The particular reading that was most interesting to me from this set was Neuromancer by William Gibson. Neuromancer is a futuristic dystopia, a work of fiction, and while certainly thought-provoking, it is interesting to answer the question as to why it is economics. This question, when addressed in view of the Marxian readings, can be rephrased: Why all the confusion about what economic ideas really are?
The dichotomy at work in economics is highly reflective of a conflict every human being faces: when to think vs. when to act. Thinking about a problem inevitably removes you from it to some degree or another, but the results can be very positive if some deeper insight is revealed by the period of reflection. Acting on a problem places you in the middle of the problem, risking that your actions may only exacerbate it, but also giving your solution a chance to actually bring about a positive change. How do we balance these forces in our own lives? Quite often we pick an area of "expertise" in which we believe we can passively absorb a sufficient amount of information to justify our stepping into the fray ourselves. The more thoughtful approach is to tightly connect reflection and action in our daily lives. After all, reflection is an action too with some cost of time attached, and the best ideas are those born of the greatest real-world feedback. Speeding the two-way feedback cycle between one's thoughts and one's actions is really a noble ideal to pursue when it's practical to do so. In extreme cases of course, one cannot stop to reflect with every step - one just has to trust their instincts and take the action that seems the most accurate at the time. With this caveat in mind, it becomes clear why ethical and social thought is so multi-dimensional, even fractal, because many self-similar feedback loops are operating in our lives simultaneously. At the highest level of ethical abstraction, we may be in the middle of questioning our religious faith, or we may be rock solid in our belief system. This on and off pattern of thinking and action trickles down to the very simplest action - typing on a keyboard - an action for which I don't have any regret at the moment, but perhaps if I get hungry or my fingers sore I'll quickly reconsider. I could question everything all at once, but that would be almost immediately depressing - uncertainty isn't fun, but neither is absolute certainty - so I tie many of my questions to the feedback I receive from my actions, and ultimately a rather "modular" equilibrium of thought tends to keep me satisfied.
This is an important idea to swallow to understand how I see economic thought. Economics is a manner of thinking that is immediately descriptive and influential. At least something that I do today I'll do (perhaps indirectly) because I believe that free markets are generally an enlightened tool for letting people self-organize, optimize, and generally be pretty happy. If I didn't believe that at all, then I'd no doubt be rather disenchanted with almost everything going on around me. This was of course the way Marx viewed the world he inhabited. Since he had prophesied that free markets would essentially exhaust themselves into communism, he found no enjoyment out of the prospect of newly discovered resources in Australia. He would no doubt be annoyed that capitalists are launching into space (e.g. - Virgin Galactic, Ansari X prize, etc...) and have designs on the abundant mining resources of the moon and Mars. Once Marx's model of the economy was fixed in his mind, he supported the forces that fit into the model and was disturbed by anything that seemed to contradict it.
This is third-person economics, and anyone making models of behavior, or making forecasts with the hope of being correct is engaging in it. It is essentially an attempt to make a contribution to the 'big picture' of economics - to the all-encompassing belief systems that can dictate subsidiary beliefs. Left unquestioned for too long, these belief systems will not flexibly adapt to reality and can suddenly face wholesale decline. These top-down views of the world succeed in proportion to their willingness to adapt. With Catholicism we had Vatican II, and with mathematical economics we have the seemingly endless flexibility of adding new variables into our models. It's nearly a matter of energy conservation though, that we have these third-person beliefs. Claiming that it's "simply the way the world works" is often a handy way to get around the accusation that you're doing nothing to change it. If every individual wanted to change the world at the same time, there would certainly be some unnecessary conflict, so in the long run it really does make good sense for us all to select a handful of 'big picture' vantage points - even if they are only approximations.
William Gibson on the other hand, who was also clearly disturbed by some of the economic and technological trends he was observing in the 80s, decided to think about it in an entirely different way. The argument that Neuromancer is economic almost inevitably includes the observation that its thematic elements and dystopian foreshadowing influences the economic agents who read it. The book is built around the idea that the economy of the 80s could shape a world of tomorrow that nobody would want to live in. This is not a model. Nothing about Neuromancer suggests an effort to model anything. Gibson was holding up a mirror; structuring his book to cleverly convey a warning about what we're doing to ourselves out of faith in our economic belief system. Perhaps mathematical economists would hesitate to call Neuromancer "economics" because they could explain away Gibson's paranoia and its corresponding niche market of readers with some sort of variable. Maybe the success of Gibson's book simply meant that the Pna factor was increasing slightly, and econometricians would rush to say that this new factor is correlated with changes in the technology level A. Treating Gibson's work as something that can be quantified and predicted by a larger and more comprehensive framework is fundamentally unfair, because, as the title of this blog suggests, these same econometricians would have to somehow deal with the impact of their own ideas on the economy. One quickly imagines a mathematical economist trapped into an endless loop of modeling the reasons for his own occupation, and after soon realizing that his conclusions had helped influence a new economic reality, set about on a further iteration of self-examination (ad nauseum, to be sure).
So let's imagine for a moment that Gibson had been a die-hard third-person economist, making elaborate models, and arriving at predictions about where economic forces were conspiring to take us. Useful work insofar as it leads this hypothetical Gibson to a conclusion that he has very high statistical confidence in: the world will almost certainly evolve into the world described in Neuromancer. Now, the economist Gibson does something very strange indeed. Unlike other economists, who might go testify in front of Congress, or publish papers in scholarly journals, Gibson devises a method for influencing the future economy: write a science fiction novel and publish it for all to read. Bring the warning to the people who most need to hear it.
This is of course not who William Gibson was or what he did - he was a science fiction novelist from the start and not a classically trained economist. But the point remains that even if he had been a classically trained economist it could been an entirely rational decision for him to eschew traditional avenues of economic influence and go straight to the people and urge them to reconsider the path his economic models seem to indicate they've set out upon. If you want economic thought to really matter, you have to come up with economic thoughts that have the power to change minds and influence those who comprise the economic system you observe. In Hard Times Charles Dickens cleverly pulls the reader into a world dominated by stringent "Fact" and the coldest definition of rationality. Neuromancer reads like a comic book or action movie.
This is first-person economics. This is the economics of influence, where ideas are essentially measured by their practical appeal to a large audience. The novelist Ayn Rand, whose libertarian ideal was the centerpiece of her fiction novel Atlas Shrugged, explained in The New Intellectual that, "In a certain sense, every novelist is a philosopher, because one cannot present a picture of human existence without a philosophical framework; the novelist’s only choice is whether that framework is present in his story explicitly or implicitly, whether he is aware of it or not, whether he holds his philosophical convictions consciously or subconsciously." No matter what you may think of Rand's beliefs, this point is very sensible. It is a good justification for including novels about economic trends or issues in the catalogue of economic thinking, because all schools of economic thought "present a picture of human existence."
Lastly, this ties back in with my "modular" equilibrium discussion above by considering what happens when one reads a novel. By empathizing with the characters represented one is always considering what they might do in a similar position. Connecting your daily feedback process with a fictional character's is far more likely to convince someone to actually change specific behaviors. Large third-person economic models can have an enormous impact, as Marx and the neoclassical economists have clearly shown, but the nature of the impact is top down. One can subscribe to third-person economics and feel reassured that private property is a good or bad idea, but one must more deeply contemplate first-person economics and consider what it means for daily lifestyle choices.
1/24/08
Theme for the Semester: Economic Perspectives on Educational Accreditation
There is a fundamental economic dynamic to educational administration. Students are often artificially placed in situations to compete for the "scarce resources" of teacher approval: grades, PhDs, points, diplomas, and every other manner of educational credit or record comprise what I like to call "educational currency". This notion is also familiar to members of my generation who grew up playing video games - it was only by the score, or the accumulation of experience points, that one knew how they stacked up against other players. But where does the fundamental value of a currency come from? Currencies used to be backed by metals. If you could give someone a hunk of gold for their currency they were willing to hold it and use it - kind of silly. Now currency is essentially backed by the trust we place in good monetary policy. As long as government agencies are responsive to the needs of the economy both at home and abroad, we feel secure in holding our dollars (a presumption that today looks a bit shaky, due to the dollar's decline against the euro).
Educational currency works in a way similar to these fiat currencies we're already familiar with. The extent to which having a particular chunk of educational currency is considered valuable largely based on institutional trust. Duke is "known" to be a good school, so a Duke diploma is thought to be worth the extra "investment" (by a fair number of parents at least). But what if Duke has an off year? Or what if Duke's faculty is infiltrated by fraudsters who hand out A's to even the most anti-intellectual students? How is an employer going to know a diploma from Duke, or any other school, actually means? In other words, if Duke checks and improves upon students, who is checking and improving upon Duke? The answer of course is that accrediting organizations do - independent third parties who have the authority to renew Duke's accreditation, and all the other schools. Without accreditation, a school might as well close its doors, because its credits will not transfer, and its graduates efforts will be questioned or rejected by potential employers. This is a very real concern today, as for-profit universities have recently attempted to open up this debate in Congress, calling for credit transferability to be ensured between their programs and non-profit or state institutions. It is the accreditors that provide a standard by which we've traditionally put our faith in the educational credits handed out by universities and community colleges, and that standard is really what needs to be brought to bear on the problem of educational credit transferability and reliability - somehow, but the debate rages on.
So how are people approaching this problem? And is economics important to all these questions?
The multiple economic perspectives on this issue are going to fascinating to explore. Educational credit is seen as many different things by educators, some viewing it as a necessary evil (small liberal arts colleges), and others embracing the rigid standards necessary for measuring a professional skill (training schools). If we do live in a knowledge economy, then the role of educational currency, from an neoclassical economist's perspective, would clearly be its power to get the holder a new job quickly and easily, easing transitions in the labor market. But the moral/philosophical view is going to certainly take issue with a life's intellectual achievement being reduced to pieces of paper. It may be a contentious discussion indeed...
The following preliminary bibliography contains articles written about education from both a policy perspective and an economic perspective.
Preliminary Bibliography:
Mause, Karsten. "Rethinking government licensing of higher education institutions." European Journal of Law and Economics (2008) 25: 57-78
Lien, Donald. "International accreditation and brain drain: A simple model." Economics of Education Review. 25 (2006) 335-340.
Blumenthal, Robert A. "What does accreditation really mean?" The John William Pope Center for Higher Education Policy. November 21, 2007. Accessed online: <http://www.popecenter.org/issues/article.html?id=1928>
Leef, George. "Accreditation has no clothes." The John William Pope Center for Higher Education Policy. January 15, 2001. Accessed online: <http://www.popecenter.org/news/article.html?id=1487>
Siskos, Yannis. et al. "A multicriteria accreditation system for information technology skills and qualifications." European Journal of Operational Research. 182 (2007) 867-885.
Educational currency works in a way similar to these fiat currencies we're already familiar with. The extent to which having a particular chunk of educational currency is considered valuable largely based on institutional trust. Duke is "known" to be a good school, so a Duke diploma is thought to be worth the extra "investment" (by a fair number of parents at least). But what if Duke has an off year? Or what if Duke's faculty is infiltrated by fraudsters who hand out A's to even the most anti-intellectual students? How is an employer going to know a diploma from Duke, or any other school, actually means? In other words, if Duke checks and improves upon students, who is checking and improving upon Duke? The answer of course is that accrediting organizations do - independent third parties who have the authority to renew Duke's accreditation, and all the other schools. Without accreditation, a school might as well close its doors, because its credits will not transfer, and its graduates efforts will be questioned or rejected by potential employers. This is a very real concern today, as for-profit universities have recently attempted to open up this debate in Congress, calling for credit transferability to be ensured between their programs and non-profit or state institutions. It is the accreditors that provide a standard by which we've traditionally put our faith in the educational credits handed out by universities and community colleges, and that standard is really what needs to be brought to bear on the problem of educational credit transferability and reliability - somehow, but the debate rages on.
So how are people approaching this problem? And is economics important to all these questions?
The multiple economic perspectives on this issue are going to fascinating to explore. Educational credit is seen as many different things by educators, some viewing it as a necessary evil (small liberal arts colleges), and others embracing the rigid standards necessary for measuring a professional skill (training schools). If we do live in a knowledge economy, then the role of educational currency, from an neoclassical economist's perspective, would clearly be its power to get the holder a new job quickly and easily, easing transitions in the labor market. But the moral/philosophical view is going to certainly take issue with a life's intellectual achievement being reduced to pieces of paper. It may be a contentious discussion indeed...
The following preliminary bibliography contains articles written about education from both a policy perspective and an economic perspective.
Preliminary Bibliography:
Mause, Karsten. "Rethinking government licensing of higher education institutions." European Journal of Law and Economics (2008) 25: 57-78
Lien, Donald. "International accreditation and brain drain: A simple model." Economics of Education Review. 25 (2006) 335-340.
Blumenthal, Robert A. "What does accreditation really mean?" The John William Pope Center for Higher Education Policy. November 21, 2007. Accessed online: <http://www.popecenter.org/issues/article.html?id=1928>
Leef, George. "Accreditation has no clothes." The John William Pope Center for Higher Education Policy. January 15, 2001. Accessed online: <http://www.popecenter.org/news/article.html?id=1487>
Siskos, Yannis. et al. "A multicriteria accreditation system for information technology skills and qualifications." European Journal of Operational Research. 182 (2007) 867-885.
1/18/08
A Difference of Opinion
Opinions espoused by economists are muddled by the claim that economics is an objective science, or even the belief that it could be objective and accurate, even if it isn't now. The primary problem lies in the inextricability of the observer from the observed, which is not difficult to overcome in, say, Newtonian physics. If a human being drops a ball from the Tower of Pisa, the fact that he's a human being conducting a physics experiment is presumed to not have an impact on the trajectory of the ball. This is a fairly good presumption - suspension bridges behave quite unpredictably if our personal intentions mattered to the force of gravity. Not until physicists progressed to the study of quantum behavior did it become clear that in a very absolute sense, the observer does impact the observed (i.e. - observing an electron can cause it to collapse from a wave into a particle) The discussion about economics is especially confusing because this underlying assumption that we can usefully make observations without impacting the observed is so patently false. We're dealing with a two-way street, a feedback loop, between the economist and the economy.
This is why John Tiemstra wrote the piece, "Why Economists Disagree", and made the crucial observation that, "The differences concern the understanding of human behavior in an economic setting or, in other words, in economic theory." (50) This is an excellent frame of mind from which to approach the styles of economic thinking that are the focus of this course. The first three styles we've been asked to respond to are the "Philosophical/Theological Style", the "Mercantilist Style", and the "Classical Political Economy Styles".
In order to provide a marginally equivalent view of each perspective, readings reflecting these styles have been made available. To discuss their main points, I'd like to conduct a thought experiment in which some of the authors of these readings teach a class in economics. We'll reflect on the subsequent "two-way street" economic impact each instructor might have.
In our first economics class, St. Thomas Aquinas, the author of the Summa Theologica, which includes sections on the "sin of usury" and "fraud committed by buying and selling", is preparing his first lecture. Aquinas takes as given the idea of markets and trade, but pays particular attention to the behavior of participants given particular scenarios. Enumerating each trade-related scenario at which the question of sinfulness arises, he helps his class reflect on what would be the proper action to take. Charging a "just price" for goods would be discussed, since the representation of a cheap object as an expensive one would essentially be a fraud and a lie. Students from Aquinas' course would emerge reflecting morally on each and every transaction with another - the common unit of business, and making careful determinations of whether or not the transaction is just and fair to both parties. This is the philosophical/moral style of approaching economic problems. Its impact on its students would clearly be to inform their microeconomic behavior with others, and to the extent that it is accepted and followed, would diminish fraud, information assymetries, and predatory lending - all of which are problems in today's economy.
The second class would be taught by none other than Bill Gates. His testimony in front of the Joint Economic Committee was used in the assigned readings as an example of the Mercantilist style, but it is perhaps important to note that the influence on Gates during his testimony was political - since he was testifying before the US Congress. Nevertheless, the testimony is full of discussion of America's dominant position in the software market, and how this particular achievement sets us apart from other nations. His syllabus would likely be a national history of information economics, with some discussion of what lies ahead. These dual themes would come across strongest to Gates' students of economics: innovation can increase the competitiveness of nations, and national progress is a good thing that increases productivity and opportunity. Many students would emerge from such a class thinking about the "big picture". They'd ask, "How does this affect the country?", or "What contribution can I make that will make us competitive with China?".
Finally, Milton Friedman and his wife, Rose Friedman, would teach the final course. Their writings in "Free to Choose" make it clear that free and open trade, comparative advantage, and open markets, allow society to reap the benefits of universal self-interest on the part of economic agents. Students from such a class would understand the dangers of government regulation on trade, and its many unintended consequences for economic liberty. A student from such a course would participate in the economy as though he were not in a society at all - but on a personal mission to do well for himself, all the while believing that self-interested motives ultimately benefit society. They've become accustom to the classical political economic style.
Now these students will meet one another, and argue.
The Aquinas student will take issue with the Gates student, saying that often the goals of economic consolidation and national improvement can lead to overcharging for a products, not to mention the highly impersonal feeling "consumers" will ultimately feel from "producers" (housed in large multinational corporations. The Friedman student finds himself defending both students, on the basis that they have the right to choose mass-produced products, or personalized customer service - but finds himself rather peevish about how judgemental the Aquinas student seems to be. The Aquinas student believes that the Gates student would blithely support large and corruptible organizations, and believes that the Friedman student would mindlessly support every sort of self-interested hedonist. In their defensiveness, the Gates and Friedman students both agree that the Aquinas student knows nothing about economics, and tell him to leave. The Aquinas student leaves, but due to his clear understanding of how individual people feel about being cheated, he remains popular and continues to influence larger numbers of people in both economic and personal ways.
This is the difference of opinion in economics today. We pick and choose what variables we feel are the most important to our economic worldview, and then build up theories around those variables. This informs debates, and is a real intellectual calling, but it ought not be confused with science, because ultimately, the 2-way street of human society, dialogue, and economy will transform those ideas into actions. Once economists observe these new actions, they'll need to find some way to account for the way it was shaped by the intellectual debate detailed above.
This is why John Tiemstra wrote the piece, "Why Economists Disagree", and made the crucial observation that, "The differences concern the understanding of human behavior in an economic setting or, in other words, in economic theory." (50) This is an excellent frame of mind from which to approach the styles of economic thinking that are the focus of this course. The first three styles we've been asked to respond to are the "Philosophical/Theological Style", the "Mercantilist Style", and the "Classical Political Economy Styles".
In order to provide a marginally equivalent view of each perspective, readings reflecting these styles have been made available. To discuss their main points, I'd like to conduct a thought experiment in which some of the authors of these readings teach a class in economics. We'll reflect on the subsequent "two-way street" economic impact each instructor might have.
In our first economics class, St. Thomas Aquinas, the author of the Summa Theologica, which includes sections on the "sin of usury" and "fraud committed by buying and selling", is preparing his first lecture. Aquinas takes as given the idea of markets and trade, but pays particular attention to the behavior of participants given particular scenarios. Enumerating each trade-related scenario at which the question of sinfulness arises, he helps his class reflect on what would be the proper action to take. Charging a "just price" for goods would be discussed, since the representation of a cheap object as an expensive one would essentially be a fraud and a lie. Students from Aquinas' course would emerge reflecting morally on each and every transaction with another - the common unit of business, and making careful determinations of whether or not the transaction is just and fair to both parties. This is the philosophical/moral style of approaching economic problems. Its impact on its students would clearly be to inform their microeconomic behavior with others, and to the extent that it is accepted and followed, would diminish fraud, information assymetries, and predatory lending - all of which are problems in today's economy.
The second class would be taught by none other than Bill Gates. His testimony in front of the Joint Economic Committee was used in the assigned readings as an example of the Mercantilist style, but it is perhaps important to note that the influence on Gates during his testimony was political - since he was testifying before the US Congress. Nevertheless, the testimony is full of discussion of America's dominant position in the software market, and how this particular achievement sets us apart from other nations. His syllabus would likely be a national history of information economics, with some discussion of what lies ahead. These dual themes would come across strongest to Gates' students of economics: innovation can increase the competitiveness of nations, and national progress is a good thing that increases productivity and opportunity. Many students would emerge from such a class thinking about the "big picture". They'd ask, "How does this affect the country?", or "What contribution can I make that will make us competitive with China?".
Finally, Milton Friedman and his wife, Rose Friedman, would teach the final course. Their writings in "Free to Choose" make it clear that free and open trade, comparative advantage, and open markets, allow society to reap the benefits of universal self-interest on the part of economic agents. Students from such a class would understand the dangers of government regulation on trade, and its many unintended consequences for economic liberty. A student from such a course would participate in the economy as though he were not in a society at all - but on a personal mission to do well for himself, all the while believing that self-interested motives ultimately benefit society. They've become accustom to the classical political economic style.
Now these students will meet one another, and argue.
The Aquinas student will take issue with the Gates student, saying that often the goals of economic consolidation and national improvement can lead to overcharging for a products, not to mention the highly impersonal feeling "consumers" will ultimately feel from "producers" (housed in large multinational corporations. The Friedman student finds himself defending both students, on the basis that they have the right to choose mass-produced products, or personalized customer service - but finds himself rather peevish about how judgemental the Aquinas student seems to be. The Aquinas student believes that the Gates student would blithely support large and corruptible organizations, and believes that the Friedman student would mindlessly support every sort of self-interested hedonist. In their defensiveness, the Gates and Friedman students both agree that the Aquinas student knows nothing about economics, and tell him to leave. The Aquinas student leaves, but due to his clear understanding of how individual people feel about being cheated, he remains popular and continues to influence larger numbers of people in both economic and personal ways.
This is the difference of opinion in economics today. We pick and choose what variables we feel are the most important to our economic worldview, and then build up theories around those variables. This informs debates, and is a real intellectual calling, but it ought not be confused with science, because ultimately, the 2-way street of human society, dialogue, and economy will transform those ideas into actions. Once economists observe these new actions, they'll need to find some way to account for the way it was shaped by the intellectual debate detailed above.
1/16/08
Economics 150 with Prof. Craufurd Goodwin
This blog is an experiment in real-time publication of homework and writing assignments for an Economics course at Duke University with Prof. Craufurd Goodwin.
The title of the blog is related to the course, which is named "The Uses of Economics". Essentially, since Economic notions are themselves economically significant, it is useful to reflexively analyze the impact of these notions and the way in which they impact human behavior. So for the purposes of the course, Prof. Goodwin has binned these economic discussions into 12 "styles", which are somewhat arbitrary, but will be used in discussions here.
Further explanation and introduction to the styles will be made available in future posts. I look forward to your comments and suggestions.
The title of the blog is related to the course, which is named "The Uses of Economics". Essentially, since Economic notions are themselves economically significant, it is useful to reflexively analyze the impact of these notions and the way in which they impact human behavior. So for the purposes of the course, Prof. Goodwin has binned these economic discussions into 12 "styles", which are somewhat arbitrary, but will be used in discussions here.
Further explanation and introduction to the styles will be made available in future posts. I look forward to your comments and suggestions.
Subscribe to:
Posts (Atom)