Friday, May 18, 2012

Unlearningecon really ought to be better than this

He publishes a list of "'Free Market' Double Standards" that leaves a lot to be desired.

First I still don't understand his obsession with marginal product or why the marginalist condition for profit and utility maximization is so repugnant to him. Humans don't do calculus when the optimize, I'll grant (and I have granted recently), but they do (roughly) optimize, which implies an equation of marginal costs and benefits (at least in a competitive market). And, btw, while people don't use calculus "do X until it costs about as much to do one more time as it benefits me to do one more time" is a pretty easy heuristic to follow, for those of you who like to emphasize the heuristics point. That takes up the first couple lines of his critique. Moving on...

On #3: Alex Tabarrok and Justin Wolfers are different people. This is not a "double standard".

On #4: Milton Friedman and Robert Lucas are different people. This is not a "double standard". This one is particularly aggravating because while Friedman and Phelps did foreshadow some of Lucas's (excellent) critique, they still contributed to the literature on a reduced form Phillip's Curve that was Lucas's target in the first place!

On #5: Scott Sumner is one person. Good job. [I couldn't decide if that one was snarky or positive reinforcement... eh, who cares]

On #7: This seems like an empirical question. Anyway, I don't think any free market economists have denied that profits and income motivate those who earn obscene amounts of profit and income (and I use "obscene" in the nicest way possible).

On #8: This badly misrepresents Arrow-Debreu. There is no one consumer with one set of preferences. There are, in fact, i consumers each with their own idiosyncratic, perverted, quaint, or boring set of preferences (Arrow-Debreu, 1954, pg. 269). i can be more than one if Unlearningecon wants it to be. i can be 10,000,000,000, thus exceeding the number of consumers currently living on the planet, if Unlearningecon wants it to be. The only constraints on the preferences are that they be complete, transitive, and continuous. That doesn't seem like too much to ask to me. "Complete" is the really suspect one, but I think "locally complete" should be enough to appreciate the point of the model. Even given that particular nit that you may be interested in picking, it hardly seems like a "double standard" to me. It strikes me as being more along the lines of Nobel Prize material (and I am not alone in this assessment. The Nobel Prize committee, for one, seems to agree with me. The last line is pretty dumb too... how are you "robotically responding" if you follow your preferences??? Isn't that the opposite of responding robotically? Don't we usually reserve the word "robotic" to describe people who respond to some predetermined protocol regardless of their preferences? Don't we reserve the word "robotic" for people who don't even appear to have preferences of their own? Isn't Arrow-Debreu exactly the opposite of this?

 On #9, #10, #12, Kudos.

I think the #11 community is probably pretty narrow, and they're probably people we all ignored anyway.

On #13, counterfactuals work both ways. I'm not quite sure this is fair. I do think the point is right (assuming we put in some language in there about cyclicality... cuts probably do crowd in during booms).

On #16: I don't understand how this problem doesn't solve itself.

#17 Just seems wrong, but I have to think about it more. Anyway, in terms of monopolies we often draw flat marginal cost curves for monopolies for precisely this reason. I don't se why upward sloping supply curves depends on diminishing returns - it seems to only require heterogeneous technology.

On #18 I think this describes very few people.

On #20: I think almost everyone thinks 2008 is related to the last several decades... they just have different perspectives on the relevant contributing features of the last several decades.

On #21: This is more of a technicality, but Caplan is talking about relative prices in the first post and general prices in the second post. Those are two quite different things. The observation that these are two quite different things is an observation that spans all sorts of ideological backgrounds.

On #22: Dr. Pirie is not a Congressional Republican. this is not a double standard.

And #23 isn't even a double standard at all!!! This is one of the greatest virtues of capitalism!!! That Unlearningecon is identifying this as a contradiction is not a good sign at all.


  1. Tim Worstall commented on number 7:

    The first two are tricky. Though I disagree with most things Unlearningecon has to say I'm not entirely happy with marginal products either. Especially in the short run, and especially as they apply to individuals and small groups.

    From many years of reading I have seen argument #10 made only once "If rich people felt they were getting a good deal from taxes...". It's a straw man because practically nobody claims there is no such thing as free riding.

  2. #14 is very bad as well: it implies that Hayek though, "It is good to have human knowledge as scattered and local as possible: that way we can get accurate market prices!"

    What a travesty of Hayek's view, which notes that, *given* that human knowledge is scattered and local, is there any known mechanism that can do a decent job of coordinating plans anyway?

    1. Oops, "Hayek thought," not "though"!

    2. All I'm saying is that Hayek's idealised vision of the market process failed to address *problems* that result from local knowledge, like fraud.

  3. You know what, I'm going to admit that I might have gone overboard with this one. When I first started writing the 'double standards' lists they were things that had always struck me as obvious (e.g. hatred for unions despite them being a bastion of free association; support of large top down corporations coupled with an aversion to 'central planning'), but I think at this point I'm looking too hard for them.

    Anyway, I'll give some defences...

    MVP: my whole point is that MVP cannot be applied to labour alone, as production requires both labour and capital (and land). An MVP for the labour and capital *combined* is useful, but you can't separate them. In cases where teams produce things even that becomes blurry but in any case one labourer cannot be separated from other factors.

    #3 Tabarrok endorses his argument, no?

    #4 Laziness. I'm aware that Friedman rejected microfoundations and Lucas rejected Friedman's approach in its pure form, but other economists *do* appeal to both of them in some form. In fact, one of my textbooks makes a Friedman-style argument about marginalist analysis of firms but also critiques the Phillips curve from a Lucasian perspective.

    #5 I’m referring to the juxtaposition of the idea that the rich are driven, innovative and hard working, and the idea that a 3% tax increase will stop them from doing anything. Personally I think the former is more true than the latter but to support both of them requires a glass of doublethink.

    #16 Clarify?

    #17 But why just monopolies? Oligopoly analysis certainly has increasing marginal costs. I'm happy to admit I don't understand your technology point at all.

    #20 hmm. There's a tendency among those who haven't endorsed Austrianism post 2008 to view the crisis as a temporary 'blip' in a (right-)neoliberalism paradigm that has been otherwise successful. See here, for example:

    #23 capitalists are constantly seeking to gain favours from the government and that's a virtue??

    1. #7 There is a difference between being addicted and being driven. Also, the argument is a combination of the rich moving to different countries, avoiding taxes in other way, or simply focusing on things that make less money.

      #20 I don't see what's wrong with that. If I say: your lung cancer was caused by your lifetime of smoking, but your broken leg was not caused by giving up smoking, that's not a contradiction. That's taking two different events and evaluating a potential cause for them independently. The arguments for Keynesian policies having caused stagflation cannot be summed up to: one happened after the other.

      #23 You're just using terms inaccurately. Capitalists are proponents of capitalism, competition and free-enterprise. Market participants are seeking to gain favors from the government.

    2. #7 sure, there's a difference, but even if the argument applies in a weaker form it still applies, right? That is: if the rich are so dynamic, driven and industrious, why will they be discouraged from working by a tiny tax increase?

      #20 not a contradiction, more of a double standard. 'Neoliberals' sometimes *do* appear to acknowledge that the crisis of 2008 was a result of the paradigm, but see it as a 'blip'. However, when you cite the prosperity of post-WW2, they'll say 'well look how that ended in the 1970s!' If they want to discuss neoliberalism as a whole they must acknowledge its failure in 2008 as something other than a blip, else view what they perceive as a Keynesian failure in a similar light.

      #23 capitalists meaning 'the owners of capital'. Friedman simultaneously acknowledged that they continually try to seek favours from the government and thought capitalism was the best system ever devised.

  4. "I’m referring to the juxtaposition of the idea that the rich are driven, innovative and hard working"

    No, I think that at least neoclassical perspectives do not suggest this.

    The marginal value of a high earner's working hour may be high WITHOUT the said person being driven, innovative, or hard-working.

    Arguably, TV pundits don't work hard at all, but their work is given such high value by their viewers that they are paid in millions.

    1. It's a criticism of free market proponents in general rather than neoclassicism.

  5. "support of large top down corporations coupled with an aversion to 'central planning'"

    is a pretty stupid strawman.

    General Motors' executive team does not control the output and supply chain of the steel industry, the oil industry, or the capital equipment industry. It does not personally ration which customer keeps how much automobiles or when she is allowed to replace it. It does not order around its suppliers on how much inventory they should keep. All of these are external factors outside their control, and are pretty much the opposite of central planning. To say it is central planning is pure sophistry.

    Unlearningecon is more interested in contrarianism and polemic. Hell, the very name of this user suggests desire to achieve punditry through contradiction.

    1. Corporations are top down hierarchies - maybe 'Central Planning' is overstating it, but many certainly have a large degree of power, and administrators set price and supply. OK so they are somewhat accountable to consumers but that doesn't change their nature and many of the 'Austrian calculation' arguments should apply.

      Actually, my name has very specific reasoning behind it: namely, the cognitive dissonance studying economics appears to instil in people. I spent a long time trying to unlearn it and am interested in exactly why it does this to people.

      As for contradiction - what do you expect me to do if I'm to make my blog interesting? Agree with everyone?

    2. For what it's worth, Paul Krugman has made the same argument that Unlearning Econ is making here:

  6. "Humans don't do calculus when the optimize, I'll grant (and I have granted recently), but they do (roughly) optimize, which implies an equation of marginal costs and benefits (at least in a competitive market)."

    You might consider whether this view is ethnocentric, and if so, to what extent.


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