2006. From math to narrative in economics.

Schumpeter’s meme, that economy is about creative destruction should suggest that math, which requires stability of the variables in order to be applied, won’t work.
Mainstream economics, neoclassical – wants to treat the world in some form of A=kB, where k is some constant and A and B are variable in an unrealistic world where ceteris paribus, everything else is equal. But players in the economy are trying to innovate: taste, technology and product, managerial style, and use war as a last resort. As a result A and B are anything but stable in their role as major independent and dependent variables. In much of economics what looks like A or B has to be replaced by variables that are actually determinant at any one time, but not in the next.
The result is that mathematizing the economy, a slow process anyway, does not fit a dynamics of open systems with constantly new variables. What is needed is the ability to tell meaningful stories about what is happening, which means narrative, characters, social shifts, complexity. The major economists: Smith, Marshal, Mill, Keynes, among many others, have all argued that the use of math is not quite legitimate and gives a distorted view of the unfolding facts.

But we have a further problem. For whom is the current neoclassical done? Not only are most economic papers not widely read, they are not widely read by economists. What then is their purpose? I think it is clear that the publishing mafia that controls the main journals is interested in a regime of methodology and publishing that makes economics look substantial, delivering prestige while supporting the 1% that wants to believe that the economy is ok if we just fix a few glitches. Economics is also, in its neoclassical/mainstream form, an aid to career alignment and departmental management of hiring and tenure.

The serious problem is, what would the content and education of a narrative focused economics look like?

Dani Rodrik writes in Project Syndicate

What’s Been Stopping the Left?
Apr 10, 2018 DANI RODRIK
If progressive political parties had pursued a bolder agenda in the face of widening inequality and deepening economic anxiety, perhaps the rise of right-wing, nativist political movements might have been averted. So why didn’t they?

Yet the lesson of recent studies is that beliefs about what the government can and should do are not immutable. They are susceptible to persuasion, experience, and changing circumstances. This is as true for elites as it is for non-elites. But a progressive left that is able to stand up to nativist politics will have to deliver a good story, in addition to good policies.

2005. People’s stock ownership

We need new economics sufficient to make a significant difference. In provocation #129 I appended a short paragraph that proposed that we enter into a new stock plan for the nation (and as a model for others to follow).

The plan is simple and as I tried it out with people during the week I got a surprising amount of encouragement. 

It starts with two facts:

1. Few people feel part of society. To live in a society where you don’t own a part is pathetic. The people should own their own society.

2. Capitalism is once again  feeling the punch of serious criticism, since it has engendered oligopoly, climate change, and increasing inequality (Piketty 2018) .

Can we include the people and save capitalism?

The idea is simple: requisition ten percent of all the stock ownership in the US (that would be about $3 trillion in value) and put it in a federal holding agency paying dividends once a year to every citizen in the country. (Payout would be,   given  total stock of $30T, ten percent of that is 3 trillion and earning about 2% pay out to each person would be about $2,000. Family of four would be $8,000. (This idea is  a modification of Peter Barnes, first in his Capitalism 3.0, which is based on the Alaska citizen’s fund, and further back, to Henry George, Progress and Property)

The holding agency would not have to do any management beyond being a holder. Normal corporate management would be left in place. But the managers and regular owners would feel the national pressure, now that ownership is spread to all the people  to make decisions in the long-term interest of the country. Since we have to move  the economy in a green direction, now there would be a large constituency coming to bear on the corporations to have sensible polices, including reasonable executive compensation plans. 

This would eliminate some welfare needs and shift people from being welfare recipients to being owners.  I am more willing to sacrifice (say in response to  climate change) if I anticipate that I will benefit

Meanwhile the morale of the country would go up and everyone would be a capitalist, not welfare recipients,  in that they actually are collectively owners of stock that pays out

An advantage of giving dividends rather than stock is that many people would, pressured by economic necessities  sell the stock, as happened in Russia. Provisions would have to be made to keep them however for selling future anticipated payout for current cash. There are probably other pitfalls and corruptions to cope with. The banks obviously would try to turn that stream of income to themselves.

The one percent, the primary losers in this transaction, have to compare this loss to the loss of social upheaval and much stronger taxes and potential loss of everything through social system collapse. Ten percent seems politically feasible because it is reasonable. 

This can be justified by returning to older values of equality,  as Emma Rothschild writes

For Arthur Condorcet O’Connor, the Irish general who married Condorcet’s daughter Eliza, “the Turgots, the Condorcets, the Smiths” were the “fathers of the science” of political economy, whose principles, including “the eternal principle of equality,” had been overturned by the “new sect of so-called economists” of the post- Revolutionary reconstruction. (Economic Sentiments page 4) 

Capital begins with the fruits of cattle breeding. The new head, cap, is new surplus and can be re-bred. The question since Mesopotamian times has been,  how is the herd and it surplus to be managed? The “divided”, the divided, is part of the answer, but how distributed is the key, to social morale.The use of the word “stock” is inherited from  that cattle culture.

2003. Petra.

https://www.bbc.com/ideas/videos/welcome-to-petra-a-little-bit-of-heaven-on-earth/p05zn715

Screen Shot 2018-04-10 at 10.05.54 AM.png

The blend of architecture and greening. Then we have

Writing early in the first century A.D., the Greek historian Strabo reported that while foreigners in Petra are “frequently engaged in litigation,” the locals “had never any dispute among themselves, and lived together in perfect harmony.” Dubious as that may sound, we do know that the Nabateans were unusual in the ancient world for their abhorrence of slavery, for the prominent role women played in political life and for an egalitarian approach to governing. Joukowsky suggests that the large theater in the Great Temple that she partially restored may have been used for council meetings accommodating hundreds of citizens.

Strabo, however, scorns the Nabateans as poor soldiers and as “hucksters and merchants” who are “fond of accumulating property” through the trade of gold, silver, incense, brass, iron, saffron, sculpture, paintings and purple garments. And they took their prosperity seriously: he notes that those merchants whose income dropped may have been fined by the government. All that wealth eventually caught the attention of Rome, a major consumer of incense for religious rites and spices for medicinal purposes and food preparation. Rome annexed Nabatea in A.D. 106, apparently without a fight.

Read more: https://www.smithsonianmag.com/history/reconstructing-petra-155444564/#HhkZ84fTQEhbOPzh.99

1995.Current economics supports careers, not insight

provocation # 128. Current economics supports careers,  not insight

When I was studying physics and working half-time in the physics labs at Caltech I was hit almost daily with news about new experiments and theories. News traveled fast. If it was really exciting, an afternoon physics colloquium would be called and a few hundred, some obviously from other departments, would gather to hear  the story and examine the details as much as they were accessible.  The whole field felt like a living organism, each part of the periphery aware of the other parts. There was a broad agreement as to what had been achieved, and what remained as serious or interesting problems. 

There is a very interesting article about Keyes and his critique of economics, which  is devastating, and solid.  The article  asks, why do we keep making the same mistakes  ( in this case assuming  that a few variables can adequately describe the infinite variety of economic causes.). Why is there no accountability in economics and we continue of a disproven path? 

(Keynes’ critique of econometrics — still valid after all these years,  rwer.wordpress.com · by Lars Syll · March 30, 2018

Since I do a lot of reading I discover, over and over,  that there is (almost) no thought  about the current state of society and economics which isn’t already in print. The range and quality is amazing. But we don’t make use of it, we don’t harvest it,  and move on. Economics more than most fields, stays in a narrow band of readings and writings. 

If we don;’t step outside the narrow  lines, how can we expect to be creative? Two examples.

Bernard Harcourt writes The Illusion of fFee Markets, looking in  exquisite detail of the policing of the early markets in Paris (think of Stendhal’s novels)  show that regulation of markets and law started as merged, operating around private property. “If you don’t use the right font on your tomatoes sign three days in jail.” He discovers that markets arise through regulations. 

Second, the idea that capitalism starts with capital which is the output of breeding cattle could give rise to rethinking what capital is, who owns it and how society relates to it.

Most economics papers will not use a single word that moves outside the normal boundaries of mainstream economics, using  no vocabulary that cross the lines of conventional economic writing . “The impact of land tax policy on productivity in the upper Niger delta.”  No mention of the impact on people, on the land, on corruption, on climate. 

If we don’t read and think out of the normal lines of a field,  creativity is thwarted just as we seriously need it.

Like writing about climate change: which most people assume by now  is a serious problem, yet most papers and books coming from social thought (sociology, history, politics) are written that ignore it, staying stuck in the narrow band in which the researcher normally operates. Even papers that deal directly with climate are long on policy proposals, short on implementation.The same seems true in economics. A whole issue of many current economics journals often have not a single article that relates the content to larger issues of climate, corruption,  or future jobs, to say nothing about the lack of insight into the impact of economics on quality of lives. Considering both economics and climate change as two examples of the same thing, helps clarify the dynamics (or lack of them).

For climate, people are afraid to change because thy cannot imagine the consequences on income and life circumstances. “It is not crazy to stay in a leaky canoe if you don’t have an alternative canoe.”

For climate that means inability to imagine a successful outcome as to how changes  would affect  jobs and living conditions. 

For economics it is the same.  A researcher taking the state of the standard economic  literature  and moving it a tiny notch toward rigor and data can get you through graduate school and into the major journals and a tiny step toward tenure. Writing about the recognized main issues of our time does not. 

Economics can’t  see interesting things outside as we only look for the past that created the present, not the pasts that could create other presents – when we need them like now.  We are  more afraid of change than driving over the cliff.

A recent article on  history of economics (The Return of Economic History?

booksandideas.net · by Guillaume Calafat) 

considers only mainstream histories that are looking for the factors that created the present, not the things that did not create the present but might help create a better future.

Perhaps the problem is “the”economic” in the title. If we don’t  read histories of archeology,the impressionists, philosophy, regulations  and the chemical industry, we can’t break out if we don’t try.  The way out is through the door, how come no one uses that method? 

I want to raise the idea that everyone might be  acting rationally, given their actual circumstances. Getting into grad school, keeping the house in the energy wasting suburbs – all reasonable. End of the world? Maybe just accept it. Maybe we just have to learn how to feed each other. 

1994. good economics we need

Provocation # 127 The good economics we need

Economics, if it were empirical, would be interested in the major economic phenomena some of which are:

Class (fruits of talent in one generation passed to the next in a frozen system)
Money (psychology of abstraction and desires)
Interest (as in shifting value of assets over time. The father has an interest in the pregnant wife)
Ownership (who does, who doesn’t, its basis)
Capital (surplus of production over cost)
Property (from what is proper to show rank in society)
Corporations (what is a body? A person?)
Individual (a social construct?)
Trade (CMC shifts to MCM across space and time)
Markets (where all that is made under many conditions is sold to many with a variety of motives, obscured by supply- demand without curiosity about where those come from)
Stock market (ownership problem)
Makers (workers)
Takers (capital owning rent extractors)
Quality of life (the output of the system)
Political regime (who decides?)

The problem is that the system, which ought to be feedback loops among all the terms aborts to ownership and wealth as outcome targets and leaves out quality of life and instead shifts to the feedback loops that maintain power and wealth in the hands of a small elite. Education, location of home, job entry, marriage, are all part of the narrow system we have, not the broad system we should have.

This would be ok if it didn’t lead to wars and environmental damage and broken hearts. But the current economy does. The economics that would help us get out of this mess does not yet exist. It would have to take seriously capital, ownership and politics and analyze all the feedback loops.

Most economic research seems to circle around the temple but not enter.

Your thoughts?

1950. Difference between economics and the economy

provocation # 126.

Lets start from the idea that economics is not the economy. Economics is a more or less adequate description and analysis of what an economy is. The economy is not a concept. It is a reality to be explored.

But is the economics we have the economics we want? Does it discuss capital, what it is and who owns it, Does it deal with property and why we have it? Does it deal with the skewed impact on people of corporations? Does it deal with class and how such divisions are maintained? Does it deal with the health of the land? Does it deal with the soundness of parenting? The happiness of children and their access to the world? Does it deal with incarceration for breaking property rules.

Perhaps there is an economics that we really want but don’t yet have that would better fit our feeling, our intuition, for what economics should be and would also be more objective, closer to reality.

What is clear is that the economics we really want is more objective, more real, than the economics we have, more objective even than the economics we usually think we want.

 

 

1949. Prices of things. Supply and demand does not describe a real system.

provocation 125

The nearly ubiquitous teaching tool in economics is the suppy-demand curve. The idea is that supply and demand will come into balance.

This is intuitive. The problem comes when it is treated as the core example of economics analysis, and thus to justify treating the economy as a precise system that self regulates and that government should stay away from modifying.
If we take prices in this way a physicist might argue that yes but, like a falling stone affected in its gravitational grip is also modified by the friction of air. Yes, but says the economist, we can measure that too so we have two measured things adding to each other.
But, says the physicist gravity is known, air friction is known. But in economics the way people make up their minds is a mix of supply demand and an infinite number of other factors few of which are known or knowable.

Can you give and Example?
Sure, here are several.

1. I once spent a year inside Hewlett Packard on a Harvard research grant. The task was to understand how HP worked, among other things, in the market.(I never heard the work “market” at HP.)

A typical sales meeting would never look at any supply demand curve but go like

A. “If we raise the price by X I think we can sell almost as many.”
B. Yes if we also add some new features.
C. Hey, our identity is being high-end, we can afford to have a higher prices and sell less because its like advertising. We must keep our image as high end quality all the way, no sacrifice of quality for price.
A. OK let’s go for twenty percent.
C. A little more caution. Fifteen.
A.Done.

———
Note that the supply demand analysis leaves out so many interesting considerations, the kinds of things that real societies run on, and creates an image of a market that looks rigorous hence rational hence like physics.

Second example.
I watch a neighbor and her husband buying a new car.
Yea, we need a new one, this one is on the edge. Costs of repair will go up (no numbers, not spread-sheets).
I like the Toyota X.
That’s good. Which model?
The one with the glass roof.
What if something falls on it?
These days glass is as strong as whatever it is they make the normal roof from.
OK.
But I like the one with the good sound system.
If that’s is important to you.
Well I like the glass roof too.
What does it cost?
32 thousand.
You think we can talk them down?
Bill at work has one and he said he got fifteen percent off.
Sounds good. What color…?
——
No comparisons hardly, no spread sheets, no listing out pro’s and cons. Mostly intuitive. This points to a different kind of society (maybe even more efficient and functional) than one filled with robotic accountants looking at prices and car details, such as the kind of rings on the pistons, or weight distribution.

The equilibrium in a demand supply situation leaves out that the price offered has a history. The rich person pays less interest. If we only add in that factor, the”other” equilibrium – wealth – shifts inevitably to the already wealthy. Why is one model equilibrium accepted and the other ignored?Supply and demand do not ad up to economic thinking.

1947. The meaning of rational

Here is the abstract of a new article in the journal of economic literature.

Markets and Manipulation: Time for a Paradigm Shift?†
Kaushik Basu*
There is a growing appreciation in economics that people have emotional vulnerabil- ities, commitments to social norms, and systematic irrationalities that impact their decision making and choice in the market place. The flip side of this is that human beings are susceptible to being manipulated by unscrupulous agents single-minded about marketing their services and wares. This paper reviews George Akerlof and Robert Shiller’s Phishing for Phools: The Economics of Manipulation and Deception, alongside other writings in the field, and discusses how this research agenda can be taken forward. The paper shows how this new research can shed light on the ubiq- uity of corruption in so many societies, and proposes ideas for controlling corruption

The implicit is that here is a model of rationality. The presumption is that it is analytical, quantitaive and precise. All else is irrational. Why should buying a car based on color, sound system and being like – or unlike – my neighbors, be irrational. Perhaps those are what rationality – service of thinking in the support of life really is. Economics tends to divide the world into  rational – good, and irrational – bad, in congruence with conventional opinion, which also appreciates rationality. . But by calling some things irrational that are life serving tens to support a market of quantities and the world of experts  rather than a market of creativity.

1938. Trump Alternative?

Provocation 124. Trump alternative?

Without a meaningful alternative to Trump the president’s job approval must stay relatively high (currently hovering between 45 and 32 %) because the question “do you approve of the way the President is doing his job?” is implicitly comparative. Without an alternative to Trump, responsive to climate, automation, inequality and governance – we (not you and I but the winning power-block) will continue to stick with the more sullenly organized Trump-supporting minority Republican Party (we only have minority parties). With increased violence, increased poverty, increased health problems, failing in education and an economy we will not able to use effectively new paradigms such as teamwork, automation and greening. China, precariously, wins and the US, deeply mired, loses. The possibility of cooperation rather than competition among China the United States and Europe (we are all in the same boat) fails to materialize.

The absence of mature leaders with some wisdom, broad education and gravitas, is alarming.

Creating a viable alternative to Trump (and the rest of the Young Republican alumni) seems to me to be crucial. This means politics as well as economics. Economics tends to seek harmony through equilibria. Politics is the management of conflict, conflict left out of economic thinking.
==============

Note, the argument “look at how well the immigrants are doing! No crime, great jobs,” shows how we fail in empathy with those in the US who feel bypassed by urban technocratic society that has no path for them to participate. . These are exactly why so many are opposed to immigration: the immigrants are better motivated (going up rather than going down) and take the cream – from our kids – leaving them with broken family life, no expectations, crime, drugs and unemployment .” Tying immigration to economic success is more cynical than humanitarian solidarity.

 

1937. The shift from home to workplace.

 

We have traded time at home for time at work. The result is that home is now the morning and evening utility, not a place we take creative pleasure in.

Economy serves the business world, owned be elites which is really the world of consumerism and the supporting infrastructure: accounting, computing, legal, service, police (and war).

Economics began as estate management by which Aristotle meant the whole thing, especially where people lived actual lives. From land to grain to cattle to slaves to family to community, but later economics became the management thinking for how to get more income from land, trade, manufacturing and finance for large landowners and later factory and finance owners.. At one point economics was conventionally called “the science of wealth”. “I need to know what to invest in” was not the need of the citizens but of a restricted elite.

The result is we have a vocabulary that supports a consumer economy: GDP, income, salary, investment, trade balance,, market. These are all aspects of consumerism: do people have enough money o buy the stuff we make for them? Economics is mostly interested in the flow of dollars from work to wages to buying to profit to investment. If it ain’t in that circle it doesn’t count. Economics does not much talk about the quality of life and the interactions of preferences. Identity economics looks to the dollar equity, not what people can do with it.

People used to live at home: whether mansion or cottage, and home was the center of family life and constructive crafts, children playing, adults making their space attractive and interesting and functional. Economics could have picked up at this point and made it much better.

But the economy split off the work projects and put these in factories and offices. People got up at home and left for work and came home tired.

The whole world has shifted from home to work and the pleasure of the home and its local community as places of creativity and relationships has fallen on hard times. Much of our social pathologies follow from the this split. The whole enterprise is a somewhat tuneable machine for producing wealth for those who have it.

Economics seems to have little interest in the resulting lack of quality of life. An alternative that did not survive the roaring 20’s was the Craftsman movement, “a democratic architecture for a democratic America,”

This splitting of work from home served the ex slave masters by having a system that approximated slavery. During the time people are being paid they are owned. Our “social capital” is bought by someone else. Good lives are subordinated to the economy.

If things are allowed to run to “natural”, no constraints, the stronger humans would eat the weaker.

We cannot go back to simple villages and cottages. But what is the goal forward? Certainly an assessment of what we have lost is a good place to start.
———

https://en.wikipedia.org/wiki/Arts_and_Crafts_movement#North_America

https://en.wikipedia.org/wiki/Arts_and_Crafts_movement

Laslett: The World we have Lost