A skill testing question in economics from 1886

The mail has just brought me my own copy of Simon Newcomb’s great 1886 economics text, Principles of Political Economy. Just for fun, I offer you one of the questions at the end of one of the chapters that no modern student of economics ever gets asked or would likely have a ready answer to.

Trace the economic effect of the frugal New England population putting their money into savings banks. What do savings really consist in?

Even the notion of a frugal population is pretty antique. But all the difference in the world lies in the answer to that question.

Global warming meets Godzilla – global warming wins

The belief that AGW can be rolled back by evidence is a quaint enlightenment notion that has had about as much evidence as global warming. Apparently, the new Godzilla film is drenched in AGW and anti-nuclear sentiments as well. The title of the review explains the rest: Suspend your reality for Godzilla: It’s an anti-global-warming alarmism smash.

The film opens at a huge quarry, where humanity’s insatiable thirst for fossil fuels (or diamonds or platinum or something) has uncovered a terrifying secret: a pair of radioactive MUTOs (Massive Unidentified Terrestrial Organisms). The point here, nominally, is that man brings about his own destruction by despoiling the planet. However, it’s worth noting that the one of the MUTOs immediately attacks a nuclear power plant, while the other, later, attacks a repository of nuclear waste. In this, the MUTOs feel like close cousins of the worst of the greens, those folks who demand action on climate change yet mindlessly attack nuclear power—the sole technology that could allow us to maintain our standard of living while reducing carbon emissions.

As the film progresses, the intellectual center of the picture is revealed to be Dr. Ichiro Serizawa (Ken Watanabe), who takes an almost zen-like approach to the MUTOs. He believes that Godzilla, who he has been searching for his entire adult life, is not a threat to humanity but a part of Earth’s natural biosphere. The giant lizard exists to “restore balance.” Serizawa also laments the “arrogance of man” for thinking he can control nature; the good doctor believes that the only way to stop the rampaging MUTOs is to let Godzilla fight them and kill them, to let nature run its course. The leaders of men disagree, opting to try and gather all three of the giant creatures into the same area off America’s west coast, where they will be destroyed by a thermonuclear warhead. This plan backfires, leading to a nuke threatening the lives of hundreds of thousands of San Franciscans.

Etc, etc etc. Anyway, great cinematography. And since it’s only a movie, what possible influence could it have?

A Double D or not?

This business about a double dissolution is quite a conundrum. On the one hand I do not want the government to lose. The other side is so much worse that comparisons are just not viable in my mind.

And no doubt Labor would like to win. But a DD would take place say in the next six months after not a single measure to fix the economy had gone through the Senate, and after Labor will have run on a campaign of fixing nothing since there’s nothing to fix. Since they know better, this will be a truly poison pill, specially since it will of necessity be an ALP-Greens government. And if things don’t get fixed, they will inherit their own whirlwind of disaster (but, of course, so will we all).

And if the Libs do win, they will be in place to do all of the things they need to do with three clear years to make the politics work for them. And they may wipe out the minor parties in the meantime with only Palmer a possible remaining presence.

And then there are still the boats. What would Labor promise that will hold an ounce of credibility?

Tony may yet turn out to be a better strategist than I have been giving him credit for.

The global warming clergy deal with another heretic

The global warming clergy will never give up their faith. They have grown insanely wealthy and powerful on the back of bamboozling the hoi polloi and have no intention of letting go the riches that have flowed in their direction since this scam began. So if you are one of those with an open mind about the minimal likelihood of a carbon planetary death over the next century, then the assault on Professor Lennart Bengtsson will just seem par for the course. And while James Delingpole thinks this may be “a bridge too far” for the AGW brigade, it is really nothing more than a small skirmish in The Great Climate War that was settled long ago. So while it’s a big story today and even made it to the front page of The Times, you are kidding yourself if you think it will make the slightest difference. Other than the billions it will cost us in wealth, since it is billions we do not have and will never earn, money we will never receive cannot be used in a campaign of our own to turn this particular tide. The only thing we have on our side are the facts. So it goes. But the Bengtsson moment is nevertheless a moment worthy of our consideration.

Bengtsson is a scientist who has moved from having accepted the global warming hypothesis to a more sceptical approach, last month joining the board of Nigel Lawson’s Global Warming Policy Foundation. This is the story of the reaction from his fellow “scientists”.

The leading Swedish climatologist and former director of the Max Planck Institute for Meteorology, astonished the academic world with his decision to join the advisory council of the Global Warming Policy Foundation (GWPF), founded by renowned climate change critic Lord Lawson.

Explaining his decision earlier this month, Professor Bengtsson said he wanted to learn from the highly qualified experts at the GWPF in areas outside of his own expertise and to help widen the debate through his own extensive meteorological knowledge.

His perceived “defection” was described as the biggest switch from the pro-climate change lobby to the sceptic camp to date.

But in his resignation letter to the London-based GWPF today, the 79-year-old said the enormous pressure he had felt from around the world to his appointment on the organisation’s Academic Advisory Council had become “virtually unbearable”.

Prof Bengtsson added: “If this is going to continue I will be unable to conduct my normal work and will even start to worry about my health and safety. I see therefore no other way out therefore than resigning from GWPF.

“I had not [been] expecting such an enormous world-wide pressure put at me from a community that I have been close to all my active life. Colleagues are withdrawing their support, other colleagues are withdrawing from joint authorship, etc.

“I see no limit and end to what will happen. It is a situation that reminds me about the time of McCarthy. I would never have expecting anything similar in such an original peaceful community as meteorology. Apparently it has been transformed in recent years.”

The Professor’s letter concluded: “Under these situation I will be unable to contribute positively to the work of GWPF and consequently therefore I believe it is the best for me to reverse my decision to join its Board at the earliest possible time.”

As someone commented, this ‘has the potential to do as much harm to climate science as did the Climategate emails’. Exactly my point. It will do no harm at all.

How not to reform economics

Even though I end up disagreeing with what he wrote, Tim Thornton had a quite interesting article in The Age the other day which I have just written a comment on for Quadrant Online. His article was on “The Problem in the Way we Teach Economics” which led to my own response, The Real Problem In Teaching Economics. But Tim’s article is not really about what we teach but about the nature of textbook economic theory, and going on from there, deals with the kinds of economists our way of teaching economics produces. He lists three problems:

Firstly, there is generally no required study of economic history or the history of economic thought. . . .

Secondly, contemporary economics students will rarely encounter any of the schools that compete with the neoclassical school. . . .

Thirdly, the curriculum fails to incorporate crucial insights offered by other disciplines such as politics, philosophy, history, sociology and psychology.

Fair enough. But what Tim wants to do, if he cannot get satisfaction from the mainstream, is start up an alternate school from which a new generation of economists can be grown. And given that he wants to call his new discipline “political economy”, there is little doubt from whence he is coming. As I write at QoL:

Typically, those who would like to root out our modern neo-classical inheritance do so for some quasi-Marxist reason. They are seeking answers to different questions. Their interest is in explaining the distribution of power within a society. This is, of course, politics or sociology, but it is not economics, since even if you knew the answer to any of the questions a political scientist or sociologist might ask, you still wouldn’t understand how goods ended up being produced, what economic structures give you the greatest output, how the community’s command over goods and services could be increased, what to do in recessions, or even what causes recessions in the first place. Instead, what would be taught is some variant on the unfairness of the system and how it needs to change to ensure those who have the least wealth, which typically means those who have contributed the least to our communal flow of goods and services, can get a larger share of the pie.

There is all too much so-called economics around at the moment which presupposes capitalist growth and economic prosperity from which it seeks to extract some kind of rent on behalf of some nominated favourite group. But if they do not understand as a matter of first principles that the only way to run an economy is to have private entrepreneurs running their individual businesses, with as little government interference as possible in what they do or how much they earn, they have no genuine solutions to any actually existing economic problem. So far as understanding how an economy works, it is not only hard to see any value in shifting in the kinds of directions they propose, it is quite easy to see quite a bit of harm.

Das Kapital in the Twenty-First Century

The issue of inequality of wealth is the last refuge of the left. All of the other issues raised through the years – the immiseration of the working class, the crisis of capitalism, world revolution etc – have come to nothing. There is not a single issue raised by the left that has ever had any historical validity, Inequality is the last baton to beat the drum with and they are beating it as hard as they can.

Capital in the Twenty-First Century by Thomas Piketty written in French and now translated into English has weight of pages to compensate for the weightlessness of the argument. The politics of envy are an old story.

Cass Sunstein discusses the book under the quite sensible heading, What’s so wrong with economic inequality? What’s wrong, indeed?

Inequality of wealth is almost irrelevant to the core issue of production and income. Take the example of someone building and then owning an apartment building with 100 apartments put out to rent. If you want to look at it in terms of inequality of wealth, one person owns 100% of the capital and the, let us say 100 renters, have no capital. But the 100 renters also have a place to live, and if there are other apartments available to hold down rents, where’s the problem? As Sunstein writes:

Thomas Piketty’s improbable best-seller, Capital in the Twenty-First Century, has put the question of economic inequality into sharp relief. As just about everyone now knows, Piketty contends that over the next century, inequality is likely to grow. In response, he outlines a series of policies designed to reduce wealth at the very top of society, including a progressive income tax and a global wealth tax.

But Piketty says surprisingly little about why economic inequality, as such, is a problem. He places a lot of reliance on his epigraph, which comes from France’s Declaration of the Rights of Man and the Citizen: “Social distinctions may be founded only upon the general good.” To say the least, that is a highly controversial proposition. With respect to economic disparities, nothing of the kind can be found in the US Constitution, or the Universal Declaration of Human Rights, or even the International Covenant on Economic, Social and Cultural Rights.

The entrepreneurial drive is like any human trait, unequally distributed across the population. But like many other social abilities, it is good for us all that some few amongst us have them. That some who have such abilities get rich as a result is no different than the wealth that can come to actors, athletes, writers and others. But in this case, the benefits to the rest of us are so immense, our gratitude should be boundless. Alas, the politics and economics of envy never rests.

Fixing economics

There is an article by Tim Thornton in today’s Age with the title I might have written myself, The problem with the way we educate economists. He thinks the problem is neo-classical economics which is the standard mainstream taught to everyone who seeks to become an economist. In saying he doesn’t like the way we teach economics, he is really saying he doesn’t like the standard theory found today or more particularly, the quality of the economics profession itself. These are the three problems with the way we teach he lists which are problems with the people who make economic policy:

Firstly, there is generally no required study of economic history or the history of economic thought. This produces graduates with dangerous levels of historical amnesia in regard to the world and to the discipline they assume they understand.

Secondly, contemporary economics students will rarely encounter any of the schools that compete with the neoclassical school: institutional, post-Keynesian, behavioural, Marxian, Austrian, feminist or ecological. These economics schools, which come from all points of the intellectual and ideological compass, make crucial contributions to building up our understanding of a complex and ever-changing economic and social world.

Thirdly, the curriculum fails to incorporate crucial insights offered by other disciplines such as politics, philosophy, history, sociology and psychology.

With any discipline what you teach depends on the question you want to answer. If you are interested in knowing how goods and services end up produced, incomes earned and output distributed, neo-classical theory is pretty reasonable. I say this even having major differences with the mainstream. The course I teach and the book I wrote cover all three of issues raised. I embed my course in history and the history of economic thought. I contrast modern theory with its classical alternative so no one comes away thinking there is only one answer to any question. I introduce politics, philosophy and history, although I must admit seeing little value in either sociology or psychology in answering any of the questions economists have traditionally asked.

Typically, those who would like to root out our modern neo-classical inheritance do so for some quasi-Marxist reason. They are seeking answers to different questions. Their interest is in explaining the distribution of power within a society. This is, of course, politics or sociology but it is not economics since even if you knew the answers to any of the questions a political scientist or sociologist might ask, you still wouldn’t understand how goods ended up being produced, what economic structures would give you the greatest output, how the community’s command over goods and services could be increased, what to do in recessions, or even what causes recessions in the first place. Instead what would be taught is some variant on the unfairness of the system and how it needs to change to ensure those who have the least wealth, which typically means those who have contributed the least to our communal flow of goods and services, can get a larger share of the pie.

Economics emerged as a separate study over two hundred years ago when our societies were extremely poor as they had been since the beginning of time. Now we, who live in economies where markets predominate, are astonishingly wealthy by any and every standard that an economist two hundred years ago might have listed as an aim and ambition. And because of the innovation machine that has been set in place by these same economic structures, we have a reasonable expectation that our wealth will continue to grow.

If someone has a better answer to the questions economists wish to answer, then they must convince other economists first. To take your ball and bat and go off somewhere else may make it easier to find someone to agree with what you say, but then you are talking into an echo chamber of your own construction. There is lots wrong with economics – lots – but to ask for a separate discipline, or encourage a schism within economic theory because you have a different view, is not the way these issues will ever be resolved.

But where I can overwhelming agree is that the economics establishment has built an edifice as strong and formidable as the one built by mediaeval theologians. The answers it gives to many questions seem wrong to me and many others. I hate to show disrespect to Her Majesty, but when she asked after the GFC why no one had forecast the recession, she was asking a question for which there will never be a solution. Recessions happen and it is precisely because they are unexpected that they turn out so badly.

What economists can, however, do is explain why that is, and try to provide answers on how to recession-proof our economies as best we can and hasten recovery when they turn down. Neo-classical theory, being drenched in Keynesian structures, will unfortunately never be able to find the answer to either question which is why a genuine review of economic theory and policy is so urgently required. But because a bunch of twenty year olds are dissatisfied with the answers that modern economic theory has devised is the worst possible reason for looking out for new answers to old questions, which in their case really turns out to be looking for old answers to different questions.

Is that a good thing or a bad thing?

This is from Laura Tingle as part of her opinion piece on the budget in today’s AFR:

In the short term, the lack of fiscal consolidation, underpinned by increased taxation, makes the Abbott government look like a bunch of girls.

The consensus at lunch was this was meant to be a derogatory comment. If so, Australia is the last English-speaking country in the world where this would be allowed to happen. And they call Abbott a misogynist.

Miss me yet? – well it depends on who you mean

george bush miss me yet

Notice they don’t use a picture of Kevin in our local “Miss Me Yet?” meme. But the absurdity of these people, not only in their lack of originality but in where they take their imagery from, is astounding. Personally, I don’t miss the boats, the debt, the waste, the shrillness or the policies. On the other hand, I do miss George Bush.

julia gillard miss me yet

UPDATE: Now if ever there were a natural insect repellent, this is it. Uncovered by Sinclair, this can only be a parody:

kevin rudd miss me yet

Bubonic plague in Sydney – in 1900

sydney bubonic plague

Did you know we had ever had bubonic plague in Australia? This is the story with pictures of how Sydney was cured of the plague in 1900. There are others pictures besides the one above. The text:

“When bubonic plague struck Sydney in 1900, George McCredie was appointed by the Government to take charge of all quarantine activities in the Sydney area, beginning work on March 23, 1900. At the time of his appointment, McCredie was an architect and consulting engineer with offices in the Mutual Life of New York Building in Martin Place. McCredie’s appointment was much criticised in Parliament, though it was agreed later that his work was successful.”