Sunday, January 27, 2013

In Centrist Times

So, all right, we won the election. Pluralism won out over ROWGs (Rich Old White Guys) and Mr. One Percent isn't President.

But what have we won?
  • Huge numbers of people have lost their homes.
  • Unemployment, though improving, is still high, and most new jobs pay less than the jobs they replace.
  • The degradation of the environment of human culture and of the earth's ecosystem continues.
  • The wars and the expansion of the national security state continue.
So now we have the administration floating cuts Social Security, Medicare, and Medicaid as trial balloons. We have the PPACA, which will funnel vast amounts of money to the hated health insurance firms. And we have an organized attempt to stack the electoral college in favor of Republicans.

What have we won?

Gay rights, black rights, women's rights. The right to have our votes counted, though the Republicans are still trying to take that away. Not small things, no, but these rights will not return any people to their homes, or get people jobs. In these things, we have won only the right to keep fighting.

What remains to be won?

The security of elections from big money
After two billion spent on the Presidential election, about a billion from both sides, the Democrats and the Republicans fought to a standstill, or perhaps the Obama campaign's superior computer campaigning won the day. But in state and local elections, it's entirely another story. A sufficiently well-heeled outsider can buy most state and local elections.

A non-partisan judiciary
On Friday, the DC Circuit rendered a ruling that invalidates not just many of Obama's recess appointments. The immediate results are that the National Labor Relations Board is shut down, probably indefinitely, and the Consumer Financial Protection Bureau may never begin operations. But the decision is very broad, and probably nothing like the original intent of the Framers. Reasoning like Christian fundamentalists, the Court rendered a decision which invalidates executive and judicial appointments throughout the 20th century. Stare decisis much? The willingness of "conservatives" to tear down long-standing governmental structures to achieve short-term political goals is an awesome thing.

At this point, I'm finding ideas coming faster than I have time to flesh them out. So I'm going to outline them, and maybe I'll return to them later.

A representative government
Reform the Senate, the Electoral College, and the campaign finance system. We don't have representative democracy any more; we have something else, something run by money and media, and it's killing us.

Environmental action

Reality-based economic policy
Keynes was right, Hayek was wrong. It's time to admit it and act on it.

Health care for all

Labor rights
The right to negotiate working conditions and wages as equals with management.

Saturday, January 5, 2013

Did Keynesian Economics Win the Cold War?

(This began under another name, in defense of Keynesian economics.)

The policies of the past 30 years have not been Keynesian, no. Keynes advocated a particular type of government intervention — heavy regulation of investment and finance based on a particular understanding of macroeconomics — rather than government intervention in general. I think we can agree that we do not have heavy regulation of investment and finance.

The other side of that is that Keynes did say that the right kind of government regulation can produce positive results. And that, of course, is the problem with Keynesian policies for libertarians. We are in the process of deciding if we are willing to accept that role for government. But I suspect the long-term outcome is foregone; countries that do not adopt Keynesian policies will be out-competed in world markets.

One could imagine a country clinging to pre-Keynesian policies. It would be subject to boom and bust economics. Poorer than its neighbors, it would have to erect trade barriers to keep out the consumer goods of its healthier neighbors. Now—this reminded me of the Soviet Union. During the period 1950-1980, when Western Keynesianism was at its peak, the Soviet Union did erect trade barriers, and its citizens did envy the West.
Could it be that Keynesian economics won the Cold War?

[2012.02.02: On reflection, probably not. It probably had more to do with the corruption or lack of of the respective economic systems. But the rest of the article stands.]

Friday, January 4, 2013


(Inspired by the John Quiggin article, "The big issues in macroeconomics: the fiscal multiplier.")

It strikes me that the neo-classical school is once again arguing with the data, which is unproductive in science. No, not just unproductive. Unethical. OK, sure, maybe if the discussion of multipliers was a new thing there might be reasons to argue for measurement error. But there is decades, perhaps even centuries, of data, and to deny well-substantiated data is unethical in science—it strikes at the very heart of the scientific enterprise.

A year and a half before I wrote the article which Krugman quoted, I wrote: “This is ideological, rather than rational, opposition. [...] The field of economics, I think, needs ethics to keep it track, so that it is a scholarly discipline rather than one that produces extensively rationalized propaganda. [...] Yet it seems to me that without ethics, scientific research is not possible. Without basic honesty, without the ability to admit error, without the tools of criticism and review, there is no way to arrive at scientific truth. I believe that economics went off-track partly because of highly-rewarded status-seeking behavior on the part of many economists.”

Say I, read the whole thing. :-)

It is wholly unscientific to argue that multipliers are zero or less, just as it was unscientific for Wegener’s critics to reject his case for continental drift, despite the well-organized evidence he presented. There is another parallel with Wegener: his data was rejected because geologists of his times could not see a mechanism by which the data were possible. This is parallel to the demand for microfoundations. It would be much easier to make the case for Keynesian economics if a clear explanation for the behavior of labor markets could be found in economic data. But that is not required for it to be true; thermodynamics, the understanding of heat in bulk materials, began to emerge centuries before statistical mechanics, the understanding of energy of molecules in large numbers, was invented to explain it.

Perhaps economists have been looking to the wrong physical sciences for their models.

Valid microfoundations, it seems to me, would require the ability to take models and measurements of individual psychology and translate them into valid explanations of macro-economic behavior, and so far, the effort to do this has not been successful on any large scale. Molecules, it has emerged, obey simple physical laws, and no-one expects a molecule to suddenly decide that, oh, instead of going this way, it will go that way. But people produce unexpected behavior all the time. The only time human economic behavior is strongly constrained is when basic needs are involved: we expect hungry people to eat if they can, for instance. Even then, we can be surprised: people do sometimes fast, cannot eat due to health difficulties, or even die, which is another thing that molecules do not do.

It is only in subsistence economies that microfoundations are so far accessible. In the economies people prefer, they are not constrained by basic needs; people eat to live rather than live to eat. We understand some of human needs, but valid microfoundations, it seems to me, require an understanding of human desire, and this so far does not exist.

On Rehabilitating Economics

Continuing the discussion, Australian economist John Quiggin is leading a seminar on bringing Keynesian economics back into the mainstream. I've made some comments there, and I'm going to gather them up here, but wander by Crooked Timber and read the articles, or read them on Quiggin's own blog.

Wile E. Coyote moment
Having glanced at some of Smith’s links, my impression is that academic macroeconomics is creeping up on its Wile E. Coyote moment. It’s just to the point where it is standing on air and is starting to look down…

The Trolls of Galbraith
I think Galbraith’s focus on corruption may be part of the solution; I don’t think one can do internet sociology without recognizing the existence and influence of trolls, and perhaps this is also true of economics.

An Attitude Towards Macro
I think what has been discovered is another version of the intractability of the calculation problem: it is not, so far, possible to predict economic behavior at the level of a whole society because human wants and needs, beyond some basics, are incalculable. It is like user interface design rather than software engineering: beyond some rules of thumb, there is no way of predicting how users will interact with an interface. Instead, interface designers design, test, and refine solutions.

Which suggests a different attitude towards macroeconomics: that it be treated as the study of the economic reaction to public and private organizations and mass consciousness, rather than as an attempt to predict economic behavior independent of these things. Look for responses, rather than assuming they can be predicted. It also suggests an inversion of the usual economic model of individual and society: rather than assuming that each individual solves the problems of economic decision making independently, assume that a major part of economic decision-making is undertaken by group and organizational processes and proceed from there.

Wednesday, January 2, 2013

In Which Only Centrists and the Rich Get What They Want

Obama gets, probably, his coalition of conservatives.

The rest of us? Well…

The deficit remains a problem, just to keep deficit hawks unhappy. Cuts in social programs are likely, just to keep liberals unhappy. And the military and the national security state just go on and on.

[Added:] The economy gets a beat-down from austerity policies. The long-term debt gets pumped.

Thanks, guys.

So Who Won the Fiscal Cliff Fight?

Economist Andrew Samwick comments, "Obviously, former President George W. Bush....the Congress and the President yesterday decided to ratify almost all of his tax policy agenda..." (via Mark Thoma.)

And all the social programs are on the table, and none of the military programs or the national security state.


Tuesday, January 1, 2013

Bad Deal Passes

85 Republicans broke ranks to vote for the budget deal. Looks like Obama has his coalition.