What relies on growth is our current political-economic setup. You're doing something like saying "climatology relies on climate change" - its nonsense. You're so fixated on your own problem that you can't see that the words you use are the wrong ones, and yet you expect people to understand you!

    Your post - here - the one that we're in-the-context-of - starts off "about economics as a discipline and as an academic culture". So we're at the all-economics, economics-as-a-theory stage. Yet what now emerges is that actually, your problem is an entirely different one - out politicial-economic system. Its like you've noticed that GCMs don't integrate fluid-dynamics equations exactly, and somehow you then start saying that the academic discipline of fluid dynamics is broken and you've disproved Navier-Stokes -W]

    The question of when this becomes necessary is also salient. We should discuss that as well. There are reasons to believe that the consumption rates of the most “advanced” countries are already at levels that would be unsustainable if everybody else had them. If this is the case, and we don’t propose to reinstitute a colonial system, the time to limit growth in those countries is already upon us.

    [I don't have any doubt that our current rate of resource-consumption is unsustainable -W]

    So, the question of whether the system we have is sustainable seems to me to have an obvious answer in the negative. The question of when we have to transition to a more sustainable system is less clear, but there are good reasons to expect it to be imminent.

    The primary question I ask is what we should transition to. When is also interesting but, if it isn’t soon I’d like to see a reassuringly airtight argument to that effect.

    [There are tough times coming, I'd guess. Saying "we should transition" is easy. But the US and Western Europe and... is phat, and I don't expect it to slim voluntarily -W]

    A collection of externality accounts is what you propose, but it seems to be a matter of intuition on your part that the solution to your problem (maximizing the extent of decision-making in private hands) is the same as the solution to the real problem (preserving the only place in the universe known to support sentient life). And you accuse me of handwaving!

    [I'm not really proposing a solution to all-our-problems. What I'm doing is pointing out that your analysis is broken. What baffles me is that no-one has yet told you this, or that they have and you haven't listened -W]

  52. #52 Hank Roberts
    2012/05/12

    > law about internalizing externalities

    Threshold–where the arguments happen:

    https://www.nytimes.com/2012/05/12/business/jpmorgan-chase-fought-rule-on-risky-trading.html

    [I'm baffled. JP Morgan lose money (though in fact they haven't, yet) and for some odd reason everyone cares. Why does anyone other than their shareholders care? If they want to indulge in risky trades and lose money, that's fine.

    Read this particularly the bit about the hedge funds at the end: The hedge funds got angry. They developed a theory that one trader was behind all of this. One trader, at one bank. One trader, at the CIO, at JP Morgan. The hedge funds got more angry. It dawned on the hedge funds that they had no one to complain to. The hedge funds and banks had lobbied long and hard to keep this over-the-counter market in credit derivatives unregulated. Thus it is unregulated, and they had no one to tell, officially, about what they suspected — that a single player had cornered, and distorted the market by putting on huge trades. But the hedge funds were very, very angry that their trades were unprofitable while believing it was one bank’s fault. They complained… to… journalists. -W]

  53. #53 Adam
    2012/05/12

    “Once upon a time, for example, the govt here ran the phone service! How weird is that?”

    What about roads, is that weird, too?

    [You may perhaps have missed my point. The govt still runs some of the postal service, but I suspect that will come to seem weird in 20 years time. Roads are harder, though railways? Airports? -W]

  54. #54 mt
    2012/05/12

    William, you raise so many points inline that it is impracticable to respond to all of them. It’s hard for me to see what you think is crucial.

    Now I have to go back through the whole thread and guess what it is you think you have raised several times and I have offensively ignored, rather than picking the subset of points that I think bring us closer to defining what our disagreement is in clear enough terms that we can argue it.

    [Is it so hard? Just search for "maxim". Here, I'll do it for you:

    If that was your question, then you should have raised it explicitly. I don't think we are maximising a utility - that's too teleological. We don't know where we're going; there is no guiding hand. Better is to say that we're minimising inutility. If you haven't read Popper - the Shadow of Plato, I think - then you should

    and

    I'd thought that "teleological" was the answer to that; the analogy I'm drawing is to evolution. You appear to be thinking in terms of directed evolution; I'm thinking of survival-of-the-fittest. I don't think that aiming for "maximal thriving" makes sense; I'm designing for maximal freedom instead. Again, see Popper. So, there is another constraint on my theory, which I think is implicit in the economics bit though I didn't mention it: that you avoid constraining freedom where possible

    Would you like me to say it again? -W]

    As for the optimization/maximization which seems to be what you think I am ducking, let me try again to say what I mean, and freely admit to being vague where I am vague, and try to be clear about why what to my knowledge exists doesn’t suffice.

    We have this planet, see. It used to run itself just fine. And then we monkeys discovered all sorts of things and dramatically multiplied our impact in two dimensions (population and per capita impact). Now it doesn’t run itself just fine. So the question is what to do about it.

    So, as we agreed at the top of the thread, since we have a complex problem which involves many things, we need some sort of objective function to at least identify some sort of useful optimization. How to formulate it is exactly the question I am raising. I only have a qualitiative sense of it so far – it is some sort of sustainability metric. That isn’t much to work with but it’s a start, and I see nothing resembling it in the economic literature that I’ve seen.

    [I'm not sure I believe that, though I wouldn't argue against it too strongly. The idea of a global optimisation function seems wrong to me -W]

    “Economics” claims to be the study of decision-making. Again, so far I have seen nothing in economics that allows us to address the key question effectively. That is my primary complaint about “economics” as a discipline. If “economics” makes the grandiose claim to be about decision-making and not just about money and trade, it should offer us some formalism to address the single dominant problem in collective decision-making?

    [Its not perfectly clear what "the key question" is. Is it "we need some sort of objective function to at least identify some sort of useful optimization"? I think you're at the boundary between economics and... politics? there. Choosing what you're heading towards isn't a pure economic decision. You need to have more precise questions to ask if you want economists to answer them -W]

    If it does offer such a formalism, what is it? And if it doesn’t, should it? And if it shouldn’t, how can it claim to be the science of decision-making? And in any case, what is the formalism we should be looking for?

    As for confusing economics the discipline as it exists, economics as the discipline it (in my opinion falsely) claims to be, economics as the financially dominated social-political systems which we have now, and economics as the subset of that system which relates to trade among individual actors, and perhaps other shades of meaning, indeed, we keep bogging down in that mess.

    I’m looking for a clear definition of terms; I have been from the start of the discussion. But it’s not just me that’s all over the map with this. I’m trying to be understood as well as possible in the absence of the nomenclature I asked for us to agree upon in the first place.

    Now, if you answer that economics-as-system is already the optimization procedure we need, I answer that it is designed to optimize for growth of economic activity, that in the past that was what we needed, and in the future it is not. We seem to be at or near the inflection point. So the usual small-signal analyses are beside the point.

    [I think the name you're looking for is "politics", or possibly "politico-economic-system", if you're looking for the thing that runs the world. That system isn't designed, so it wasn't designed "for" anything; it certainly doesn't functionally optimise much. "economics", the academic discipline and (such as it exists in the world) method for optimisation, is very different -W]

    Is there a large-signal economics-as-discipline that looks beyond growth? I haven’t seen much of it.

    [Have you looked? Though, I'm not too surprised. Growth is what we've had throughout history. There is, after all, a small subset of climatology that deals with the theory of non-earth atmospheres, but you don't hear much about it. We're likely to have growth into the foreseeable future; the idea that economic growth is so tied to resources is wrong -W]

    And the economics (both as system and as discipline) that I have seen is so determinedly dyed-in-the-wool small-signal tangent-linear that it doesn’t seem to understand the question.

    [I'm tempted to agree with you, but in fact I know to little about economics to have a useful opinion -W]

  55. #55 Hank Roberts
    2012/05/12

    It’s not one transaction or one bank or one loss.
    It’s how a financial system is used.

    [Ah, OK, so the JPM stuff is completely irrelevant. That was *my* point -W]

    Good, prescient article:

    http://blogs.ft.com/maverecon/2009/04/useless-finance-harmful-finance-and-useful-finance/

    “… To raise the quality of the rule of law in the property sector to the point small businesses can credibly offer land and other real estate as collateral for formal sector finance requires a formal titling authority, a state capable of reliably maintaining property records, a functional judicial system, corruption levels bounded from above etc.

    The world described in these books, where the foundations of a productive market economy are being put in place, appears light years removed from the world of Wall Street and the City of London….”

    [I must be missing your point. *My* point was that the rule of law was required. Your point is that "effective and efficient financial intermediation is a necessary condition for prosperity", I take it. "even with simpler bearer securities, most of the time no-one knows who the current owner is, not even the supervisor and regulator" - well, I've already said that transparency and disclosure is required. The ?Swedes? already make all tax returns public - lets do the same -W]

  56. #56 David B. Benson
    2012/05/12

    William — The argument that Smith and Ricardo do not apply to the modern economy is made in “For the Common Good” by economists Herman E. Daly, John B. Cobb Jr. (for the third time, possibly I was not sufficiently clear the first two times). It suffices to use the Google book features to locate the chapter with the argument.

    Somehow I don’t think I should have had to explain such obvious search matters

    [Had the book been called "furtwanglers with small weenies" you wouldn't have had to. But any phrase as common as "for the common good" is hard to search for and be certain of getting the right result. Always, the non-lazy way to do this is to provide the link yourself. I found a link to the book but I still don't know which page or chapter you find so compelling. since you know - and presumably, would like me to read it - why not tell me? -W]

    but as another choice you have a most excellent library not far away

    [The UL? It certainly is, but I'm not a member -W]

    and so you could, without expending so much as a pence read the entire book.

    The main point remains that capitalism is not the only way to organize a society; cooperatives will do and likely do better.

    [I agree, it is not. However, it is essentially the only way that is actually used, on the large scale. think of this in the dynamic terms that mt is (correctly) very keen on putting into economics: cooperatives might, perhaps, be locally better; but they are out-competed by "capitalism". They must be, or they'd be more common. Thus any desire for more cooperatives must be accompanied by some explanation - or hint thereto - as to how we can make them more common, without enormous govt intervention -W]

  57. #57 David B. Benson
    2012/05/12

    William — The argument that Smith and Ricardo do not apply to the modern economy is made in “For the Common Good” by economists Herman E. Daly, John B. Cobb Jr. (for the third time, possibly I was not sufficiently clear the first two times). It suffices to use the Google book features to locate the chapter with the argument.

    Somehow I don’t think I should have had to explain such obvious search matters but as another choice you have a most excellent library not far away and so you could, without expending so much as a pence read the entire book.

    The main point remains that capitalism is not the only way to organize a society; cooperatives will do and li8kely do better.

  58. #58 Hank Roberts
    2012/05/13

    I suspected we’d been agreeing all along and unaware of it — the need is for not simply “the rule of law” but for particular laws.

    All tax returns public sounds good. Who could object to that? And why would they?

    http://mattbruenig.com/2012/01/12/congressional-under-funding-of-irs-costs-the-government-385-billion/

  59. #59 Tim Worstall
    2012/05/13

    “I assure you that Herman E. Daly & John B. Cobb Jr. know and deeply understand the writings of Smith and Ricardo.”

    I can’t speak to Cobb but I have interacted with Daly. As the man seems not to understand the implications of his own analyses I’m afraid I’m not impressed.

    For example, he puts forward the idea of a steady state eonomy. OK, that’s fine. The definition is that resource consumption is limited to what is environmentally sustainable. That’s fine too. However, this does not mean therefore that economic growth stops. For technology advances and thus we get better at making things out of those limited resources.

    Daly does understand this so far: he points to the difference between quantitative growth and qualitative. Simply put, give those resource constraints that we’re (or perhaps the environment is) imposing we cannot therefore churn out ever greater quantities of stuff. However, we can indeed use those resources more sparingly in each piece of stuf thus having more stuff, or use them to make different things which we value more highly……that’s the qualitative part.

    All of which is just fine. Except he then misses the point that this is indeed economic growth as normally defined. GDP is the value at market prices of all final goods nd services produced. All he’s actually saying therefore is that we cannot have increased resource use in order to increase the volume of goods produced. We cannot have that part of GDP growth which is quantitative.

    But we can have that part of GDP growth which is the production of things we value more highly from those limited resources and we can also have the economy growth which comes from using those limited resources more sparingly in each piece of production.

    Thus, even in his steady state world we do indeed have simple and basic GDP growth as it is normally defined. Which is the part that he doesn’t get about his own theories. After all, Bob Solow pointed out that 80% of the market economies growth in the 20th cent came from total fator productivity growth with only 20% coming from increased use of resources. So Daly’s steady state economy is an interesting exercise in what might limit one type of growth, but it just isn’t an explanation of why growth will, must or even should, end.

    “Neither Smith nor Ricardo’s analyses survive in the conditions of modern worldwide communication, transportation and commerce.”

    Eh? The division of labour? Specialisation? Trade in the resultant product? Comparative advantage? These are all disproven by a UK hospital being able to send x-rays over the internet to be read and analysed in India? Isn’t this, umm, proof of them?

    “So it is no surprise that, as participants still are under the misconception of an invisible hand that the markets fail to stabilize,”

    Ah, so you don’t understand Smith at all then. His only mention of “invisible hand” in Wealth of Nations is about capitalists (not that he called them that, the word hadn’t been invented at that point) preferring to invest domestically even though investing in foreign might being larger profits. This is of interest if you want to talk about the incidence of taxes upon capital in an age of globalisation but not really for much else.

    At the bottom here there is a partial list of the ointerventions into that economy that is not magically balanced by the “invisible hand” that Smith though were just absolutely fine:

    http://antidismal.blogspot.de/2012/04/just-what-does-david-cunliffe-know.html

  60. #60 Tim Worstall
    2012/05/13

    “The main point remains that capitalism is not the only way to organize a society; cooperatives will do and likely do better.”

    And the testing of this assertion would require that we do some……economics.

    Which is pretty much where we came in isn’t it?

  61. #61 Hank Roberts
    2012/05/13

    Fortune Magazine:
    http://finance.fortune.cnn.com/2012/05/11/jamie-dimon-jpmorgan/
    “… we’re still in a world where there are huge arguments over the imposition of true mark-to-market accounting rules, enabling financial firms to present something less than a true picture of how assets and liabilities are valued ….
    … these tools should be employed within all financial firms, not only the JP Morgan’s of the world (though given their systemic importance they should be mandated by both regulators and the FASB).

    Acknowledge that the SEC will forever be playing catch-up….
    … The system is broken. The accounting rules are flawed. Risk analysis and disclosure is flawed. And the regulatory framework is broken as well. Losses of this nature should not come as a surprise. They have and will continue to occur in the absence of common sense disclosure and elimination of all the obfuscation …. the ante has risen given the magnitude of the risks being borne, the inter-connectedness of the major players in the financial system and the complexity of the tools being used to take risk. It’s not your father’s bond and risk arbitrage portfolios any more: it’s derivatives of all shapes, sizes and liquidity. Until rigorous mark-to-market rules are enacted that facilitate the transparency required to regulate properly, the SEC is fighting a losing battle. All good things stem from transparency. But a broken SEC is good for shareholder-funded speculators. The longer it stays broken, the longer they get to continue making asymmetric bets in their favor (heads I win – tails you lose)….”

    ——-
    Are these people going to understand the ‘transactions’ that ecology studies? Are they going to understand the amounts and paths of carbon cycling?

    They’ll focus on ‘good numbers’ — fudging the numbers for short term profit.

    That’s my gripe with economics.
    It’s been pwned.
    They’re doing it wrong.

    No, I don’t have an answer.
    Fermi paradox.

  62. #62 Neven
    2012/05/13

    I can’t speak to Cobb but I have interacted with Daly. As the man seems not to understand the implications of his own analyses I’m afraid I’m not impressed.

    Tim, why don’t you take this to Daly’s blog? I’d love to see a discussion between you two.

    For technology advances and thus we get better at making things out of those limited resources.

    Yes, but just as with economic growth it cannot last forever, it starts bumping into limits. In Tim Jackson’s book Prosperity without Growth your argument is taken apart in the chapter called ‘The Myth of Decoupling’, I believe.

    [This is just so much like what I'm complaining about about the WUWT folk. Only they at least provide actual broken blog posts you can read. Why couldn't you be bothered to link to the thing? People keep saying there will be limits to tech and they are always wrong.

    Do you mean http://www.sd-commission.org.uk/data/files/publications/prosperity_without_growth_report.pdf? Though that doesn't appear to be a book; but it does have a chapter with the right name. I don't think that supports your assertions. All it says is that at the moment, our absolute consumption is going up. That just isn't the same thing at all. This isn't an economics blog; I really don't know much about economics. But I do know you'd get ripped to shreads if you took this stuff anywhere near a real economist -W]

    But we can have that part of GDP growth which is the production of things we value more highly from those limited resources and we can also have the economy growth which comes from using those limited resources more sparingly in each piece of production.

    Again, I believe, this is marginal when compared to material output. If one wants society to become (more) sustainable something drastic needs to be done about the way GDP is measured, and the definition of GDP itself. What we want to measure, depends on what ‘we’ want. Right now ‘we’ still want wealth, whereas most people in the west have more than enough wealth (and are not getting happier after a certain threshold). Perhaps ‘we’ should want something else and measure that to see how successful we are at providing citizens what they need? What do they need? Do ‘we’ look at what ‘we’ want, or do ‘we’ look at what ‘we’ need?

    So Daly’s steady state economy is an interesting exercise in what might limit one type of growth, but it just isn’t an explanation of why growth will, must or even should, end.

    Coincidentally all of our economy, society and culture are built around that one type of growth, which cannot be sustained indefinitely (because physics dictates it, not economics). This one type of growth has to be/will be curbed one way or another. Whether you want to keep calling everything that comes after that ‘growth’, because you are particularly attached to the term, then be my guest. We could also call it ‘development’, for instance.

    Ah, so you don’t understand Smith at all then.

    One thing’s for sure: neoclassical economists didn’t understand Smith either, or purposefully misinterpreted him. Didn’t Smith believe that growth would eventually lead to a steady state economy, because of ethics (that’s where the neoclassical economists decided to jump off)? Or am I mixing him up with Frederick Soddy?

  63. #63 Neven
    2012/05/13

    Just to prove that you yourself, William, are doing what you accuse me of (and you do that with mt all the time):

    Tim Worstall said: “For technology advances and thus we get better at making things out of those limited resources.”

    I said: “Yes, but just as with economic growth it cannot last forever, it starts bumping into limits.”

    You said: “Though that doesn’t appear to be a book; but it does have a chapter with the right name. I don’t think that supports your assertions. All it says is that at the moment, our absolute consumption is going up.”

    Now, instead of shooting from the hip, think it through a bit more. Tim suggests that growth can continue because it becomes decoupled from material growth through increased efficiency. But apart from the arguments about relative versus absolute decoupling that Tim Jackson discusses in the aforementioned chapter (which I admit is tangential to efficiency), you can ask yourself: is efficiency limitless?

    [I really don't want to get into the depths of economics here. I know I'm not up to it, and I don't think you are either. But since you continue, I suppose I'd better try to reply: Tim didn't say what you think he said. He didn't mention efficiency. He didn't mention decoupling. The things he is thinking about are... smartphones, say. These are gifts of technology. They aren't just "more efficient" old things; they are new things. They have an economic value -W]

    To quote from physicist Tom Murphy’s Do the Math-blog:

    Squeezing Efficiency: Rabbits out of the Hat

    It seems clear that we could, in principle, rely on efficiency alone to allow continued economic growth even given a no-growth raw energy future (as is inevitable). The idea is simple. Each year, efficiency improvements allow us to drive further, light more homes, manufacture more goods than the year before—all on a fixed energy income. Fortunately, market forces favor greater efficiency, so that we have enjoyed the fruits of a constant drum-beat toward higher efficiency over time. To the extent that we could continue this trick forever, we could maintain economic growth indefinitely, and all the institutions that are built around it: investment, loans, banks, etc.

    But how many times can we pull a rabbit out of the efficiency hat? Barring perpetual motion machines (fantasy) and heat pumps (real; discussed below), we must always settle for an efficiency less than 100%. This puts a bound on how much gain we might expect to accomplish. For instance, if some device starts out at 50% efficiency, there is no way to squeeze more than a factor of two out of its performance. To get a handle on how much there is to gain, and how fast we might expect to saturate, let’s look at what we have accomplished historically.

    And…

    Summing it Up

    Given that two-thirds of our energy resource is burned in heat engines, and that these cannot improve much more than a factor of two, more significant gains elsewhere are diminished in value. For instance, replacing the 10% of our energy budget spent on direct heat (e.g., in furnaces and hot water heaters) with heat pumps operating at their maximum theoretical efficiency effectively replaces a 10% expenditure with a 1% expenditure. A factor of ten sounds like a fantastic improvement, but the overall efficiency improvement in society is only 9%. Likewise with light bulb replacement: large gains in a small sector. We should still pursue these efficiency improvements with vigor, but we should not expect this gift to provide a form of unlimited growth.

    On balance, the most we might expect to achieve is a factor of two net efficiency increase before theoretical limits and engineering realities clamp down. At the present 1% overall rate, this means we might expect to run out of gain this century. Some might quibble about whether the factor of two is too pessimistic, and might prefer a factor of 3 or even 4 efficiency gain. Such modifications may change the timescale of saturation, but not the ultimate result.

    Read the whole thing here (especially linked for you, William, hope it surpasses the level of WUWT IYO).

    [Thanks for the link. I didn't read it all, but I did find the bit you missed, "The Unphysical Economy". Notice that his arguements against this consist of the familiar "argument from incredulity" -W]

  64. #64 Neven
    2012/05/13

    But I do know you’d get ripped to shreads if you took this stuff anywhere near a real economist

    And how is that real economist going to convincingly explain that infinite growth is possible in a finite system? Because that is the stuff of dreams our system (economy, society, culture) and economic faculties seem to be running on.

    [Sorry. You're the chap over at WUWT who just "knows" that the second law of thermodynamics prevents heat transfer from cold to hot, and therefore the greenhouse effect is impossible -W]

  65. #65 Neven
    2012/05/13

    You’re the chap over at WUWT who just “knows” that the second law of thermodynamics prevents heat transfer from cold to hot, and therefore the greenhouse effect is impossible

    Well, either that, or that ‘real economist’ of yours is WUWTesque in his absolute certainty that infinite growth is possible in a finite system, and therefore should be the be-all and end-all of society and culture, trumping any limits that may ever occur.

    I don’t know anything, but I’m just wondering how your ‘real economist’ is going to explain if infinity stops somewhere, and if so, when and where. Because I’ve been looking for it, but I can’t seem to find a decent explanation, which is weird given the fact that neoclassical economists have ‘won’ quite a while back.

    But thanks anyway.

  66. #66 David B. Benson
    2012/05/13

    Tim Worstall — Thank you as that was helpful.

    Neven — You may be on to some Limts to Growth ideas, but please do study a decent Physics 101 text.

    William — You can read the relevant chapter as a Google ebook preview. Unfortunately my center mouse button has quite (again) so I can’t cut-n-paste just now.

  67. #67 Neven
    2012/05/14

    You may be on to some Limts to Growth ideas, but please do study a decent Physics 101 text.

    Thanks, David. Working on it.

  68. #68 Tim Worstall
    2012/05/14

    Neven:

    “Tim, why don’t you take this to Daly’s blog? I’d love to see a discussion between you two.”

    It is here.

    http://steadystate.org/limits-to-growth-stuff-value-gdp/

    “Yes, but just as with economic growth it cannot last forever, it starts bumping into limits.”

    I will accept that there are limits to economic growth. But “resources” ain’t it. If you want to posit that the advance of technology stops then yes, OK, that’s a limit to economic growth. Bcause, by the economists’ definition, technological growth is us learning how to create more value from the limited resources available to us. So, sure, if that process stops then, given that there really are limits to resources, economic growth stops. But it’s not resources, a finite planet, that causes this stop: it’s technology not advancing which is a rather different thing, no?

    “Again, I believe, this is marginal when compared to material output.”

    Well, no, it isn’t. This adding more value is known technically as increasing total fator productivity. And by one estimate (Bob Solow, has a Nobel) 80% of the economic growth in the market economies in the 20 th century came from tfp growth. That just ain’t “marginal”.

    “If one wants society to become (more) sustainable something drastic needs to be done about the way GDP is measured, and the definition of GDP itself.”

    Sure, the limitations of GDP as a measurement are well known. They were well known by the guy who invented it, Simon Kuznets. It’s still useful even if it’s not a complete measure nor the only one we should care about.

    “(and are not getting happier after a certain threshold).”

    The Easterlin Paradox. The important thing about which is that it is wrong. Looks like, after that threshold, we get happier by the log of the increase in physical wealth. Which really isn’t all that surprising to an economist as they do believe in diminishing marginal utility.

    “Coincidentally all of our economy, society and culture are built around that one type of growth, ”

    See above about actual 20 th century growth.

    “Tim suggests that growth can continue because it becomes decoupled from material growth through increased efficiency.”

    That’s an effect, certainly. But as you and Jackson suggest, not a particularly important one. The important one is that economic growth is “adding value”. That’s actually what GDP measures, the amount of value added in an economy. Even if we have absolute, hard, limits on possible resource use then we can still have economic growth by adding more value to those resources. Thus the true limit to economic growth is our knowledge of how to add value: technology in short.

  69. #69 Neven
    2012/05/14

    Tim, just read your comment here and the link I coincidentally had found by googling your name and Herman Daly’s.

    I won’t repeat what I wrote in the other thread.

    I’m still not sure if value addition through technology has limits or not, and whether this is relevant compared to quantitative growth. But as this is mostly a philosophical exercise I thought about another potential limit. What if people at a certain point would say: ‘I’m feeling really good like this, no need any longer for technology to keep improving things (add value -> GDP growth). It’s fine. Please, stop.’

    Would this be possible?

  70. #70 mt
    2012/05/14

    Tim, let’s stipulate that a quantity which has no physical meaning can grow without bound. I don’t think this is in dispute.

    Murphy’s argument is that as long as the value of necessities (let’s focus on food) is valued on the same scale as these “technological value adds”, as long as necessities are part of the same market as all this technology, there is a practical limit. There is no situation in which the value of food can become negligible.

    Perhaps the recent volatility in the prices of commodities are about this limit. If the value of producing gruel becomes small enough, nobody produces gruel. People start starving. Consciences are aroused and wealthy donors start bidding higher prices on gruel. This in turn drives additional hunger at the margin of where the gruel is affordable.

    Anyway, production and shipping of food requires energy. All indications are that energy consumption is supply limited and atmospheric-carbon-sink limited for the present. In the distant future, though, direct heating becomes an issue.

    http://init.planet3.org/2008/07/limits-clean-energy.html

    So we are really talking about ethereal amusements. Movies. Software. China figurines. We’ll all be wealthy. Everyone will be admitted to the most exclusive clubs! And indeed, this sort of thing can grow without bound – the smaller the impact per unit of expenditure, the less the physical limits to growth apply.

    But what Murphy is saying is that this means we’ll be buying billion dollar movie tickets while lunch still costs three dollars. But a three dollar lunch is pretty wretched already. What possible motivation is the food vendor going to have to make a nice lunch when he needs to sell 333 million of them just to have the gross cover a movie ticket.

    [No, because the cost of the lunch will include the cost of the time for the chef to prepare it, not just the cost of the raw materials -W]

    If I am hungry enough I’ll trade my iPhone for a small piece of stale bread. This means that the fact that iPhone is worth thousands of times as much as the crust is not absolute, but contingent.

    In fact, it will always take energy and human effort to create palatable food, and people will always want it. This is Murphy’s argument – the real portion of the economy cannot asymptotically approach zero because people will always actually value real things over resource-free fluff, regardless of what the market is charging for a tulip these days. We cannot turn ourselves into fantasies, so the market will always have a substantial component that is based on the resources we actually need. And while that fraction can decline, it cannot vanish, and can only decline with diminishing returns.

    It seems compelling to me. It’s not my argument at all. Suppose we stipulate that Murphy’s argument is invalid – that somehow the vanishingly small part of the economy that we actually need will never become large again. We can assume for purposes of argument also that the Meadows argument is invalid – that ingenuity can be relied upon to stay ahead of limits forever.

    My main question is – so what? What does the quantity which is growing actually mean? How do we establish that this growth, even if possible, is a good idea?

    Yes, you can slice and dice the happiness/money question so it looks like a lot more money really does buy a little more happiness (leaving aside cause/effect), but that is only observably true in this money-dominate organizational structure in which we find ourselves. Is production and consumption really the purpose of civilization? Because it seems to me that the most valuable things humans do (art, science, philosophy) are pretty much orthogonal to the marketplace anyway. Do we ever get to kick back and enjoy the fruits of our labors? Or are we condemned to work ever more frantically at ever more abstract tasks, so we can “monetize” increasingly ethereal abstractions?

    Why grow at all? Just because the economists’ and financiers’ models seem blow up when there is no growth? Are we really not allowed to think about this? If we’re just selling each other advertisements and distractions, why don’t we just relax and learn to play the flute instead?

    The west has triumphed over scarcity. Whether the world can follow us is very much at issue, but let’s be happy with our own victory. So there’s plenty of good stuff around. Why are we still so desperate to “grow”?

  71. #71 David B. Benson
    2012/05/14

    Yes, growth can always and forever continue as in
    1 – exp(-t)
    so approaching some asymptote. In fact, this looks about like the continued technological progress in at least some areas. Turbines to generate electricity come to mind.

    Eventually one runs up against the actual physical limits. Not doubting human ingenuity so for some artifacts the limits might still be well inthe future there remains some hard limits even if we don’t yet know exactly what those limits are or how long until the limits are reached.

  72. #72 Tim Worstall
    2012/05/15

    “This is Murphy’s argument – the real portion of the economy cannot asymptotically approach zero because people will always actually value real things over resource-free fluff,”

    The problem with this argument is that it has been empirically refuted. 300 years ago food and food production was about 80% of the UK econopmy. Today it’s perhaps 2%. Certainly those are the numbers as a percentage of the labour force.

    “Perhaps the recent volatility in the prices of commodities are about this limit. If the value of producing gruel becomes small enough, nobody produces gruel.”

    This is incomplete. It doesn’t matter what the value of producing gruel is. It matters only what the value added of producing gruel is. That is, what is the difference between the value of the inputs required to produce gruel and the value of having produced gruel? If the latter is higher than the former then this is a profit and thus people will do it. If the latter is lower than the former then this is a loss and people won’t do it. Quite rightly too: for a loss is the universe’s way of telling you that you are subtracting value from those initial resources. Tehrefore those resources should be off doing something else.

    Take a real world example. Salt. For millennia it was a hugely important part of the global economy. Roman armies were paid in it, caravans of camles crossed the Sahara to transport it, both France and India financed goodly chunks of governance with taxes on it. And of course salt is vital to the maintenance of human halth (even if not quite as much as we consume now).

    These days the salt industry is just as important to human health. It’s also vastly larger in production by tonnage. Yet as a fraction of our economy it has indeed proceeded asymptoticaly to darn near zero. About £30 million a year’s worth, sales of table salt are. In a £1.5 trillion eonomy that is pretty much zero in’t it?

    So I would regard Murphy’s point as having been empirically refuted.

    “Do we ever get to kick back and enjoy the fruits of our labors? Or are we condemned to work ever more frantically at ever more abstract tasks, so we can “monetize” increasingly ethereal abstractions?”

    One of the things that we can observe is that people work ever fewer hours. Leisure hours have been climbing for a couple of centuries now. No economist finds it surprising that as people become wealthier that some of that wealth is consumed as greater leisure.

    In more detail, work comes in two flavours. Market production (ie, for money, ouitside the household) and household production (ie, not for money and inside the household). Since WWII male market production hours have fallen, female market prodution hours have risen. But household production hours for both have fallen precipitately, leading to an overall reduction in total working hours and an increase in leisure.

    The real driving force of this is almost certainly labour saving technology in the household: vacuums, better cookers, freezers, microwaves and the real biggie, the domestic washing machine.

    “So there’s plenty of good stuff around. Why are we still so desperate to “grow”?”

    You can do just as you wish. Any liberal society will of course allow others to do so as well. You’re not interested in increasing your income or consumption? Great, have at it. You think it’s ll already gone too far? Super. You can live a 1950s lifestyle in the UK on a part time job no problems at all. You’ve really got to live a 50s lifestyle though: no foreign holidays, probably not a car, grow much of your own veg, small house not heated all that well, scant wardrobe and so on. But it can be done, as I say, very easily. So go do it. Just don’t constrain those who decide differently.

    “What if people at a certain point would say: ‘I’m feeling really good like this, no need any longer for technology to keep improving things (add value -> GDP growth). It’s fine. Please, stop.’

    Would this be possible?”

    It’s the standard collecive action problem in reverse. For you’d need to have all people decide to do this and agree to do this. If you had even 1% (hell, 0.001%) of our curiosity made species of shaved ape still tinkering with new and different ways to do things then technology is going to continue to advance. And how, in any form at all of a liberal order, are you going to stop that 0.0001% tinkering?

    [On that last point - this brings back something I've said, at least obliquely: that the current capitalist-market-economy system (whatever you want to call it) has "won", whether you like it or not. There is no point carefully designing cute fluffy cooperatives that, we know, will be out-competed and fail to survive. In much the same way that there is no point putting large plump pampered western cattle into the middle of an African game reserve. That doesn't remove the possibility - which I'd very much like to see - of us somehow coming to our senses and cleaning up our politics and maybe educating our populace and trying to make a better system. But you can't do that with wishful thinking -W]

  73. #73 mt
    2012/05/15

    The salt thing is interesting but doesn’t settle the matter at all – the resource inputs for salt are not limited. The same cannot be said for food in general.

    As for “the marketplace as it exists has won, and all we really need to do is fix the politics”, that’s begging the question. I propose that the marketplace is an artifact of the politics and vice versa. That is, the marketplace is in the configuration it is in because of the political and legal environment.

    That it has reached a moment of global ascendancy is not entirely reassuring, since it amounts to a single point of failure. I think the financial weaknesses of ’08 proved this and the collapse of the Euro in the next year or two will prove it again.

    But that’s really not my issue. My issue is that I think the system systematically undervalues resources and uses them up. It is good that individuals are motivated to strive for wealth if that striving serves the larger goals of the society. My argument is that this striving used to do so automatically, but once resources become tight the system automatically exacerbates the resource problem.

    The entire structure of society needs to be altered so that free actions which actually contribute to the common good are encouraged and those which detract from it are discouraged. It’s not obvious how to do this.

    As for living in 1950, that may still be possible in England for all I know but it’s very difficult in America. Less expensive neighborhoods where it is possible to get by without a car tend to be violent and grossly unpleasant. If one has children they are especially vulnerable.

    The pressure for full employment is kept up by reducing public services including education and policing. The necessity for private sector “growth” at all costs dessicates the public sector, increasing demand on private sector services and propping up employment. If “growth” had really resulted in real wealth as opposed to frantic consumption, we could still afford the level of public services we had when I was a child.

    California has grown so much it is reducing its entire public sector to a 4-day work week.

  74. #74 Paul Kelly
    2012/05/15

    Thinking the system systematically undervalues resources and uses them up is wrongheaded. The system values resources at the current market and uses them accordingly, arguments for adding the cost of externalities to the system notwithstanding. “Once resources become tight the system automatically exacerbates the resource problem” seems the opposite of reality.

    Plans that start out with the entire structure of society needs to be altered are not germane. This is what is parallel to WUWT comments, the repetition of pet theories and memes.

  75. #75 Hank Roberts
    2012/05/15

    > undervalues resources and uses them up

    Hell, our financial system undervalues _dirt_ and uses it up.

    [There is a problem with that statement - it states that things have a "real" value, which you know, in some undisclosed units. What you actually mean, I think, is that things are happening that you don't like. I don't think the version of "value" that you're using, above, has the normally accepted properties of "value" - such as comparability -W]

    Can’t get much dumber than that and still be breathing.

    Ask any ecologist, or a farmer if you can find one.
    The human kind, not the corporate kind.

    “… the need for soil stewardship, and the degree to which peoples have protected this resource has played a significant role in world history.

    Every powerful country has commanded, and even fought for, sufficient soil resources to feed their inhabitants. When the quantity or quality of their soil resources declined, so did the country….”

    http://www.agronomy.ksu.edu/teaching/p.aspx?tabid=43

    Ask yourself how much topsoil was in North America after the last ice age, and what the graph looks like from then to now, and why.

    You know how to look this stuff up.

  76. #76 Hank Roberts
    2012/05/15

    > wasn’t derivatives and it wasn’t big
    > banks: as [TW says] Spain shows

    He appears to argue that the particular complicated mortgage instruments the US blew up weren’t much used in Spain, and Spain crashed along with the rest of the world markets, therefore the crash wasn’t due to those particular instruments. Not clear what the reasoning is.

    Possibly he’s saying that Spain didn’t report such stuff.

    That was true up until this year. “From December 2011, Australia and Spain began contributing to the semiannual survey, bringing the number of reporting countries to 13 ….” http://www.bis.org/statistics/derstats.htm

    What’s that quote? “Absence of evidence is not … is not … absent … evident … fooled me again.” Something like that.

    More evidence please.

  77. #77 mt
    2012/05/16

    “I don’t think the version of “value” that you’re using, above, has the normally accepted properties of “value” – such as comparability”

    Well, yes, that is really getting to my point. We have ways to evaluate the worth of a resource to an individual. But macroeconomics is different than the sum of all microeconomics, the more so the more depletable resources (including the sink for fossil carbon) are depleted.

    When you suggest a carbon tax (a “simple” one, for all the complexities it might hide) you imply that the tax should cover the “externality”, i.e., the “real” cost of the carbon. I argue that the real cost is enormous, because you can’t apply the usual discount rate. But that indeed implies that there is a “real”, i.e., timeless economy. Let’s call it eco-something-else, how about that?

    In the past, human trade was small enough that its impact on the ecosystem was small and local, and could be dealt with by legal limits and proscriptions. But now that humanity is essentially a geological force, our relationship to the long-term-economy, i.e., the ecosystem, is as complex as our relationship to that which is reasonably discounted on human time scales. Proscriptions no longer work. We need a way to develop a complex set of relationships that does not systematically impoverish the future in the name of accumulating “wealth”. So in fact, I do advocate a sort of costing system for exactly the sorts of things that we are destroying. But it cannot be commensurate with dollars, and certainly not with dollar-flux which is the present metric of successful governance. GDP (dollar-flux) is really what keeps employment to maximal values, which is why the left values it as much as the right. But dollar-flux maps almost directly to consumption of irreplaceable natural resources.

    So I conclude we do need some other measure as you snarkily suggest. Systems can be tuned when their performace is measured. But all we measure is dollar-flux, and so our relentless eco-plunder is a side effect of optimizimg for the wrong metric.

    Damn right I “don’t like it”. Do you?

    [Like what? The state of the world? No. but…

    OK, so we need “another measure”. Something other than dollars. But what might this measure be? You offer few clues. The good thing about the market system is that a thing is worth… exactly what someone will pay for it. I could imagine an alternative system in which “the govt” or something assigns everything a value, instead, and we all pay that. But I’m pretty sure that isn’t what you have in mind.

    “I argue that the real cost is enormous” – I’m not even sure what you mean by that. There is a thing called a “real” cost, but – only you know what it is? And you don’t know what it is, either. You just know its “enormous”.

    “because you can’t apply the usual discount rate” – again, you keep saying this, but never really justify it. How about you write a blog post explaining why “the usual” discount rate is wrong, or point to someone else doing so. I still don’t believe you.

    Do you believe that “real” costs are subject to a different discount rate from “dollar” costs? Indeed, are “real” costs (whatever you conceive the to be) subject to a discount rate at all? Are “real” costs subject to arithmetic? Can they be compared? If real_a > real_b, and real_b > real_c, does that imply real_a > real_c? And so on… -W]

  78. #78 Hank Roberts
    2012/05/16

    Like I said, talk to an ecologist, or an agronomist, about value, not an economist.

    [Back to the mythical "value". Its very hard to have this discussion, though, because you (and mt) insist on using the same word for very different concepts. We have the ordinary market value, and you have ecological value. although, presumably only for certain things. I suppose were we to think of, say, an old beautiful building that too would have a "value" but we wouldn't ask an ecologist for its value, we'd ask, errm, an old-building-ist. And so we'd have a whole series of non-commensurable "values", although the purpose of these "values" isn't clear.

    Of course, if you want to know the market-value of a thing you don't ask an economist either. You ask someone who wants to buy it -W]

    Economists don’t know how to keep what they do producing benefits.

    Ecologists and agronomists have a better idea how to do that.

    You were asking at the top about using money/economics as the measure of all things.

    If you measure topsoil with economics the very act of measuring it causes it to run off the fields into the ocean, and quite rapidly.

    [Ah, you are suggesting that for economics, the method of measurement is to use the thing? That isn't true in general, of course. And indeed, there are many examples of farming that preserves topsoil -W]

    See, it’s Heisenberg.

  79. #79 Hank Roberts
    2012/05/17

    Yes, you can measure real value, for living systems — productivity over the very long term of a surplus that can be harvested without degrading the source.

    That applies when the middle class are considered the resource being harvested, too.

    http://roundtable.nationaljournal.com/2012/05/the-powerpoint-slides-that-wer.php

  80. #80 Lance
    2012/05/17

    I don’t have any doubt that our current rate of resource-consumption is unsustainable -W

    Isn’t that statement a bit overconfident considering we live on a tiny speck in a vast universe? Just the resources available on near earth asteroids dwarf the sum total “resources” we as a species have “consumed”.

    And before you pronounce my assertion daft, keep in mind that enterprises to begin mining these nearby stockpiles are being organized.

    http://www.usatoday.com/tech/science/space/story/2012-04-24/mining-asteroids/54507782/1

    Not to mention that humans have had a pretty good record of switching to a different type of resource when serendipity or technology present the opportunity.

    It seems you may be selling our species a bit short.

    [Yes, I was assuming Earth's resources only -W]

  81. #81 Tim Worstall
    2012/05/17

    “My issue is that I think the system systematically undervalues resources and uses them up. It is good that individuals are motivated to strive for wealth if that striving serves the larger goals of the society. My argument is that this striving used to do so automatically, but once resources become tight the system automatically exacerbates the resource problem.

    The entire structure of society needs to be altered so that free actions which actually contribute to the common good are encouraged and those which detract from it are discouraged. It’s not obvious how to do this.”

    Yes, fine, these are called externalities. The correct solution is to tax them so as to include them in market prices. Thus a carbon tax.

    My major point though here is that this isn’t something that economics (or even “neoliberal” economics) ignores it’s something that is absolutely standard within the subject. Heck, you’ve got Greg Mankiw (Harvard Proft, advisor to Mitt Romney, ex-head of economic council for G. Bush II) on exactly the same page as James Hansen here.

    This is just standard treatment of this problem.

    “When you suggest a carbon tax (a “simple” one, for all the complexities it might hide) you imply that the tax should cover the “externality”, i.e., the “real” cost of the carbon. I argue that the real cost is enormous, because you can’t apply the usual discount rate.”

    That’s fine. We don’t. The Stern Review number of $80 a tonne CO2 is calculated at a 0.1% discount rate. Not the 2 or 3 % rate of government finance nor the market rate of 5-8% that business lives by. But the 0.1% rate which reflects the fact that there’s other things out there that might destroy us all anyway: an asteroid strike, massive vulcanism etc.

    Again, this is already within the standard economics of the subject. To complain that economics doesn’t value stuff the way you like when in fact economics has considered this very point and indeed does already do exactly what you want is, well, what is it? Careless? Ill-informed? Something, surely?

    “But it cannot be commensurate with dollars,”

    Sigh, as I’ve already pointed out. We do not assume that (say) topsoil is worth $x. We do not even assume that topsoil is worth $x because of what we can get from it in the future. We assume that, by the way people act, people believe that topsoil is worth $x.

    [I think you've misunderstood mt's assertion here. He is saying, I think, that whilst the market system acts to value soil at $X via people's actions, he doesn't accept that monolithic valuation: his assertion, I think, is that other parts to the world (errm, to caricature, people living in yurts perhaps) "value" it differently -W]

    Which is why all of these values are indeed commensurable. Because they are all the measurements of peoples’ beliefs about value.

    And the great thing about this is that if you believe that the valuation is different from the general valuation then all you’ve got to do is go and convince a few billion of your fellow humans of this higher valuation and Lo! as if by magic! the value of this topsoil then rises. Because, again, we’re measuring what people think topsoil is worth.

  82. #82 Hank Roberts
    2012/05/17

    > we’re measuring what people think topsoil is worth

    to themselves, in short term extractive use, discounting the future value of productive soil into the future, on a declining basis ’til it’s worth nothing a few centuries out.

    Because you could consume it, put the money in a bank and it’d grow in value faster than leaving the topsoil working, right?

    That’s the approach some freshwater economist suggested for whaling — harvest them all, bank the money at eight percent, sell the fleet for scrap, bank the money at eight percent, $$PROFIT$$

    That’s the problem.

  83. #83 Hank Roberts
    2012/05/17

    Willy Ley, long ago, said that analysis is all very fine but you’ll never learn how a locomotive works by melting it down and analyzing the mess.

    Economics is all very fine, but you don’t learn how ecology works by converting it to money and analyzing the mess.

    Economics is a destructive approach to value.
    Whatever economics fails to destroy is its value.

    Many ways of farming that preserve topsoil?
    Yes, but none of them are ‘economic’ in practice.
    Show me one that has been proven over time, eh?

    Except, maybe
    — I’m gambling on this approach, myself:

    http://winwinecology.com/Badgersett.html

    I don’t expect my heirs to inherit money as a result; maybe they’ll be living in a better world, if it works out.

  84. #84 Hank Roberts
    2012/05/17

    I think I actually wrote this for you all.
    —————————————–
    > primary productivity in polar waters

    Just to make that clear; “primary productivity” is what we eat and breathe.

    What we breathe, and what we eat, starts with photosynthesis — chlorophyll — and mostly comes from polar waters around the edge of the ice.

    The ice that forms in winter, melting from the springtime on, supplies all the fallout from the winter months (good stuff, bad stuff, whatever is carried in and dropped) — in a short interval as the ice melts, mostly. Lots of stuff around the edge of the ice — in the ice, on the ice, and in the water — blooms and reproduces.

    Increasing sunlight, fresh water, minerals –> primary production
    The source where life is being made in excess — food and oxygen.

    It’d be a shame if anybody were to damage that.

    But on the other hand, of course right, now it’s not worth anything, economically.

    In fact, as there’s an excess of it in places getting in the way of a lot of petroleum and stuff on the seabed — it’s kind of a nuisance, isn’t it?
    —————————————–
    I think I’m done now.

  85. #85 Hank Roberts
    2012/05/17

    > the purpose of these “values” isn’t clear

    Breathing and eating.

    Those are the value.

    Those are the purpose, if you must declare something has a purpose for it to have a value.

    Oh, heck, it’s just the goose-that-laid-the-golden-eggs tale again, isn’t it?

    Some of us favor keeping the goose healthy and happy (and we’re all vegetarians now); others think roast goose now well worth any possible loss to future generations.

    Imagine a black box that produces food and oxygen and drinking water in huge amounts, as long as it’s given sunlight.

    Chop it up for saleable bits?
    Keep it untouched, even though it’s producing so much stuff that it’s too cheap to meter?
    Try to whack it down a bit, throttle it, gate it, and only let it produce as much as you can market at a good profit?

  86. #86 mt
    2012/05/18

    OK, this may be a good way to proceed.

    I owe Tim an explanation of “incommensurable”. It seems he doesn’t get it. It’s possible that this may reveal a great deal.

    In short, though, I cannot resist pointing out that the incommensurability of economics with key, widely held objectives of human preference is considered established consensus in many circles.

  87. #87 Hank Roberts
    2012/05/19

    > We assume that, by the way people act,
    > people believe that topsoil is worth $x.

    And this is a method, not a pure observation.

    Ignorance is part of the business model.
    People are easy to fool for a little while.

    Hiding facts, discouraging research, ignoring costs that can be hidden — long enough to take short term profits — works.

    Done any historical work on what people valued, at what point in history, and how informed they were in assigning value well?

    Value is a prediction of the future, not just an over-the-counter cash transaction.

    Fooling people about value is part of the business model.
    Fooling people about health effects and costs, ditto.

    Economics claims that what people believe is a fair measure of value — without adjusting for the errors introduced by intentional manufactured ignorance and lack of education.

    [No, this won’t do. Its just [[WP:IJUSTDONTLIKEIT]] applied to economics -W]

  88. #88 Paul Kelly
    2012/05/24

    MT,

    If economics is not used as the central weighing mechanism for mitigation, how then shall we go about it? The political process cannot be the way. It depends on the taxing and spending of the peoples’ money in which there is always an economic argument. Some other form of social interaction is required.

  89. #89 Hank Roberts
    2012/12/29

    Belatedly — no, ‘don’t like it’ isn’t just me, anyhow.
    I asked (talking to myself, probably) if there is
    ” … any historical work on what people valued, at what point in history, and how informed they were in assigning value well?”

    Answering myself: Yes — “information asymmetry” is how economists describe the problem. It’s got a page: http://en.wikipedia.org/wiki/Information_asymmetry

    My last sentence above was quite wrong. Economists do consider the effects of “intentional manufactured ignorance and lack of education.”

    Industries can, if they have the funds, fund policy advocates on several different and incompatible sides of an issue, to delay policy decisions, as here:
    http://www.chicagotribune.com/news/watchdog/flames/ct-met-flames-tobacco-20120508,0,3332088.story

    Fascinating set of stories there.

    [That wiki page really needs some help from someone who understands this stuff. Say the "market for lemons" bit, and how it can be resolved (reputation, etc.) -W]

  90. #90 Hank Roberts
    2012/12/30

    > help from someone who understands this stuff.

    Agreed, I’ll be grateful if and when. The Chicago Tribune story is really rather appalling hindsight on decades of manipulation of the policy debate, and it contains no answer about how that sort of tactic can be recognized and defused while policy is being made.

  91. #91 Hank Roberts
    2013/01/07

    Efficient, informed markets?
    See around the 10:00 minute point
    Richard Alley
    http://www.youtube.com/watch?feature=player_embedded&v=o4oMsfa_30Q

    [Katrina? No, not a useful example I'd say -W]

  92. #92 Hank Roberts
    2013/01/07

    Utterly predictable, but not a good example?
    Why not?

  93. #93 Hank Roberts
    2013/01/07

    (He’s not saying a sudden sea level rise is as likely as a New Orleans flood — not at all. What he’s saying is that a New Orleans flood was predictable, was part of Geology 101 for a decade or two, widely taught and — the scientists were ignored, and their students who went on into business and government didn’t remember what they’d learned or quit believing it once they’d passed the exams.

    Then he’s saying — well, and we aren’t that sure about sea level bumping up suddenly, but we do know these things now that we didn’t know

    (like, it takes 10,000 years for the base of a glacier to warm up from heat penetrating through the ice, and it takes 10 minutes for the base to warm up when a meltwater lake drains through cracks, and that you can map changes in glacier advance 80km up the glacier that happen a couple of hours after tides at the calving front, so losing the calving front can now be predicted to change the glacier’s advance over a long, long stretch of ice).

    But given the lack of response to the long predicted flood risk for New Orleans, what reason to expect people to pay attention to the risk of rapid sea level change.

    Or that’s what I think he’s saying — economics is the art of ignoring the risks to others, and arranging to get paid for cleaning up the damage. Worked in New Orleans, more or less.

    [He's saying that he won't blame NO/K on rising sea levels, so that's good. But then he writes rising sea levels on his slide, so that's confusing. He also write about max storm strength increasing on his predictability slide. But that too is irrelevant, because K wasn't strong when it hit NO. So there's a fair bit of confusion there. However, its the sense in which NO/K was "predictable" that matters. If he says that NO/K was predictable, then naturally I'd like to see his prediction. Obviously, he didn't say at the start of the 2005 hurricane season "NO will get hit by a levee-breaking hurricane this season" - it wasn't that sort of predictable. Perhaps he said in 2000 "NO will get hit by a levee-breaking hurricane this decade"?

    If you want to say "its utterly predictable" then you have to ref the actual predictions. And they have to have been made in advance :-)

    I think NO/K was "predictable" in a rather vague sense - that it was going to happen one day, but no-one knew when. And in the absence of a good when, no-one could quite get round to raising the levees. That's inefficient, clearly. Does it justify "Efficient, informed markets?" as a comment? Not really, because the information was there, and it wasn't a market decision. It was a political one. Perhaps you're arguing that more decisions should be taken out of the hands of pols and put in the hands of markets ;-?

    -W]

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