>Thanks Jim. > >I acknowledged at the top that much of what I charge is recognized but >ignored in practical affairs. > >GDP is a good measure of . . . GDP?
Correct. In a wheat market, quantity is a measure of quantity of wheat produced, not satisfaction of hunger. In the national market, GDP is a measure of the quantity of everything produced, not the satisfaction of everyone's welfare. > >My impression was that there is a bigger gap in the description of the >firm at the elementary and advnced level than of consumers or >governments. If wrong, I'm happy to be corrected. Correct again. Moreover, 30 years ago, when I was in grade school in the University of Washington econ dept (aka Chicago northwest, since half the faculty were from there or wished they were), I asked in class whether what we were doing that day had something to do with Baumol's sales-maximization hypothesis. After class I was told by a fellow student that that was not done. William Baumol is not considered an economist because he thinks that firms maximize something other than profits. > >Re: profits, I'm not so sure. If some kind of hedge fund chicanery ends >up burdening a firm with debt and bringing it to ruin (after the >sharpies have made their play), that doesn't sound like profit >maximization in anything resembling the textbook model. > > > > > >-----Original Message----- >From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Jim Devine >Sent: Thursday, July 12, 2007 11:46 AM >To: [email protected] >Subject: Re: Why economics sucks > >On 7/12/07, Max B. Sawicky <[EMAIL PROTECTED]> wrote: >> Comments welcome. > >you asked for it! > >>The Ten Boxes of Heterodoxy, or Why Economics Sucks >>By Max Sawicky > >> ... I'm no big theorist; I'm a dissatisfied consumer. .... > >good line! > >>1. Supply and demand, 1. This celebrated and most basic economic >model while in principle multidimensional in practice obscures >anything interesting that affects market conditions. It bespeaks >militant, ideologically-based reductionism. A good illustration is the >minimum wage debate. In the usual supply and demand model, a minimum >wage can only reduce employment. Nothing else is logically possible.< > >this is a critique of those Chicago-school types who _reify_ the >standard S&D model (i.e., take it too seriously). All economists >accept the forces of supply and demand, including such heretics as >Marx, even if they don't accept S&D models. The question is what's >really going on along with what the limits of S&D are. > >>2. S&D, 2. The outcome in an supply and demand model in principle has >no inherently attractive qualities, in and of itself, since it depends >on the distribution of ability to pay. If Oliver Twist has no money to >buy a crust of bread, his zero allotment is "efficient." The lack of >any normative foundation is typically glossed over.< > >the Ekon (or Chicago schoolers) pretend that they're not normative at >all (except that they favor efficiency): they're "positive," >value-free, economists. They'll tell you they don't care about >"equity" (e.g., Oliver starving) but that increases in efficiency will >trickle down to poor Oliver. Eventually, he'll get royalties from his >musical? No, he'll be dead by then. > >>3. Gross Domestic Product (GDP). Add up all the quantities in the >supply and demand models over the year ("final goods and services") >and you get GDP. Solemn assurances that GDP is not synonymous with >economic welfare fall easily by the wayside. More GDP (and less >leisure time, less environmental quality, a less sustainable economic >future) is always better. If terrorists knock down the Empire State >Building, GDP could go up. More! Better! Comrade Stalin would >approve.< > >again, this is the Ekon view. More sophisticated types (e.g., Akerlof) >would disagree. > >In defense of GDP, it is a pretty good measure of business activity >through markets. It's relevant to Keynesian economics, i.e., such >issues as total spending & employment. We need to use a measure such >as the Genuine Progress Indicator to see how we (and the environment) >are doing. > >> 4. Commerce versus The Market. Forgetting about boring concerns of >economic justice, the idea of a competitive, functioning market is >actually very rigorous. So much so, there are hardly any good examples >of such things. (The example often used is grain, undoubtedly by people >who have never seen the back end of a cow.) When the Federal government >tries to organize markets with the buzzword of "competitive sourcing," >the results are even more comical. There is plenty of commerce, but >there are very few markets, even though economists pretend they solve >most of our problems.< > >however, the competitive model of supply and demand does say something >about the broad outlines of how scarcity & demand interact in the real >world. Both curves should be drawn as thick. > >> 5. In Search Of: The profit motive. Professors tell their gullible >students that business firms maximize profits. This induces efficient >use of resources and fortuitous allocation of capital. But if you study >the economics of firms, even under orthodox auspices, you find out they >don't maximize profits.< > >there's always a big gap between the simplistic pap that the frosh get >and the more sophisticated stuff that grad students get. However, by >the time we get to grad school, most of us have been indoctrinated. > >BTW, I think that market forces (including financial market forces) >drive investor-owned companies to act pretty much as if they were >maximizing profits. But that's not "efficiency" except in the >narrowest sense of the word (private efficiency). > >> 6. The deficit's gonna getcha. Years of braying about the evils of >budget deficits have failed to be borne out by the purported consequence >-- high interest rates. The entire traditional macro apparatus fails to >allow for the interventions of large foreign lenders who aren't dumb >enough to believe what the textbooks say.< > >any model can be saved by an unexplained curve shift. > >> 7. Capital fundamentalism. As with reductionism of the S&D model, >growth modeling zeroes in on private capital accumulation, even though >a) other factors are demonstrably important and beg for attention; and >b) private capital accumulation may be a consequence of other factors, >rather than a cause and appropriate object for policy. Out of an >obsession with this premise, the International Monetary Fund has screwed >up a lot of countries too weak to ignore its advice.< > >worse, they emphasize saving over investment, encouraging recession. > >> 8. Every import is sacred. Regulation of markets is allowed, unless >the market includes parties from different countries. Then it is >strictly verboten.< > >agreed: the Ekon spout nonsense. > >> 9. The unnatural rate of unemployment. Economists used to say it was >6.0, maybe 5.5 percent. Lower would give rise to ruinous inflation. The >huge social benefits of another couple of percentage points less >unemployment were -- are -- implicitly discounted. Current rate is 4.5. >'Nuff said.< > >the NAIRU keeps shifting (and even people like RJ Gordon admit it) so >it's totally useless to policy-makers, except as an ideological >weapon. > >> 10. "Power? You want the political science dept." Power looms over >economic transactions, except in economic theory. Workers do not hire >capitalists. Consumers do not choose merchants. Shareholders do not >choose managers. Voters do not choose elected officials.< > >it would help if we had a better definition of power. > >JD > >
