“Since we have not more power of knowing the future than any other men, we have made many mistakes (who has not during the past five years?), but our mistakes have been errors of judgment and not of principle.” J.P. Morgan Jnr, 1933
Posts Tagged ‘economics’
Prof Sam Bowles has a couple of books that compliment the work of Richard Sennett on cooperation – one published in 2011, the other due later in 2012. Whereas Sennett takes a sociological approach, Bowles focuses on economics. In particular he has done some interesting work on computer modelling of property rights.
As predicted this time last year, mutualism is the new favourite political idea. It has been so ignored by policy makers over many decades that it has temporarily lost its left/right label and the Tories are also talking about it.
But it shouldn’t be thought that mutualism is a way of making money grow on trees. You can run money-generating operations on this model, but money-spending operations (eg most public services) require external funding. As Chris Bertram at Crooked Timber puts it:
‘There seem to be two possibilities: either the mutuals have independent sources of funding or they don’t.’
It will be interesting to see how much of the utopian mutualist talk survives the forthcoming UK general election, and how far the resulting government ends up supporting what Rudolf Bahro might have called ‘actually existing mutualism’.
Australian economist Andrew Leigh has entered into public discussion with Noel Pearson about Aboriginal inequality by proposing that randomised trials should be initiated for those educational innovations supposedly aimed at improving outcomes for disadvantaged groups. He takes his cue from Harvard economist Roland Fryer, who is well known for testing the effectiveness of cash rewards on academic achievement. Provocatively, Leigh has called proponents of the approach ‘the randomistas‘. (You can also hear about randomised education trials).
The rhetoric of the scientific method sounds very sensible. After all, if it works in medicine, why shouldn’t it work in education? Indeed we can go further: since we don’t accept medicine that hasn’t been tested in a randomised trial framework, why should we accept education without similar confirmation of its effectiveness? The point Fryer and now Leigh have been making is that much educational policy is ideologically driven, rather than evidence driven. We need proper evidence and for them, randomisation is the mark of proper evidence.
So is there any downside? (more…)
Alan Greenspan found a flaw in the model. What happens when you find a flaw in yours? Do you keep going with the old model as long as you can, right up to the point at which you experience your own local equivalent of the global financial crash? Or do you somehow try to extricate yourself from the model and defect from your own point of view? This second possibility is clearly much harder than just keeping on going, but then it might also be, in the long run, less damaging.
Let’s face it, Greenspan didn’t ‘find’ a flaw – the flaw was foisted upon him by events spiralling out of his control. Had he queried himself sooner, the rest of us might have been less impacted by his last minute flaw-finding.
Churchill is supposed to have said ‘There is nothing wrong with change, if it is change in the right direction. To improve is to change; to be perfect is to have changed often.’
So how do we do it – how do we defect from our own framework of thought? (more…)
Listening to Australian historian Robert Mann’s recent lecture at the Melbourne Writers’ Festival on whether neo-liberalism has a future, I was struck by the deficiency of the rush to psychological explanation. In seeking to analyse the supposed inadequacies of the free-market ideology, there is an increasing tendency to rely on psychology as the master discipline, the new ‘commmon sense’ that will unlock the secrets of collective human behaviour. Just as the neo-liberals championed the perfectly rational economic actor, homo economicus, who as an individual is unrecognisable from any other perfectly rational individual, so the latest commentators attempt to correct and complete the picture by pointing out that this vision misses out humanity’s essential irrationalism, epitomised by a host of psychological quirks – which set the bounds for Kahneman and Tversky’s bounded rationality. But whether for or against the unfettered free market, these supposedly conflicting approaches share much more than they disagree on: namely a confidence that what goes on in our heads is what it’s all about. (more…)
Individualist social organisation operates on the assumption that accountability structures and measures are the problem, not the solution. They act as a brake on the forward momentum of heroic risk. Who dares wins. The only accountability required is clearly success or failure in the market. Accountability is an obstacle to success that needs to be overcome. On this view, it’s hard to see how accountability structures could be ‘reformed’. The only thing worth doing with accountability is to dismantle it.
Now that the dust of the global financial crisis is beginning to settle, one of the key lessons learned seems to be (more…)
Why didn’t the experts see it coming?, asked the Queen of England, and the British Academy wrote a letter to explain. Of the lead up to the global financial crisis they wrote:
“It is difficult to recall a greater example of wishful thinking combined with hubris.”
Meanwhile, economist Paul Krugman asked a similar question – how did economists get it so wrong - and came up with an answer to do with the difference between salt water and fresh water (apparently one turns you Keynsian and the other turns you neo-classical). Krugman noted the failure of neoclassical economics to account for the apparent irrationality of the market, and proposed as a remedy the emerging sub-discipline of behavioural economics.
When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly.
Both these approaches – that of the British Academy highlighting wishful thinking and hubris, and that of behavioural economics highlighting cognitive biases – make the great mistake of assuming that there is a single ‘ideal’ rationality,which real humans happen to be incapable of attaining. (more…)