Two big questions for economists today

http://blogs.law.harvard.edu/philg/2015/01/05/two-big-questions-for-economists-today/

by jseliger • 12 years ago

48 56 12 years ago

blogs.law.harvard.edu

Retra8• 12 years ago

A possibility that the Big Thinkers don’t seem to consider is “Maybe colleges aren’t teaching anything of value to employers?”

It's not about employers, but about society. Colleges are supposed to be teaching things that are of value _to society_, not necessarily to employers. Employers should be trying to improve society by rewarding people who produce value to society, not to employers. That is how an employer justifies her power to a society that allows her to have a disproportionate amount of it.

It is very possible that employers' values are not an accurate representation of societal values. Maybe your currency doesn't accurately encapsulate what your society values? Maybe your businesses are not in touch with who their customers/employees are and what motivates them?

Example: I pay rent. I've never received an invoice telling me what that rent pays for or how much I'm actually paying for it. My rent payments are not approval of my landlord, they are necessary for my survival. Yet it gives my landlord economic power regardless of why I'm spending the money. Social values are not measured by economic power.

SilasX• 12 years ago

It's not about employers, but about society. Colleges are supposed to be teaching things that are of value _to society_, not necessarily to employers

Then why are students asked to bear the $100k cost individually? Kinda hard to justify that level of self sacrifice from anyone.

Retra8• 12 years ago

Because things are messed up. Economists don't know what money is for, businesses don't know what education is for, people don't know how to fix anything, etc. This is probably one of our 10,000 year problems.

crdoconnor8• 12 years ago

The justification is that because college students benefit personally from their education, non-college students should not be expected to pay for it.

The reason is that ramping up aggregate private debt has a number of advantages to the following two groups:

* Large employers would like to see the bargaining power of their employees curtailed. You'll be much more fearful of quitting your job or demanding a raise if you fear spiraling compound interest.

* High finance (investment banks, hedge funds, etc.) because they can often figure out a way of being paid to administer debts and use it as fodder for high profit gambling activities (derivatives, etc.).

An ancillary reason is that ramping up private debt is a way to give a quick economic and employment boost because it usually increases aggregate spending. The public can be boiled like a frog.

vph• 12 years ago

If you want to go to "brand name" universities, then yes $100K easily. But if you want to seek an education, state universities are much cheaper.

thesagan2• 12 years ago

Without going into any detail (it's late for me), it smacks of paying up-front for some sort of lifetime employment insurance policy. (Probably a bad analogy, but it's an attempt)

eli_gottlieb• 12 years ago

So that lending to students can replace direct state funding as society's means of providing broad access to higher education.

rahimnathwani2• 12 years ago

Colleges are supposed to be teaching things that are of value _to society_

Not everyone agrees with you.

- Employers may think colleges should teach things of value to them

- Students may think colleges should teach things which will increase their lifetime earnings

- Government may think colleges should educate people to be good citizens (by whatever definition)

- College professors may think colleges are supposed to be teaching things of interest to them, regardless of the benefit to anyone else

Retra8• 12 years ago

All of those things are valuable to society, but not all of those things generate economic value. That is why I am saying it is a problem to conflate societal value with economic value. Schools don't exist solely to support the economy, so it would be a mistake to demand education reform on the basis of economics alone.

thesagan2• 12 years ago

Seems to me that college is a lot of things to a lot of people, and it's probably important that these expectations and measures of results are explained as understandably and universally as possible between all these groups and interests. I'm not sure we're there yet. (Not disagreeing with your post, btw)

wmf• 12 years ago

IMO any kind of universal knowledge (e.g. how to participate in democracy) should be taught in high school, preferably before the age when people are allowed to drop out. I think there's a social value to having an "intellectual class" (for lack of a better term) created by college education, but maybe it doesn't need to be a large fraction of the population.

crdoconnor8• 12 years ago

IMO any kind of universal knowledge (e.g. how to participate in democracy) should be taught in high school

Participation in democracy comes naturally to people. I don't think the idea that you should fight for your corner needs to be taught for anybody.

If it were taught in school, though, you can bet that how to participate effectively (organization, PR, core political principles) is not what would be taught. What would be taught would be "how to correctly fill in the form to register to vote for one of two equally reprehensible characters".

I think there's a social value to having an "intellectual class" (for lack of a better term) created by college education

Well, we already have this. This can be counter productive if (a la 1984), they are the most highly indoctrinated segment of society.

yummyfajitas5• 12 years ago

What does value "_to society_" mean? Can you provide a definition of this term?

Arrows Impossibility Theorem generally says that value to a group is meaningless - individuals have preferences, but there is no consistent way to aggregate them into a group preference. You can get around this with things like cardinal preferences (essentially money and prices), but then the value of knowledge _to society_ is by definition what a person would pay for it.

So what do you mean when you say "what your society values"? Is it just a code word for "whatever my team can sneak through the political system" or is there something intrinsic there?

Retra8• 12 years ago

What is your definition of 'individual'? A group can have values just as easily as an individual, even if your attempts to quantify that value are necessarily fuzzier.

Nothing useful is ever true by definition. Society has values because social contexts promote preferred actions. You start thinking about this by trying to define morality in useful manner:

    A morality is an algorithm that models counterfactuals and assigns values to them.

(I.e., it _evaluates_ possible states of reality and prefers some to others.)

Thus group morality is an aggregate of individual moralities, though it isn't necessarily a linear aggregate, nor is it necessarily known or (even knowable) by any individual. Either way, all you need is a hypothetical, because any reliable _reasoning_ you do about group morality is going to try to optimize in terms of flexibility: if there is an ideal outcome for a group, then every action should be taken to ensure such an outcome is not eliminated from potential futures.

This implies a lot about group morality. It means information processing is valuable. (And hence, some vague notion of intelligence or creativity is valuable.) Generally speaking, a group is a decision-making entity, and it must value its own ability to make decisions and moral evaluations as a consequence.

What is valuable to a society is not some specific state, but the ability to rapidly converge to better states as more information is obtained. Social stability, situational responsiveness, rapid dissemination of facts, efficiency, correctness, etc.. Every society values these things, even if they cannot be used to determine specific behavior for individuals. Arrows theorem says that there is no way for a preferred state to be knowable to an individual.

It helps to think of a group as a network of brains in the same way that a brain is a network of neurons. It's a different kind of brain, but it still does all the brain stuff as a simple consequence of the fact that it is a strict superset of brains. Naturally, one brain cannot contain the information of 10,000 brains. (Thus, Arrow's Impossibility Theorem.) But one group can. We cannot know it, but we can presume such a state exists and optimize on flexibility, not state.

SamReidHughes2• 12 years ago

Arrow's impossibility theorem is not applicable and your bringing it up is meaningless nerdery. Providing value to society is not the same problem as selecting a single candidate from a set of candidates using a series of ranked preferences. For starters, value could be a function mapping preferences to a real number or random variable, called "utility," as opposed to individual ranked preferences.

(Also, even if it were relevant in any sense to talk about ranked preferences, they could still be consistently aggregable into a group preference -- Arrow's Impossibility Theorem merely says they might not be. It depends on what people's rankings are. Also, even if you replace the continuous set of options on how to provide value to society with a finite, discrete set of options, and then if you talk about a marginal penny of spending instead of spending at large, so that you can finally get people talking about a set of ranked preferences, you'll find that as you iterate elections of how to spend the marginal penny on a penny by penny basis, people's preferences change from election to election as laws of diminishing returns set in. For example, if you had five discrete option on how to spend money and assuming any reasonable degree of smoothness, such a series of elections would result in a spending distribution such that no simple majority thinks that the next marginal penny should be spent on a given option. )

I really can't understand how you could possibly bring up Arrow's impossibility theorem unless you're just trying to "win" an argument by bringing up some obscure mathematical reference that nobody wants to bother understanding so that they can respond to you. Because bring Arrow's theorem into a question like this is just flagrantly pure unadulterated bullshit.

ArmchairEcon• 12 years ago

Let's accept your assumption that colleges teach things that are of value in some non-financial sense. Colleges make society better or make people happier. Then we should expect to see an improvement in a King of Bhutan-style Gross National Happiness rather than a reduction of inequality or an increase in GDP.

If Americans aren't, on average, happier than they used to be (adjusted for income), then the conclusion should be "there was no return on the investment in broadening the number of people attending college"

Retra8• 12 years ago

What colleges teach and what they should teach may not be the same. So it's hard to say "if A caused X, we should expect to see X." You can't just assume colleges teach things that are socially valuable because I said they are supposed to.

rahimnathwani2• 12 years ago

If K-12 and college are making ever-better American workers then capitalists are using their class power to steal from the working class ... If on the other hand ... the problem is simply that engineers keep designing better machines (capital) while our education system turns out workers no better than those of 30 years ago...

This is a key point. People talk about increases in labour productivity (how much output per given unit of labour) but this economic definition doesn't match the day-to-day meaning of the word.

If I devise a new process/system which means that I need only 1 employee rather than 1000, for the same amount of output, that remaining employee hasn't suddenly become 1000 times more productive. (Although it would be measured as such by economists.)

Why should we assume that the capitalist (or the market) would reward workers for such technological progress?

IndianAstronaut• 12 years ago

If I devise a new process/system which means that I need only 1 employee rather than 1000, for the same amount of output, that remaining employee hasn't suddenly become 1000 times more productive. (Although it would be measured as such by economists.) Why should we assume that the capitalist (or the market) would reward workers for such technological progress?

This is where we go back to the era of Marx and why him and others were advocates of the people owning the means of production. The two eras are similar, lots of automation, lots of inequality, huge companies growing from nothing.

sowhatquestion• 12 years ago

This sums up my problem with the article. People who are concerned about inequality (I can't speak for Piketty in particular because I haven't made it very far through his book) are not necessarily concerned that workers are receiving less than their marginal product because their employers have stolen the remainder via "class power." On the contrary, we're concerned that workers are receiving their marginal product, which is a "just" wage from a purely economic perspective, but which is no longer (for the vast majority) a wage that affords a decent life.

At least that's true for people like me who put more stock in the economic explanation for inequality (technology + globalization) than the political explanation.

crdoconnor8• 12 years ago

Ackerman’s point of view that economists were infallible and their suggestions should be adopted uncritically by voters was called into question by the fact that the group neglected to book the most popular speakers, such as Thomas Piketty, into sufficiently large rooms and, though they were videotaping the talks, did not have any provision to show the videos in real-time on screens in lobbies or other rooms. If the nation’s top economists can’t estimate demand for talks by economists can we trust them to tell us what to do about global warming?

I think this touches on the core elephant in the room with modern (especially American) economics. There is often a lot more money and career advancement to be made as an economist if you are productively wrong - making policy proscriptions that serve an agenda, than if you are right.

Of course it does none of them any good to admit that. State this aloud and expect to be ostracized at a conference like this.

It would be helpful to look at economists themselves as rational agents who produce an output (political opinions with the veneer of objectivity) and who respond to incentives.

Bearing in mind that the employment/income options for most economists are:

* Academic departments, funded via student debt.

* Think tanks - nearly all funded by large corporations and high net worth individuals.

* Finance - large banks, hedge funds, etc.

Large corporations usually have different agendas but will seek to form cohesive blocs to increase their power, often under the umbrella of a lobby group. Sometimes they will fight, though. Examples:

* Exxon cares about discrediting climate change.

* Power companies want solar panels dead yesterday.

* Comcast wants net neutrality dead.

* Google and Netflix want net neutrality alive.

* Google's founders want something done about climate change (as do many notable high net worth individuals from a non-fossil fuel background).

* Private colleges want the federal government to keep increasing loans to students.

* Corporations that employ a lot of people and are under threat from unionization would like to see workers' bargaining power curtailed (debt is good at that).

* Everybody in high finance likes debt (obviously). Especially if it is administered by them, but even if it is not, because even if it isn't, one day it could be privatized and produce profits.

dllthomas• 12 years ago

So, can we change the incentives?

danieltillett8• 12 years ago

The golden rule is hard to change - he with the gold makes the rules.

crdoconnor8• 12 years ago

Of course, but that's easier said than done.

bachmeier• 12 years ago

"There is often a lot more money and career advancement to be made as an economist if you are productively wrong - making policy proscriptions that serve an agenda, than if you are right."

I was unaware of that. I guess the last 12+ years that I've been an academic economist, I've been doing it wrong. Could you put me in touch with someone that will pay me to serve their agenda?

crdoconnor8• 12 years ago

How is your research funded? What strings are attached to the money?

Incidentally, a chunk of your department's money appears to be sourced via this corporation - https://en.wikipedia.org/wiki/Cargill thanks to an apparently friendly relationship with one of their VPs. I suggest that if you approach the subject of the economics of human trafficking, you do so with care for the sake of your career.

danieltillett8• 12 years ago

I hope you have been following the path of integrity and truth, but there is a perception that the economists that get the most attention are those that are best able to come up with a justification for the the rich being rich and that the status quo should be maintained.

swatow5• 12 years ago

Your post contains two unfair criticisms. The article was making a cheap shot at economists. Clearly economists don't claim to be experts at predicting "demand" in every possible markets, only at understanding the general principles.

Your own criticism is unfair because you think finding any link, no matter tenuous, between a source of funding and some kind of bias, is sufficient to show Economists (but not their critics) are biased.

The most important, and worst, example is

* Academic departments, funded via student debt.

First, academic departments are not funded solely by corporate debt. Government research grants are a major source of funding. Second, it's unfair to call it "student debt" since students are getting something of value, which they happen to pay for using borrowed money. Finally, student debt is a very minor issue in the scheme of things, and would not bias economists on other issues.

Finally, how helpful is it to apply your lens of "rational incentives" to your own side of politics? Here is how I see it from my side:

There is no incentive to support mainstream economics outside of academia, because economics is subtle, gives no easy answers, and often identifies no bad guys. It gives clear policy advice in some cases (e.g. free trade follows pretty directly from economic theory) but this advice is often unpopular with special interests. So the one poster who supports economic theory will always find themselves up against more passionate and committed arguers. Economics states that in many ways the world is as good as it can be, and there is no quick fix to improve the lot of ordinary people (apart from, perhaps, more and better redistribution of wealth, but this has limits). This is bad news, hence the term "dismal science". People like quick fixes, so they believe in anyone but mainstream economists. Ever notice that economists get the blame when the economy does badly, but not the credit when it does well?

crdoconnor8• 12 years ago

Your post contains two unfair criticisms. The article was making a cheap shot at economists. Clearly economists don't claim to be experts at predicting "demand" in every possible markets, only at understanding the general principles.

Let's just say that I wasn't at all surprised that it was that one economist in particular - Piketty - who got stuck in the small room. Economists are a cliquey bunch at the best of times and the cool kids do not like Piketty.

Your own criticism is unfair because you think finding any link, no matter tenuous, between a source of funding and some kind of bias, is sufficient to show Economists (but not their critics) are biased.

So you think economists are correct that everybody responds to incentives.... but economists don't?

First, academic departments are not funded solely by corporate debt.

You mean student debt. No, they are not solely, but it is a huge proportion of university funding. Students take out loans. Every university has a keen interest in the terms and availability of those loans because it affects how much their primary customers can pay. This is what led to 20% year on year inflation in college prices.

Second, it's unfair to call it "student debt" since students are getting something of value

facepalm

Finally, student debt is a very minor issue in the scheme of things

You are really out of touch. There's over a trillion dollars of student debt outstanding in the US alone.

Finally, how helpful is it to apply your lens of "rational incentives" to your own side of politics

I think it makes sense to look at incentives from every side.

There is no incentive to support mainstream economics outside of academia, because economics is subtle, gives no easy answers, and often identifies no bad guys.

As mentioned above, it gives convenient policy proscriptions, therefore it is useful. The presence or lack of 'enemies' is irrelevant.

It gives clear policy advice in some cases (e.g. free trade follows pretty directly from economic theory) but this advice is often unpopular with special interests.

Special interests such as half of the manufacturing industry in the US which was driven into bankruptcy, and the people employed by it who lost their jobs, and the cities such as Detroit that were destroyed by it?

Are the working classes a special interest now?

"Free trade uber alles" is exactly the type of thing I'm talking about. It is productively wrong - it benefits corporate profits over the citizens of the country. Among the many things it failed to predict were China's meteoric rise and the destruction of the fabric of entire cities in the US.

mjklin• 12 years ago

The field for economists is much broader than you suggest:

"Today there is hardly a government, international agency, or large commercial bank that does not have its own staff of economists. Many of the world's economists devote their time to teaching economics in colleges and universities around the world, but most work in various research or advisory capacities, either for themselves (in economics consulting firms), in industry, or in government. Still others are employed in accounting, commerce, marketing, and business administration; although they are trained as economists, their occupational expertise falls within other fields. Indeed, this can be considered "the age of economists," and the demand for their services seems insatiable. Supply responds to that demand, and in the United States alone some 400 institutions of higher learning grant about 900 new Ph.D.'s in economics each year."

-- Encyclopedia Britannica, "Economics"

potash• 12 years ago

There may be a market opportunity for an economist to write a big Piketty-style book on climate change.

Yale economist Bill Nordhaus' Climate Casino is that book. And his research with integrated assessment models concluded:

The consequences of [climate change] will be costly for human societies and grave for many unmanaged earth systems; the balance of risks indicates that immediate action should be taken to slow and eventually halt emissions of CO2 and other greenhouse gases.

And, by the way, this analysis doesn't even take into account tipping points!

danieltillett8• 12 years ago

Until we as a society face the fact that doing something about climate change required compensating the owners of fossil fuels for not letting them extract them then we are going to get nowhere.

swatow5• 12 years ago

I'm willing to face any fact that is true, but which owners in particular must be compensated, and why?

What is your specific critique of the carbon tax that the book proposes?

rgbrenner• 12 years ago

Why would we need to compensate them (Saudi Arabia, Venezuela and other owners) when it's our demand that gives them the ability to sell their product. Since the value of their oil reserves is tens (if not a hundred+) trillion dollars.. it would be cheaper to simply give everyone in the US and Europe a free electric car.

Edit: 100 trillion is so much money.. that we could literally replace every car in the entire world (1 billion cars) with a free tesla and still have money left over.

evo_9• 12 years ago

It's stunning to me that a Living Wage isn't the main thing they are talking about let alone not even on the list.

Legogris• 12 years ago

I find the assumption that the goal or purpose of higher education should be paying off economically in terms of future employment a foreign one. I am well aware that I could build a much more fruitful career by making a different choice than pursuing the path that I have chosen. I have other priorities in life and I assume that so do most of the people who would, say, major in poetry at a "lower quality college". Despite what some economists seem to think, money doesn't really reflect how a lot of us like to think of "value". Spending a big amount of my time on spiritual development, cooking, sozializing and taking classes outside of my field is obviously not the most rational choices for my career. Why focus on getting more money if I already have enough to get by?

vinceguidry• 12 years ago

Despite the evidence that people who weren’t academically inclined prior to college get little benefit from college and simultaneously suffer four years of lost income,

The real reason we put kids through four years of college is because nobody wants to trust 18 year olds with pretty much anything, much less a salary and responsibilities. So the choice isn't between college and starting a career, it's between college and whatever bullshit jobs they'll be able to scrape up.

If you got rid of or otherwise stopped convincing kids they should go to college, you wouldn't have a bunch of gainfully-employed teenagers. You'd be gleefully recreating the enormous social problem of lots of bored young people sitting around without a whole lot to do.

We all know where that leads. Anything's better than that, even something that doesn't really help end outcomes much.

Two big questions for economists today

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