Relevant and even prescient commentary on news, politics and the economy.

Is Strengthening Labor Good for Development?

Is Strengthening Labor Good for Development?

Servaas Storm, who’s always worth reading, has posted on the INET website a summary of a new working paper he coauthored.  This issue goes way back with me—I first started looking into and writing about the labor rights/wage/trade/development nexus back in the 1980s.  Working on my own, I had a lot of false starts, and I’m happy to see others digging much more deeply today.

I won’t comment on the substance of this paper, but I think an important piece is missing: how dual economies articulate, and in particular the role of clientelism.

Countries in which formal sector jobs are highly valuable but scarce, in a sea of abundant but unremunerative informal employment, have to have some mechanism for allocating them.  Some classic economic models to the contrary, it never happens through lotteries.  My hypothesis, based on what I’ve seen and read, is that the predominant mechanism is clientelism.

A brief digression: Most of the literature on clientelism appears in political science, where it refers to the exchange of votes for personally targeted services or transfers by politicians.  I use the term to refer to a much broader phenomenon, the exchange of personally targeted benefits in return for the performance of loyalty between patrons and clients.  Patrons have access to resources from which they can supply benefits to clients, while the extent of client loyalty is a determinant (but not necessarily the only one) of how many resources a patron can command.  Conceptually, the client-patron relationship is a dyad, although clientelist systems are constellations of such exchange relations across whole populations: many dyads, multiple levels (patrons are clients of higher-level patrons), competing networks.

A large gap between formal and informal employment increases the tendency for clientelism to expand as an allocative system.  Clientelism is not all bad—it can moderate frictions that market or formal administrative processes generate—but to the extent it replaces these “modern” alternatives it reduces social efficiency.  For instance, allocating scarce formal sector jobs through client-patron exchanges is relatively harmless if the people getting the jobs are no less qualified than those left out of the system, stuck in the informal sector.  If clientelist networks override formal qualification (administrative) or competitive performance (market) criteria, however, they degrade outcomes.  It’s a matter of degree.

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Regulation: A Gut Check

Regulation: A Gut Check



How do we get the word out that our underlying conception of how regulations should be designed and enforced needs to change?

The New York Times has an ominous article about the overuse of antibiotics by the livestock industry and its risks for animal health and ours.  Flooding our digestive system with these drugs damages the gut microbiome we depend on for nutrition and waste processing, and it promotes the evolution of resistant strains of bacteria.  The upshot, according to this piece, is that 23,000 Americans die of antibiotic resistance each year, and it adds:

A growing body of scientific research also shows that the antibiotics we take as medicine can disrupt our so-called gut microbiome, the bacteria that live happily in our stomach and intestines and that are the key to our ability to properly digest food and process fats. This disruption has been linked to the rise of noncommunicable diseases such as obesity, juvenile diabetes, asthma and allergies. Some researchers also believe that alterations in the gut microbiome have led to an increase in the incidence of autism, Alzheimer’s and Parkinson’s disease.

Ranchers lace their feed with antibiotics to speed up animal growth because it’s profitable.  The risks are difficult for the public to appreciate, and the externality of reducing the effectiveness of legitimate antibiotic treatment is unpriced.  This is a serious problem.

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Economics: The View from 35,000 Feet

Economics: The View from 35,000 Feet

Air travel offers an opportunity to catch up on one’s reading.  In my case, this means Marion Fourcade’s “Economics: A View from Below”, which had been sitting in my pile for at least two long weeks.  For those wondering about her title, she has been toying for several years with the actual/mock inferiority felt by other disciplines, such as her own sociology, in the face of the pretensions, authority and worldly success of economics.

This essay is another dancing, enigmatic exploration of this apparently stable dominance, one that survives public embarrassment, like the backwash against its claimed expertise after 2008, and internal fissures.  She plays with Hayek, who denounced economists for their empty pretense of knowledge, and sports with contemporary eminences such as Ricardo Caballero, who have similar objections to the intellectual simulacrum that passes for economic insight.

To cut to the chase and save you from a more detailed reading if you’re not so inclined, Fourcade goes part of the way with Hayek, but recognizes that the critique of pretense is a gun that points in all directions, since there is no position of “postense” from which to aim it.  She, like many others, sees the shared worldview and methodology of economics as the source of its strength, the reason why the discipline can prosper and expand its influence even as it hosts bitter debates among its practitioners; in fact, its capacity to cohere despite apparent fracturing is exactly its greatest asset.  She also sees the discipline’s internal discord reflecting a dialectic between altering the world as a significant participant in it and interpreting it as a reflective bystander—not so different from a priesthood if one recognizes both aspects of what it means to be priestly.  Economics does not converge on consensus because of the dynamic relationship between particular understandings of economic and political life and the ensuing events created by those understandings that themselves become objects of study.

Along the way, Fourcade demonstrates a tendency to be conventional.  Foucault is invoked in a big way, for instance, even though it is now becoming apparent she profoundly misread classical and more modern political economy—a trajectory that ended up as utterly deluded cheerleading for neoliberalism.  We also read that Keynesianism is a response to economic disorder stemming from fixed prices (getting JMK’s critique of his orthodox opponents exactly backwards) and German ordoliberal macroeconomics reflects the country’s experience with hyperinflation (rather than the hyper-austerity that ushered in Hitler).  I get the impression that Fourcade’s method is to critique the conventional wisdom of particular academic specializations by juxtaposing them with the conventional wisdom of others.

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A Teachable Moment: The Importance of Meta-Learning

A Teachable Moment: The Importance of Meta-Learning

Today’s New York Times has a fine article by Manil Suri about math education and the development of reasoning skills.  Its concluding point is that, while the general contribution of the first to the second is weaker than you might think, math instruction can be improved by bringing the math-reasoning tests themselves into the classroom.  I’m pretty confident that Suri is right, since I’ve seen positive results from doing something similar in economics and related areas.

When preparing to introduce a new topic in econ, for instance, I’ll often start by taking stock of what lots of people without an economics background think they know about it.  This might mean looking at surveys or some excerpts from news or other websites.  It often involves drawing out this information from the class itself.  For instance, I’ll divide students up into groups of five or so in which they can say to each other what they believe, or even suspect, about the topic, and then have the groups report in a general way what these views were.  (I try to use methods that don’t identify potentially mistaken concepts with specific people, to avoid any sense I’m trying to belittle anyone.)  Then we will go on to learn about the question, keeping in mind the misconceptions we’ve found and trying to locate the points at which “pop economics” veers off from the real stuff.*

There are many reasons for doing this.  One is frankly political: a lot of the political babble in this country is framed by erroneous economic thinking, such as nearly all the fretting over “the national debt”.  (Every time I bring this up in the context of the income accounting identities I see expanding eyeballs all across the classroom.)  Another is pedagogical: if you don’t put effort into deconstructing pre-existing beliefs as well as developing new knowledge, what you will see on papers and exams is a weird mishmash of the two.  It took me too many years to figure this out.  But a third is the insight Suri also came to, that using an external point of reference to step outside oneself and observe one’s own learning process provides a powerful boost to learning of all sorts.  The misunderstandings of pop econ provide a baseline from which students can measure their progress; they illuminate what they are learning and how.

The name for this is meta-learning (or deutero-learning in cybernetic-speak).  It is foregrounded by activities that help students get outside the technique or concept immediately in front of them and see their learning of it as the object of attention.  Like all forms of learning, it is best approached inductively and in context: rather than give lectures on meta-learning, provide exercises that call attention to it in situ.  I incorporated material to support meta-learning in my textbooks, more in the second (macro) than the first (micro), since I was learning (and meta-learning!) as I went along.

I’ve come to think that explicit incorporation of meta-learning may be the single most important innovation to transform teaching.  For those of you who have this a day (or night) job, give it a try.

*Just to be clear, “real” economics is not mean “sanctified by the mainstream”, just conceptual approaches that can be supported by careful reasoning and empirical data.  Some mainstream econ is rather closer to the pop variety than to legitimate analysis.

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Pseudo-Equity: Further Remarks on the Politics of Mandatory Diversity Training at Evergreen

Pseudo-Equity: Further Remarks on the Politics of Mandatory Diversity Training at Evergreen

This post follows the previous one and explains why I get so exercised about the politics of equity at a place like Evergreen State College.  The single issue at the heart of activism at Evergreen for the past two years is mandatory diversity training for faculty.  This was first proposed by the Equity Council (which was set up by the college administration and whose name changed a bit from year to year) and brought before the faculty, where it failed on a secret ballot.  Equity people were furious and concluded that (a) the faculty had just demonstrated its deep-seated racism, and (b) they would have to go directly to top administrators to impose these trainings anyway.  This perspective was picked up by activist students, who felt that only confrontation could rid the campus of its plague of professors who refused to deal with their own racism.  This is a bit of a cartoon version, I admit, but it is broadly accurate and provides essential context for understanding why someone like Bret Weinstein got the treatment he received.

So what about mandatory training?

I agree completely that it takes a tremendous amount of skill to negotiate issues involving race, gender and sexual preference in the classroom.  I’ve learned a lot over the years, and I definitely don’t think I’ve arrived at perfect wisdom.  I’m always trying to improve.  For me this is about both better serving the students in front of me and addressing the larger inequalities we’re all enmeshed in because we live when and where we do.  I’m absolutely in favor of providing lots of resources for all faculty to work on this front.

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Evergreen Looks in the Mirror and Says It’s OK

Evergreen Looks in the Mirror and Says It’s OK

The “Independent” External Review Panel on The Evergreen State College Response to the Spring 2017 Campus Events (quotes not in the original) just released its report, and it says that everything campus administration has done in connection with this episode and everything it is now doing in response to it is beyond reproach.  It repeats the arguments of the college’s “equity” faction (again my quotes—it has little to do with equity) in the faction’s own language and omits any information that might undermine their point of view.  Of course, it was impaneled by the college’s president and interviewed only a few authorized informants (listed in the report), so we shouldn’t be too surprised. If anyone on campus thinks it offers independent support for the “equitarian” perspective on the Evergreen imbroglio, they are really and truly credulous.

That’s the short version, which is probably all—maybe more than all—most readers of this blog care about.  The long version would require a report of its own, and I won’t bother with that.  It isn’t worth it; outside the Evergreen bubble no one will take this seriously.

Still, there’s a reason to spend another few minutes with it because, in its perverse way, the report will ultimately solidify the standard narrative about a campus gone wild with violent ultra-leftism.  This is because, by avoiding all the uncomfortable questions, it leaves their answers to right wing idealogues.

What the report does say:

The disruptions on campus reflected national and local political trends concerning opposition to racial injustice.

They were handled in an ideal fashion by the college.

Those videos-that-went-viral misrepresented what happened.

Bret Weinstein “took advantage” of the protests to promulgate his views in right wing media.

Nevertheless, the bad publicity, stoked by misinformation, has had a large negative effect on college enrollments.

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The Coordinated Activity Theory of the Firm

The Coordinated Activity Theory of the Firm

I just got around to posting this paper on SSRN, although it was written a couple of years ago.  I need to cite it for other work I’m currently doing, so it has to be out there, somewhere.  It is a more concise version of the theory than previous renditions and stays closer to the main point.

What it shows:

There is a simple explanation for why firms exist, why they have the boundaries they have, and why they are organized as they are, which is superior to the alternatives—and it has nothing to do with transaction costs or anyone whose name begins with the letter C.

This theory is implicit in much of the management literature, especially strategic management.

It’s based on the same math as fitness landscapes, but it doesn’t draw on evolutionary theory.

It exemplifies a more general methodological approach that de-emphasizes hill-climbing (optimization theory derived from concave programming) and emphasizes instead hill-finding.  There are many potential applications in economic theory, but the theory of the firm stands out.

For the life of me, I don’t understand why this approach to the economics of the firm isn’t universally accepted.  Hardly anyone even knows it exists.  It strikes me as too obvious to take credit for or be proud of.

Here’s the abstract:

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Divide and Rule

Divide and Rule

There was a time, one I can remember from when I was growing up (the 1950s and 60s), when being a liberal meant you wanted certain rights and benefits for everyone, at least ostensibly.  We had Social Security because everyone should have a basic pension when they retire, and all disabled people need to be cared for.  Freedom of speech was for everyone, even those horrible Nazis in Skokie.  Liberals wanted national health insurance so everyone could afford medical care, but settled for Medicare, a universal program for seniors.  Protestors like me were not against the rhetoric of universalism but the hypocritical practice, where blacks, Mexican and Filipino farmworkers and poor single moms were denied their share.  That was then.

Now, liberals are concerned about minorities and the poor.  They are against privilege, which is defined as not being a minority or poor.  Public programs are designed to give assistance to the most oppressed and not waste their resources on those who have the privilege to fend for themselves.  A poster child for the new politics is higher education.  Liberals want bigger subsidies, like more Pell Grants, for the poorest students and those who self-select by enrolling in community college.  They were distraught at Bernie Sanders’ call for free public higher ed for all, since that would siphon off scarce resources for the benefit of privileged, nonpoor families.  From their perspective, this was proof that Bernie and his ilk were unwoke: unaware of the scourge of privilege, they even wanted public support for it.In fact, nothing is more important for the future of progressive politics than a return to universalism.  If you doubt this, read this powerful reportage in the New York Times on the divisions opened up by Obamacare.  It describes two women, one working part-time and living below the poverty line who gets ample, free health coverage, the other working full-time in a middle class job who is stuck with monthly $1000 premiums and a big deductible.  That’s not a bug but a feature: the program was set up to focus its support on those at the bottom and charge full freight for everyone else.

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Shorting China

Shorting China

I just saw “The China Hustle” as part of the Portland International Film Festival.  It’s a very (very) slick documentary about the listing of fraudulent Chinese companies on US exchanges during the post-financial crisis era.  The companies were mostly real, but their financial data were fictitious, although given the stamp of approval by the SEC, investment banks, specialty law firms and the big four accounting firms.  The movie might be called “The Medium Size Short” because it centers on several market players that have righteously fought this upwards-of-$50 billion fraud by shorting it.

I think it does a great job of explaining the financial mechanisms at work (especially the short itself), and it holds your attention with lots of jump-cutting, extreme facial closeups, brightly lit à la Errol Morris, and the other techniques of zingy video journalism.  It would make a great classroom enhancer in courses on finance or political economy, provided you’ve got a 90-minute block of time to spare.

I have two qualms with the content.  First, it makes the case that the victims of this crime are the millions of small investors and pension-savers, people like you and me.  And it’s true that many pension funds and ordinary folks were ripped off.  But the real indictment is this: the financial sector has doubled its share of the economy, and its ballooning profits are a major contributor to the rise in inequality.  What are we paying for?  As this film clearly shows, we are definitely not buying better information or a more productive allocation of capital, at least not in the sectors of the market it shines its light on.  On the contrary.  We are being fleeced by sharp operators whose only reason for existence is that they can stash away their cut of the loot before anyone learns enough to stop them.  That’s a pretty big lesson, in my book.

Also, the film ends by suggesting that the entire market capitalization of the major Chinese firms—they point to Alibaba in particular—may be fraudulent, and that we’re on the verge of another 2008-style market meltdown.  I’m not a specialist in Chinese equities, so I won’t take a position on this.  Nevertheless, it’s clear that there is a lot of genuine economic growth going on in China, and some of it must be serving to support asset values.  It is unlikely that the entire capitalization of Chinese firms will prove to be as flimsy as that of the smaller pseudo-firms exposed in the film.  Of course, between full current market value and zero there’s a lot of potential space for unpleasant surprises.

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Support the Census

Support the Census

The alarm has been sounded that Trump’s census apparatchiks are planning to include a citizenship question in the short form that will be used to generate the full count in 2020.  This count, mandated by the constitution and conducted every ten years, is the basis for voting district apportionment and formulas for allocating government services.  Since the first census was taken in 1790 the government has enumerated all residents, citizens or not, and it hasn’t asked about legal status in decades.  It’s not difficult to foresee that such a question would lead to a substantial undercount of Hispanics, especially in the current climate of immigration hysteria.  That’s almost certainly the intent of the Trump plan, not an oversight.

Fortunately, there’s a way to fight this scheme through direct action: massive nonparticipation unless the question is withdrawn.  Refusing to take part in the census is theoretically illegal, but since millions of residents fail to return their form by mail, prosecution is a rare event.  The mail response rate for the 2010 census was about 76%, which means almost a quarter of the potential recipients didn’t make life easy for the Census Bureau.  For them to be counted, enumerators had to knock on their doors and complete the process in person.  These home visits are the biggest expense the Bureau faces to do its job.

Noncooperation could take one of two forms.  The least demanding would be a massive refusal to respond by mail.  If nonresponse could be increased by even just another 10-20% it could substantially increase the cost and decrease the reliability of the entire operation.  Or, if they could stick together, noncooperators could refuse altogether—although I suspect a few highly publicized prosecutions and giant fines would cause a break in the ranks.  (What would happen if crowds blocked enumerators’ access to houses the way eviction agents have been blocked during foreclosure protests?)

The rationale behind direct action would be simple: count us all or not at all.  There’s even an obvious name for a steering group to organize the action, Common Census.  Unless there was a plan to reimburse activists slapped with fines, it would take only a little funding to support the necessary publicity, and the demand that there be no question asking about citizenship is unambiguous.  I see no reason why “count us in or count me out” wouldn’t be a fight we could win.

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