The cost of fixed ideas

Books on economic policy aren't generally page turners. But a new book by economist David Colander and businessman Roland Kupers certainly is. It makes the argument that some of the assumptions economists made many decades ago -- especially about people having fixed preferences -- have effectively created a trap for policy analyses. We're stuck as a result with endless, useless arguments about markets versus government. Change those assumptions, and it's possible to imagine policies that don't have markets and government in opposition; it ought to be possible to have free markets and a useful and smaller government at the same time, and achieve not only material prosperity but a wide range of social goals too.

I wrote about the book in a Bloomberg column a few days ago. That column has garnered all of 4 comments so far, which I think also illustrates another problem we have. The column is all about how we might find a way around all of the sterile arguments of markets vs government, and not too many people seem to be interested in that.... or at least not motivated to comment. From past experience, I know that any column which seems to take a side in those arguments stirs up a lot of protest. 

Anyway, read Colander and Kupers' book. Here's the column:

From financial regulation to health care to climate change, we can't agree on what to do about anything. Free-market enthusiasts celebrate the creative power of markets and want smaller government; critics counter that we desperately need government intervention to solve problems that markets can't handle. Neither side can understand the other.

Is there any way out? Well, if you're discouraged, I suggest looking to an inspiring new book by an economist, David Colander, and a businessman, Roland Kupers, who believe the deadlock needn't be permanent. We can have better markets, they say, and more effective (and smaller) government too, if only we can muster a little more economic imagination.

The book is called ``Complexity and the Art of Public Policy,'' and its main point is that our policy debates have fallen into a trap that economists inadvertently created some 50 years ago. That's when they started building mathematical models of economic systems, and, to simplify things, made the assumption that people have fixed or unchanging preferences and desires. Sounds innocuous; it wasn't, and isn't.    Read more.

Medium Tedium

In comments on my last post, Gekko asks quite rightly why I've been doing this silly business of posting two paragraphs and then linking to "more at Medium." It's a good question, so let me explain what's going on. I know it's irritating, and I'd like not to do it, but ....

A while back, Medium asked me to write some things for them. They pay a few writers (a little, very little, in my case) and are in the stages of trying to get their project growing. What it will grow into remains unknown. I do like their layout, and would like to be involved in Medium if and when it turns into the next big thing, whatever that might be.... but I also don't want to just go over there and abandon my blog. First, Medium is just articles; you can't have any sidebars with links to other people's sites, and I think such links are valuable, so visiting there is very different. Two, I don't know if Medium won't just disappear two months from now.

So, I'm left with this very unsatisfying business of posting two paragraphs here, and then linking there. (By contract, I'm not supposed to post in both places, at least not before a significant delay.). I'm not sure what else to do. The dilemma has in fact hurt my blogging, as some days I've started writing about something, then fallen into internal debate about whether to post here, or over there, or what else I might do, and then.... just gave up after an hour and did something else, like clean the gutters or walk the dogs.

If anyone has any ideas, I'd love to hear them!

Defending economists -- from themselves

I am on occasion a fairly harsh critic of modern economics, for many reasons. I think economists use the concept of efficiency in a slapdash manner. I think they make a fetish of rigorous mathematics even when they gain no insight from it; it's too often imported as a tool to impress others, rather than as a legitimate means to understanding (see the absurd Appendices of this paper, for example, proving various irrelevant theorems about Markov processes). I think economists (most of them) don't make use of enough modern mathematics from dynamical systems theory.

I also think economists often infect their social analysis with their own subjective values, even while mistakenly and dangerously believing otherwise (as a result of their training). I think the modelling assumption of rational expectations, for agents dealing with anything but the simplest environments, is just a silly idea. I would go so far as to say that I think many economists don't appreciate basic elements of scientific method, preferring the logical beauty (?) of deductive theories to empirically relevant ones. Etc. Read almost anything I've written on this blog for similarly critical opinions.

But I do, just the same, also think there's lots of good and useful economics, some of it even beautiful. And I think economists themselves should do a better job standing up for it. Some very prominent and well known economists are giving the field a bad name. Let me explain.

Read the whole thing at Medium.