Month: June 2007

Shouldn’t CrookedTimber be the site that covers the heterodoxy?  Daniel Davies picks up the slack:

The anomaly I’m talking about is that neoclassical economics, in
both macro and micro forms, nearly invariably works on the basis of
models in which there are no profits.

Since in general, companies do earn profits, I think this is a pretty big problem.

Do read his caveats. 

I usually answer such questions by referring to the ordinary humdrum of my suburban life.  It took my three days to buy the new Paul McCartney CD, and yes I do love his solo work, or at least some of it.  And can you guess why it took me so long?  The CD is available only in Starbucks, but until today each Starbucks was situated so that my exit would have necessitated a left turn across four lanes of crowded traffic (and, most importantly, without a traffic light).  I love "Maybe I’m Amazed" as much as the next guy, but this boy just ain’t up for those sorts of indignities.

The higher the value of time, the more likely these competitive barriers will arise.  So the standard monopoly model explains much more of the economy than most market-oriented economists like to admit.  That said, I am less sold on Davies’s worry that this has nihilistic consequences for mainstream economics.  Tariffs are still usually bad; let’s not forget that behavioral imperfections plague politics as well.

The key obstacle to reforming aid is public opinion.  The constituency for aid is suspicious of growth, and the constituency for growth is suspicious of aid.

That is from Paul Collier’s very worthwhile The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It.

I’ve found at least one good piece on them, by Rene Stulz, in the Spring 2007 Journal of Economic Perspectives.  I learned or reaffirmed the following:

1. Hedge funds have existed since at least 1949.

2. Hedge funds exist because mutual funds do not deliver "complex investment strategies."  In part this is because mutual funds are regulated.

3. The largest mutual fund is about six times larger than the largest hedge fund.  Marketing constraints also encourage very large funds to adopt simpler and easier-to-explain strategies.

4. Investment advisors with fewer than 15 clients do not have to register with the SEC.

5. Regulations restrict the compensation of mutual fund advisors in various ways, typically requiring symmetric treatment of gains and losses (if a dollar of profit leads to a bonus, a dollar of loss must lead to a penalty).  That is why mutual fund managers are compensated in proportion to the size of their funds, not their performance.  This is not obviously efficient, and of course hedge funds pay for performance.

6. Hedge funds don’t have to disclose information to investors, other than by contractual agreement.

7. Diversification and redemption requirements make it harder for mutual funds to exploit some profit opportunities, or to hedge in particular manners.

8. The number of mutual funds that try to replicate hedge fund strategies is growing rapidly.

9. Available data on hedge fund returns are nearly worthless.

Overall I was struck by how much hedge fund activity is an artifact of regulations, and not necessarily beneficial regulations.  Deregulating some aspects of mutual funds may be an alternative to regulation of hedge funds.

Here is one version of the paper (click through to working papers), definitely recommended.  Here is Stulz’s paper on hedge fund contagion.

I view feminist economics as one of the more useful parts of the heterodoxy, perhaps because of its empirical component.  I see a few contributions:

1. Repeated insistence that household production is important and that it is lacking in gdp figures.  This isn’t new anymore but someone has to bang the drum.

2. Criticizing the "dominant patriarchal" assumptions behind standard models of the family, such as Gary Becker’s.  The Rotten Kid Theorem is interesting as pure theory but it has received too much attention as an actual model of the family.  The father is not always a benevolent manipulator, concerned most of all with collective welfare.

3. Insisting that economics is so often done "in a male way."  Now I happen to like the "male way of doing economics" — abstract, analytically cutting, and debate-intense.   But I’m happy to see someone linking the method to some general traits of men; put all the feminist excess aside, at some level the point is well-taken.

4. In the history of economic thought, Hazel Kyrk and Margaret Reid are worth reading, there are probably others as well.  "Home Economics" should never have been so cut off from regular economics.

5. Gender differences in analyzing the effects of policy.  Sweden, no matter what you think of it in absolute terms, is a better deal for women than for men.  Overall women are more risk-averse and less interested in accumulating large sums of wealth.  The Soviet Union was less bad for women than for men.  Many governmental health care systems are better geared toward the needs of women (e.g., easy access to pre-natal care) than for men, who require massive medical innovation to fix their heart attacks.  And so on.  These points don’t receive enough attention.

Feminist economics even has its own journal.

The down side?  I’ve never had much real world exposure to movement advocates (here is one interview).  I fear I would be turned off by their posturing, their sympathy for comparable worth, and their lack of a hardheaded willingness to recognize politically incorrect truths about gender or for that matter capitalism.  They are too skeptical about what is good in the Chicago-based economic way of thinking.  No way is feminist economics a viable alternative to the mainstream, but again improvement is possible through critique at the margins.

Not as much as you think:

China’s oil imports have increased dramatically during the past five
years; the country now imports 3.5 million barrels a day, compared with
U.S. daily imports of 12.2 million barrels. But it’s far less obvious
that Americans are really paying a price for this.

If you’ve been
to the mall lately, you’ve probably noticed that China is making scads
of plastic. As the world’s second-largest plastic producer, it is
furiously turning oil and petrochemicals into everything from lobster
souvenirs to sneaker soles. By embedding oil in products, China is, in
effect, importing oil on behalf of U.S. consumers — as much as 1
million barrels per day.

While China’s demand for energy is
driving up oil prices worldwide, its cheap goods are having the
opposite effect on the cost of living in the United States. A recent
analysis by the U.N. World Economic and Social Survey suggests that
Chinese pressure on oil imports may have raised U.S. inflation by 0.23
percent from 2001 to 2005, but cheap imports of Chinese goods decreased U.S. inflation over that same period by 0.28 percent. For the moment, the net winners are U.S. consumers.

I wouldn’t put too much stock in those exact numbers but the general point still holds.  Here is my earlier post on this topic.