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Paul Krugman recently wrote this, elaborating on the apparent Keynesian suggestion that World Wars are good ways to solve economic depressions:

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It's not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity -- a pretty good system most of the time, though not always -- with no special moral significance. The rich don't necessarily deserve their wealth, and the poor certainly don't deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don't work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that's not an argument against progressive taxation and the welfare state; it's just an argument that says that there are limits. Cuba doesn't work; Sweden works pretty well.

And when we're experiencing depression economics, by which I mean a situation in which it's hard to create sufficient demand to achieve full employment -- mainly because short-term interest rates are up against the zero lower bound -- the essentially amoral nature of economics becomes even more acute. As I've said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn't particularly wise.

This made me think: What is the point of economic policy? Where do we spend governing resources? Who gets the most attention and respect? That shows our values. So I am already skeptical that economy has nothing to do with ethics.

So what does the modern society value? Where does it go to big lengths? As Krugman says, equality is not our value - it does not work. So the most needy must not be concerned. What does work?! Petty privelege fights?!

I would say, if some decent standard of equality is a problem for an economic system, to hell with the economic system. If Krugman is happy enough that Japan's depression is dissapointing but not disastrous, wouldn't he change the opinion on Cuba some time?  

by das monde on Fri Oct 1st, 2010 at 11:27:15 PM EST
Economics since the early 19th century has been about creating a supposed autonomous sphere for the market which supposedly operates according to objective laws that must be obeyed. This absolves the beneficiaries of the system from guilt for the suffering of the victims of the system. Politics is for the rest of reality, uh, except that it has to make sure that the necessary conditions for markets to properly function are maintained.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 2nd, 2010 at 12:16:04 AM EST
[ Parent ]
Which is to say, politics must limit itself to endless useless debate on dancing angels, and leave the real stuff to it's bosses.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Sun Oct 3rd, 2010 at 06:43:38 AM EST
[ Parent ]
For all who drink the Cool Aid, yes. And that Cool Aid is delicious, you know.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 3rd, 2010 at 11:48:40 AM EST
[ Parent ]
What distinguished most of the Classical Economists from the scholastics was that they gave much greater value to observation and calculation. They were, after all, all about business and how it functioned. A major similarity was their use of axiomatic assumptions and over-reliance on deductions therefrom. I suppose that the occasional "not a true Scottsman" helped to lubricate the process.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 3rd, 2010 at 11:57:06 AM EST
[ Parent ]
"As Krugman says, equality is not our value - it does not work."

Well, he only says that about TOTAL equality.
Which, you must admit, is not much of an incentive. If you reach the same situation whatever you do, why would you try very hard?

"I would say, if some decent standard of equality is a problem for an economic system, to hell with the economic system."

Now, this is something else entirely. Of course, there is a problem with the wording -can we call it rather a cap on inequality to some decent standard? I think you will find that Krugman advocates far, far less inequality than what we see in the developed world these days. And it has been demonstrated to work well for the economic system too, as seen in the expansion until the mid-70s, or the fact that even today, societies with a lower gini coefficient tend to do better (per head at least) than similar societies (ie let's not compare Australia and Bangladesh, please) with a higher one.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Oct 2nd, 2010 at 03:06:37 AM EST
[ Parent ]
Ok, speaking in total terms, Krugman does give some value to some equality. We know that, but he does not try to formulate that carefully. He says categorically: economics is amoral, equality does not work. Little excuses refer to the libertarian frame - the standard ethics of today. And I try to guess, how much Krugman is really doing to change the inequality standards.
by das monde on Sat Oct 2nd, 2010 at 03:28:11 AM EST
[ Parent ]
I can think of few people in the world doing more to change the narrative.

And I reckon you read wrongly his "economics is amoral" statement. Having read everything he wrote since 2000 (OK, I haven't finished his economics textbook, but my wife bought it to learn about the subject and I did go through quite a lot of that too), I am very confident in my understanding that he makes that point to state that the fact that someone is rich does not mean he necessarily deserved it.
He even added (no later than this week) that the poors certainly did not deserve it.

It is formulated pretty clearly in my view. I don't reckon he feels any need to wear any badge of libertarianism, in fact he has pretty much ridiculed libertarianism in hundreds of pages.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Oct 2nd, 2010 at 03:36:07 AM EST
[ Parent ]
Yes, but when he says 'Sweden works, Cuba doesn't, therefore free market economies are better' his logic is hard to follow.

Firstly Sweden is more of a social democratic economy than a free market one.

Secondly Cuba's economy has always been strongly limited by trade sanctions from the US.

And finally, what does 'work' mean? Does the US economy, with its vast and increasing inequality, work according to Krugman's definition? Is it hard to imagine that there might be people in Cuba who are better off than people in the US?

The subtext is an obvious and rather naive or unquestioning acceptance of free market exceptionalism compared to the alternatives - when the reality is that in fact free market economies only 'work' in the libertarian sense of increasing inequality, to the point where inequality and autocratic top-down policy are a good effective definition of the political and financial output of a so-called free market.

Free market economies can only work if they're based on an imperial model which steals resources from other countries. Even then they blow up every few years, and they deny most people democratic participation. They're also suicidally bad at long-term planning and prone to outbreaks of corporate banditry and corruption.

That's a strange definition of 'work' - unless you start from the assumption that they're the best of all possible arrangements by definition, and work back from that.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Oct 2nd, 2010 at 04:04:41 AM EST
[ Parent ]
Krugman's fundamental difficulty in understanding the real world is that he believes that most goods and services are traded on spot markets, or in (mathematically) "well-behaved" financial systems, which means financial systems that behave like spot markets.

If real economic used spot markets, a Big Mac would not cost the same in Malmö and Haparanda...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 2nd, 2010 at 05:04:27 AM EST
[ Parent ]
"Yes, but when he says 'Sweden works, Cuba doesn't, therefore free market economies are better' his logic is hard to follow. "

But he does not say that. You are projecting your own prejudice into his quote. Therefore, and the words that follow, are yours.
I agree that Cuba is also restricted and that it plays an important part, so that it's not a clean experiment. I would argue, though, that the burden of the proof is on he who makes the claim that full equality is indeed the system maximising the condition of the worst-off in the long run.
All Krugman is saying is that there are limits to redistribution -in fact, let me quote the very previous sentence: "And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that's not an argument against progressive taxation and the welfare state; it's just an argument that says that there are limits."

Krugman's mention of Cuba and Sweden merely indicates that there is no obvious logical argument to reject even full equality, merely empirical ones. And he very clearly did not pick a particularly neo-liberal country as the working one.

I was going to have one chapter in this series about our embracing evidence-based thought rather than slogans and demands of ideological purity. Are you telling me that this is not a shared trait here and that you reject it? If not, what do you fault him for?

"Is it hard to imagine that there might be people in Cuba who are better off than people in the US? "
Is it hard to notice that this is a shockingly unfair point? Comparing one's maximum to the other's minimum?

"The subtext is an obvious and rather naive or unquestioning acceptance of free market exceptionalism compared to the alternatives"
Really? From someone who keeps singing the praise of social democracy and who picked Sweden as the example of a country that works, Sweden that, as you yourself said, cannot be called a free market economy?

"Free market economies can only work if they're based on an imperial model which steals resources from other countries."
This may be true, but is rather too flippant a statement to be accepted without a convincing demonstration. Otherwise it's just a slogan.

"That's a strange definition of 'work' - unless you start from the assumption that they're the best of all possible arrangements by definition, and work back from that."
Again, Krugman has written hundreds of pages slamming the direction USA were taking. Why do you project the neo-liberal agenda onto him? I can think of no reason other than the idea that anyone who does not concede the whole Marxist doctrine is an opponent to be fought.
Surely that is not your reason -but then I am missing it entirely.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Oct 2nd, 2010 at 05:35:23 AM EST
[ Parent ]
Where am I projecting? Krugman could have used any number of other examples - but he chose Cuba to make a point that 'there are limits'?

Is it hard to notice that this is a shockingly unfair point? Comparing one's maximum to the other's minimum?

This isn't the issue. The issue is that Cuba is in no way a conventional economy. Never mind that it's nominally socialist - it's been aggressively ostracised by its nearest and largest physical trading partner. So saying that Cuba somehow proves the limits of redistribution is a non-point.

But it's a revealing non-point. The fact that Krugman can write this, and - presumably - actually believe it, says a lot about his assumptions and the shallowness of his political insight.

This may be true, but is rather too flippant a statement to be accepted without a convincing demonstration. Otherwise it's just a slogan.

You mean apart from the British Empire, the age of colonialism in the rest of Europe, the East India Company, the oil and resource wars of the 20th century, and the US-sponsored coups throughout Asia and South America in the late 20th century?

Do I need to explain how all of these were contrived, or at least packaged as, the inevitable rational actions of nominally free markets?

You seem entirely too awed by Krugman to accept that in his environment anything to the left of a centrist solution like Sweden's is considered suicidally self-destructive by definition.

It's good that he's not a psycho-Randian like most of the Chicago altar boys, but that doesn't mean he's pushing the Overton window as hard as it needs to be pushed in the US.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Oct 2nd, 2010 at 07:24:22 AM EST
[ Parent ]
In the preceeding paragraph Krugman says:

The market economy is a system for organizing activity -- a pretty good system most of the time, though not always -- with no special moral significance. The rich don't necessarily deserve their wealth, and the poor certainly don't deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don't work.

Then Krugman says:

Sweden works, Cuba doesn't.

This pretty clearly implies tht the amount of equality in Cuba is too great for the economy to work. And Krugman ignores the massive punitive behavior of Cuba's former trading partner to the north. Krugman also ignores that our economic system deliberately excludes moral considerations while having insisted on remaking the society to serve the needs of the economy. That the way in which this has been done is necessary is an underlying assumption, not a demonstrated fact. Refusing to grant the assumptions of Classical and Neo-Classical Economics has come to constitute an act of opting out of the discussion, in a Rawlsian consensus approach. That is the problem, especially when it has repeatedly been shown that the Classical and Neo-Classical approaches have major problems and little predictive power. The Rawlsian consensus has come to exclude all who do not drink the Cool Aid.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 2nd, 2010 at 01:55:53 PM EST
[ Parent ]
For years I have tried to read between the lines in Krugman's writings- tried to parse out what he says that is needful to say in order for him not to lose that powerful platform over there in New York, a loss that a stronger statement might bring about, and what might be such bull as his Cuba statement.
I honestly think he sees the market model as a basically good one, and is, in the end, a tweaker.
It's just that his tweaks are bigger.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Sun Oct 3rd, 2010 at 06:58:54 AM EST
[ Parent ]
There's nothing wrong with markets: it's rentier profits that are the problem.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Oct 3rd, 2010 at 12:49:45 PM EST
[ Parent ]
Cyrille:
Which, you must admit, is not much of an incentive. If you reach the same situation whatever you do, why would you try very hard?

Why do indeed some try very hard at jobs where it is obvious it will not earn them more? For example teachers and nurses.

Of the top of my head and in no particular order: Work-ethics, respect of peers, pride in a job well done, the knowledge the others depend on your work.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Oct 3rd, 2010 at 04:53:25 PM EST
[ Parent ]
"Why do indeed some try very hard at jobs where it is obvious it will not earn them more?"

An important word in the above sentence is "some" -even if conceding the point that it is obvious that it will not get them (why earn? Did I at any point suggest that it was only about money?) anything, which is not the case in any hospital or school I've ever seen (to take the same examples that you took).

And of course, you are very deliberately choosing jobs that are known to nurture that kind of feeling, for which I have enormous respect, don't get me wrong.

How close exactly to 100% of society made of this kind of people do you think we are, right now?


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Oct 4th, 2010 at 01:13:02 PM EST
[ Parent ]

Cuba: sustainability pioneer?

In the fall of 2006, the World Wildlife Fund (WWF) Living Planet Report found that* Cuba is the only country in the world which meets its criteria for sustainable development*. Cuba alone, according to WWF, manages to achieve certain basic living standards without extracting resources in a way that exceeds nature's ability to renew them. How do we account for these findings and what can we learn from them?

WWF determines a country's sustainable development by comparing its rating on the United Nations' Human Development Index, a measure of human welfare (health, education, poverty, etc.) to its ecological footprint, as largely reflected in its per capita fossil fuel consumption. According to the WWF report, both China and India still have fairly small per capita ecological footprints but neither has achieved minimum development standards. Cuba has. The United States, as expected, is highly developed but with a rate of energy use and consumption eight times higher than the world's capacity to sustain it.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Sat Oct 2nd, 2010 at 09:56:10 AM EST
[ Parent ]
Cuba Exploring Wind Power as Sustainable Energy Alternative
Las Tunas, May 15 (RHC-ACN)-Cuban specialists have begun the installation of equipment to measure wind force on the northern coast of Las Tunas province, an area that has been considered by experts to be among the best for the development of wind farms in Cuba.

The study will take approximately a year and will determine the kind of generators that could give the optimal results, looking at the height at which they should be placed, and their potential to contribute to the national electric grid.

Local officials from the Ministry of Science, Technology, and the Environment (CITMA) told the Cuban News Agency that the locale chosen by the experts has the necessary conditions to set up a wind farm, since it does not represent an obstacle to the development of other programs, nor does it demand costly investments.


'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sun Oct 3rd, 2010 at 03:39:06 AM EST
[ Parent ]
das monde:
I would say, if some decent standard of equality is a problem for an economic system, to hell with the economic system.

that's how it feels to see the subsidies for PV come down so fast after so little time.

it is revealing though... who stands to lose has every 'rational' reason to dig their expensive heels in.

scare quotes because this so-called rationality is the fuel for our heading over the climate cliff.

sociopaths are brilliant at appearing rational. what they lack in common sense is abundantly compensated by their persuasive skills.

Mad. Men.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Oct 3rd, 2010 at 02:30:41 AM EST
[ Parent ]
The philosophical problem of equality is that even if everyone agreed, in principle, to an ethic of equality, or Rawls's "maximin" solution, you still have the problem of defining what equality means.  Equality of what?  What dimensions? How can we say that a monk who chooses to live alone on a starvation diet isn't equal to billionaire Warren Buffet in terms of what each one wants to achieve and be in life. Is an otherwise well-to-do woman who freely chooses to have her clitoris circumcised, as many East African immigrant women do, really equal to a European woman of the same economic conditions who chooses to have an abortion, and why or why not?

The dimension problem of equality is why Amartya Sen responds to Rawls by arguing that only by seeking freedom, which includes both individual "freedom from" as well as social "freedom to," can equality really be sought after as a social goal.  For that reason, I think Sen's thesis is more applicable to ET than Rawls's.

by santiago on Sun Oct 3rd, 2010 at 07:15:44 PM EST
[ Parent ]
Unless you believe in mystical influence, the monk and Mr Buffet have very different abilities to influence others. The monk can't force others to work for his (or her) benefit. Buffet and the rest of his class deprive others of their freedom by dictating how their time is spent - and for whom.

Buffet at least has the decency to occasionally have twinges of conscience about this. Others in his class revel in the contempt they feel for those they inconvenience.

Rawls is arguing against a background where economic theory is the default collective moral standard for society - and his argument is implicitly against the dishonest and false definitions of equality which economic theory promotes and promises.

The fact that other moral systems are possible is an argument for a wider examination of collective economic morality, not an excuse to pretend that personal choices have no influence on others.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Oct 3rd, 2010 at 10:07:44 PM EST
[ Parent ]
Not sure what you're talking about.

The whole premise here is that ET is looking for other moral standards than the default economic one of income and growth measurements. Rawls, however, is still mostly just income and growth. Dimensions of well-being like influencing others don't enter into Rawls' picture.  Sen, however, generalizes past things like the standard economic default to what people actually can and want to do with their lives. That seems like a better way to go.

by santiago on Sun Oct 3rd, 2010 at 11:11:20 PM EST
[ Parent ]
However, maximising the condition of the least well off in purely economic terms is close enough for corporate work in a society that makes power - and indeed human worth - coterminous with economic wealth.

There are two different but mutually reinforcing projects in play here: The first is to emancipate the powerless, if you'll permit the high-flying expression. The second is to alter the way society allocates power to make it less dependent upon economic considerations.

You're talking about the second of those projects. This diary deals with the first. The second is dealt with here.

These two projects are intimately connected, because you work in the society you have, not the one you might like. Railing against an excessively narrow view of the basis for the allocation of power in society does not diminish one's duty to remedy the observed deficiencies in the allocation on the basis of the institutions that actually exist. Nor should remedying the plight of the afflicted in the present be construed as an excuse for failing to reform the underlying institutions.

Political movements that ignore the institutional basis for the problems they identify rapidly peter out into irrelevance after the first generation of activists. On the other hand, political movements that ignore the plight of the present in favour of building a more glorious future after the revolution tend to obtain poor results - I note in passing the IMF's structural adjustment programmes and the idea of bombing Iraq to democracy, and leave the rest of the laundry list of examples as an exercise to the reader.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 4th, 2010 at 05:44:52 AM EST
[ Parent ]
The common issue is accepting that in a sane society limiting the freedom of action of a tiny minority who deem themselves worthy of absolute, monarchic freedom to order and interfere in the lives of others can only create wider freedoms, more thoughtful participation, better planning and better decision making for everyone.

Effectively it's an argument against pseudo-monarchy. Which is different to the Anglo concept of freedom and choice which promises that individuals can become pseudo-monarchs through financial acquisition, and as their wealth increases their accountability and the limits on their personal power decrease.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 4th, 2010 at 06:37:29 AM EST
[ Parent ]
This isn't a new concept at all. The points you raise were those first thought through by Atkinson and his work on how to measure poverty in the 1970's that led to Sen's development of the human poverty index that the World Bank now uses.  But it turns out that even when you look at just the standard economic dimensions of well being, correcting for equality in one dimension causes pretty wide disparities in others - such as how women or other minorities are experience life, for example. How one defines poverty is actually a pretty big exercise of power in itself.  

That's why Sen developed the capacity approach.  Focusing on equality of capacities to achieve and capacities to be is really the only way to achieve a semblance of equality in even the standard economic measures of well being.

by santiago on Mon Oct 4th, 2010 at 09:13:22 AM EST
[ Parent ]
Sen, however, generalizes past things like the standard economic default to what people actually can and want to do with their lives. That seems like a better way to go.

Sen was active in the discussion that led to Arrow's dissertation and his 1951 book, Social Choice and Individual Values. Part of that was social choice theory, which "assumes that we need to extract a preference order on a given set of options". This has been the foundation on which much of welfare economics and development economics has been built, by Sen and others.

It is, perhaps, not accidental that the most characteristic feature of contemporary US political life has come to be the highly constrained choices with which the electorate is presented and the ease with which those constraints has come to enable the resulting process to serve the interests of the dominant players. The rest of social choice theory seems less relevant, given the prevalence of that effect.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 4th, 2010 at 12:29:39 PM EST
[ Parent ]
True enough, but Sen didn't win a Nobel Prize for his work on social choice theory. (Although Arrow did.) He won it for his work on poverty, and particularly for showing how you can't really affect outcomes which improve equality without first addressing the institutions which prevent individuals from even being able to define what equality means for themselves.  
by santiago on Mon Oct 4th, 2010 at 11:34:32 PM EST
[ Parent ]
I realize that, even with my very limited knowledge of the work of both Arrow and Sen. My point really was that Sen builds partly on social choice theory and that theory seems not to have produced very acceptable results, given the choices the USA has made and the way those choices seem to be made. In fact, it seems to have little bearing on the actual process. If it did the results might be better. I don't know.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Oct 5th, 2010 at 12:15:51 AM EST
[ Parent ]
To the contrary, I think their work on social choice theory has proven to have a lot of bearing on the actual process.  The work they did showed, contrary to the dominant neoclassical political economy model, that in most cases it's just not mathematically possible for a polity of even the unrealistically free, knowledgeable actors of standard economics to arrive at a socially optimal consensus. In reality there are almost no win-win situations, unlike what we are led to believe through a "market framework" for thinking about society. Instead of mutually beneficial negotiations, people engage in contests over "who gets what" in which there are almost always going to be some losers, so the question is, "Who will society choose to lose?"  This explains why values become so important, because they determine with whom you group to join that fight.
by santiago on Tue Oct 5th, 2010 at 06:04:46 PM EST
[ Parent ]
Great! More reading...

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 6th, 2010 at 12:50:23 AM EST
[ Parent ]
Suggestions? Preferably pithy overviews that admirably summarize. :-)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 6th, 2010 at 12:51:42 AM EST
[ Parent ]
Actually, the wikipedia entry for Arrow's Impossibility Theorem is pretty good, at least for starters.  The key thing with Arrow is not to get tripped up, like a lot of people seem to, in his use of an election game and conclude that he was just talking about a strict case of electoral politics.  

He invented an abstract voting game between three hypothetical electors to determine, mathematically, if it is even possible to conceive of a political economy in neoclassical terms, even given their pretty unrealistic assumptions, and he finds that it is not: The existence of anything like a  social welfare function -- that the well-being of a group of three or more people can be honestly conceived of as a single average or summed function -- is a false proposition.

Regarding Sen, "Freedom as Development," is the non-academic, "popular" book which summarizes his ideas pretty well, like "A Brief History of Time" was for Hawking. (The wikipedia entry for that book, unfortunately, was pretty weak, so I'd go to the source instead.)

by santiago on Wed Oct 6th, 2010 at 05:36:06 PM EST
[ Parent ]
santiago:
He [Arrow] invented an abstract voting game between three hypothetical electors to determine, mathematically, if it is even possible to conceive of a political economy in neoclassical terms, even given their pretty unrealistic assumptions, and he finds that it is not:

Well, Condorcet saw it first... ;-)

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Mon Oct 11th, 2010 at 11:37:55 AM EST
[ Parent ]
...that the well-being of a group of three or more people can be honestly conceived of as a single average or summed function -- is a false proposition.

How exceedingly interesting.

That's GNP down the rat hole, for starters.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Oct 12th, 2010 at 11:48:34 AM EST
[ Parent ]
Yes, that is exactly what it means, as far as making any grand generalizations about individual well being from GDP figures are concerned.  That was his point, elucidated in further work by Sen -- that we really can't say that "a rising tide lifts all boats" when it comes to economics.

However, GDP, and its cousins GNP and GNI, are still quite useful in summarizing the total amount of market-based economic activity that is going on in an economy, which is their primary function in economics, if not in policy debates. Although many seem to forget their intro macroeconomics by the time they become journalists, it's pretty standard in the field, and in economics instruction, that GDP is useless as a stand alone data point.  It only makes sense in the context of other data to judge well-being, power, or economic activity.

by santiago on Wed Oct 13th, 2010 at 01:11:00 PM EST
[ Parent ]
Journalists. And policy makers. And economists talking about making policy. Weird, huh?
by Colman (colman at eurotrib.com) on Wed Oct 13th, 2010 at 01:40:20 PM EST
[ Parent ]
All the same thing: blogger wanna-bes -- people who have been liberated to speak in forums where they need not be encumbered with the facts.
by santiago on Wed Oct 13th, 2010 at 02:20:52 PM EST
[ Parent ]
Although many seem to forget their intro macroeconomics by the time they become journalists,

That is a natural consequence of always and uncritically using GDP or GDP pro capita as the metric for wealth in all economic exposition except these (usually perfunctory) disclaimers.

One cannot exonerate an academic discipline from perpetuating an error solely by noting disclaimers in first-year textbooks when the same discipline ignores those disclaimers essentially from the point they are made and until you graduate. In fact, reading disclaimers about the non-universal applicability of GDP in the discussion section of a first-year national accounting textbook feels a lot like reading a Quack Miranda: "We have to include a disclaimer about not elevating GDP to the One True Proxy in order to cover our asses. This being done, let's get back to elevating GDP to The One True Proxy."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Oct 14th, 2010 at 05:47:40 AM EST
[ Parent ]
I don't quite agree.  It's more than a disclaimer. It does actually represent the way GDP and similar data points are used in the field and in professional advice to policymakers and business people. GDP per capita is a very good way of measuring economic growth, and its use in the field is mostly limited to discussions of economic growth.  It is not a particularly good way to measure economic well-being and usually isn't used as the primary evidence regarding discussions of well-being -- unemployment or other data points are used instead or with GDP. For example, GDP is but one of the frequently published and cited economic leading indicators which are meant to summarize both growth and well-being aspects of the economy.  All of the indicators get reported; not just GDP alone.

However, it cannot be denied that there is a strong association between economic well-being of even the poorest sectors of a society and GDP, regardless of how it is measured, particularly when GDP growth is slow or negative, so it would be dishonest to eliminate discussions of GDP from issues of well-being entirely.

I just don't see many economists doing the things you attribute to them. I do see a lot of other people doing it, and I see economists frequently and publicly correcting them when they do. (I just came from the right of center National Association of Business Economists annual meeting, and entire sessions, as usual, were devoted to precisely the topic of the misuse of GDP in policy debate and how to try to correct it.)  It's just not the field's fault. It really is the journalists here.

by santiago on Thu Oct 14th, 2010 at 10:20:36 AM EST
[ Parent ]
They were? Which ones?

I can see one there. The others seem marginally less relevant.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Oct 14th, 2010 at 11:26:40 AM EST
[ Parent ]
Section 23, directly, and 19 and 20 inclusively.

Section 23 presented recent papers on alternative methods to GDP for measuring economic activity and the drawbacks of GDP and the alternatives to it. This has always been a topic of interest in economics, because of the inherent difficulties in the whole project of defining and measuring an economy and what it means for different people.

by santiago on Thu Oct 14th, 2010 at 12:58:59 PM EST
[ Parent ]

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