Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Monday, January 31, 2011

Other way round, I think

Cosma writes:

1. Obviously, macroeconomic phenomena are the aggregated (or, if you like, the emergent) consequences of microeconomic interactions. What else could they be? Analogously, the macroscopic physical properties of condensed matter all ultimately emerge from molecular interactions.

2. Macroeconomic theories which do not derive such phenomena from microscopic interactions are thus incomplete, and intellectually unsatisfying. Analogously, theories of condensed matter which do not derive the phenomena from molecular interactions are incomplete.

So: the true and complete theory of macroeconomics must emerge from the true and complete theory of microeconomics.

to which I don't wholly object ... or maybe I do. I agree with 1. And I agree with the lemma after "So:". But I don't really agree with 2. Not so much in what it says, as the way it says it.

My argument would be that what is it that we really care about when we do economics? The big questions, the ones of price, production, employment and trade. The stuff about individual transactions and agents can be ferociously interesting, and even sometimes useful, once in a blue moon (if you want to buy a second hand car for example), but the point of studying economics is to get answers that are useful at the aggregate, policy level.

So I'd turn this on its head. It isn't about "Does macroeconomics need microfoundations?". It's about "Does microeconomics need macroconsequences?". Leaving the stuff about condensed matter out, I'd rewrite 2 as:

2: Theories of microscopic interactions which do not imply accurate predictions about macroeconomic phenomena are thus incomplete, and intellectually unsatisfying.

And then the rest of the argument goes through mutatis mutandis, right through to the analogies with particle physics. Price theory, the expected utility model of choice theory and Nash/von Neumann/Morgenstern game theory have done very well in their fields - they even quite clearly describe certain aspects of the underlying truth about how economic actors behave. But they've failed the most crucial test - they don't help us generalise out to a theory of the behaviour of the whole economy, taken as a whole. They don't even (as the statements made by half the Chicago faculty over the last three years demonstrate more than adequately) help us to avoid saying things about the macroeconomy which fail to respect adding-up and stock/flow-consistency constraints, or well-established empirical relationships.

The New Keynesian project worked in this sort of spirit - recognising that we basically only had one family of macroeconomic models which even slightly worked, and attempting to work back into microeconomics to justify it. This approach, unfortunately, led us to DGSE and all that; it didn't work. I think that the conclusion from that ought to be that you can't get the Keynesian (or rather, the correct - the eventual macro model might not be Keynesian I suppose) conclusions simply from price theory and game theory[1], and so microeconomics needs to be re-established on some other basis that preserves the insights of what Phil Mirowski called the "cyborg science" era but moves on. In some unspecified way that I don't care about because I don't really agree with Cosma that there's anything particularly unsatisfying about macroeconomics without microfoundations[2].

[1] Or at least without explicitly modelling such a complicated and combinatorially huge nexus of principal/agent interactions at every management level of every firm, giving you a map potentially several times larger than the territory.

[2] This might be because my brain is smaller than his and thus more easily repleted.

Edit: reading back, I don't think I've emphasised enough how much I agree with Cosma's actual argument - I just think it's a damnable impudence on the part of microeconomists to have ever claimed otherwise! I also tend toward the view (also, I think, held by JW Mason) that any "correct theory of microeconomics" which has enough relevant and accurate macroimplication, is going to have imported a hell of a lot of specific and contingent institutional detail, rather than looking anything like a general theory of decision-making (there's another subject where all that stuff belongs, and it's called "decision theory", not "economics", but I think that demarcation dispute is for another time).
12 comments this item posted by the management 1/31/2011 06:17:00 AM
Money talks, bullshit walks, twas ever thus

I don't think I've ever seen an editorial piece where the writer so transparently didn't understand what he was talking about.

Update via John in comments, I am pleased to see that the quality of humanities academia is so high that apparently nothing remotely objectionable has been written in the fourteen years since Judith Butler's Diacritics article.

Update: of course, I've just remembered why the MTBW phrase was wandering through my mind - it's Davos season! Felix's point is well made, but I think the thing about Davos these days is not so much that it's irrelevant, but that it's so terribly dated. Coverage "LIVE FROM DAVOS" in 2011, after all that's happened? You might as well be breathlessly "LIVE - BACKSTAGE AT LOLLAPALOOZA WITH BILLY CORGAN!!", saying "oh my god! I just met Tom Cruise!".
6 comments this item posted by the management 1/31/2011 04:35:00 AM

Sunday, January 16, 2011

The problem, sir, is you, sir

I have something of a history with the subject of grand schemes of Michael Gove and so was interested to see his "English Baccalaureate" being given the go-over on Question Time. One person present made the very good point that, whatever the merits of the actual idea (which I think she had some sympathy for), it was fucked straight out of the box (I paraphrase), because these things always depend massively on implementation, and this plan would have to be implemented by precisely those teachers and headmasters who had been systematically alienated and pissed off by the high-handed way in which it had been announced. It's a good point.

But the thing is, it should probably be extended in a more troublesome and more personal direction. The problem is that Gove himself has his blocks placed at least ten metres behind the starting line when it comes to leading the implementation of big schemes in the department of education. He's got an annoying flat intonation to his voice. He's got an amazing weakness for trendy management-speak phrases that gives the impression of having read them in The Economist two days ago. All in all, he gives off the impression of the class smart-arse; his entire persona from the day he arrived on the public scene has been one of someone who thinks he knows better than you do, and is about to explain exactly where you've been going wrong. Fair or unfair, teachers fucking hate that sort of thing.

There are plenty of government posts, including some important ones, which do not have as part of their requirements the leadership and confidence of a large workforce of state employees. Economic Secretary to the Treasury. Minister for Trade. Chief Whip. Minister for Pensions. But some do, and it's not a good idea to have people in those jobs like Patricia Hewitt, or Michael Gove. It might not be fair on Gove, who is seemingly genuinely committed to his vision of education reform and might even have some good ideas. But the nature of managing any system is that you have the right man in the job, not necessarily the man who wants it most.
22 comments this item posted by the management 1/16/2011 12:28:00 PM

Thursday, January 13, 2011

The bursting of a bubble?

A year ago in comments, Ajay noted that the people who "spotted the Misery Memoir trend" were the John Paulsons and Nouriel Roubinis of the publishing industry. But has the wave crested? I was in Waterstones this afternoon and saw that the section formerly known as "Tragic Lives" had been rechristened "Painful Lives" (possibly because of the ambiguity of "tragic", leading customers to expect to find copies of A Man Called Gove, What Delingpole Did Next and Melanie Phillips: Jokes My Mother Told Me). Not only that but it had been reduced to a single shelf, at ground level underneath the True Crime section. In related news, "Dark Romance" no longer has its own separate category and has been folded into "Dark Fantasy", the consequence being that the total volume of vampire-knobbing books has shrunk and science fiction claimed some of its space back.

Question for home study: Of course, these two genres were spotted as a result of a couple of individual publishing sensations (Twilight, and A Boy Called It). In an alternate universe, where Stephanie Merritt and Dave Peltz's success was instead enjoyed by Ian McEwan, what do you think Waterstones would have called the genre established by knock-offs and pastiches of Saturday and On Chesil Beach?
13 comments this item posted by the management 1/13/2011 02:18:00 PM
Don't look back in Tsvangerai heard you say

An excellent post, partly on the embarrassing episode where Comment Is Free allowed some yank flack to post a finger-wagging excoriation of Wikileaks for its gross irresponsibility in publishing some Zimbabwean cables which were actually published by, err, the Guardian. But moving on to what is in my opinion the more important question, that of precisely what the fuck did Morgan Tsvangerai think he was playing at? Item; the biggest political asset Mugabe has is his ability to portray the MDC as pawns of foreign governments, so maybe it would be a good idea to cut down on the secret meetings with foreign governments[1]. Item; it is not really all that democratic to lie to your voters about an extremely important policy issue. und so weiter.

In fact, the behaviour described in the cables (which pro-democracy independent Zimbabwean newspapers would certainly have published if they had got hold of them) is so scandalous and so inconsistent with the MDC's public position (and with actual policy carried out since the date) that I have quite the old suspicion that the meeting did not actually go anything like how it is described and that the State Department official present transcribed what he wanted to hear rather than what Morgan Tsvangerai actually said. Tsvangerai appears to be well on the way to becoming the Nick Clegg of Zimbawe, as zunguzungu documents, but he's not that stupid or misled.

[1] Mugabe has a long and horrible record of trumping up charges of treason to persecute his political opponents. But if you're meeting with representatives of a foreign government and encouraging them to impose extremely damaging economic sanctions on your own country, I would imagine that Lloyds of London would consider you to have invalidated your being-falsely-accused-of-treason insurance policy.


2 comments this item posted by the management 1/13/2011 01:58:00 AM

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