Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

Saturday, November 21, 2009

Scroogenomics

Posted by Simon Halliday | Saturday, November 21, 2009 | Category: | 1 comments

In his recent column for the FT, Tim Harford discusses the idea of Scroogenomics. The idea, conceived by economist Joel Waldfogel, proposes that Christmas be abolished. No, Waldfogel is not the Grinch made flesh, but rather an economist who has rather narrow views on gifts and gift valuation. Waldfogel argues that each year at Christmas the worldwide deadweight loss is approximately $25bn. The reason? If someone gives you a gift with a price of $50, you may value it at $35-40. Extrapolate this outwards and you can arrive at suitably large numbers. Waldfogel's proposal for Christmas is that people give cash rather than physical gifts. Giving gift certificates (vouchers) also isn't efficient because people often don't use them and they expire, not serving their purpose. Thus give money.

Harford challenges Waldfogel's idea of deadweight loss by calling on 'Warm Glow' effects, i.e. how we feel about giving gifts and how we could attach a monetary value to the warm glow that would diminish the deadweight loss. I agree with Harford, but two other criticisms come to mind. First, the much researched notion of framing. The problem is that when people frame things as financial interactions rather than as gift-giving they often behave less cooperatively and less prosocially. Imagine at Christmas not giving any non-monetary gifts whatsoever, but only exchanging envelopes of cash - it may come to feel like an exchange of cash for services rendered, even if the service was just a big 'thank you' afterwards (note, there might be an optimum at some combination of gifts and cash-in-hand). Secondly, people are known to experience the endowment effect for goods, that is to value goods more than their listed price when given the option to exchange that gift with someone else. Highlighting the endowment effect somehow could overpower the straight monetary losses by affecting how people value the gain. I'm not suggesting here that we try to set up post-christmas trades between siblings, but playful commentary on the 'subjective worth' rather than the 'monetary worth' of things could be justified, and potentially more in the spirit of Christmas, regards of your religious or secular affiliation.

Friday, November 20, 2009

(Fred) Halliday's 'What Was Communism?

Posted by Simon Halliday | Friday, November 20, 2009 | Category: , , | 0 comments

I finally got around to reading Fred Halliday's article at OpenDemocracy 'What Was Communism?' I found it quite edifying, from the little things I appreciate, such as expanding my vocabulary (I did not know, or do not recall looking up previously, that 'aporia' was the Greek for impasse, specifically in the case of understanding potentially divergent or ambiguous meaning), to larger and more significant contributions such as finding a worthy critique and commentary on the lessons that we must learn from Communism and its failure; particularly how it is necessary for us to realise the ways in which capitalism adapted to the presence of, and how it now adapts to the lack of, communism as a an alternative for state policy.

Though one may be sceptical of the 'if you don't know history you'll be doomed to repeat it' trope, Halliday articulates the role of 'communism as reminder' well:

Judging from the politics and intellectual debates of today, neither those who celebrate the end of communism, nor those who are now articulating a radical alternative, have carried out such an assessment: between (on one side) the still resilient complacency of market capitalism and an increasingly uncertain world of liberal democracy, and (on the other) the vacuous radicalisms that pose as a global alternative, the lessons of the communist past remain largely ignored. And so, as they say, they will be repeated.
And on adaptation,
The greatest achievement of communism may well turn out to have been not the creation of an alternative and more desirable system contrasted to capitalism, but its contribution to the modernisation of capitalism itself. No account of the spread of the suffrage, the rise of the welfare state, the end of colonialism, or the economic booms of Europe and east Asia after 1945 could omit the catalytic role which, combined with pressure from within, the communist challenge from without played.
I subscribe fairly strongly to the notion of institutional evolution: that institutions either adapt to the social environment in which they find themselves: they mutate and succeed, they mutate and fail, they do not recognise that the environment has changed and they expire because unadapted. With institutions, as with most things on such an epic scale, what matters is that we recognise how both an historic presence of an institution and how contemporary legacies of an institution affect the current institutions that appear and mutate to adapt to the current institutional milieu. Certain things in our 'democracies' scare me: for example, the evisceration of rights historically held sacred in the West petrifies me as a potential adaptation of capitalist democracy to a world in which communism no longer threatens it. I hope though that mass action - demonstration, voting, community involvement - will act as counterweight. Though I get annoyed by aphoristic 'Time will tell's, it should.

Wednesday, November 11, 2009

Will Hutton's LSE Lecture

Posted by Simon Halliday | Wednesday, November 11, 2009 | Category: , , | 0 comments

Last Wednesday evening I attended a lecture by Will Hutton at the LSE titled 'Them and Us: How Capitalism without Fairness is Capitalism without a Future' [podcast]. Though some did not like it, I appreciated the talk, but I got the sense that it was, as Hutton said at the outset, the first time he was discussing in public the topics he intends to put into his next book and he was therefore not as structured nor as well-articulated as I expect him to be once he has the book done and dusted.

Hutton covered several broad areas of interest ranging from a theory of justice based on fairness and equality of opportunity (relating to an open access society as he articulates it), improved democracy, a better functioning market, increased government investment in innovation and technology, and improved regulation of financial markets. That was a lot to cover in one lecture, and I think he lost a few people because of being a bit all over the place. Nevertheless, I have rarely come across a lecturer who so closely mirrors my own position on things.

First, he articulated how, consistent with Marc Hauser's Moral Minds, humans seem to have a native, persistent and seemingly ubiquitous moral intuition about most things that affects us regardless of our stated rational positions. Though we may think rationally otherwise, we seem to have an inclination to punish those who infringe social norms, and reward those who we believe act responsibly and exert effort. Hauser backs this up with experimental evidence and surveys. I believe more in experiments, and I'm not so big on straight surveys for this kind of stuff. Anyway, the basic point stands: human moral judgements seem to be based on biological rather than purely rational pathways of thought and emotion. Hutton argues that this moral intuition oddly enough mirrors a sentiment that Marx articulated early on - from each according to his ability, to each according to his contribution - note contribution and not need. Moreover, he proposes an argument for equality of opportunity - or an open access society - that I thought was similar to John Roemer's in his Equality of Opportunity - control for luck, allow for personal responsibility over effort. [I asked Hutton about this connection during the question time and he replied that the contemporary milieu calls for a re-annunciation of Roemer's theory, which was apposite when it appeared in 1998, but even more apt and urgently needed now.]

Second, to reform contemporary politics and capitalism we need to embrace this human inclination to interpret others' behavior relative to ourselves and to our intuitions about fairness. Thus, partisans on the left and right need to re-conceive their thinking on phenomena such as CEO pay - what value do they really provide? are their paychecks accurate representations of their productivity or grotesque arms-race style rewards? - of single mothers on benefits - at what point are they responsible? at what point is it bad luck? - and progress from here to redress the function of the political system in the UK (and, I hope, abroad). This reminded me of some of the prescriptions in Eric Beinhocker's The Origin of Wealth in which Beinhocker argued for a role of complexity economics, social preferences and advances in theoretical biology that seem to better approximate how people think and act rather than the polarized partisan positions that people take on issues independent of the evidence.

Third, Hutton goes on to argue that, at their best and most competitive, markets are the optimal way to elicit the value of contributions that people make to society. But the competitiveness of markets has been undermined by political shenanigans, rent-seeking, monopoly power, and the connections of political interests to corporate interests rather than the interests of the citizenry - our democratic votes are in no way as powerful as the money of the capitalist elite. Consequently, though, value has been corrupted, the notion of just reward undermined, and our sense of rightness and fairness has been contravened by the actions of commercial oligarchs acting in their own interests to the detriment of the population at large. *Applause* I couldn't agree more. The problem relates to how we conduct policies in modern democracies, to lobbying and to political clientelism that pervades both the developed and developing worlds. What can we do about it? I favour grass roots collective action. To some extent Obama's presidential campaign showed the power of such tactics and I wish that more people would adopt such action for other important causes, reforming democracy itself for example. On this, Hutton advocates diminishing the power of the executive in the UK, delegating more power to local authorities, and increased participation by citizens.

Hutton made several additional points, but I thought that these three general areas were the most interesting and relevant. I believe, particularly, in a system that better approximates equality of opportunity and does allows people to move beyond the context in which their parents were born - a system of zero intergenerational transfer of inequality of opportunity. Unlikely, but at the moment it is something towards which I am inclined. I am not entirely sure how to get there, but the ideas that Hutton conceived seemed, to me, at least a contemporary utterance in a conversation that needs to continue.

Monday, November 09, 2009

Dowden on Africa and China

Posted by Simon Halliday | Monday, November 09, 2009 | Category: , , | 0 comments

Richard Dowden's recent Times article is entertaining and contains some truth.I found the following paragraph particularly amusing though disturbing:

There is a widespread perception that saintly Britain had adopted this poor little girl called Africa and was busy saving her from hunger, war, disease and poverty. Suddenly big, greedy China, flashing huge deals and cheap goods, has seduced the girl and is leading her astray, even raping her. And to make it worse for Britain, ungrateful Africa sometimes feels that although Chinese intentions may not be entirely honourable, China at least treats her like a grown up.

Take a look at the article, it's worth a read. I continue to reflect on the moral dangers of trading with China for countries in Africa, and the extent to which, if trade makes these countries more successful, they will come to believe that politically mirroring China will also bring them success. I hope that this does not happen. I believe that the SA-China campaigns to block the UN Vote on Zimbabwe typifies this danger.

Thursday, November 05, 2009

Carnival of the Africans

Posted by Simon Halliday | Thursday, November 05, 2009 | Category: | 0 comments

http://sphere.files.wordpress.com/2008/02/link-love.pngI am late to this party, many apologies.  The most recent Carnival of the Africans, the 12th, was hosted by Mike Meadon over at Ionian Enchantment.  One of my recent posts on risk aversion is in the carnival, so take a look at it if you haven't read it yet (and I promise more are coming, I am simply working quite hard on a paper at the moment which prevents regular blogging for some reason, not all of us are Tyler Cowen).  Other posts from the blog that I found interesting are the following: Jacques Rousseau's discussions of whether Faith Kills and on the relevance of Blasphemy Day (basically what's the point of being an offensive non-believer? it doesn't assist the cause and alienates people - here I think it's necessary to separate acts which are political (say PZ Myers and the cracker - though it's debatable about the offence vs. politics here) and those that are just out to offend); two posts on psychic-related stuff - one by Tim at Reason Check on a psychic claiming to have contacted Michael Jackson (LOL!) and another by Angela the Skeptic Detective about a surprisingly boring psychic fair in Durban.  Finally, Mike himself explains some things about the human immune system, the understanding of which seems to have been evaded by many people of late.  Those are my picks (read, I managed to read them) from this month's carnival.  Take a look at the whole thing though for the link love.