Archive for October, 2011

Cartoon of the day

Posted: 29 October 2011 in Uncategorized
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Special mention

U.S. stock markets may have soared yesterday, based on news of a deal to solve the problem of the European debt crisis.

But today, in the real world, the news was quite different: unemployment in Spain rose to 21.5 percent in the third quarter. That means nearly nearly 5 million Spaniards (4,978,300, to be exact) are without a job, and 1.43 million Spanish households now have no one working.

The situation is even worse for young people: unemployment among those under age 25 dipped slightly, but remained at a staggering 45.8 percent. Those who have not worked in a year or more now exceed 2.1 million.

European banks may have agreed to a haircut. They can afford it. But, as a result of the austerity measures to pay back the European bankers, unemployed Spanish workers are just going to have to let their hair grow long.

I have long admired Nate Silver’s willingness to embrace uncertainty.

Fortunately, Silver has not been cowed by attacks on his critique of the hubris of supposedly expert judgement. So, he restates his case:

Experts have a poor understanding of uncertainty. Usually, this manifests itself in the form of overconfidence: experts underestimate the likelihood that their predictions might be wrong.

Examples of this can be found in numerous fields. Economics is an obvious one. In November 2007 — just a month before the economy officially went into recession — economists polled in the Survey of Professional Forecasters thought there was only about a 1 in 500 chance that economic growth would decline by 2 percent or more in 2008. (In fact, it declined by 3.3 percent).

I have only one disagreement. Silver thinks the “experts” are playing Russian roulette with their reputations when they use terms like “never” and “certain.” It seems, however, so-called experts—such as economists who did not predict the current crisis and continue to predict that a recovery is just around the corner—are rarely if ever forced to pay the price of their failed forecasts.

They may be playing Russian roulette with their reputations—but without a bullet in the chambers.

Occupy colleges

Posted: 28 October 2011 in Uncategorized
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Colleges and universities may not have been at the forefront of the current Occupy movement. However, the new Occupy College movement may be bringing the concerns of OWS to a campus near you.

Neoclassical economist Jagdish Bhagwati argues against redistribution as a way of solving the problem of poverty.

There’s nothing surprising there. Like all other neoclassical economists, Bhagwati promotes economic growth, not redistribution, as a solution to the problem of poverty in the Third World.*

But he does worry that the “growth-first model” is, once again, being called into question, because of obscene levels of inequality. So, he does offer one suggestion:

the political sustainability of the growth-first model requires both symbolic and material efforts. While growth does benefit the poor, the rich often benefit disproportionately. So, to keep the poor committed to the system as their economic aspirations are aroused, the wealthy would be well advised to indulge less in conspicuous consumption.

* Note also that, in the world of neoclassical development economics, the redistribution of income is presented as the only alternative. What Bhagwati and other neoclassical economists fail to consider is a policy that would both eliminate poverty and create a more equitable distribution of income: a redistribution of assets.

Special mention

What’s the alternative to an economy based on self-interest?

As it turns out, two different proposals to move beyond self-interest, both related to the Occupy Wall Street movement, crossed my desk at the same time.

The first, by Stephen Healy and Boone Shear [ht: gh], is based on the idea that economic relations based on self-interest are only one possibility among many. The problem is,

Ethical values and actions beyond self-interest are understood in our present society to be extra-economic; they are supposed to take place outside the formal economy. It is precisely for this reason that they are frequently dismissed as mere sentimentality. How then do we move ethical values and social commitment to the very core of our economic values? Is this even possible?

Their view is that Occupy Wall Street has given the gift of recognizing economic enterprises that encourage community rather than individualism, which already exist in the midst of an otherwise capitalist economy. They give the examples of the Alliance to Develop Power, Worcester Energy Barn Raisers, and the Valley Alliance of Worker Cooperatives—all in Massachusetts.

Coincidentally, the Pontifical Council for Justice and Peace has elaborated a similar critique of self-interest in the context of the current crises, although its proposals for an alternative economy tend in a more macroeconomic direction.*

The inequalities and distortions of capitalist development are often an expression not only of economic liberalism but also of utilitarian thinking: that is, theoretical and practical approaches according to which what is useful for the individual leads to the good of the community. This saying has a core of truth, but it cannot be ignored that individual utility – even where it is legitimate – does not always favour the common good. In many cases a spirit of solidarity is called for that transcends personal utility for the good of the community.

The Council focuses on reforming the international financial and monetary, based on the idea of creating “some form of global monetary management. . .as a first stage in a longer effort by the global community to steer its institutions towards achieving the common good.”

The criticisms of self-interest by Healy and Shear and by the Pontifical Council for Justice and Peace, while looking to the creation of alternative economic institutions at different levels—in the former case, at the level of individual enterprises; in the latter, at the international level—certainly share a commitment to community and the common good.

They also share a commitment, as expressed by the Council, to “the revolutionary power of ‘forward-looking imagination’ that can perceive the possibilities inscribed in the present and guide people towards a new future.”

* According to E. J. Dionne Jr. [ht: mkb], the Vatican denied that its report was a direct response to the Occupy Wall Street movement. But, as Dionne explains, it’s clear the report got more attention because of the issues raised by the worldwide movement.