Archive for the ‘fabio’ Category
Economics is fun to criticize, but hard to replace. Everybody thinks they can do better. How many times have you read an article lampooning the rational actor model or slamming the efficient markets hypothesis? Well, another research group has appeared that tries to offer a replacement. From New Scientist:
Earlier this year, several dozen quiet radicals met in a boxy red building on the outskirts of Frankfurt, Germany, to plot just that. The stated aim of this Ernst Strüngmann Forum at the Frankfurt Institute for Advanced Studies was to create “a new synthesis for economics”. But the most zealous of the participants – an unlikely alliance of economists, anthropologists, ecologists and evolutionary biologists – really do want to overthrow the old regime. They hope their ideas will mark the beginning of a new movement to rework economics using tools from more successful scientific disciplines.
Drill down, and it’s not difficult to see where mainstream “neoclassical” economics has gone wrong. Since the 19th century, economies have essentially been described with mathematical formulae. This elevated economics above most social sciences and allowed forecasting. But it comes at the price of ignoring the complexities of human beings and their interactions – the things that actually make economic systems tick.The problems start with Homo economicus, a species of fantasy beings who stand at the centre of orthodox economics. All members of H. economicus think rationally and act in their own self-interest at all times, never learning from or considering others.
The article then goes on to describe how they are building new set of models that have social rather than selfish actors. They are going to use models from biological theory to model large groups of economic agents.
More power to them, but here’s the deal with economics – it survives because it has a number of very strong features:
- A basic micro-economics that makes sense (e.g., supply and demand curves, marginal utility etc)
- Rational actor models are just short hand for “has goals, which can be selfish or altruistic.” My friend, rational does not mean what you think it means.
- A good grasp of various statistical methods.
- A good recipe for normal science (define utility functions, apply Langrangian, etc)
For an alternative economics to win, it needs to be so incredibly awesome that it overwhelms these very important features of existing economics. That is why various challengers, such as feminist economics or modern Austrian economics, are limited. They sometimes have valid criticisms, but they simply don’t do well when it comes to offering a real alternative. So, good luck, my biological friends, but don’t get lost in the weeds.
I recently discussed the GOP presidential field. It’s basically Team Bush/Nixon vs. the populists, with the fruit cake of the month. The Democratic field has evolved into a simplified version of the GOP field. It’s Team Clinton vs. the populists and no loonies need apply. Team Clinton got the nomination three times (1992, 1996, 2000) and a very, very close second place (2008 – Hilary got 47% of the vote vs. Obama’s 48%). All other challengers a combined won three nominations (2004, 2008, 2012) and one of those was when Team Clinton didn’t have anyone in the race.
Vox has a nice feature, by Jonathan Allen, on Hilary’s political style that really does a good job of explaining her political strength and how she is managing to retain the lead. She’s a horrid campaigner whose campaign organization went bankrupt and literally didn’t know the rules, but she has been a center of gravity in the Democratic party for nearly three decades. What allows this? The answer is essentially patronage. Since she’s been working in Democratic party politics since Watergate, she can assemble broad coalitions in the party and incorporates some elements of most mainstream policy proposals:
Clinton’s been a boss at building institutional support. Here’s her secret: Invite potential adversaries to the table, include some of their ideas in policy, and then send their laudatory remarks out to reporters. This signals to them that she’ll be inclusive if she’s elected president, and makes it hard for them to criticize her later on.
The MO has been most evident on the economic agenda Clinton’s in the midst of rolling out. She consulted more than 200 economists, according to her campaign. Her aides worked closely with officials at the Roosevelt Institute, a progressive think tank, in advance of her official campaign launch rally on Roosevelt Island in New York and before her first big economic speech.
More important, she’s taking input from liberal economists who emphasize “fairness” in the economic system and have warred with more Wall Street–oriented Democratic economists such as Bob Rubin and Larry Summers. Rather than choose between their “growth” wing of the Democratic economic establishment and the “fairness” wing, represented by the likes of Joe Stiglitz and Alan Blinder, Clinton has opted for both — and managed to co-opt both.
“Today Hillary Clinton began to offer the kind of comprehensive approach we need to tackle the enormous economic challenges we face, one that is squarely in line with what we have called for at the Roosevelt Institute,” Stiglitz said in a statement.
In other words, she’s the best co-opter in the business.
If you wonder if this strategy will continue to work, just look at the results. Already, she has endorsements from a majority of the Democratic caucus and elite endorsements are strongly correlated with primary performance. Historically, the strategy works like a charm. For example, in 1992, Bill Clinton lost 5 primaries or Caucuses in a row (yes, five!) and was still leading the nomination dues to “superdelegate” endorsements.
Right now, Hilary has at least three challengers and they correctly sense that Hilary is a weak campaigner. What they may not realize is that she is one the best “insider” politicians in the party and they need to address that somehow, if they are going to win.
I’ve always known that some city projects are simply bad deals, like sport stadiums. What I didn’t know is that there is new research showing that maga-projects of all types are a giant rip-off. Bent Flyvberg of Oxford discusses this finding a new Econ Talk podcast. What Flyvberg did was collect data on “mega-projects” – construction efforts that cost at least a billion dollars and affects a million people. What was found is that 90% of the time, mega projects are over budget, not completed on time, or do not attract the customers that were predicted (i.e., the demand was wildly over estimated). This applies to both private and public sector projects. Flyvberg also reports that smaller projects tend to do much better, for a variety of reasons.
A few comments here:
- This is pretty strong evidence that states should completely avoid the expensive mega-sports projects like stadiums above a certain size. The Olympics, for example, should only be hosted in nations that have preexisting facilities.
- Flyvberg points out that mega projects can even destroy the engineers and other professionals who build them. The architect of the Sydney opera only did one building in his life. The cost-overruns and delays ruined his reputation.
- It is mainly state actors, contractors, and land owners who receive benefits.
- I recently saw the Church of the Sagrada Familia in Barcelona. Big project, but built little by little over a 100 years. A better model?
- There are some cases of success, but they seem hard to predict ex-ante.
Bottom line: The next time they tell you that we need this multi-billion dollar road, just say no.
The accounting firm of Weber, Durkheim and Simmel has carefully counted the votes from last week’s book naming contest. The winner will get $20 (via PayPal or ASA handoff) or one my sociology books (From Black Power or Party in the Street) or ten copies of Grad Skool Rulz mailed to friends. The winner will also be given a place of honor in the acknowledgements should the book ever get published. Drum roll, please…