Normative vs positive analysis of policy

“Normative” and “positive” economics are old terms, that get abused constantly, used out of context (largely by me), and make philosophers dislike economists.  This is cool and all – but I think the is-ought distinction still provides a useful perspective on considering policy.  So I thought I’d quickly flesh that out.

A positive economic analysis is about comparing outcomes – describing what occurs and why, given shared definitions of what the key elements are, but not of how they are valued.  A normative economic analysis is about choosing from a set of outcomes – it requires valuing these elements of our analysis. Read more

Some beautiful links

I am not around.  Over the next three weeks, there are a series of really rubbish auto-posts are coming up about “factor shares” – I normally write posts in advance, but it is unlikely I am going to add anything or move posts around to include new ones.  During that time I’ll be reading and reviewing Capital and writing a summary document on income inequality measurement (both things I promise to share) – these are both sizable tasks I want to do, hence why I won’t be around too much.

However, this also means I can’t post on things I find cool.  So I’ll just give you some links 😉

  1. Greg Mankiw mentions the harm principle and economics.  “First do no harm” is a good principle for us to hold when considering policy, I agree.
  2. Details do matter though, via Mark Thoma and also a piece by John Aziz. My view of this in general would be that the “harm” comes from a “change” in policy from an “initial position” – how do we define this initial position such that something counts as change?  If we define it solely as “now” then we are simply conservative, if we define it as some “ideal type” that we believe is “natural for the social system”, we are trading in ideologies.  Applying the harm principle starts to get tricky! [Note:  In the comments to the recent Hand posts (here, here) there has been further discussion of this]
  3. Tim Harford, Chris Dillow, and Noah Smith all discuss behavioural economics – plenty of interesting points in there if people want to think about choice, its relation to trade-offs, and its relation to policy.
  4. From Mark Thoma again, the misuse of theoretical models.  Given my interest in methodology I’m certainly interested in reading this (what they establish as the ‘should’ how they find what ‘is’ in modeling) – I’m sure you all feel the same way 🙂
  5. And because I have to put up something about inequality here is Lane Kenworthy.  The US example is an interesting one, but I would almost think that lower growth in the low and middle parts of the income distribution is itself defined as higher inequality – it is almost tautological to say one caused the other.  The magnitude of the gap over there tells us that it is an issue worth looking into though!

Has Greg Mankiw been smoking dak?

Another short post from an anonymous The Hand poster this week – make sure to comment with your views.

I hope that I didn’t give the impression in my last post that Mankiw actually likes philosophy.  If anything, he sounds rather negative.  Economists drawing on philosophy when making policy advice is apparently a “dirty little secret”.  The point seems to be that making a case for a policy will involve value judgements, often on disputed value judgements about distribution. 

Hey, I get it.  Just about any substantive policy would help some people but harm others.  So how does Mankiw propose to avoid the need to call in some philosophy?  His proposed principle is, …. hang on, I had it a minute ago … “[f]irst do no harm”.  Eh?  Didn’t he just say that government policies pretty much always harm someone?

I guess I must be getting the wrong end of the stick.  Perhaps I am failing to distinguish tasty and sweet-smelling type 1 harms from those nasty type 2 harms.  Or something.  He does give us a couple of hints about what it is all supposed to mean.  But I really think we could ask for some more clarity about the normative foundations of his perspective.  You know, like doing a bit of philosophy.

Has Greg Mankiw been reading philosophy?

A couple of short posts from an anonymous The Hand poster this week – make sure to comment with your views.

Greg Mankiw has an article in the New York Times.  It is notable for making explicit reference to literature in normative philosophy.  Does this mean that he has been doing some homework?  Some of his earlier forays into philosophical territory didn’t show much evidence that he was aware of work in that discipline.  Some philosophically literate readers weren’t very charitable about the sophistication of what he came up with.  “Low quality freelance philosophy done by people with PhDs in economics” according to Matt Yglegias.  A “laughably sophomoric attempt at political philosophy” according to Chris Bertram.

After he finishes his homework, perhaps we can look forward to some better freelance philosophy.

Will Wilkinson on discussing inequality with those who won’t define it

I really like this rant by Will Wilkinson, it reminds me of the sort of thing I wish I could write when I’m annoyed.

I’ll be honest, a lot of people out there talking about “let’s tackle inequality” aren’t actually interested in social justice, policy, the poor, or anything that matters – they are interested in looking cool to their friends and fitting into their “in-group”.  Running into these people and trying to discuss policy trade-offs is about as much fun as when, after breaking my leg, my teacher at primary school kept lifting me up to try to get me to stand because “it didn’t look broken” (Note:  She was a lovely teacher, it was just a particularly sore experience).  Here is the opener of his piece:

I’m tired of arguing about inequality. It’s frustrating. It’s unproductive. Nobody is really interested in the analytical arbitrariness and moral insidiousness of measuring intra-national economic inequality. Nobody is really interested in the fact that multiple mechanisms–some good, same bad, some neutral–can produce the same level of measured inequality, rendering the level of inequality, taken in isolation, completely useless as a barometer of social or economic justice. Nobody really cares. Because many different combinations of causes can produce the same level of inequality, it’s not so clear that high inequality, as such, can reliably cause anything. The consequences of inequality depend on the mechanisms driving inequality. Nobody cares.

Now, there is some disagreement from me here. Read more

Some links against a Living Wage

With the Living Wage idea cropping up around the place, I’ve noticed a couple of places where there have been criticisms of the result:

  1. A review by Brian Scott, where he points out that many of the defined “needs” required to get this wage are in fact not things some people in society would put in their defined “minimum” – this raises an interesting question of “what is poverty”, something we will lightly touch on here on Monday 😉
  2. An analysis from Treasury based on their arithmetic microsimulation model (Taxwell).  This essentially says “if the change in the minimum wage caused NO change in behaviour, who are the people who would see their income increase”.  So this DOES NOT rely on any employment effects or the such (although they will occur in New Zealand, given how high this would push the minimum wage relative to the average wage) – and it shows that most of the benefit in this optimistic scenario does not go to the group the Living Wage campaign wants targeted.

Now some may say that this is a suggestion to businesses, not a demand for policy.  That is fine – I remember working at the Warehouse and being paid a bit more for that role as part of their desire to build a “community” among staff.  And it was good.  But if it is just a request for firms to consider, why keep yelling at politicians?

Read more