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Finally got around to reading the PCES report on economics education at Manchester. The Francis Urquhart  half of my dual selves was duty bound to dislike it. My Urquhart self, would urge the authors to switch subjects and find  fulfilling careers in one of the caring professions, like, personal incontinence counselor. My milquetoast self prevailed and I buckled down to read it.

The report raises two issues and its writers have made the mistake of conflating them or at least not separating them clearly enough. The first is the effectiveness with which economics is taught. The second is what is to be taught.

On the first, the report makes for depressing reading. It summarizes an economics education as dull as ice fishing. For those unfamiliar with ice fishing, it is a sport (and thats being charitable) practiced by the inhabitants of Minnesota and the remoter parts of Wisconsin. In dead of winter, one drives a large vehicle over a frozen lake. If that were insufficient to tempt fate, one then cuts a hole in the ice for the ostensible purpose of catching fish. In practice one sits around the hole drinking prodigously while trying not to fall in. Beans, flatulance and an absence of sanitation figure prominently.

On the second, the report’s authors write

Our economics education has raised one paradigm, often referred to as neoclassical economics, to the sole object of study. Alternative perspectives have been marginalised. This stifles innovation, damages creativity and suppresses constructive criticisms that are so vital for economic understanding. Furthermore, the study of ethics, politics and history are almost completely absent from the syllabus. We propose that economics cannot be understood with all these aspects excluded; the discipline must be redefined.

Exposure to history, psychology and politics? Of course, yes. Within the US system this happens naturally as a function of breadth requirements. Students are not shy about trying to reconcile what they have learnt in Psychology and what they are mastering in Economics. It makes for a lively classroom.

What about these alternative perspectives? In for a penny in for a pound, so I decided to read a paper  by Steven Keen. Keen, as far as I can gather is one of the leading lights of these alternative perspectives. The paper I read (co-authored with Russell Standish) appeared in Physica A and can be found here. If you’ve not heard of it, there is a good reason for that. Continue to ignore it. Pauli might have described it thus:

Das ist nicht nur nicht richtig, es ist nicht einmal falsch!

Reading it lowered my IQ, something I can scarce afford to do. If this is representative of what passes for alternative perspectives, the writers of the PCES should leave economics and find fulfilling careers as incontinence counselors. Finally, for those who think my description of Keen and Standish uncharitable, I refer them to the following by Chris Auld.  Stamping out ignorance is a thankless task and one is cheered to see there are some who take it on.

The urge to promote these alternative perspectives is to be found  across the Channel as well. There, a sub group of scholars and  nescafe society currently wished to form a separate group so that they may be evaluated by different norms.  Jean Tirole, in a letter to  the State secretary in charge of Higher education and Research in France, argued against this. A response can be found here.

On January 30th of this year, one of the arms of the BBC reported a row at Sheffield University about an economics exam question. The offending exam question is reproduced below. Is the question, as one student suggested, indistinguishable from Chinese?

Consider a country with many cities and assume there are $N > 0$ people in each city. Output per person is $\sigma N^{0.5}$ and there is a coordination cost per person of $\gamma N^2$. Assume that $\sigma > 0$ and $\gamma > 0$.

a) What sort of things does the coordination cost term $\gamma N^2$ represent? Why does it make sense that the exponent on $N$ is greater than 1?

b) Draw a graph of per-capita consumption as a function of $N$ and derive the optimal city size $N$. How does it depend on the parameters $\sigma$ and $\gamma$? Provide intuition for your answers.

c) Describe which combination of $\sigma$ and $\gamma$ generate a peasant economy, meaning an economy with no cities (or 1-person cities). Why might the values of the parameters $\sigma$ and $\gamma$ have changed over time? What do these changes imply in terms of optimal city size.

Without knowing what was covered in classes and homework one cannot tell what kind of tacit knowledge/conventions the examiner was justified in assuming in posing the question. Its easy, with experience at these things, to guess what the examiner had in mind. Nevertheless, the question is badly worded and allows a `sea lawyer‘ of a student to get full marks.

First, the sentence does not assert a connection between output and coordination. Thus, the answer to (a) should be:

Without knowing the purpose of the coordination, it is impossible to answer this question.

A better first sentence would have been:

Consider a country with many cities and assume there are $N > 0$ people in each city. Output per person is $\sigma N^{0.5}$ and to achieve it requires a coordination cost per person of $\gamma N^2$.

Second, readers are not told the units in which output is denominated. Thus, part (b) cannot be answered unless one assumes that output has a constant dollar value. One might reasonably suppose this is not the case. The sea lawyer would answer:

As output can be generated at no cost, and is monotone in city size, the optimal size of the city is infinity. Note this does not depend on the values of $\sigma$ or $\gamma$.

From the answer to part (b) we see that no combination of parameters would generate a peasant economy.

Here is Sam Harris, in an addendum to his post How Rich is Too Rich?

I would be interested to know if any economist has an economic argument against the following ideas:

Future breakthroughs in technology (e.g. robotics, nanotech) could eliminate millions of jobs very quickly, creating a serious problem of unemployment.

I am not suggesting that this is likely in the near term…. I am suggesting, however, that there is nothing that rules out the possibility of vastly more powerful technologies creating a net loss of available jobs and concentrating wealth to an unprecedented degree.