Russell said...1) I really like economics. I get quite a kick out of my Masters degree in the subject, due for completion this year. Little more proof is needed than I'm happy to be identified as one in a society where economists are not exactly groovy.
So far I'm unimpressed. You don't seem to like economics so you're proposing that the world should work some other way. Unfortunately, economics doesn't force the
world to work a certain way; economics (good economics at least) describes the
way the world actually does work. If you don't like that, then you don't like
how real people behave.
2) The post upon which I was commenting made many assumptions about human behaviour.
Economic practice dictates that assumptions have to be made in order to simplify a chaotic world and allow fallible humans to make models, which can make reasonable predictions about future behaviour. If the model doesn't work, our assumptions need more careful scrutiny. All I did was to go along with the same assumptions Russell did and point out problems he hadn't considered in his account. Of course this is affected by opinions which sway the saliency of different economic arguments. Russell is also motivated by opinions which push him the other way. I don't see either of us as doing bad economics, merely using economic arguments to derive different opinions.
The danger is that orthodox economic theory has developed in such a way as to neglect important facts of nature. These theories are then used to make policy recommendations which can be devastating in their ignorance.
For example, most of its economic models are static, mainly because much of economic theory has developed for the convenience of mathemtics and the mathematical tools needed for dynamic analysis have only been recently discovered. As a result time is often neglected. Discussion is of states of the world and how to achieve them. Little is spoken of the evolution of such states and how the way in which something develops dramatically affects its current state. Now, most of Britain's industries are run in the private sector. This is mostly a good thing; the post-war central planning experiments were grossly ineffiecient. However, Britain has been able to develop appropriate legal frameworks and tacit accepted practices that control what businesses can get away with.
The Soviet Union had no such luxury. Overseen by Nobel laureate Jeffrey Sachs, the government was advised to privatise its assets to expose them to some market discipline. Good plan on paper. The enterprises were grossly inefficient and needed to be reformed to help insert some innovation into a sclerotic society, let alone economy (not that the two are separate entities but let's leave that for another time). Sold for rock bottom prices, what were formerly state assets were sold on at huge profit and the money flown out of the country, thus creating the notorious oligarchs, crippling Russia's infrastructure and impoverishing millions.
Now Prof. Sachs cannot be held to account for the oligarchs' immorality, but he should have recognised that the appropriate institutions were needed before Russia could successfully exploit the benefits of the market. To adopt the AE's argument, by neglecting the dimension of time, by ignoring learning processes necessary for competence and thereby failing to see how the world actually worked, Sachs was doing bad economics.
(This is not with the benefit of hindsight, either. A similar story occurred in Hungary a few years before. What is more, as director of Colombia's Earth Foundation, Sachs is once more making shock therapy cock-ups. In his book The End of Poverty his idea is implement decisive infrastructure projects and benefit programs to pull Africa out of poverty. One problem, this has been tried before, and little of the money was well spent. As economist William Easterly asserts, only by a system of gradual implementation could mistakes be corrected, lessons learnt and the money be effectively spent.)
2 comments:
Hey Fluffy,
What kind of professional goes and mercilessly slags off a postgrad economics student for f*cks sake!? I can only think of four letter answers.
I think you will find there's an inversely proportional relationship between the more outrageously rude an economist is and the influence they have on economic thinking, government, policy etc.
I'll admit at this stage to being a complete blaggard - I nicked his moniker "angry economist" for my yahoo email address. All property is theft, eh?
For me economics, models, theories etc are all imperfect tools for understanding how the real world works.
I do use the economic theories, but I also use a helluvalot of evidence, stats, etc.
If you really want to find the good economists, these are the folks who understand the theories, policies, and the stats, and can write well too. These are the folks to look up to.
I think your blog is damn fine. Keep it going. Keep learning. I am 34, and been in the economics game for a long time - I always feel inadequate in my knowledge, and am always learning new things. That's because there's so much to learn about economics, and its such an imperfect science or art. That's what's quite attractive about it really. The moment you stop learning in this game is when you die. Or become a journalist or an *rsehole.
Cheerybye.
Fluffy,
Some more feedback on your posts:
The Soviet Union had no such luxury. Overseen by Nobel laureate Jeffrey Sachs, the government was advised to privatise its assets to expose them to some market discipline. Good plan on paper... Sold for rock bottom prices, what were formerly state assets were sold on at huge profit and the money flown out of the country, thus creating the notorious oligarchs, crippling Russia's infrastructure and impoverishing millions.
This is almost certainly incorrect: Russia’s economy bombed before the oligarchs arrived, and the evidence indicates the oligarchs have invested in their companies, not stripped them and sent the money elsewhere. Shleifer and Treisman (2003:14-5) write:
"But the claim [that privatization] accounts for poor growth in Russia makes little sense. Russia’s sharp decline in official output came before—not after—the oligarchs emerged on the scene in 1995-96. A few years of stagnation followed, and then rapid growth. Oligarch-controlled companies have performed extremely well, and...are responsible for much of the dramatic increase in output in recent years, as well as the amazing stock market boom... Have the oligarchs stripped assets from the companies they acquired in privatization? The audited financial statements of these companies suggest they actually invested, especially since 1998... In contrast, the greatest asset stripping scandals have concerned companies that remained under state control."
Available from http://post.economics.harvard.edu/faculty/shleifer/papers/normal_country_jep.pdf
...he should have recognised that the appropriate institutions were needed before Russia could successfully exploit the benefits of the market.
In fact that is precisely what Russian privatization achieved. Again from Shleifer and Treisman:
“[Oligarch’s] stock market valuations also soared (those of Yukos and Sibneft rising by more than 30 times in real terms.) This performance is markedly better than that of the gas monopoly Gazprom or the electricity utility UES, which stayed under state control, or of major private companies, such as Lukoil, that remained controlled by pre-privatization management (Boone and Rodionov, 2001)."
Is your blog about economics? Phrases like "Sold for rock bottom prices" and "immorality" have more to do with social justice (whatever that means) than economics.
For example, most of its economic models are static, mainly because much of economic theory has developed for the convenience of mathemtics and the mathematical tools needed for dynamic analysis have only been recently discovered. As a result time is often neglected. Discussion is of states of the world and how to achieve them. Little is spoken of the evolution of such states and how the way in which something develops dramatically affects its current state.
Static models may outweigh dynamic by shear numbers of models, but dynamic models incorporating learning by doing and real options exist and the mathematics behind them is not especially complicated. So while I agree that time can be an important dimension to include in economic analysis, I do not agree this is being under-used by economists, or that opportunities for incorporation of time are being systematically overlooked in formulating policy.
Matt
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