How Economics Found Science …and Lost its Subject Matter


Re-evaluating the “equality-efficiency” trade-off

Herewith an article that was published by INET a couple of weeks ago, and Evonomics more recently. I’m republishing it here as it’s my ‘blog of record’ as it were, but also because it enables me to make notes to file as comments.

Vice always comes disguised as virtue. No exceptions.

Ryan Meade

Introduction

The organizing ideas of a discipline determine what gets seen and what does not. Because they dominate disciplinary commonsense and operate as a system, those ideas are difficult and disruptive to change. This is a particular problem for economics. For it emphasizes technical mastery, far more than critical scrutiny of the ideas behind the techniques and the reformulation of those ideas as experience unfolds. This essay provides just one example of the costs of this unhappy arrangement.

One way economists describe their discipline to themselves has proven beguilingly seductive since it was codified by Lionel Robbins 90 years ago — that economics is the science of scarcity and that it is, therefore, paradigmatically about trade-offs. So ingrained is this approach that my questioning it may come as a shock. But that is my purpose here. As Mark Twain apparently didn’t say, “it’s not what you don’t know that gets you into trouble, but what you know for sure that just ain’t so.” Indeed, I show this approach has become a kind of counterfeit metaphysics — a means by which practice becomes increasingly thoughtless and alienated from economic reality whilst practitioners affect rigor and insightfulness.

Here’s an introductory example of the way in which trade-offs are assumed as necessary when they are anything but. In the 1970s, manufacturers presumed there was a necessary trade-off between cost and quality. Quality improved as one increased spending on tighter tolerances and more inspectors to catch production errors. But Toyota developed a profoundly different approach in which meticulous attention to getting it “right first time” in the production chain dramatically improved quality and lowered cost. Moreover, this set the stage for future productivity growth as production teams strategized and bug-fixed their way to endless design and workflow optimizations. Astonishingly, within two decades Toyota’s labor productivity was four times that of its American rivals. By the mid-1980s, the two car models with the highest build quality were luxury Mercedes Sports (assembled with more inspectors per car than any other) and the Toyota Corolla (assembled without any inspectors at all)!

Figure 1: Japanese and US labor productivity (1968-1992). Credit: Jeffrey H. Dyer, Kentaro Nobeoka, 2000. “Creating and managing a high-performance knowledge-sharing network: the Toyota case” Strategic Management Journal, March 21, 2000

Is it too much to expect that economics might be fascinated with such phenomena, and obsessed with finding and exploring such “free lunches” and bringing more of them into being? Alas, economics’ all-purpose method discourages curiosity about such things when it’s not altogether assuming them away. Numerous sub-disciplines of economics have emerged in the last generation, but they’ve all emerged from the internal imperatives of the discipline — from innovations in economic theory, econometric method, or data availability. None of these, of any professional significance, has taken its cue from emerging phenomena in the economy itself despite some remarkable developments that have shown us new forms of economic relations. Peer production and the collective debt obligations behind microcredit are some examples. Toyota’s production system is another example.

Toyota wrought far-reaching and subtle transformations to a whole socio-technical system. After a decade of denial, American firms spent the next decade trying to copy Toyota’s method. We can see this in the chart above as we can also see the Americans’ failure. As Edwards Deming (the American process control engineer who’d helped develop the Toyota system) put it mischievously, “American management thinks that they can just copy from Japan—but they don’t know what to copy!” Put differently, the methods of American management rendered how Toyota achieved its miracle invisible. By a similar means, the miracle remains invisible also to neoclassical economics, a subject on which we expand in what follows.

Economics Strives to Become a Science Continue reading

Posted in Cultural Critique, Economics and public policy, Methodology, Philosophy | 1 Comment

The ultimate sanction

 

I circulated this podcast in my newsletter last week indicating that I hadn’t yet listened to it. Then I did. It was a doozy. In response to the question of what the West should actually do if Russia started using nukes, the interviewee’s body language held up for a paragraph or two before she disappeared into a black hole:

I think the United States has been very clear that it would respond very sharply. The President’s been clear that the United States itself would not be responsible for nuclear escalation. The United States does have many response tools and has been clear. It would use them in the cyber realm and potentially in the conventional realm.

But I think it’s important also to note, again, the kind of moral criticism that the Russian Federation would come in for. The United States has, or in the responsibility for the use of nuclear weapons in wartime — the only use in Hiroshima and Nagasaki in 1945. This moral responsibility would shift squarely to the Russian Federation.

In the case of a use in this conflict in Ukraine, and Russia would go forward with that kind of stain and burden. Russia is a pariah state at the moment, but it would be signalling it’s readiness to be in that state for a long time to come.

So there you have it. If cyberwar and conventional weapons don’t stop nukes, will the Russians really be able to look at themselves in the mirror — especially as they realise just how disappointed we all are at how mean they’ve been? (To say nothing of how much more disappointed we’ll be at Vladimir who started all this!). They may never win Eurovision again.

Sheesh  …

Posted in War and military | 3 Comments

Chinese bases in the Pacific — A reality check: Guest post from Sam Roggeveen

Frustrating Beijing’s ambitions to create a sphere of influence is overwhelmingly a diplomatic task, not a military one. (Cross posted from The Interpreter at the Lowy Institute)

There was barely concealed panic in Australia when news broke that China had struck a security agreement with Solomon Islands. What if this is really a basing deal that allows China to station military aircraft or warships permanently? Solomons Prime Minister Manasseh Sogavare’s emphatic denial on this point seemed to make little difference.

With the mere suggestion of a Chinese base, Australia is getting a foretaste of what South Korea, Japan and Taiwan live with every day – a great power on their doorstep which likes to throw its military weight around. The Taiwanese air force deals constantly with PLA bombers, fighters and spy planes approaching its air space. Japan’s Defense Ministry regularly announces news of PLA Navy fleets transiting its nearby waters. It might be Australia’s turn next.

It is clearly in Australia’s interests to prevent China ever establishing bases in the Pacific Islands region. Distance is the country’s single biggest defence asset. Australia is hard to attack because it is far away from potential adversaries. Anything which reduces that distance – and a Pacific base could bring Chinese military power to within 2000 kilometres of Australia’s east coast – is bad news. Continue reading

Posted in Politics - international, Politics - national | Leave a comment

Labor Undermining Labour?

I’m a Labor voter and I’ll do as I’ve always done at the upcoming election by voting Labor again. Nonetheless… I think there are at least three Labor Party policy pillars that made sense once upon a time but now need overhauling due to their turning counterproductive to labour. 

Education

Labor sticking to the same policies, only bigger…

The standard left-wing position is to get more students through high school and university to spread the prosperity of the professional class through the wider population. In the 70s, when the high school completion rate was between 30 and 40%, this made a lot of sense. 

Unfortunately, the right general policy goal transmogrified into abandoning technical schools, lowering standards at high schools and sending students to study increasingly watered-down and useless tertiary degrees. Somewhere along the line, the policy has ended up making people who do working-class jobs delay their entry into paying jobs and skill acquisition; people who derive benefit from tertiary studies do degrees that are less rigorous than otherwise; and people who don’t derive benefit from tertiary studies end up in the worst of both worlds. In short, these three groups are poorer, dumber or both!

This state of affairs is made worse by fields of study that are actively hostile to intellectual development and course credentialism or education inflation that turns on-the-job training into Master’s-degree cash cows for universities. Research in Lacanian gobbledygook or grievance studies generally and Master’s degrees in how to be a librarian should be discouraged rather than subsidised by governments handing over blank cheques to universities.

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Posted in Economics and public policy, Politics - national | 10 Comments

If we tolerate this, our children will be next … Guest post by Dennis Glover

Question: Given that history repeats, what year is this?

Fifteen months ago, when Donald Trump’s rag-tag militias stormed the Capitol building in Washington D.C., I thought for a moment we might be living in 1923, witnessing the rebirth of western fascism. Such were the similarities with Hitler’s putsch of that year. Six years more, I thought, and we’ll be in 1929 at the start of the Great Depression, and then just one more low, dishonest decade to global war.

History repeats, but maybe faster than we imagine. When President Putin’s divisions invaded the Ukraine some fifty days ago, my mind was instantly back in 1936. Just as Putin has tried to do, elements of the Spanish Army led by General Francisco Franco, attempted a coup against the liberal Spanish republican government, thinking its military takeover would be fast and surgical. When it failed to succeed overnight, an attempt was made to quickly overwhelm the major cities, including Madrid and Barcelona. The republican defenders dug in and fought stubbornly. The attacks were beaten back, with fierce fighting on the outskirts of the cities. Territory changed hands several times until the cities were saved – for a while.

Is this starting to sound familiar? 1923 became 1936 in no time at all. But the historical resemblances only get worse.

Supplied and piloted by mercenary flyers from Nazi Germany and Fascist Italy, the Francoist air force bombed republican-held cities in a brutal terror campaign. The dead bodies piled up, including the dead bodies of children. This gave birth to an evocative image: A poster featuring the photograph of a dead child against the backdrop of a formation of bombers, and below it the following: ‘If you tolerate this, your children will be next.’

Music lovers may recall that the British rock band the Manic Street Preachers made that slogan it into a hit song in the late 1990s.

This seems to me the depressing but empowering message for our times. Continue reading

Posted in Democracy, History, Political theory, Politics - international, Terror | 8 Comments

How Shorism might win Australia’s federal election

Looking at Australian politics right now, one thing stands out: the federal ALP has become a little Shorist. I don’t know how long it will last, or whether it’s even a conscious strategy. But it’s definitely happening. 

What does “Shorist” mean? Well, David Shor (pictured in that YouTube video above) is a US electoral analyst. In 2020 he was somewhat famously fired by his Democrat-aligned consulting firm. His offence? Pointing, during the Black Lives Matter protests, to research showing that the violent protests of 1968 lost Democrats votes, while non-violent protests gained them votes.

The ensuing publicity underlined that Shor had something pretty distinctive to say, particularly for a self-confessed Sanders-voting socialist. He had a whole critique of US left-wing politics that went beyond just rejecting violence as a political strategy. It also translates pretty well outside the US.

Shor’s critique was that a lot of the left’s preferred policies are really unpopular, and so leftists should stop talking so loudly about them.

Note that Shor didn’t even argue that the Democrats should abandon all their unpopular policies. He just insisted that if you spend most of your time yakking about things people don’t want you to do, you are less likely to get elected.

The Shorist political strategy seems almost insanely simple: talk about issues where people are likely to agree with you, and shut the f**k up about issues where most people disagree with you. 

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Posted in Economics and public policy, Education, Employment, Inequality, Politics - national, Social Policy | Tagged , | 11 Comments

Free speech and social media moderation

This video discussion, audio downloadable here, discusses the issues raised in this post.

I’ve previously expressed some dissatisfaction with what I might call a ‘one dimensional’ understanding of the idea of liberty. This post explores another aspect of that — free speech on social media. But first the backstory.

Someone referred me to David Thunder who seems like an interesting and earnest guy whose interests and inclinations seem very like my own, at least judging from his website.[1] Anyway, Twitter in its infinite wisdom decided to de-platform him for disputing various tablets handed down to us by those folks who think that being science-based means doing what you’re told by medical bureaucrats — you know people like Brendan ‘masks are silly’ Murphy and Nick ‘am I trending yet?’ Coatsworth. I disagree with him on some of the points he’s made, but it’s obvious they’re made sincerely, thoughtfully and, according to his lights responsibly.

But on reading this post on Elon Musk’s recent interest in freer speech on social media, I expressed my disappointment at its endorsement of ‘free speech’ as a principle without grappling with the difficulties social media disinformation is raising for us all. It seemed to me that his own preoccupation with virtue ethics is a good place to start to go beyond the idea that the right rule is all we need. In any event, an edited version of my lengthy second comment is below the fold.

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Posted in Cultural Critique, Democracy, Media, Metablogging, Sortition and citizens’ juries | Leave a comment