Comments

1. #1 David B. Benson

   2012/05/12

   … “Ricardo has been disproved for the modern world!” apparently unaware that this makes as little sense as stating that 0.999.. != 1 in the modern world.

   What a mismash! That 0.999… = 1.0 follows from the axioms of the real numbers using either Dedekind cuts or Cauchy sequences. This is entirely in the realm of logic and need have no connection with reality.

   [Well, that's philosophically difficult. Since 0.999... = 1 it is one, and 1 = 1 always. But I agree that writing all that our formally and confirming it requires D or C like things, as you say - W]

   What one might say (but nobody has on your blog) is “Ricardo has been falsified for the modern world!”, using falsified in precisely the sense used by Karl Popper. You know, the guy who said “It is impossible to speak in such a way that you cannot be misunderstood.”

   Ricardo’s hypothesis of comparitive advantage rests upon certain assumptions (according to knowledgable experts). Some of the more mathematical economists state that comparative advantage does not follow as a theorem from those assumptions. Be that as it may be, it is possible to determine whether the assumptions of fixity of location for both capital and labor hold in the modern world; obviously neither does. That does not in itself falsify the hypothesis of comparative advantage unless that fixity of location is a necessary condition (in the real world, not just the logico-mathematical sense). I believe there are those who claim it is.

   In any case, IMF or World Bank pressed the hypothesis of comparative advantage upon the naive rulers of Côte d’Ivoire and so the people there do almost nothing but produce cocoa. Indeed, immigration from neighboring countries was encouraged to expand cocoa production. All told it doesn’t look to be a healthy economy, hihgly dependent upon world coca prices as well as weather factors:
   https://www.cia.gov/library/publications/the-world-factbook/geos/iv.html
   I suppose each much decide for themselves whether or not this falsifies the hypothesis of comparative advantage but the Ivory Coasters have taken up vehicle assembly and a few other industries in an attempt to diversify; obviously they have no comparative advantage in vehicle assembly.

2. #2 Edim

   2012/05/13

   “All these problems, which are so obvious to anyone from the outside, seem to go unnoticed by the inhabitants. Because they never see anything different.”

   This is exactly how I see the AGW-convinced.

   [How spiffy. Please link to (not repeat here) your insightful analysis -W]

3. #3 Tim Worstall

   2012/05/13

   “That does not in itself falsify the hypothesis of comparative advantage unless that fixity of location is a necessary condition (in the real world, not just the logico-mathematical sense). I believe there are those who claim it is.”

   They’re wrong. As Ricardo himself showed. Fixity of capital is something that he assumed at first, then relaxed as he went on to explain the model.

   “obviously they have no comparative advantage in vehicle assembly.”

   This is nonsense and shows that you don’t understand what comparative advantage is. Comparative advantage has absolutely nothing at all to say about how good Ivory Coasters are at producing cars in relation to how good non-Ivory Coasters are at producing cars.

   It is about how good Ivory Coasters are at producing cars with respect to any of the other things that Ivory Coasters could be doing. It is probably true that they have no comparative advantage in making cars as compared to cocoa. For at least some portion of the population that is (there might not be enough land for all to grow cocoa for example, or perhaps the world market is not large enough to employ all….). But it’s also pretty certain that they have a comparative advantage in building cars over building nuclear aircraft carriers. Or large jet planes. Or computer servers.

   And it is that calculation that comparative advantage is about. It’s completely sod all to do with what everyone else can do. It’s actually the opposite: consider what are the things that you (or the company, the population, the labour force, the capital, whatever) are best at doing given the spectrum of things that you could possibly be doing. Do this thing that you are best at and then trade the resultant product for what other people are producing by being best at what they can do.

   “Ricardo’s hypothesis of comparitive advantage rests upon certain assumptions ”

   Forget the maths, it’s irrelevant. Simply put Ricardo says that if we all do what we’re least bad at then we’ll all be better off. Because by doing what we’re least bad at there will be more stuff for all to share in some manner.

   “Or arguing that economists, by building in concepts like “discount rate”,… limit our choices. ”

   That one’s a real dingbat assertion. Discount rates force you to admit the cost of your choices.

4. #4 dhogaza

   2012/05/13

   Or conflating politics and economics.

   You need to get to work on the economists, then …

5. #5 Holly Stick

   2012/05/13

   To start off with, why talk about economists as if they are all alike? There is no economic consensus! Well, maybe about some basics, but these ones http://www.progressive-economics.ca/2012/05/05/canadas-oil-for-sale-to-the-highest-bidder/

   [I didn't realise I was. Yes, there are many disagreements, though I'm not really far enough into the subject to know about it -W]

   sound different from this one and his buddies: http://twitter.com/#!/andrew_leach He was quite critical of this post: http://www.realclimate.org/index.php/archives/2011/11/keystone-xl-game-over/

6. #6 Neven

   2012/05/13

   To start off with, why talk about economists as if they are all alike? There is no economic consensus!

   I admit I don’t know much about economics as a science or as a field, but somehow I do get the impression that everything on universities and in politics revolves around the neoclassical mantra of infinite growth. Is that impression wrong?

   [Quite likely. But if you really want to know... why ask here? You need an economist to talk to, not me! -W]

7. #7 Neven

   2012/05/13

   William, why is my impression quite likely wrong?

   [Which bit of "if you really want to know... why ask here? You need an economist to talk to, not me!" did you miss? -W]

8. #8 Neven

   2012/05/13

   William, why is my impression quite likely wrong?

9. #9 Neven

   2012/05/13

   Excuse me, sir were you the person who wrote this?

   But the same problems exist: people talking about things they don’t understand;

   Obviously you must understand something of the subject to deign make such a comment. But it seems you understand even less of it than I do. So could it be maybe that people – naming no names, but we know who we are – are not continually re-presenting memes that they’ve accepted but never challenged, etc, etc? You don’t really know, do you?

   So why write it then? Just to be annoying? Be careful, I can free up some time and be doubly annoying. :-P

10. #10 Neven

    2012/05/13

    “Which bit of “if you really want to know… why ask here? You need an economist to talk to, not me!” did you miss?”

    If you really want me to go out and talk to an economist, you might try and not make a statement like ‘quite likely’, because that leaves the impression that you might have something interesting to tell me, or teach me something new, which obviously you can’t or don’t (wrt this subject).

11. #11 Neven

    2012/05/13

    A couple of years back I started to believe that I was seeing things that could be described as global problems (AGW, peak resources, financial bubbles). After a while I made the connection with the neoclassical economic concept of infinite growth that has dominated western economies for a couple of decades now.

    Why does this automatically promote me to the level of WUWT? I want to understand (more of) it, reading blogs and books. I’m not sitting at some blog reading headlines in a circle jerk going rah-rah with some old fellow-fundamentalists. I don’t want to delay anything so everything can stay as it has always been. I’m changing my whole life and the way I do things because of it.

    So why do you equate me or my thinking with the WUWT community and way of thinking?

    [Don't take it too hard. At least you're not flinging random insults like they do.

    But as to the substance: I'm not sure I can explain more than I already have. First, the WUWT half: you've seen them over there, I take it, stubbornly insisting on their second-law stuff? To the extent that its clear they never read any of the countervailing opinion, have clearly never sought out and read a mainstream text on climatology or the GHE? Now over to you: have you ever sought out and read a mainstream economics text on growth (no, I haven't either, but that's not the point: its you who is asking)? When I try to point out that growth isn't just increasing efficiency, are you listening, or are you heading straight back to your limits-to-efficiency mantra? -W]

12. #12 David B. Benson

    2012/05/13

    Tim Worstall — I’ll begin by paraphasing Sir Karl: It is impossible to write in such a way that you cannot be misunderstood. I had thought I made it plain that the hypothesis of comparative advantage is testable in the real world and so can be falsified. I’m sorry but your explanation of the hypothesis of comparative advantage just makes matters worse with regard to that testablity and so potential falsifiablity.

    I begin with a simplier and older hypothesis, Hooke’s Law of Elasticity. One might learn about this in a pre-college course but it is always presented as if it is true in college Physics 101. So it comes as somethng of a shock to engineers to learn that Hooke’s approximation never applies in the macroworld of interest to mechanical and structural civil engineers. To design artifacts which actually work those engineers have to learn at least about creep and cracks. Now in conducting such a design one might begin with Hooke’s Law and then go on to refine the design.

    So is Ricardo’s hypothesis of comparative advantage even a suitable approximation? It seems not. From here
    http://en.wikipedia.org/wiki/Comparative_advantage#Effects_on_the_economy
    to the end of the page indicates that Ricardo left out so many factors of an actual economy as to be worthless. Here is The Motley Fool’s take:
    http://wiki.fool.com/The_Supply_%26_Demand_Theory_of_Comparative_Advantage
    and then there is For The Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future by economists Herman E. Daly, John B. Cobb Jr. who do a rather thorough job of dismantling Ricardo.

    But my point was to address the falsifiability of the hypothesis of comparative advantage by using an actual example of where it was attmpted and has clearly been found wanting, IMO. You could have actually addressed that but you did not. You didn’t even read the CIA fact book page I linked, at least not with comprehension. I know this because the Ivory Coasters do not assemble cars, which is what you stated. You could have bothered to check whether or not more land could be used for more cocoa production; it could.

    There is a certain tendency to assume that what one has learned in Econ 101 has a strong relation to how the world actually works. As it is it appears that little of that in, say, Samuelson’s textbook (I studied from that over 50 years ago) has much relevance to how the modern economy actually functions.

    Briefly, while Hooke’s Law remains of some limited usefulness as an approximation, Ricardo’s hypothesis of comparative advantage makes so many assumptions as to be useless now and indeed perhaps at any time in the past as well, falsified.

13. #13 Paul Kelly

    2012/05/14

    The bloggers with a fanciful view of economics also reject communications research. Maybe it’s just an aversion to social science in general.

14. #14 Neven

    2012/05/14

    When I try to point out that growth isn’t just increasing efficiency, are you listening, or are you heading straight back to your limits-to-efficiency mantra?

    I try to listen, I honestly do, but first of all you didn’t say that ‘growth isn’t just increasing eficiency’. You said that my assertions were wrong. Second of all, I didn’t say or meant to imply that the only factor in growth is increasing efficiency. I just said that Tim Worstall was wrong to suggest that efficiency could make GDP growth continue unabated. I think I have a point, without any mantra needed. And why isn’t the ‘technology can fix anything’ argument not a mantra, eh?

    [I've already answered this:

    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

    I just said that Tim Worstall was wrong to suggest that efficiency could make GDP growth continue unabated Tim didn't say this. You made it up -W]

    Now over to you: have you ever sought out and read a mainstream economics text on growth

    Probably not as much as I should have before speaking out on the subject, but I had some of it in high school, have read quite a bit online (on the history of economics as a science), and have been reading or am reading books by Tim Jackson, Herman Daly, Howard T. Odum, EF Schumacher, Warren Johnson, some German books (and there’s some other stuff on my Amazon wish list).

    [Hold on. I'm not really into econ, as you can tell, but those names... Schumacher isn't mainstream. Daly, Jackson are all names that people here have quoted approvingly from "our" side. Its like the WUWT folk saying "yeah, I've read a bit in climatology: I've read Lindzen, I've read McIntyre, I've read Spencer..." (by apologies to L and S for putting McI in the same sentence and apparently at the same level, but I'm desperate for even vaguely respectable names) -W]

    And besides having had several online discussions with students of economics which left me baffled,

    [Right. There is your clue. You are missing something. When I have discussions of climate with WUWT, I'm not baffled. I'm often amused / despairing, but at least I always know exactly what they're talking about and how badly wrong they are, or when they are nearly right and just need a little nudge.

    But they, when they talk to me (on the rare occasions when they will talk) are often baffled. And it quickly makes them frustrated and angry. Because they "know" they are smart people, and they "know" this climate stuff is simple really compared to difficult physics. And that is their problem: because their reaction is, usually, bafflement and anger - not, in thinking "hmm, what am I missing here" they aren't able to learn anything. Don't be like that -W]

    I of course am also seeing what politicians and economists are saying in the mainstream media, which basically boils down to ‘more growth, more growth, more growth’ (-> more bubbles, more environmental and social degradation).

    So that’s where I’m coming from. I do not pretend that I know it all (on the contrary). At the same time I don’t think this needs to be made more complicated than it is, as there’s a logic to this that anyone can get: you cannot have infinite growth on a finite planet. Either there are some global problems or there aren’t. If there are, they have most probably something to do with the way economies worldwide function, and these in turn are determined by the prevalent economic concept, which I believe is and has been neoclassical economic thought.

    Anyway, I’m happy to see that this is being discussed more and more on blogs, as most of the ‘greenie commies’ actually believe everything can stay as it is, if we can just make growth green and sustainable.

    And to return to the topic at hand, the analogy with WUWT (however insulting it is): perhaps that tenacious doggedness is needed to get this debate about growth in the spotlight and keep it there. We all know how very successful they have been and still are in keeping the debate on the wrong subject to protect that very infinite growth paradigm.

15. #15 Neven

    2012/05/14

    Tim didn’t say this. You made it up

    That’s how I interpreted it. I didn’t see your other inline response.

    Don’t be like that

    I’ll try.

    Hold on. I’m not really into econ, as you can tell, but those names… Schumacher isn’t mainstream. Daly, Jackson are all names that people here have quoted approvingly from “our” side. Its like the WUWT folk saying “yeah, I’ve read a bit in climatology: I’ve read Lindzen, I’ve read McIntyre, I’ve read Spencer…”

    Of course there’s an analogy on a quantitative level between critics of mainstream economics and critics of climate science. But on the qualitative level there are some marked differences. Take for instance the comparison between Daly/Schumacher and Lindzen/Spencer. The first want to change things, the latter only want things to stay the same.

    There are huge differences on a qualitative level between economics and climate science. And I’d also like to think there are differences on a qualitative level between myself and denizens on WUWT. But maybe there aren’t.

    [All I'm trying to point out is that I'm saying "have you read econ" and you say "yes, a bit" but then all the names you give are "alternative" or somesuch. I don't, at the moment, care enough to read the mainstream stuff. But I think that if you do care, if you want to discuss this stuff, you do need to read it -W]

16. #16 Tim Worstall

    2012/05/14

    Here is The Motley Fool’s take:
    http://wiki.fool.com/The_Supply_%26_Demand_Theory_of_Comparative_Advantage

    Something written by Demand Media is unlikely to be a great reference (I know, I’ve written for them). For example:

    “Comparative advantage makes little sense when comparing several states of varying levels of industry. Advanced states with large industrial sectors are likely to make almost everything of industrial importance better or more efficiently than poorer agricultural states. ”

    That is absolute advantage, not comparative advantage. The entire point of comparative advantage is that even if someone (a country, person, company, whatever) is better at doing everything than you are it is still better for you to specialise in what you do least badly.

    As to you pointing me to wikipedia:

    “Conditions that maximize comparative advantage do not automatically resolve trade deficits.”

    True, so what? There’s no problem with having a trade deficit. It just means you’ll have a capital account surplus. Whoop de doo.

    “I had thought I made it plain that the hypothesis of comparative advantage is testable in the real world and so can be falsified. I’m sorry but your explanation of the hypothesis of comparative advantage just makes matters worse with regard to that testablity and so potential falsifiablity.”

    Very well then, let us use one of the simplest forms of falsification. Let us invert the statement. People will be made better off if they concentrate on doing the things that they are most bad at.

    Does this make sense? No.

    “There is a certain tendency to assume that what one has learned in Econ 101 has a strong relation to how the world actually works. ”

    I’m quite a long way past Econ 101 thank you. I could even list for you a number of reasons why, in certain circumstances, we might want to operate contrary to comparative advantage. But that doesn’t make comparative advantage itself wrong: it just means that there are times when other things are more important than wealth maximisation.

    “and have been reading or am reading books by Tim Jackson, Herman Daly, Howard T. Odum, EF Schumacher, Warren Johnson, some German books (and there’s some other stuff on my Amazon wish list).”

    Hmmmm….

    “At the same time I don’t think this needs to be made more complicated than it is, as there’s a logic to this that anyone can get: you cannot have infinite growth on a finite planet.”

    You see, I’ve actually had this conversation with Daly himself. And we do actually agree: infinite economic growth on a finite planet is indeed possible. Because economic growth does not have the environment (or the planet, or physical goods, or physical resources) as *the* binding constraint.

    It is (they are) *a* binding constraint upon one form of economic growth. But they are not a binding constraint on all types of economic growth.

    An extreme example. Say there are only 1 million tonnes of copper on the planet. We’ve already dug it all up. That’s it, that’s all the copper we can ever use, from now until the Sun flames out. Currently we use this coppper to make nice paperweights.

    Then technology changes. We work out how to use copper to make computer motherboards. We melt down all our paperweights and make lots of computer motherboards. We value the motherboards more than we did the paperweights.

    We have not increased resource use. Yet we have created more economic value. We have had economic growth in fact.

    The limited number of copper atoms is indeed a limit on the number of copper atoms we can use. But *it is not* a limit on the value that we can add to those copper atoms.

    Thus limited resources, that finite planet, is not the binding constraint upon economic growth.

    Now, this is what I say, it is also what Daly himself says with his distinction between quantitative and qualitative growth. It’s also something that Tim Jackson grievously misunderstands.

    As to Schumacher, do read his lovely chapter on why the UK should be near entirely coal powered. He was, after all, chief economist to the National Coal Board.

17. #17 Neven

    2012/05/14

    As to Schumacher, do read his lovely chapter on why the UK should be near entirely coal powered. He was, after all, chief economist to the National Coal Board.

    I really enjoyed the last chapter of Small is Beautiful where Schumacher suggests that instead of paying taxes large companies should give half of their stocks (and thus profits) to the public. That was a bit mindblowing, which I always enjoy. But I don’t think that everything Schumacher writes, is gospel. It was difficult to get through A Guide for the Perplexed, even though I appreciated what he was trying to get at.

    —

    Thanks, Tim. I’ve been reading up on what you said, like your piece at Forbes – which coincidentally is about Tom Murphy that I also linked to here – and Brian Czech’s reaction on the CASSE blog, which is followed by a nice discussion in the comment section.

    It’s a nice thinking problem, and I think I do understand what you mean. I still do not however see the relevance to the discussion on infinite growth on a finite planet. Do you suggest that your qualitative growth would be enough to keep the economic system and societies at large going, whilst at the same time resource constraints make quantitative growth very difficult?

    Because if it’s like (here comes the extreme example) ‘Oops, there’s no food, we now value our children’s meat more, so GDP is still growing!’, then I think I need to go and use the little time and brain capacity I have for thinking about other things. I value pragmatism more than gotcha games about definitions (growth vs development) or philosophy for its own sake. ;-)

    But anyway, thanks for the nudge. I had let go a bit of the economic growth thing, because I’m too busy with working and thinking about Arctic sea ice (you know, one of those things that may tell us how close some of the limits are), except for reading up here and there, online and in books.

    I still think that this subject is what needs to be debated on a societal scale, if we want durable solutions. Not ‘what do we do about AGW (if it exists and could do harm)’ or ‘what do we do about financial bubbles and banker bonuses’ or ‘how do we get our children healthy again’, but ‘how do change our economic system in such a way that all those problems become manageable and perhaps even solvable’.

    I don’t know the answers and I don’t want to pretend that I do, but I really believe that this is what has to be debated by as many people as possible, whether they are experts, or whether they are still at the WUWT-level of thinking.

18. #18 Eli Rabett

    2012/05/14

    Eli prefers Adam Smith. Nononono, not that one, this one which gave the bunny a naturally skeptical outlook on markets. That, and the stories Ms. Rabett brings home.

    As John Bogle writes in the introduction to Supermoney (much of the text can be read at Amazon) “. . people viewed financial matters as rational, because the game was measured in numbers and numbers are finite and definitive”. It is also a good way to lose your stake. So these books were written in the 1970s, and pretty much captured all of the booms and busts between then and now. As the Great Winfield said, you gotta get a kid, they know everything and have never been hurt.

    Oh yes, read the chapter on cocoa in the money game.

19. #19 blueshift

    2012/05/14

    The Wattian’s have one final fallback that you don’t mention here, although I think you allude to it in New Aristotelians. This is that we can’t really know anything anyway. It’s all so big and complex and yadda yadda.

    [That was part of that post, yes. Its a fairly common refraim there, hauled out anytime the subject gets to complex-looking, or too near a conclusion they don't like -W]

    Show them how wrong their source is and they can always come back to this.

    Many of them believe the same thing about economics and will use this to argue any government action is ill advised.

    Do any of the climate bloggers (the real ones, not septics) contend that economic questions are unknowable?

    [There are plenty - like TW for example - who will argue that economies are so complex that they cannot be centrally planned -W]

20. #20 Sou

    2012/05/14

    Discussing economics on blogs that are mostly about climate and stuff (here and over at Eli’s) is illuminating in a way. I suspect what you are saying, William, is that if we are to pontificate, let’s at least pontificate on something we know something about. I agree. (Did you bring up the subject as a mere diversion, or was there a reason.)

    [The reason was trying to persuade people not to do it; or to do it less; or maybe just to do the basic spadework of learning some economics. it looks like I failed -W]

    Although I can understand the urge for non-experts to exercise the brain on this topic, it seems to me to leave one open to the sort of criticism one commonly heaps on those who reject climate science out of ignorance.

    One thing I will say (despite that little sermon), is that judging ‘Economics’ (ie the study of the economy) by the real world is flawed, at least insofar as thinking things should turn out the way they are ‘predicted’. At the macro level, many decisions affecting the economy are made by politicians. Economists rarely make any decisions at all – they just write about it, attempting to provide a rational explanation for what happens and making predictions and projections of what may happen (subject to x and y). A bit like the physical and biological sciences, except based to a much greater extent on human behaviour and therefore having more different and competing notions, often coloured by ideology. (It could be argued that central banks’ decisions on monetary policy are the exception. Even then, central banks aren’t usually run by economists, or not solely. In any case, their intent/actions may be thwarted or otherwise by the fiscal policies of governments.)

    [Indeed. Blaming economists for the state of the economy is like blaming climatologists for the state of the climate -W]

    (My excuse for joining in is I’ve studied Eco 101 or equivalent at least three times, in different degree programs – managing at least a pass grade each time – giving no-one any sound reason to take anything I say on the subject seriously – ha ha.)

21. #21 Eli Rabett

    2012/05/14

    Read the comment by Brad de Long at RR
    ========================
    It seemed to me that economics had a powerful technocratic core and a powerful set of analytical tools that helped to make sense of the world.

    But the treatment that the world has gotten from the Lucases, Cochranes, Famas, Kocherlakotas, and many others, not to mention the Prescotts–none of whom seems to have made any effort to mark their prejudices to reality–has shaken my confidence to the core. They seemed to me and seem to me to have simply not done their homework, and not be trying to do their homework.

    ["the treatment that the world has gotten from the Lucases, Cochranes..."? Means nothing to me. I tried googling, but it just returns me to your post -W]

22. #22 Hank Roberts

    2012/05/14

    > Blaming economists for the state of the economy is like
    > blaming climatologists for the state of the climate -W]

    No.

    Economic decisions make the economy.

    [But economists don't make them. Didn't you read what we wrote? -W]

    Confidence affects those decisions.
    “Restoring trust” is an intervention.
    http://works.bepress.com/raymond_brescia/5/

    The weather isn’t affected by the weatherguy’s comments, nor by how the audience trusts the weatherguy.

    [I said climate, not weather. You know the difference. Now tell me that our actions don't affect the climate -W]

    Look at how bad the _biology_ is in this speech:
    http://archive.newsmax.com/archives/articles/2005/6/9/161923.shtml
    “Friday, June 10, 2005
    “… Volcker believes that investor confidence could fade “at some point,” he said, with “damaging volatility in both exchange markets and interest rates.”… He believes a serious economic crisis is likely unavoidable as the U.S. economy is struggling with … a hopelessly unsustainable relationship with the rest of the world.

    “If I were a biologist I’d call this a perfect example of symbiosis,” Volcker said during a February speech at Stanford University….”

    By contrast, Volcker’s successor [Greenspan] … said, “The number of forecasts of crises … is far in excess of the number of crises that actually occur. There is something equivalent to an invisible hand which continuously is readdressing market imbalances to reach equilibrium.”"

    ——————-

    Confidence is like self-esteem.
    We have a big problem with both.
    There’s far too much of both of them.

23. #23 David B. Benson

    2012/05/14

    Tim Worstall — Yes, comparative advantage is, it seems, a computable:
    http://en.wikipedia.org/wiki/Revealed_comparative_advantage
    but so what. That doesn’t mean that directing an country’s economy on the basis of it is the correct thing to do. I used the example of the Republic of Cote d’Ivoire to illustrate why not. It is the
    pattern therefore action
    which I (and it seems many who are more expert than I) dispute. Summarizing, comparative advantage, taken alone, is not a basis for action.

24. #24 Tim Worstall

    2012/05/15

    “I still think that this subject is what needs to be debated on a societal scale, if we want durable solutions.”

    That debate is going on all the time. It’s called “the market”. It’s a real time debate as people swap their available resources for what they desire.

    The difficulty comes when we find something that probably should be included in the prices which guide those market transactions but isn’t. Say, the effect of CO2 upon the climate. Which is where we came in really: that’s the justification for the carbon tax which is the solution to the whole problem.

    Re DeLong: that comment really comes in two parts. One is that he’s snarling at those who have a different view of maroeconomics than he has. Tribalism more than anything else.

    The second is that he is in fact right, there are parts of economics which are absolutely sound, well agreed upon and are very powerful tools indeed to make sense of and even make better this world.

    The thing is, they’re almost all in microeconomics. Things about trade, prices, the price system itself, the idiocies of rent controls and so on. Macro, the talking about the economy as a whole, well, it’s almost certainly true that you cannot build a model of that whole economy which you could get even 50% of economists to sign up to.

    But sadly, almost all get this the wrong way around: they expect certainty from macro and dispute micro, entirely the other way around from how economists do it.

    To use an analogy with climate science. Outside everyone’s arguing about whether it’s happening or not. Inside the science the question is “how much?” not “whether?”.

    “Do you suggest that your qualitative growth would be enough to keep the economic system and societies at large going, whilst at the same time resource constraints make quantitative growth very difficult?”

    Might there be changes to the society? Sure. Society is very different today than it was a century ago.

    But will we still see the same basic underlying rules of the economy? Sure, why not? Economics itself is, after all, defined as the science of the allocation of scarce resources. So, that we have scarcity of resources is hardly a threat to the intellectual underpinnings of the science, is it?

25. #25 Eli Rabett

    2012/05/15

    Let us walk this back a bit first. From Eli’s POV economics has a bunch of tools for analysing outcomes in 10 to at most 20 years. It is not very useful beyond that. It also requires assumptions about goals and what we can usefully call ethics or motivators of human behavior which are at best arguable.

    In mathematical terms, when economics calculates the optimal path, what is the evaluative function? Opinions differ, which makes it hard to talk about a single economics.

    That is, to use a bad description, academic economics. When economics is used to evaluate political and investment decisions you come to the heart of Ankh and Eli’s unreadiness. Frankly put, economics has been used to put a gloss on a lot of pigs’ lips with very bad outcomes. What was the London whale optimizing. In short too much of the current unpleasantness is captured in the phrase public risk private profit, and that profit has been used to hold back the kind of regulation that would limit the public risk. And, oh yes, if you think the astroturfing for climate issues is bad, look at what happens on investment and budget decisions.

    And yes, economists do make decisions that affect the economy, in the words of the Great Mentioner, Summers, Greenspan and Bernanke come to mind, so you have an information deficit there.

26. #26 Eli Rabett

    2012/05/15

    Your googling skills need work

    http://faculty.chicagobooth.edu/john.cochrane/
    http://noahpinionblog.blogspot.co.uk/2012/03/did-krugman-insurgency-fail.html
    http://noahpinionblog.blogspot.com/2012/03/cochrane-blasts-austerity-and-stimulus.html

    A quote from the middle link

    ==============
    But it was Krugman who took this argument public, who took the case to the wider educated lay populace, and aired macro’s dirty laundry to millions of engineers, scientists, financiers, businesspeople, politicians, lawyers, and journalists. What Krugman (and Brad DeLong) did to macro was similar, in some ways, to what Lee Smolin and Peter Woit did to string theory – except on a much bigger stage, since Krugman is such a huge name in his field, and macroeconomics has a lot more important policy ramifications than the theory of black holes.
    ==================

    It is trivial to find more

27. #27 Eli Rabett

    2012/05/15

    With all due respect to Tim Worstall, he is engaging (as the Weasel is) in the no true Scotsman fallacy.

    [See the update I've just posted -W]

28. #28 P. Lewis

    2012/05/15

    You already alluded to it in comments, but I think your update would be better worded (and I feel sure you at least considered it). Something along the lines of:

    [Update: thank you for your various comments. Having read them, my opinions haven't altered. There is too much wishful thinking, too much reliance of alternative sources as mainstream. The difference in language between those who know some {insert technical subject here} and those who don't is both obvious and painful.]

    technical subject = {climate science, special relativity, general relativity, evolutionary biology, …}

    Indeed, such a message could well be utilised as a tag line to good effect.

    But where would we be without such reliance on alternative sources and lack of in-depth knowledge? Well, the blogosphere would be a bloody sight quieter. And I’d get more work done during the day, and I’d achieve more in my evenings. That’s where I’d be! ;-)

    That said, I’m continually being educated by the erudite… and continually being bored and infuriated by the time-wasting D-K (and dumber) set.

    But it begs a question or two, I think. Do you get much (still?) out of blogging? Does it consume too much of your time? Do you wish to continue blogging much longer (in this form — Eli’s warren has expanded recently; have you thought perhaps about… tee, hee)?

    [I still blog as the spirit moves me, which it generally does. I do wonder quite what I'd do with my time without it (read / write). I should find out sometime... -W]

    BTW, do the MILF-boat crew like their Monica?

    [But of course. They suggested it -W]

29. #29 Neven

    2012/05/15

    The difference in language between those who know some economics and those who don’t is both obvious and painful.

    You’re easily impressed. You must be easy to pick up in a bar. :-)

    Perhaps those who know some economics actually only know something about that (like one knows how to play complex card games), but don’t have a clue about what the dominant neoclassical economic concept that has shaped our world in the past couple of decades is going to lead to, but just assume that what worked in the past can be extrapolated into the future. Why don’t YOU go read up about the subject and make up your own mind?

    Either way, I could study climate science for years and still not get many things, but I’m pretty sure I can study economics and know quite a bit about it. At least enough to take WC home with me for a one night stand. :-P

    Give me a couple of years.

30. #30 Eli Rabett

    2012/05/15

    As you say

31. #31 Nick Barnes

    2012/05/17

    I don’t think I’ve seen such furious talking-at-cross-purposes on this blog for a very long time.

    Part of the disagreement appears to be between people who think like engineers and people who think like mathematicians. It is plain that every exponential in nature, without any exceptions, turns eventually into a sigmoid. It is plain that this also applies to many economic activities (e.g. resource extraction, resource consumption, transportation, material transformation, energy use). In fact, to all the things which have traditionally been considered parts of trade and commerce.

    Choosing one example (total US energy consmption): for some people, annual growth of 2.9% over 300 years is a sign of a fundamentally exponential process, and should be expected to continue indefinitely: another 300 years, another 3000 years, another 3 million or 3 billion years. Other people look for the limits which can and will start to reduce that growth rate, to an asymptote or a collapse.

    As a trivial example mentioned earlier: food production shrinking from 80% to 2% of UK employment over the last couple of centuries does *not* show that it is shrinking asymptotically to zero. It isn’t reasonable to believe that food production employment *can* shrink asymptotically to zero, either in the UK or globally. The reductio ad absurdum is trivial. Clearly, that exponential is going to stop. Why should other exponentials be different? And of course there are much stronger arguments for the exponentials in resource extraction and energy use, and indeed many of these exponentials are trailing off.

    So: all these exponential curves, of trade, commerce, and business activities, are already sigmoidal or are going to become sigmoids (if we’re lucky). “If something cannot go on forever, it will stop.”

    Those who are arguing for “prosperity without growth” are simply pointing out this fact: one day, many measures which have grown exponentially for hundreds of years no longer grow (energy use, transportation volume, material transformation, resource consumption, population, etc), and it behooves us to think about how the world will work then, and maybe to arrange our affairs so that the transition to that state is reasonably smooth, and so that we minimise the risk of catastrophic overshoot. If economists want to use the word “growth” for one particular aspect of economic activity in a steady-state world, I have no problem with that.

    [Yes. But unfortunately, that isn't what they actually say What they say is that economic growth is finite. This is wrong, as has been pointed out many times, and yet however often it is pointed out, they don't stop saying it. Which makes it unsurprising that "misunderstandings" arise. For myself, I think the reason people keep saying it is that, at some fundamental level, they still believe it. In which case the furious cross-talking comes from their failure to address the arguments, but instead to just repeat their assertions.

    Speaking of which, when you said It isn't reasonable to believe that food production employment *can* shrink asymptotically to zero, either in the UK or globally. The reductio ad absurdum is trivial. Clearly, that exponential is going to stop, what was the trivial proof you had, that the margin was too small to contain? And did you mean employment in terms of number of people, or economic value? -W]

32. #32 Nick Barnes

    2012/05/17

    Firstly, we *don’t know* whether or not economic growth is finite, because we’ve never been in a steady-state world. I find some of the decoupling arguments plausible, and others look like magical thinking to me. Plainly there are some mainstream economists, who have forgotten far more of this than I will ever know, who are also unconvinced and for that reason are looking at steady-state economies.

    The reductio I omitted is that one day there will be only one part-time farmer in the world (employment),

    [But is that valid? Why could not farming become entirely mechanised? -W]

    or that the economic activity of feeding the entire world for a year is insufficient to pay for an average person’s lifestyle for a single day (economic value).

    [By "feeding the entire world" I assume you mean just the food-production part (not the added value of serving a cup of coffee). In that case, is your assertion indeed obvious? I think if you went back 200 or 400 years, and told them, then, that we'd be down to 2% or people on the land (or whatever it is) and farming being a tiny part of the economy, they would have told you that was absurd -W]

    There are extropians and other singularitarians who believe both these things, but they are obviously completely bonkers. I was referring to Tim Worstall’s comment here, in which he says “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.” and goes on to say, about salt: “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?” My point is that “2%” and “pretty much zero” don’t impress me much, as an ex-mathematician.

33. #33 Nick Barnes

    2012/05/17

    (and yes, that reductio is an argument from incredulity, and my remark about extropians is an ad hom. I’m unrepetentant.)

    [Ah, well fair enough, I can let you have it if you make your basis clear -W]

34. #34 Nick Barnes

    2012/05/17

    [But is that valid? Why could not farming become entirely mechanised? -W]

    You are a troll and ICMFP. You work in engineering, you know better. Let’s get all singularitarian if you like, or maybe we could talk about the bargaining position of this hypothetical single farmer, or of the small child who buys all the raw food in the world with her pocket money.

35. #35 Dan Olner

    2012/05/18

    Nearly made the same point over at P3. There’s a very strong strand of: “this economics stuff is just common sense. There’s no need for us to consider what any economists have said. Let’s start from first principles, we’ll be fine.”

    I think the biggest problem (mentioned elsewhere) is that diversity of economic opinion is taken as proof of its uselessness. But it isn’t like physical science. Much of the evidence is under-determined and whatever theory you *do* have is predicated on society being structured in a particular way. That could change. It’s horribly complex. But that’s no reason to dismiss a hundred or more years of thinking about these problems. Also: it’s only one way to understand society, not the *only* way. Again, in contrast, we currently live in only the single physical reality…

36. #36 mt

    2012/05/20

    Am I expected to be offended by this comparison to Watts? I am not, because I have made it explicitly myself.

    [I'd hope you would be. a large part - certainly well over 50%, probably over 75% - of what is written there - in the articles and in the comments - is worthless or of negative values (and in that I'm excluding the obviously worthless stuff that merely amounts to "Al Gore is fat" or equivalents). Its written by people who are, possibly unbeknownst to them, wallowing in their ignorance. You should not be doing that -W]

    I have no expectation that any idea I come up with will never have occurred to any economist, any more than anyone should believe for a minute that “climate models do not account for water vapor” etc. I try to phrase every idea and critique as a question: who has written about this, how should we think about that, is this matter considered part of economics, etc.

    [Not good enough. See The New Aristotelians - many of the WUWT folk will fall back on "but I'm only asking questions" when challenged to back up their junk. And anyway, the quote from you start started all this off doesn't fit into the category you're claiming.

    But more, I think you're again defending yourself by misrepresenting my attack. I'm not asking you to think economic thoughts that no-one has before. I'm asking the reverse - that you do at least make yourself aware of the commonplace streams of economics -W]

    And I agree that it is easy to see, from writing style on the subject, who is steeped in academic economics and who isn’t.

    But I absolutely and categorically reject credentialism. It is good for a field to attract the attention and genuine skepticism of outsiders, to have to defend its assumptions and define its jargon. If the Wattsites weren’t so mean and so prejudicial, they could be a big help instead of a big hindrance.

    It is also not only legitimate but essential for outsiders to question the bona fides of a field. (Consider that there are recognized universities with professors of acupuncture; who knows where that will lead!) That Watts and McIntyre keep poking at the field is not the problem. That they are explicitly hostile and motivated to manufacture doubt is the problem.

    [Yes. Fine. Question the credentials of a field - that's great. I'm all for it. But taht you're saying this indicates that still you haven't read what I'm writing, which is disappointing. What I'm trying to say is that you can't make an intelligent or worthwhile critique of a field without at least reading the basics of that field. But with economics, you haven't done that basic groundwork. At least, it very much seems to me that you haven't. It seems to me that you've done rather what the WUWT folk have done - you've read various blogs (and usenet, I know, this goes way back), generally ones you agree with, and you've formed your opinions on economics from there -W]

    The reason I became a climatologist is NOT because I have or had a deep intrinsic interest in climate. It is because I intended to become an intellectual generalist, and it seemed a good avenue for doing that. I have been thinking about how to develop a meaningful, quantitative, whole systems view of sustainability for decades. I am trying to determine which parts of economics and which theories fit in. I have a great deal of difficulty getting answers.

    I have a tentative conclusion that most economics is not applicable at the long time scales and nonlinear interactions of interest. Rather than engaging the question, normally I see trained economists ducking it altogether. There are several, perhaps non-exclusive, explanations including: 1) I have not framed the questions well enough for people to understand them 2) there is no map from the questions I ask onto the traditional conceptual basis of economics, so it is impossible to understand the questions in context 3) I have not found the branch of economics that deals with my questions 4) my questions are, for reasons I do not understand, stupid ones.

    I would genuinely like to determine which of these is the case. My ego, of course, is inclined to #2. But I have seen Watts make a fool of himself enough in a comparable circumstance. I try to take care to express that I am really looking for a more plausible explanation of this gap.

    But I absolutely reject credentialism. Watts is entitled to his opinions and his questions. He is entitled to good faith answers, despite the difficulties. The structure of applied sciences requires public outreach that is more than an afterthought. Eschenbach’s admission that has has no credentials in climate science should not be mocked.

    It’s clearly true that sophistication in one branch of intellectual endeavor can be accompanied by naivetee in another. We see this all the time in climate.

    But we seem to respond by addressing ourselves only to each other and to the completely unsophisticated. Outsiders who are willing to sit down and do some serious thinking about matters that engage them end up actively discouraged and resentful. It seems no different in economics. An engaged amateur community is a great asset to a healthy field, and on this metric, neither economics nor climatology can claim to be a paragon of health.

    [Rejecting "credentialism" isn't the same thing as rejecting "knowing-what-you're-talking-about-ism".

    So, having rather danced about this for ages, let me ask directly: do you think you actually understand the std basis of modern economics (in the way that, say, WUWT folk clearly don't understand climatology, or how GCMs are put together; or the way that WE clearly doesn't understand how to start analysing datasets). Please don't tell me "but you don't understand it either" - I know I don't -W]

37. #37 Eli Rabett

    2012/05/20

    Does Pat Michaels know what he is doing?

38. #38 mt

    2012/05/20

    To answer your question, I might claim to understand the basis of both Keynesian and Monetarist economics at an undergraduate level.

    [That's better than me, then -W]

    Why should I critique every branch of the whole field? I am primarily interested in what appears to be an edge case.

    That is, I am interested in the long-time-scale limit of resource-relevant questions, and in finding a way to provably assert that long-range sustainability constraints might be adequately represented in mundane incentives.

    This is a rather specific set of questions, crucial for governance in the issues we care about. But as far as I can tell it is not a central consideration of most economic theory, which deals with short-term quasi-equilibria and marginal values.

    [In that case I think you need to be particularly interested in discount rates, since that I think is crucial to your situation, and to long-term valuations. You need to find or develope a good theory of why the std market-based discount rates are completely wrong, or perhaps (you've hinted at this) why having a discount rate at all is wrong -W]

    I am very interested in learning about those aspects of economics which consider systems far from equilibrium, where valuations are highly contingent on system state, and where crucial specific resources are not substitutable and not fungible.

    [But are we so far from equilibrium? You take this as a given, perhaps, but it isn't obvious. In fact I don't even know what you mean by it. I think you mean in sense of oscillating around a mean, rather than in the sense of using resources faster than some long-term level can support, or rather than in the sense of tech changing the system parameters under it -W]

    The standard elementary materials are of no use in this pursuit.

    Nevertheless, that seems to be all that is on offer. Tim offers no end of “revealed preferences” and “discount rates”. It’s obvious to me that these mechanisms don’t address the problem; that they rather filter out the problem domain of interest. If it is not trivially obvious to others I suppose I am going to have to construct a formal argument, but I’d be astonished if nobody has done this before.

    [See above. I think you need to put more work into understanding, and criticising, discount rates. You seem to me to be at the stage of not liking the answers they give, but being unable to understand why they are wrong, if indeed they are -W]

    My efforts to follow these arguments and to read on the subject have not been entirely trivial. But I’ve only taken them far enough to be reasonably convinced that they don’t immediately answer the class of question we need to answer so as to stop systematically destroying the long-term viability of the world.

    And if it isn’t clear to you either, why is it me and not Tim that you are criticizing? Because it ought to be clear. It’s pretty damned important. At least we TRY to explain the greenhouse effect six ways from Sunday. All I seem to get from economists is just various ways of begging the question.

    [Don't forget, I'm on your "side". Err, which is why I'm criticising you and not Timmy, in part.

    The other part is... well, its the knowing-what-you're-talking-about bit. Being of good faith is no substitute for actually knowing the subject.

    You must remember, in the good old usenet days, discussions about, say, nuclear power for satellites. And the naive young greenies would pop up in horror. And the grizzled old nuke vets would knock them back. And just from reading it, it was immeadiately clear who actually had a clue what they were talking about; who actually knew the subject.

    Or, I've talked to people who really don't like relativity. Some of them were capable of doing maths; they could re-cast the equations into an equivalent form and interpret them somewhat differently. But because they hadn't altered the physics, it was all pointless, and the same basic structure they hated still stood; and they hadn't even realised it -W]

    Well, maybe they’re right. It seems dogmatic to me. And I sound alarmingly like Watts again. I know. But what can I do? I don’t get engagement on how reasonable extrapolations about the preferences of our descendants can be represented in our incentives and our decisions. I just get assertions at how brilliantly it all can work in the short run. But I already know that and don’t argue that point.

    But just as macroeconomics is not just an aggregate of microeconomics, long-term economics is not just an aggregate of short-term economics. As of yet I have not encountered a useful deep time economic theory, where resource constraints are not just a fudge factor but the key question.

    [I'm not saying your wrong. Indeed, I'm broadly sympathetic to your viewpoint. I'm just saying that your arguments are full of holes. It seems to me (sorry if I'm being insulting, it isn't my intent) that you're so far away from what you need to know, that you don't really even know what it is, or if it is already known. If I were you I'd try to find a sympathetic Real Economist and ask for pointers to the correct direction to search in -W]

39. #39 Eli Rabett

    2012/05/21

    C’mon man, a discount rate more than 20-30 years out is strictly fiction and always will tell you not to do anything, besides which, why reinvent the wheel, this has been hashed about many times, for example by Gardiner:
    ————-
    when the SDR is positive, all but the most catastrophic
    costs disappear after a number of decades, and even these become minimal over very long time periods.53 This has serious consequences for the intergenerational ethics of climate change. As John Broome puts it: “It is people who are now children and people who are not yet born who will reap most of the benefits of any project that mitigates the effects of global warming. Most of the benefits of such a project will therefore be ignored by the consumer-price method of project evaluation. It follows that this method is quite useless for assessing such long-term projects. This is my main reason for rejecting it [for climate change]” (Broome 1992, p. 72).54

    and

    conventional economic analysis is that it cannot adequately capture all of the relevant costs and benefits. The obvious cases here are costs to nonhumans (such as animals, plants, species, and ecosystems) and noneconomic costs to humans, such as aesthetic costs (Sagoff 1998; Schmidtz 2001). But there is also concern that conventional economic analysis cannot adequately take into account costs with special features, such as irreversible and nonsubstitutable damages, that are especially associated with climate change (Shogren and Toman 2000; Costanza 1996).55
    —————–

    It ain’t rocket science, that is a two semester course. Lomborg and Tol went down that track and they could only do it by cooking the books.

    [He's a minor philosopher (http://www.carnegiecouncil.org/people/data/stephen_m__gardiner.html). We already know that lots of non-economists don't like discount rates for a variety of hand-waving and I-don't-like-that-conclusion type reasons. Quoting more of them is pointless. What you need to find is a meaningful economic analysis saying this; or some way to connect this to economics. Saying "I reject all economics because I don't like discount rates" isn't plausible, IMO -W]

40. #40 Hank Roberts

    2012/05/21

    > isn’t plausible

    Contrariwise: economics as she is spoke isn’t plausible because it’s incompatible with what we know about biology.

    There is no way to do economics without requiring a runaway condition not observable in reality.

    That’s what “compound interest” is — the mythical notion underlying economics — that requires believing that you can get more return over the longer term from owning debt than from managing ecology.

    What the ecology gives you is the ceiling, the total available return.

    What economics tells you is that you can get more than can be available.

    It requires finding a new continent and killing most of the occupants, or finding free resources a few hundred miles away in vast quantities (and overcoming gravity).

    Sure, those things happen and the economy’s bailed out.

    Some day they won’t.

    [That is as bad as TGL on carbon taxes. Why on earth would biology be a constraint on economics? You're not making a coherent argument. You're writing down small phrases that sort of fit together in your world model. Its probably a world model you share with other people. And probably when you say these things to them, the conversation flows, because of the huge invisible back story you agree on. But - as I keep saying to mt, and I'm sure I've said to you in this thread - it doesn't make an argument that can survive out in the outside world.

    Before I got banned, when I used to talk to the fol at WUWT, whenever I said something I knew they'd disagree with I tried my best to leave them with a link to a usable blog post that would reference whatever I'd said -W]

41. #41 Hank Roberts

    2012/05/21

    > Why on Earth would biology be a constraint on economics?

    When was your last ecology course, or reading?
    Do you have someone around you who can speak to this?
    It’s an idea so deep in ecology that it’s hard to sum up in a blog post.

    http://www.jstor.org/discover/10.2307/2096885?uid=3739560&uid=2&uid=4&uid=3739256&sid=21100815197381

    http://www.amazon.com/Overshoot-Ecological-Basis-Revolutionary-Change/dp/0252009886?tag=duckduckgo-d-20