Thursday, October 10, 2013

Criticism Easier than Construction: Readng Steve Keen's "Debunking Economics"



I had been meaning to take a look at this book earlier, as the premise sounded interesting, and Keen is an interesting fellow on the blogs and twitter, but the price for a paperback was prohibitive.  I put in for my library system to pull it, and I was excited to get it and read it.
However, my main piece of advice is this: If you’re interested in the book, buy it if you can.  I say that because reading it, there were so many points I just wanted to grab a pen or  a highlighter and make a note, because in the highest praise, this book engaged me and made me think.

In the book, Keen starts at the foundations of microeconomics and shows why the assumptions that the standard is built on are false, and thus the whole of the standard model is untrue.  He does a good enough job and I can remember no major holes so I have to say he did a good job.  He did well enough that I caught myself paging through my micro textbook making notes to myself like “THAT’s a convenient fiction” so I can tell he made it in my head.   He does draw the outlines of a potential new sort of economics, based on Minsky’s Financial Instability Hypothesis, but he keeps enticing the reader with a new book that so far does not exist.  That’s the book I want to read.  For me, my favorite parts of the book are the normative “What is to be done?” section that usually only takes up the last five percent of a critical text.  Here Keen just entices….or kicks the can, criticism being easier than construction. 

Unfortunately, he is attacking both the citadel and the windmill of orthodox economics, so he will be largely ignored by the professorial class. (This is one of the threads running through the text, Keen’s outsider status in spite of having his neoclassics down cold.)  As a  heterodox economist, he can take liberties like actually looking at what Marx and Keynes said.  Though as a Marxist, I was both glad he takes my totem seriously for analysis, but was made sad when he took the threads of Marx’s work and tried to pull them apart and throw out what he doesn’t like, such as the Labor Theory of Value, and keep what he wants.  You can’t disrupt the canon, Professor Keen.

But I digress.  What he does do is explain the basics that he wants to pull apart of the neoclassical edifice so well that you could extract it and make it part of a textbook if you throw some sort of trendy technological interface in there and have questions…and charts.  The major flaw to me is the lack of charts in the book.  I think graphically, and there are so few charts in here that I had to translate the verbiage into charts in my head, and there’s no telling how close what he said corresponds to what I saw in there.  If I understand right, they are accessible online, but that’s a huge disruption in my reading style.
And finally, it is not an easy book to read.  The professor acknowledges this at multiple places in the text, to a point where his self-deprecating asides takes away a bit from the overall authority that he speaks with on the topic.   

Overall, this is a very strong book that I feel any student of economics would be bettered by reading.  He or she just needs to do one thing: actually buy it so the copy is yours.

Friday, October 4, 2013

Keynes: The math is hard

Loosely associated thoughts on Keynes's "General Theory"

1) The General Theory is a landmark work in the science of economics. If you agree with the general conclusions or deny them, you cannot deny the influence of the work. This is the same with Keynes as it is with Hayek or Friedman or Fischer or Marx or Smith. This work, as the others, are part of the cannon. Keynes was wrong in places. He was right in others. Different schools of thought may disagree on which place is which.

2) Part of the power of the work is that it is set up in response to an orthodoxy that is no longer demode. Poor professor Pigou is beat over the rocks for his poor understanding of economic phenomenon. Pigou is a minor figure in history were Keynes not to attack him; instead he has an immortality that is undeniable. The only possible problem here is that Pigou is a straw man, as most contemporary readers will have to rely on Keynes's characterization of Pigou's positions.

3) To get into terms of contemporary financial debate, Keynes was in favor of a financial transition tax, which we would propose as a "Tobin Tax" nowadays. Not that I'm a Keynesian, but within the context of capitalism I tend to agree with the economists aligned with his tradition more than the other side(s).

4) This is a big point, but Keynes acknowledges that the book is intended for professional economists. There is a lot of stuff here that is opaque to the lay reader. S/he might need a class on the topic to walk him/her through the arguments. I know I had to brush off my calculus to get through large sections. It might have better to have been on a white board.

5) However, a lot of the stuff is accessible. Keynes is a good writer. He had to be, considering the group he ran with. He was the square in the hippy house, but a certain style is evident in his writing. Though a large part of the chapters is devoted to the mathematical basis of his argument, he still explains what he is talking about. This comes at the end of the chapters in surprising little nuggets. You can't escape his beautiful metaphors, especially his most famous one about the market, where the function is to find "what average opinion believes average opinion to be".


Posted 3.2.11 at http://www.amazon.com/review/R2S5ZI4PBQXZWN

Monday, September 30, 2013

On Mlodinow's "The Drunkard's Walk"



You can be back-handed and say that Mlodinow is a good writer for a scientist, but I won’t do that.  He’s a good writer, period.  He can spin a tale from nothing, or what seems like nothing.  Here, he covers what is potentially a very history of probability and it’s contemporary uses.  The title and the subtitle may over-sell it a bit, but it is a popular book.  It is quick and easy to read, but that doesn’t mean you won’t learn anything.  I for one had no idea the equals sign wasn’t invented until 1556.  I’m just glad I didn’t have math class before then. 

Saturday, September 28, 2013

On Flow: Reading Csikszenthihaly

I had seen this book referenced in some other books and I thought I would go to the source. 

It is an interesting book, but the structure and style of the author's sentences make it hard to read at times.  The reading of the book doesn't, well, Flow.  (The joke here being that flow in the sense of the ease of reading and the namesake state of being are probably both separate and the same thing.)

My preconceived notion of what "Flow" is tracked closely with what they call when athletes are "in the zone" and why I have come closest to in practice, where you just turn off your conscious mind and react through muscle memory.  I was pretty close, but my notion was more limited.  For the author, you can have flow at work, which to me seems ludicrous at first blush but is true.  I can think of personal experiences where I was making pizza years ago, and in explaining how well I worked with one coworker, I called it a "dance". I didn't always dance at that job, but when I did, it was beautiful -- time flew and the memory of the shift was a pleasant memory.

You don't always flow though, and that's what concerns me.  The author shows all these people experiencing these states, but I am wanting to know how to create these states.  Reading the book, an d explaining it to my wife, she asked if it was a 'self-help' book with the negative baggage that comes with that phrase.  It is not, but I for one wanted more hint on how to get to there from here. 

One big thing about reading this for me was that it needs updated and expanded (and I'm sure the work has bee furthered).  It is a twenty + year old book and the research it is based on is even older.  I would be interested in seeing the physiological reaction to flow.  Can you throw someone in an fMRI machine and induce the fl,ow state?  If so, we could see in a different manner what a flow state looks like.  

Saturday, September 21, 2013

Hayek's Categorical Error

Hayek was scared, and rightly so if his analysis was right. Nazi Germany and Stalin's Russia were nightmares of states that the rest of the world would hope to wake up from. That the Russian people and the Germans eventually woke up does not excuse the excesses of power claimed by both totalitarian dictators.
Hayek, however, was wrong in his analysis.

First off, I want to dispatch and then turn away from the easiest and most superficial criticism of this work. Hayek is a bad writer. The construction of his English is tortured and awkward. Not every writer taking on English can write with the verve and elegance of Conrad or Nabokov. Sadly, even in his field, someone writing centuries before him has a better grip on lucid prose. Adam Smith, a Scotsman, writes in a clearer English to the contemporary reader.

Rhetorically, Hayek's largest problem with his argument is definitional. He dedicated his work `to the Socialists of all parties.' His tongue-in-cheek dedication is meant to yoke together both the Nazi program and Stalin's version of Marxism-Leninism. The work goes through pains to keep this parallel alive, but only goes to show that both of our antagonists in the work are effective dictatorships. The key argument of the work is that the road that both countries took to their respective places were parallel. Hayek goes through pains to support this thesis, tying together some ex-socialist in the Nazi movement as proof of the socialist root of Nazism. He ignores the fact that Nazism developed in the beer-halls of Bavaria as a nationalistic alternative to the internationalist SDP that lost its intellectual and moral high ground by supporting Germany's entry into the capitalist conflagration we know as World War One. The Nazi party and fascist ideology grew and developed not as a logical extension of socialistic ideals, but in conflict with both socialist and communist parties in the late twenties and early thirties.

Hayek's villain becomes not socialism as understood by any socialist, but instead the villain is a planned economy. Ignoring the fact that socialism is an economic, political, and moral system is one thing. Parts of the socialistic system are open to criticism and discussion and debate. However, Hayek's move is intellectually dishonest. If the countries of the Soviet Union and Germany had anything in common it was that they had centrally directed economies. Both countries had separate problems and were not heirs to the post-capitalist utopias in any form. Germany had to rebuild, as did the Soviet Union. The Soviet Union had not just the international war to recover from, but also faced internal strife. The tsarist country that became the Soviet Union was still very rural and largely agrarian and thus had to focus a damaging amount of economic focus on industrialization. Neither country was ready for the transition that Marx was able to see happening in mid-nineteenth century England or Germany.

Hayek's thesis is rendered moot by this false comparison. `Socialism' is not the villain. Dictatorship and totalitarian systems that repress the people are the enemy of a well-functioning state. Many different political and economic systems have led to serfdom. Hayek's market-based savior is no better. He argues that oppression is inevitable in both a planned economy and a market based one. The market-based economy, to Hayek, is preferable because the oppressor is the market itself, and not some entity that has a face. I fundamentally disagree with him here, as in an open system you have a chance to petition for redress an individual. If a market leaves me to starve, I have no one to look at for succor or blame. This is many times more alienating for me.

The final prescription Hayek advocates is one I and many other leftist can get behind. Although Hayek speaks against international planning, he recognizes the need for international cooperation. For him this is a cooperation of the markets, where governments hand over economic policy and the nation-state is weaker as a result. The confounding part here is that the socialist, Marxist view is internationalist. Nation-states themselves exist to protect bourgeois capital, and borders are at best an ethno-linguistic myth. What Hayek in the end argues against is competing state capitalist countries and advocates for the blurring of those boundaries.

I recommend this book, despite my rating, because it is important for people from all sides of the debate to know every side of the debate. Hayek is important in right-wing libertarian thought, but you should approach with caution if you have not read some of the important theorist he is speaking against; his definition of leftists are at the mercy of his arguments and not necessarily a reflection of any socialist's words or intents.

(Originally posted 6.2.2010 at http://www.amazon.com/review/R37LEZY6ZO0LFC)

Moneyball and the Lucas Critique



I liked numbers and economics, and Lewis is a great storyteller, so this book is recommended for lay readers of both the sporty and nerdy persuasions.

Reading this book, however, made me think of the Lucas critique: “ Given that the structure of an econometric model consists of optimal decision rules of economic agents, and that optimal decision rules vary systematically with changes in the structure of series relevant to the decision maker, it follows that any change in policy will systematically alter the structure of econometric models.”

Basically, there was a very small window where changing the paradigm on what is important in a baseball player and his statistics would give a team an advantage on the field.  Unlike the market twhere you have 250 trading days a year, you only have one draft a year, so there is a chance that the underdog can win.

The Oakland baseball organization had some success with this smarts and analytics over just looking at guys.  But they didn’t win the ultimate prize, and then a more powerful organization came and took the methods and leveraged their money plus the analytics into a championship.  Once this happened, the methods have spread and become utilized much more widely so there is no longer an edge to looking at a player’s defensive WAR because everyone looks at that and it is discussed in the sports pages. 

Break the Circle: Reading "The Power of Habit"



I have first remark, before anything else, at how well this book is written.  Subject matter aside, I read a fair number of books by economists and social scientists and writers writing about those subjects and most are passable.  This book, however, is written by a writer who has full command of the language and his own voice.

The rest is just gravy – which I ate up.  The Power of Habit as a book blurs the line through science and self-help without being too heavy-handed in either direction.  Duhigg breaks down stories about how habits are created and reinforced at both a personal an institutional level, and described people who were able to break negative habit loops and create positive habits of being in their place. 

I offer no specifics here, but I recommend this book, and I do so giving it high praise.  I often read these sorts of books in a vacuum, a dispassionate observer that I imagine myself to be.  This book, has made me rethink some of my own routines, and made me wonder how I can change the payoff from some of my negative customs.