From Peter Radford
Battle is joined …
This might annoy some of you — it is my hasty first thought.
The Democrats have been thoroughly defeated.  Deservedly so.  They no longer relate to, or reflect, the American working class.  Without building such a relationship they cannot regain power.  Nor should they.
Yesterday, early on the morning of election day,  a friend of mine forwarded an article by Robert Reich who argued that, in order to defeat Trump, Harris needed to focus more on the economy and it’s recent performance.  I began my response thus:
“The problem with talking more about the economy is that it highlights the vast wealth/income/consumption gaps that have opened up in America.  The headline numbers look good.  The experience is very different if you aren’t in that top 20%

From Peter Radford
Well done AJR.  A prize deserved.  And remarkably little grumbling.  What’s wrong with that?
In other news, my wife is deep into creating an artificial intelligence application.  One of the great challenges of getting AI to be useful is something called ‘prompt engineering’.  
What have these two snippets of news have in common?
The great thing about our better economists — the triumvirate we know affectionately as AJR being an example — is that they all seem to denigrate economics.  Politely of course.  Soto voce so to speak.  Or, in the case of AJR and Joe Stiglitz in books written for public consumption. 
They key to this criticism is, I think, that once you are suitably credentialed — via tenure, status within the discipline, being well published etc — you can

From Peter Radford
“Mathematics is the art of the perfect.  Physics is the art of the optimal.  Biology, because of evolution, is the art of the satisfactory”.
That’s Sydney Brenner speaking.  He should know a thing or two.  He won a Nobel Prize.
It’s a shame, is it not?  Economies are always changing.  Not just in terms of innovation and all the normal things we think of as change, but also in more simple terms: in the people making up an economy change.  They are born and they die.  And they change their minds along the way.  Whether you think that evolution is the best description of all that change, you cannot deny the existence of change.  Indeed we applaud change.  It is the very essence of improvement.  It is the heart and soul of all the Great Enrichment that has bestowed our

From Peter Radford
What?  Surely not!  How dare he suggest such a thing.
What, you are correct in asking, am I talking about?
The recent speech by a Department of Justice official who dared suggest that it is getting quite difficult to find a truly neutral technocratic expert to give testimony in court.  Imagine the cheek.  How dare he question ‘expertise’.  Especially economic expertise, which is, surely, the gold standard.
Why did he say what he said?
Because academics are apparently so eager to be bought.  Especially those at so-called ‘top’ schools.  And especially those who engage in teaching either business or economics.  Outside consulting contracts and sponsored research have become such an infection that many of the ‘big names’ are tainted by these activities and are not

From Peter Radford
Is it a cult?
Is it a guild?
Both perhaps?
I remember reading sometime not long ago that Steve Levitt was leaving Chicago.  Two things stood out in the article bringing that news:  first, Levitt said he was concerned that economics was becoming irrelevant; second, someone had told him he was not doing ‘proper economics’.
Here’s a clue who that someone was: Heckman.
Then, more recently, the Financial Times editorial page accused the economics discipline of becoming a closed shop.  And like most closed shops it was stifling creative thinking, it was resistant to change, and was generally becoming … irrelevant.
What a shock.
Mario Rizzo then had a letter published in the FT hammering the point home.  Economics is, indeed, a closed shop.  He teaches at NYU and has an

From Peter Radford
When you are only concerned with one thing and have only one tool things can go awry quite easily.  So it is with our price theory friends.  They bask in the rigor of their thinking and look askance at the inability of regular folks to grasp the point of the logic of their so-called price mechanism — note the mechanical nature of it all.  The recent spate of snooty commentary aimed at Kamala Harris and her ideas about price gouging are a case in point.  I talked about this a couple of days ago with respect to John Cochrane’s typical in-your-face article praising price gouging.  Cochrane typifies the defiance of a certain sort of economist.  They take pride in being determinedly anti-social and cast aspersions on anyone who dares to cross swords with their wisdom.

From Peter Radford
Price-gouging is now a topic in politics.  Kamala Harris has put it there.  Naturally there has been the predictable outcry of opposition coupled with and equally predictable sneer of disapproval: how could she say something so uneducated?  Has she no grasp of Econ.101?  Oh the illiteracy!
Perhaps even more predictable is that someone like John Cochrane has felt it necessary to write an article in praise of price-gouging.  After all, hard core libertarian economists are proud of their adherence to the often counter-intuitive claims of economic price theory. 
In his words:
“We should praise price-gouging. Yes, pass a new federal law, one that overrides the many state laws against price gouging.”
There’s not much to say.  From within the straightjacket of price theory

From Peter Radford
– a critique of the absurdity of economics
I finally read “The Accountability Machine”, the book by Dan Davies.  It’s worth the effort.  You can read it in a number of ways.  As a peon to cybernetics and Stafford Beer.  As a critique of the absurdity of economics.  As a summary of the development of management theory.  Or as a summary of the ills of neoliberalism.  It’s a mash-up of all those.  It also has the great virtue of being very readable.
Chapter Six will warm the hearts of all you who, like me, relish the opportunity to poke fun at economics as it exists in its more extreme expressions.  A few quotations set the scene perfectly:
“Economists variously describe economics as a subject, a science, a discipline, and even a profession, but it’s really a commitment

From Peter Radford
“Economics has become irrelevant.”
PART ONE
Oh my.  Apparently Brad DeLong and I have the same problem.  He, of course, is part of the elite club.  I am decidedly not.  So it is quite a shock to share something.
What?
He set out to write an 800 word review of Dan Davies’ new book and ended up about 5,000 words later still writing.  I set out to write 1,000 words on William Janeway’s recent article on mesoeconomics, and here I am nearly 5,000 words later, still writing.  The common thread being, from my reading of DeLong, that economics sucks.
That’s a technical term.
Dan Davies seems to agree because he says this:
As long as the ideology of economics maintains its dominant position, there is always a considerable danger of the Friedman doctrine rising back up from

From Peter Radford
A pile of bricks is not a house.  A group of individuals is not an economy. A lot has to happen between the one and the other.  Which is why writing theories about economies as if it were simply an accumulation of individuals and their associated capital base misses the mark.  Nor is it simply a matter of how those individuals behave —rationally or not — their interactions create novelty that cannot and does not exist at the individual level.
Of course economists realize this, which is why they introduce the “market” as a placeholder for all that novelty.  They ignore alternative aggregate centers of novelty and center all their attention on the moment of transaction in the abstraction of their markets.  This is the culmination of the steady narrowing down of the

From Peter Radford
You can’t fight a war without understanding your enemy.  That’s an adage as old as war itself.  Which means it’s very old.
Joe Stiglitz doesn’t understand his enemy.
Now, that’s an odd thing to say bout someone who’s worldview is hardly a secret.  Stiglitz has given it his best shot for decades.  He’s one of the few big name economists worth reading on a regular basis.  But that doesn’t mean he always says things that add up.
He’s a roll lately and his latest book is attracting a lot of attention. So it should because it is an attempt to undo some of the immense damage economists have done to society over the past few decades.  In particular it is an attempt to reframe the notion of “freedom”.
Let’s set the stage:  In a recent article in Project Syndicate Stiglitz

From Peter Radford
What are we to say of a discipline that steadfastly ignores reality in its pursuit of ever more formality in its methods?
Wow. Steve Levitt has really shaken me. I come not to mock, but to follow up …
Stand up and take a bow Ben Moll!  You daring soul.
Clearly I need to explain.
No sooner had I finished my comment on the irrelevancy of economics but I had confirmation — albeit unwittingly — in this morning’s Financial Times.  There on the editorial page was a short column by Soumaya Keynes talking about the rise of Hank.
For those of you not on the cutting edge, “Hank” stands for Heterogeneous Agent New Keynesian, as in a complicated model of the economy.
Hank is a whole new way of looking at model economies, with the really big breakthrough being that it includes —

From Peter Radford
Words are not ideas.  They are our means to capture ideas and make them tangible.  The problem is that words are a porous net that inevitably lets some accuracy slip away, but sometimes captures irrelevant detail that shines brightly in the moment and then dulls in the light of later thought.

Trying to define something so a discussion can follow without ambiguity in meaning sliding in and muddying things.  Slippery isn’t it?
How about this:
“I sometimes wish we could take the energy expended on these antimacassar hand-me-down “rules” and apply it to working out a way to use awkwardly broad words like inclusion, equity, liberty and racism more clearly. The ever-evolving meanings of these words has a way of creating genuine misunderstandings — try defining

From Peter Radford
I wonder why it is that neoliberals so reject the label we have given them.  Is it because they’e embarrassed?  I don’t think so.  They all seem very proud of their attachment to the old order.  Every so often one of them will surface and proclaim bitterly that they are misunderstood and they they don’t deserve the opprobrium piled on them by those nasty “leftists” who want to sully the pristine reputations of people like Mises and Hayek.  Poor dears.  Are we to feel sympathy for a group of thinkers who, collectively, opened the door to regression and decline?  All in the name of some misty eyed nostalgia for ideas that had been overwhelmed by history in the early part of the twentieth century?
I recently came across this problem at a much narrower and personal

From Peter Radford
This is just for fun.  It’s nearly the holiday season after all.
Let’s tell a story: a friend of ours here in southern Vermont was looking for a job.  She saw an advertisement posted by a local business.  Or, perhaps, she heard something about a job from a friend.  In any case she applied and got the job.
Well done.
Her wage is, naturally, determined by her marginal productivity.  We all know that.  All wages are determined by individual worker marginal productivity.
Right?
Our friends’ new employer has an education in economics and remembers what Mankiw says:
“Economic theory says that the wage a worker earns, measured in units of output, equals the amount of output the worker can produce. Otherwise, competitive firms would have an incentive to alter the number of

From Peter Radford
I keep coming upon ideas that seem to make such sense that, surely, they have been imported into economics.  But, no, hubris prevents an expansion of the discipline to include such novelty.  The threat they represent to the entire mainstream edifice is too much of a threat.  The guild closes ranks.  The guild closes its mind.  And gets quite snooty in the process.  Outsiders are seen as simple, lacking in basic understanding, or naively misunderstanding the great explanatory powers hidden in some distant niche of economic theory.   Yes, the guild closes ranks.  It is sensitive to criticism from without.  Perhaps it feels vulnerable?
[Cue a great deal of eye-rolling amongst economies tired of being criticized.  Why can’t we just all leave them alone to get on with

From Peter Radford
To ignore power is to ignore reality.
How can you construct a theory of economic activity that excludes the power embedded in relationships between the various actors on the stage you are directing?  More to the point why would you?  To ignore power is to ignore reality.
I think, perhaps we need to reverse those two questions.  You see, power matters even in the construction of economic theories.
The reason you ignore power is because the powerful want you to.
It’s that simple.
I have just finished reading the excellent new book by Branko Milanovic.  It’s called “Visions of Inequality” and is a tour through the history of economics since the days of Quesnay.  More specifically it takes a look at how a handful of prominent economists have treated the topic of

From Peter Radford
The machine makers are restless!

There’s quite a debate going on about something called “techno-optimism” which roughly translates as anything technological is good and will, inevitably, make us all much better off.  That it makes fortunes for its owners is of secondary importance.
The debate has emerged as a result of the publication of Marc Andreesen’s ‘Techno-Optimist Manifesto’, a strange and rather long paean to the many virtues of technology and the much more abundant vices of the dullards like you and me who do not innovate or break things on a regular basis.  We are, apparently, a bunch of softies incapable of moving civilization forward and we thus rely on the virility of our superiors like Andreesen and Peter Thiel who have, collectively, saved us from the

From Peter Radford
And women in this more enlightened era.
One of the great ironies of the last few decades is the ascendancy of “individualistic” thinking in  economic theory combined with the primacy of the “collective” we call the corporation in the real world.  The two offer highly contrasting explanations of how economic activity takes place.  The one is based upon relationships between individuals acting rationally and equipped with amounts of information — and, presumably, the computation power to go with it — that only deities can possess.  The other is based upon the hierarchical assertion of power over a circumscribed set of resources carved out in time and space to defy competition and create rents.  
Individualistic thinking is, of course, highly attractive politically.  It

From Peter Radford
This is how I explain what has happened to myself.
Nobody should begin without warning.  So we ought jot down some initial observations that provide a starting point for what follows.  Some will become highly relevant.  Others will fade as we dig deeper into our subject and discover that they were not germane to the main theme.  They are in no particular order, since imposing order suggests a level of understanding unjustified by experience.  We simply do not know what we do not know and therefore ought make no pretense otherwise. [My economist friends please note!]
Here goes [borrowing along the way from DeLong, Gerstle, and one or two others]:
The spate of growth experienced in industrialized nations accelerated radically sometime around 1870
The spate of growth

From Peter Radford
I have been reminded by Tyler Cowen of Bryan Caplan’s simplistic theory of left and right.  It’s short and to the point.  Leftists are, he says, “anti-market”.
He is wrong.
Leftists are anti-market obsession.  They are anti-market fanaticism.  They are anti-market worship.  Specifically, they are opposed to the form of idealization used to articulate “the market” in economics.
There’s a difference.  And I assume Bryan Caplan knows as much.
There has been a recent attempt amongst mainstream economists of various nuanced differences to soften their discipline’s unhealthy attachment to markets.  This seems to be a recognition of the absurdly monotonous application of market-this or market-that to whatever problem falls within the purview of economics.  The

From Peter Radford
The circumstances of Silicon Valley Bank are well rehearsed by now.   The bank sat at the epicenter of the tech-bro start-up ecosystem and played a pivotal role in the collection and disbursement of all the cash that flows through that system.  It was an extremely odd bank.  Unlike the everyday banks most of us deal with it had very few deposits that originated from regular customers.  Most of its deposit base consisted of the chunky piles of cash belonging to start-ups and their various hangers-on.  That meant the average size of each deposit account was well in excess of the limit the FDIC insures.
This odd customer base added to the strain on the bank during recent years when the combination of low interest rates and excess cash slopping about the economy led to a

From Peter Radford
What am I supposed to make of this?
Martin Wolf, someone whose work I always pay attention to, flubs it and leaves us with a partial picture.  That’s unlike him.  Perhaps it was the editing?
In any case the notion that the UK needs to generate more savings, which is what Wolf is arguing in his recent Financial Times article, needs a slight augmentation in his basic analysis.
The problem begins when he says that “Investment is financed by savings”.  This is a very un-Wolf like statement.  He is as aware as we are that savings do not cause investment.  This is simply one of those accounting identities that sometimes confuses people into imagining causation where there is none.  This unfortunate sentence then opens the door for the avoidance of the sort of deeper

From Peter Radford
Is it just me?
Or is the realm of punditry in a state of confusion?
There seems to be an emerging consensus that something big is happening.  It’s just that we don’t quite know what.  The problem is that the template we are all applying is frayed if not shattered.  Consequently we are searching for the safety of explanations but finding that our questions do not elicit comfortable answers.  This is not a place we like to inhabit.  What are we to do?
Let’s speculate.
Stagflation?  Growth seems to have slowed dramatically over the last decade if not longer.  There’s talk of malaise.  There’s talk of a post-growth economy.  Some folks even applaud the idea that the days of vertiginous growth are behind us.  Now, we are told, we can focus on the environment and pivot to

From Peter Radford
Let the dust settle.
Absorb the information embedded in the results.
Take a deep breath and avoid partisan primping.
First: this election was insanely expensive.  Candidates seeking election to Federal office spent an estimated $8.9 billion.  Their state level counterparts spent a further $7.8 billion.  
Second:  all that expenditure had little effect.  Sure, the House changed hands, but by the slimmest of margins, and for all the pre-election talk of various color waves the reality is that only 40 House seats were truly competitive — if by competitive we mean that the victory margin was  5% or less.  That means 90% of the election was decided before the starting gun.
Third: elections have thus become a major industry that produces little change.  America is,

From Peter Radford
– the question is how does economics get its much needed revamp?
This caught my eye:

“Debreu noted in his Nobel Prize lecture that the success of the mathematization of economic theory depended “on the fact that the commodity space has the structure of a real vector space”. We have shown that this is incorrect. The “price vector” is not a vector, and GET [General Equilibrium Theory] is therefore false. But we may go further and assert that not only was the proof incorrect, what was set out to be proved was not true in the first place. The real economy cannot be brought into equilibrium by adjusting prices. And indeed, the real economy is never in equilibrium.”
That’s the concluding paragraph in Philip George’s paper in the recently published Real World

From Peter Radford
What isn’t said is often more telling than what is.  The silence denotes either a disrespect for thorough analysis or an ignorance of issues beyond the ken of the speaker.  Then, of course, a third option arises: that those issues are an embarrassment to the point being made and are thus best left unmentioned.
For some reason stock buybacks appear to fall into such a zone of silence.  There is some controversy currently about the topic because of the recent proposal to impose a very modest tax on stock buybacks here in the U.S.
The usual arguments have been put forward to defend buybacks.
Michael Mauboussin, who is head of something called consilient research in an arm of Morgan Stanley, recently wrote this in an op-ed for the Financial Times:
“An essential role of

From Peter Radford
Taking a short break from my crusade to get information taken more seriously in economics …
Yesterday’s Financial Times includes, on page 9 of the print edition, one of its regular “Market Insights” columns.  This is the space the FT allocates to sundry financial market types to opine on subjects of general interest to other financial market types.  It’s always a good read if you want to gain insight into how our magnificent financiers talk to themselves whilst allocating capital appropriately around the economy.  Well that’s what they see themselves doing, so let’s not nitpick.
The column yesterday was written by a luminary of the investment community, someone who sat on the board of a popular retirement fund, and who has written extensively on subjects related to

From Peter Radford
re-visiting economics’ basic concepts
I am nothing if not annoying.  Allow me to elaborate.
Let’s be basic.
I mean really really basic.
Our model world initially consists of two people, Adam and Eve.  I know, it’s been done before.  But we are economists.  What are we interested in?  What problems that Adam and Eve face do we want to study?
Well, they need energy.  Human bodies, like all ordered structures, need flows of energy to maintain that structure.  The Second Law of Thermodynamics is the damndest thing.  It gets in the way.  But that’s life.  So what do Adam and Eve do?  They go look for energy, which in our speak we call food.  They avert death by searching for, finding, and consuming food.  Problem solved.
What do we make of this?
Demand — the need for a

From Peter Radford
Don’t mind me.  I am just thinking out aloud…
That we live in a Machine Age is indisputable.  Our lifestyles depend entirely upon the mediation of machines.  Without them modernity collapses back to whatever existed in the prior ages and we surrender most of what we currently cherish.
And it is important to use the phrase “machine age” because other phrases such as Industrial Age and so on limit us.  Some say we are now entering a Digital Age, but this too is a mistake.  All that is changing is the nature of our machines.  The Machine Age lives on.
So what is a machine?
It is a piece of information that allows us to channel energy and concentrate it such that we amplify the output we expect from that application of energy.  In this case the information is embodied in