Economics and Ethics

You can't make everybody happy (or why there are so few Pareto improvements in life)

Mark D. White

From the always brilliant xkcd this morning, an example of how even an obvious change for the better will inevitably upset somebody. (Make sure you read the rollover text as well.)

 

Even kids know that numbers aren't always the most important thing

Mark D. White

This morning's Baby Blues comic strip falls under the category "out of the mouths of babes":

Even litte Hammie knows that it isn't always about the numbers--sometimes it's about the principle of that matter!

This made me think of Amartya Sen's example of counterpreferential choice in which a person has to choose between a small and large apple, leaving the other one for someone else. The person wants the larger apple, but also feels the larger apple should be left for the other person out of courtesy, and may therefore choose the smaller apple. It isn't necessarily that the person "wants" to be courteous more than he or she wants the larger apple; it may be that the person's highest desire is for the larger apple, but his or her respect for social decorum overrules that preference when it comes to choosing an apple. (I make that point often in my work on Kant and choice; for instance, see my Kantian Ethics and Economics, pp. 42-46.)

Should a sound economic theory be abandoned because it's implemented poorly?

Mark D. White

This Non Sequitur comic appeared in this morning's newspaper (and online):

 

Ha ha, we get it, economists are stubborn theorists who are holed up in their ivory towers with no sense of the real world, situational context, or empirical circumstances.

I almost tweeted this comic, as I do with two or three strips each morning I find worth tweeting (low bar there, I admit). But I thought twice and in the end decided not to, because I didn't want to endorse its caricature of economists. As with all caricature, it takes a kernel of truth and blows it out of proportion--very clever when done right, but it reflects poorly on the caricaturist when it's done wrong, as in this case.

In economics--especially macroeconomics--theories can rarely be disproven or discredited based on evidence, because the space between general theories and specific evidence is far too great and rife with complicating factors. If a general theory is implemented at a particular time, in particular circumstances, in a particular way, and in a particular political context, and it doesn't work, how do you know whether to blame the theory or any one of the myriad details that interfered with its operation? At the most, you can argue that the theory was not implemented properly because the particularities of the sitation were not accounted for properly. But you cannot conclude that the theory is incorrect until it fails in many situations, at many times, etc.

Of course, we can easily assume that the cartoon addresses the current economic malaise and/or attempts to remedy it (though the metaphor with getting people over a crevice grossly misrepresents the enormous complexity of the macroeconomy and the difficulty with applying any theories to it). People on each side of the economic argument over the role of the state can claim that their theory wasn't adequately tested: free-market economists can deny responsibility for the crisis because the housing and financial markets were hardly free from government interference, and Keynesians can deny responsibility for the continued downturn by saying that the stimulus just wasn't big enough.

In the end, theories in economics--especially macroeconomics--must be judged by their internal logic, given the tremendous (perhaps insurmountable) difficulty with relying on empirical evidence to judge them. Given the million things that could go wrong when implementing the best theory in an imperfect world--or the million things that could make even the worst theory look effective--evidence just doesn't cut it. What evidence can do, however, is help economists and policymakers to finetune the implementation of their theories.

In the end, poor results from implementing a logically sound theory do not discredit it--they just demand better implementation. 

When economics and philosophy divorced...

Mark D. White

In a recent "The Shrink and the Sage" piece in the Financial Times Magazine, Julian Baggini (prolific popularizer of philosophy) and Antonia Macaro discuss the pursuit of happiness, which is very interesting in itself, but I was particularly amused by how Baggini started his half of the discussion:

When psychology and philosophy filed for divorce about 100 years ago, they faced the common dilemma of how to divide the book collection. In the end, psychology left most of the volumes on happiness and the good life with philosophy, which dutifully left them to gather dust. Now that psychology has returned to the subject with gusto, there is an urgent need to dig them out again.

Of course, economics and philosophy had their own break-up, perhaps a little earlier, so it may be fun to ask: how did they divide their book collection? Some speculation...

• Economics only took one Adam Smith book--but didn't read it--and philosophy lost the rest for years.
• Economics was more than happy to take the Bentham, but forgot the Mill (both the philosophy and economics).
• Most tragically, economics chose to take the calculus books rather than Kant--and we all know how that turned out.

Any others?

Efficiency bites

Mark D. White

From today's funny pages:

 

Supreme Court Haiku

Mark D. White

Thanks to Mai-Linh Hong of Legal Lacuna, I have found my calling: Supreme Court Haiku, for those of you who like your court summaries in exactly seventeen syllables. (Take that, Twitter.)

Note that comments too must be in the form of haiku. (My modest contribution can be found in the Harry Blackmun entry.)

Lessons in Monetary Economics from Playing Monopoly

Mark D. White

The New York Times has a great little piece today on Monopoly (the game), Milton Friedman, and monetary economics, which ends with this description of a particular game which took place in a University of Chicago dorm in the late 1970s:

The precise details of our classic game are blurred by the alcohol consumed that night and the years that have passed since then, but this much is recalled. We decided that Monopoly was hostile to a free market because it restricted the number of houses or hotels one could buy. We voted that a player could buy as many hotels as a property could physically bear and rents would be raised proportionally.

But the bank soon began to run out of money. So we did what any government would do. We began printing more of it, by scribbling $500 on scraps of paper. We printed a lot of money.

Prices shot up, which we all knew, even in that inebriated state, was the consequence of expanding the money supply. (After all, the great economist [Friedman] told us, “Inflation is always and everywhere a monetary phenomenon.”)

The inflation became so extreme that we eventually voted to alter the rules again: we’d cut the money supply. Any money we printed that came back to the bank would be taken out of circulation.

A severe depression kicked in, of course. Prices plummeted and it was a race to liquidate assets. One by one the players quickly went bankrupt, and sometime around 4 that morning the game was over.

Quoth the Krugman, “Spend some more”

Mark D. White

Check out "The Krugman" on Swimming Against the Mainstream, by Christopher Stiffler (obviously a Poe man's economist). An excerpt:

With inquisitive expression quickly I began to question
“How do we end this recession and full employment to restore?”
Not shaken up nor shaven was the economic maven
Quoth the Krugman, “Spend some more.”

“More spending can’t be provided," were the words I gently chided
"With congress ever divided, nothing makes it to the senate’s door”
“Maybe in a perfect setting, but what you seem to be forgetting
The whole plan is just begetting of higher deficits galore?
Borrowing now is easy, paying it back is quite a chore!”
Quoth the Krugman, “Spend some more.”

Now this is how you play Monopoly...

Mark D. White

I have to admit, malicious and hurtful stereotypes aside, this is funny...

Externalities for Christmas

Mark D. White

Today's Pickles strip provides a valuable service to gungho-ho-ho regulators everywhere:

 

Why, this is going on in every neighborhood in America! Something must be done! I can hear them now: "We'll have to subsidize the decorators--no, no, we'll tax the nondecorators! Better yet, we'll make everyone buy holiday decorations, and tax penalize put coal in their stockings if they don't..."