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?

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Was Summers right in saying “pollute the LDCs”?

Back in 1991, Larry Summers upset a lot of people as Chief Economist at the World Bank.  His memo has been viewed as morally reprehensible, was cited in the second chapter of this book as indicative of the way economists ignore moral values, and was used as a key example in a philosophy class I sat in of the untenable nature of economic arguments.

But, as a description of what would happen if people in LDC’s (least developed countries) had the choice, was he actually correct?

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Summers the communicator

Communication is an essential part of a central banker’s job. Particularly with the increasing use of forward guidance, markets are becoming exceptionally sensitive to the nuances of bankers’ words. With Larry Summers one of two candidates believed to be in contention to succeed Ben Bernanke as Fed Chair, it is worth reminding ourselves of his style of communication. There is no doubt the man is a brilliant economist but he does have a tendency to shoot from the hip:

Summers resigned as Harvard’s president in the wake of a no-confidence vote by Harvard faculty that resulted in large part from Summers’s conflict with Cornel West, financial conflict of interest questions regarding his relationship with Andrei Shleifer, and a 2005 speech in which he suggested that the under-representation of women in science and engineering could be due to a “different availability of aptitude at the high end,” and less to patterns of discrimination and socialization.

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Is it production or consumption that matter? In a sense, it is neither!

There has been a lot of ink spilled out there about whether it is production or consumption that matter.  Without production we have nothing to consume!  Without the urge to consume we wouldn’t produce anything!

People will talk about “Says Law” (supply creates its own demand), or jump around talking about Keynes or Malthus (effective demand can be too low, demand creating its own supply, underconsumption!).

This all sounds grand, and makes great soundbites as it lets us say one drives the other.  But I’m always struck by the question “who cares”.  Production, consumption, output, in our models none of this has any inherent value unless we “assume” value.  And in the world we want to make conclusions about, the inherent subjective value is something that exists that we can’t necessarily observe.

When looking at an economy as a whole, we are not a “large firm” trying to maximise output, or maximise consumption.  We are a series of individuals making choices for some reason.  Understanding the choices, how they relate to value, is the starting point of any thought.

This is the kicker.  When we turn around an apply models (either explicit or implict in our description and conclusion) we are apply our own value judgments.  If we haven’t separated them out, we will sneakingly include value judgments solely based on our own experience “because they seem natural”.  However, other individuals are inherently different beasts, rules we follow aren’t necessarily the same as the ones other follow, and the rules we have to understand the actions of a social group don’t necessarily have much relation to the true nature of those groups!

In this context, both production and consumption should be seen as a means to an end.  And we should analyse them in this context – in what ways does this impact on our view of “social value” or welfare.  This is a question we have to answer before concluding – and the assumptions involved can only be validated through the acceptance of a community, not by strict scientific measurement of value.

Overall, this is why economics is the study of trade-offs involved in scarcity, not the study of how we should allocate scarce resources.  Economists merely ask that lessons involved from our series of descriptions are taken into account when society gets together to try to discuss what they believe is “fair” and “just”.  And non-economists are merely asking economists to recognise that their framework allows description, but doesn’t give them a monopoly on understanding moral questions of value!