The post-autistic economics review

I was talking to jeffd about this yesterday - the interesting thing about economics here is that the undergrad version doesn’t seem to be a “simplified” version of the advanced version - it seems to be practically unrelated. Modern trade theory (first-mover advantage, vast bulk of trade in the same types of goods between first world countries) apparently has jack to do with Ricardo going on about corn, for example.

Contrast this with, say, physics, where Newtonian mechanics gets you virtually the same answer as the “real” version for 90% of the cases you’ll encounter.

You use “artificial” and “force” an awful lot. The market didn’t spring free-form from the muck; virtually every rule of the game was created by society and government. Obviously not every theory is right, and not every proposal is a good idea, but I don’t see the reason to just assume the current market situation for low-wage labor is optimal. The current situtation is no more “natural” or “unforced” than any other.

Phil- Just to be absolutely clear, you don’t need to pay a babysitter minimum wage if you are using 13-16 year old neighbors.(in most states 13 year olds cannot legally hold a job)

Do you withhold social security for them? If your friend wants you to pick up a $17 tab at lunch and says he’ll give you $20 tomorrow do you file on the $3 return?

There’s some threshold on this - like $1300/year/domestic employee, I think. Yes, I looked it up :) And we’re well under the threshold…

I tend to view a situation in which two parties are free to contract with each other as the ‘natural’ state, and a situation where they cannot strike that contract because a 3rd party outlaws it as “artificial” to a greater extent.

Not that two parties should be able to agree to any contract they care to - there is a role for the state and other 3rd party entities. But the “default” approach to most contracts should be that if the parties agree, then so be it.

If history is to be any guide, the “default” state is for the world to be full of quasi-enslaved peasants. The modern libertarian vision of a minimal contract-enforcing state isn’t “natural” either; it’s what you prefer. That’s fine, but it’s a bit like the phrase “natural rate of unemployment” - there’s nothing natural about it.

If we’re starting from there, we might as well start from cavemen with spears.

I don’t want to get into a semantic battle - there’s already enough of them on the 'net.

You say “I don’t see the reason to just assume the current market situation for low-wage labor is optimal”. I never stated the current situation is optimal. Few things in life or society are. But rather than trying to put words in my mouth or make me prove that the current situation is optimal (which I wouldn’t and couldn’t do), why don’t you say exactly what situation you prefer, and if, in fact, that postion is a higher minimum wage, what that wage should be.

It is difficult to teach modern macroeconomic theory to undergraduates because the math is too difficult. But undergraduate micro, including trade, more or less makes an accurate albeit heavily simplified appearance at the undergraduate level. I don’t think many economists would agree with you that comparative advantage has “jack” to do with trade.

Phil, I don’t know how to intepret this, said in response to “I have a hard time believing there’s people who can’t cost-effectively do something more productive than pick fruit for a living” as anything but “the current situtation with fruit picking is optimal because that’s the most productive thing they can do”:

On the natural thing, my point is that there is no such thing as a “natural” economic system for any useful definition of the word, and if you use words like that it has effects on your analysis. You’ve used the word “artificial” to describe potential changes to the system; it’s a meaningless value overload. You might as well call your the setup you think is the best “fresh and tasty.”

I hate the man who gave you the double-quote key. You didn’t need to use it at all in any of the sentences above. They read perfectly correctly without quote marks. And you’ve got Phil and skedastic doing it too, just to keep up with the faux-terminology.

Replace the quoted words with capitalized words for a fun game.

At first, I literally thought that posts #60 and #64 above were some kind of a spoof, because when they came up on my screen all I noticed was a ton of quotation marks.

Great, forum post formatting criticism time. What does strunk and white have to say about referring to the use of concept of someone else that you reject? What about on a quasi-public internet forum for gaming, when talking about economics and politics?


Readability aids comprehension, especially for those of us trying to follow an already esoteric discussion of unfamiliar concepts. It’s hard to see the benefit in building entire paragraphs around metaphors and rephrasing instead of just constructing more natural sentences. I didn’t intend my post to be like a LOLTYPO derail.

But I know how you New England ivy league liberals are about the unwashed masses following your discussions. ;)

Again, Jason, you’re playing semantic games with “natural”, “artificial”, “optimal”, etc… (Quotes included to annoy shift6).

To rise to your bait:

Natural is a state which nature reaches without outside intervention. Given water and a gentle slope, the natural state is a stream down the mountain.

Artificial, in the context I used it, is when an outside force intervenes (humans builds a dam)

Optimal is a bogus word that I did not use, because it would spawn an entire side-discussion. This came up originally in posts 48 and 49. You implied that workerss choices to be fruit pickers is wrong (there should be something “more productive” they could be doing). I stated that if there were in fact more productive uses for their labor, another industry would capitalize on that and hire them. Now, if you want the government to step in and pick winners and losers, you could certainly institute policies that would make it more lucrative for the workers to do something else (and/or for other industries to hire them). But that would presumably require a higher degree of government intervention - might I even characterize it as “artificial” intervention?

You could pass a law paying migrant farm workers to learn how to program a computer. Many would enroll in the program. You could then create government computer programming jobs for the graduates. Many would take those jobs.* If the government set it up right, they’d likely earn a lot more money. A few of them might even make decent programmers. But it would require massive “artificial” government intervention, and my guess is that the costs would far outweigh the benefits.

Of course, that’s a fairly extreme example. So again, I challenge you - rather than debating linguistics, please specify exactly what you would do to improve outcomes for low skill workers.

*Incidentally, this anecdote is loosely inspired by my own experiences working as a consultant/programmer for Caterpillar in 1992. Following the last business downturn, and stuck with union contracts that made it painful for them to lay off workers, Cat had taken a large swathe of its workforce (union guys, secretaries, etc.), sent them to programming school, and declared them to be programmers who would work with us on the system we were building. The results were as you might imagine…

I said, maybe not clearly enough, that I didn’t think the market outcome as it exists, where they pick fruit, was the only workable outcome, or the best for anyone involved. Chiefly, I see no reason to think a market where the employers wield enormous power over mostly illegal immigrant employees is efficient or optimal in any of the various defined ways.

Oh yes, they’ve never done that before. The government certainly didn’t interfere in the market by creating immigration and hiring laws, or selectively deporting people only when it felt like it, or setting up tarriffs, road networks, taxation, a legal system, or any of the other thousand ways government defines the playing field.

I really don’t understand why you libertarian-leaning guys have such an across-the-board certitude that the status quo is anything but the way things happen to be at the moment. Markets probably naturally arise out of human interactions - virtually all cultures develop one - but there’s no specific market format that’s more natural than any of the others; this can be seen by looking at the wildly varying forms of “first markets” developed throughout history.

First part is obvious (of course there can be other workable outcomes). Second part too (it’s unlikely that any particular outcome can be best for anyone involved). The real question is, is there a better outcome for all society participants over the long term? There may be, but you haven’t proposed one.

Now you’re turning this from a discussion of the merits of the minimum wage to immigration policy. I won’t rise to the bait. That’s a whole 'nuther discussion. Start a thread for that if it floats your boat.

Certainly, governments have always intervened in economies (once again, it’s an obvious point that no one would dispute). But it’s a matter of degree. Do you advocate a much greater level of government involvement in the economy than is the case in the U.S., currently?

And again, you’re pushing really hard to debate the term “natural”. Forget about that term. Instead, substitute “best”. What is the best economic system? Start with the U.S. economic status quo, then make persuasive arguments to change certain aspects of it. Please keep your discussion centered around methods of improving outcomes for low skill workers (and don’t shoot off into an immigration side-debate).

I agree debating the best system is the point. I was just pointing out how you were using natural all over the place like the status quo exists in a state of nature, unsullied by human hands. :)

No one’s arguing against the government’s imperative to build things like roads which improve the efficiency of the economy. No one’s arguing that the government shouldn’t intervene to provide basic help to the dirt-poor. But I think there’s nothing wrong with Phil’s use of the word natural, which I took as just meaning the equilibrium state of the economy under the current conditions. And is it natural to make it even harder for unskilled workers to get a job by pricing them out of the market? Is a poverty-reduction program whose costs fall squarely on employers of unskilled workers in any way just? As Phil wrote, the minimum wage increase is politically palatable because the costs are hidden and people get a better feeling from drawing a bigger paycheck, compared to getting money from the government. But as people in P&R keep reminding us, the social fabric of the U.S. depends on the labor of minimum-wage workers. I can’t refute that it’s everyone’s responsibility to make sure the working poor can feed and house and clothe themselves and their children. So why would a conscientious liberal support the minimum wage increase as a poverty-reduction solution, which will affect small businesses a lot and tech companies with highly-skilled workforces hardly at all? It’s like a regressive tax on businesses.

“First, when preferences are homothetic and the distribution of income (value of wealth) is independent of prices, then the market demand function (market excess demand function) has all the properties of a consumer demand function…Second, with general (in particular non-homothetic) preferences, even if the distribution of income is fixed, market demand functions need not satisfy in any way the classical restrictions which characterize consumer demand functions…The importance of the above results is clear: strong restrictions are needed in order to justify the hypothesis that a market demand function has the characteristics of a consumer demand function. Only in special cases can an economy by expected to act as an ‘idealized consumer’. The utility hypothesis tells us nothing about market demand unless it is augmented by additional requirements.” (Shafer & Sonnenschein 1982)

That, as I understand it, anyway, is the basic statement of the SMD conditions; in order for a market demand function to have the characteristics of a consumer demand function, the market has to be made up of people with identical preferences and, extra units of income have to be spent the same way regardless of who gets them. I think it was Gorman who first discovered this but the conditions are named after Sonnenschein, Mantel and Debreau because they were the ones to treat this as a problem rather than to assume that these assumptions are reasonable.

That, as I understand it, anyway, is the basic statement of the SMD conditions; in order for a market demand function to have the characteristics of a consumer demand function, the market has to be made up of people with identical preferences and, extra units of income have to be spent the same way regardless of who gets them. I think it was Gorman who first discovered this but the conditions are named after Sonnenschein, Mantel and Debreau because they were the ones to treat this as a problem rather than to assume that these assumptions are reasonable.

The first statement refers to n commodity market excess demand functions in Arrow-Debreu general equilibrium. It is important to note that that use of “market demand” is not the same as the partial equilibrium market demand that is commonly used in applied work and appears in undergraduate textbooks. The SMD result, very loosely speaking, says that if you write down a big highly abstract model of the entire economy and place almost no restrictions on how consumers behave nor the technologies firms use, and we allow a shock to any part of the system to play out through the entire system, then there’s little empirical content. That’s not particularly surprising, and it’s one reason why, as I noted above, applied research doesn’t start off with highly abstract, unstructured general equilibrium models.

The Gorman aggregation conditions do mean that we cannot usually write market demand as a function of total income. Both these aggregation problems are issues for macroeconomists – as noted above, aggregation poses difficulties. Everyone is aware that the representative agent is a problematic modeling approach. If you read some modern macroeconomics papers, you’ll find that even under that problematic simplifying assumption the technical difficulties which arise are severe. That’s the math I noted above which is too difficulty to convey to undergraduates.

Contrary to the implication of your last sentence, economists have been well-aware of aggregation problems such as these ones for a very long time (Gorman’s work is more than 50 years old, for example). Every advanced micro textbook discusses these issues. I don’t know where you’ve picked up the idea that economists “hide” asssumptions and ignore modeling issues such as these ones. If anything, economists are obsessed with these sorts of problems; after all, the people who find new approaches which help us overcome them wind up famous.