Category Archives: links to my essays

A moonshot to overthrow neoclassical economics

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Tyler Cowen gave me an idea. He described his personal moonshot. He wrote,

My goal is to be the economist who has most successfully used the internet as a platform to foment broad enlightenment.

He elaborates on this, creating a concise statement of his mission as a public intellectual.

So I did something similar. Please read Overthrow Neoclassical Economics: my personal moonshot. It begins,

My personal moonshot is that I wish to be a leader in overthrowing neoclassical economics.

…As I see it, neoclassical economics is characterized by two essential propositions.

1. Production is a process that employs two primary factors — labor and capital.
2. The distribution of returns to labor and capital reflects their respective contributions to the production process.
There are many economists, particularly on the left, who reject (2) in favor of theories of distribution that stress the role of political power. This criticism may have merit. But my criticism is more fundamental than that. I reject (1) as a useful description of the contemporary economy.

In neoclassical economics, individual productivity is inherent in the technology and the amount of capital per worker. In reality, it is way more complicated than that. Indeed, there are power relationships, but it is way more complicated than that. Technology and relative power are not sufficient to determine individual productivity and compensation. Everything depends on who you are teamed up with, how you are organized, the overall culture in which you are embedded, and other factors, including ongoing dynamics and expected future changes.

Uninformative Regression

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Pierre Lemieux writes,

simple regression analysis confirms the absence of statistical correlation between country size and economic freedom.

Simple regression analysis is not a good choice with skewed data, such as the population size of different countries. What the regression algorithm does in this case is just compare the freedom index values of China and India with the average of all other countries. That is not very informative.

If you want to see a more careful analysis, which does show that smaller countries tend to be better run, see the essay that I wrote on The recipe for good government.

My essay on the CBO for the Yale Law and Policy Review

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I write,

The demand for pseudoscience leads to unwise policy choices. Although the CBO is nonpartisan, the presentation of its model results serves to focus attention on scenarios that are favorable to intervention and to deficit spending. But the policy discussion does not include scenarios in which intervention fails to accomplish intended results or where economic shocks make a large government debt problematic. This Essay recommends ways for Congress to redirect the CBO, resulting in analysis and reporting that would provide better support for public policy.

This is one of my favorite essays, because I believe it is both original and correct.

There is a sort of Murphy’s Law at work in the way that policy makers use the CBO. They pay attention to its “scoring” when it is least appropriate to do so, and they ignore the CBO when it is most appropriate to pay attention, namely its analysis showing that the long-term budget outlook is not sustainable.

It should be very clear that I blame the press and policy makers for how they mis-use the CBO. I do not blame the CBO itself.

A Social Progress Index

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At this year’s AEA meetings, there apparently was an interesting session on measuring well-being.

One paper, by Daniel Fehder, Scott Stern, and Michael E. Porter, says

we describe the construction of a synthetic measure of non-economic performance, the Social Progress Index (SPI). Building on a wide range of prior literature, it incorporates more than 50 indicators into 12 components that are then aggregated into three primary dimensions of non-economic societal performance: Basic Human Needs, Foundations of Wellbeing, and Opportunity.

…
overall social progress is decomposed into three distinct dimensions, Basic Human Needs (“Does a country provide for its people’s most essential needs?), Foundations of Well-Being (“Are the building blocks in place for individuals and communities to enhance and sustain wellbeing?), and Opportunity (“Is there opportunity for all individuals to reach their full potential?”). Whereas Basic Human Needs centers on non-economic conditions that a society provides (e.g., achieving a low child mortality rate and a high level of sanitation, shelter, and personal safety), Foundations of Wellbeing focuses on whether a society offers individual an opportunity to invest in themselves and their communities to advance their wellbeing (e.g., allowing individuals to achieve a basic level of education, gain access to information, and maintain strong lifelong health and local environmental quality). Finally, Opportunity focuses on those components of social progress that concern the ability of individuals to achieve their own personal objectives, including their degree of personal rights and freedom in the context of an inclusive and educated society.

I like the idea of diversifying the portfolio of economic and social indicators. Recall my recent essay proposing to measure occupational satisfaction.

The back-sleep ideologues

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This story says,

The American Academy of Pediatrics, or AAP, recommends that babies always be placed on their backs to sleep, even for just a nap.

I think this is worst advice ever. I don’t find convincing the evidence that this reduces death of infants. I am convinced instead that it leads to widespread sleep problems among babies at least until age four, it slows their motor development and probably their cognitive development, and leads to many children wearing helmets to reshape their heads.. A friend of mine quoted a pediatric physical therapist as saying, “The back-sleepers keep me in business.”

Of course, it is not typically rational for a non-expert to challenge orthodoxy. So call me crazy.

My review of Haskel and Westlake

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The book is Capitalism without Capital. Recall that this is the one book that made both Tyler’s and my list of books of the year. I write,

defending the use of a cost-based method to value intangible capital strikes me as based on hope rather than theory or evidence. The overall economic value of intangible investment does not necessarily equal the resource cost spent. Indeed, strong economic performance may come from particularly good investment choices being made on average, while weak economic performance may be due to misallocation of intangible investments.

Heterodox economics: my latest

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1. David Wright invited me to a podcast, which is here. I got off to a slow start, so I recommend skipping ahead to about minute 6, maybe even to minute 8, where Wright brings up the book Capitalism without Capital.

2. After being stimulated by Wright’s questions, I wrote an essay on the social construction of value. Titled The Value of Nothing, it begins

If he were alive today, Oscar Wilde would say that a cynic is a man who knows the price of Bitcoin. You cannot drink a Bitcoin. You cannot plant crops on Bitcoin. Its intrinsic value is nothing.

Read the whole thing. I think of it as a deep essay about the fact that value is not intrinsic.

My own review of Eliezer Yudkowsky

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My review of Inadequate Equilibria.

The most significant episodes in my career have been when I stood for heterodox beliefs. For that reason, Yudkowsky’s book raised issues that matter to me, even though I did not always find Inadequate Equilibria to be clear or convincing.

This essay proceeds as follows. I will articulate Yudkowsky’s two major themes in two ways, first using jargon from calculus and statistics, then using plain English. Next, I will tell some stories from my own life that relate to these themes.

Because this is an important topic for me, I recommend reading my entire essay.