Articles - Journaltalk

I agree with Sutter and Pjesky’s observation. Their article brings to light a change that has occurred within the economics profession of slowly becoming a club exclusive to the profession (and hierarchical within). They also bring to light a more fundamental point about economics: Would Adam Smith want to publish in one of the top journals?

Adam Smith actively participated in public discourse. See Klein for a good discussion on public discourse in modern economics. There are few examples, if any, of a recent article in a top journal that is directed towards public discourse. Economists write for other economists.

Many of the great minds cited by Sutter and Pjesky such as Smith, the Mills, and Hayek also engaged in public discourse intended to reach audiences beyond the halls of academic economists. Smith would surely maintain open debate among scholars; he did so with Hume. Adam Smith would likely eschew publishing in a top journal. I think he would prefer to engage the public sphere outside the economics profession.

The economics profession, and society, would benefit from more economists engaging in public discourse. Sutter and Pjesky’s article opens the door for a discussion on the purpose of the profession.

“When an economist is comparing alternative social arrangements, the proper procedure is to compare the total social product yielded by these different arrangements. The comparison of private and social products is neither here nor there.” (p.34)

These two sentences are charged with a number of points. First, can we measure total social product? Second, is it true that comparing private and social products is “neither here nor there”?

Coase’s injunction that economists must compare total social product resulting from different arrangements of property rights presumes that economists can in fact do this. Unlike his zero-transaction cost assumption, I think he actually means this to happen in the real world – this is in fact the real work of economists in his mind. The problem is that arriving at net social product is so laden with transaction costs that it is impossible to do, just like Hayek’s argument about social calculation of prices. One can make gross calculations and assumptions about the real social costs of particular property rights arrangements to individual actors at a given time, but these will never arrive at the true social costs because discovering all the ramifications of even seemingly innocuous assignments of rights can have far-reaching, unseen consequences in a connected economy.

Coase argues in this paper: “It is always possible to modify by transactions on the market the initial legal delimitation of rights” and those transactions would always take place if they were costless and “lead to an increase in the value of production” (p. 15). Since transaction costs are not in fact costless, we know that their existence eliminates many transactions. Negotiating with many rights holders for access to a water source for example may prove too high due to transaction costs, even if the actual cost of purchasing the rights might not be that high.

Furthermore, it is not always possible to engage in market transactions after an initial delimitation of rights because part of the delimitation of rights may include non-transferability (inalienability). For example, I have the right to vote, but my right to vote is non-transferable – I cannot use the market to arrive at a higher social product. I may be better off if I could sell my vote, since at the margin it is relatively worthless.

The argument that private product does not matter, and only social product matters is a strict utilitarian argument and does not proceed from any lasting or predictable principle. This provides little or no guidance to government actors on how to make allocations of rights. Some violations of private product may appear to result in an increase in social product (which is, again, virtually impossible to measure), but are repugnant to our values as individuals.

This is a very interesting article that has a lot to teach us, but I think its flaws hinge on the assumption that we can rebuild a philosophical framework from the point of zero-transaction costs, even if we acknowledge that this assumption is strictly a means of getting at the underlying issues.

While I agree with the overall point that Davis presents in the paper—that of preference falsification existing within the economics profession, I’m really wondering if the division into scholastic and public-discourse sections is nothing more than a division of labor, and as such should not be “changed” by the lay person. Granted, I’m not spending much time reading articles out of the top journals, because I honestly couldn’t understand the math anyway, but it seems likely that those articles get published, hopefully separating at least somewhat the wheat from the chaff, then some professor or researcher with good scholastic and nominal communication skills writes to other professors who have less scholastic and better communication skills, and then the Russ Roberts’ of the world apply the relevant research to public topics. If that flow of information could be possible, then the part that is self-referential, -validating, and -perpetuating is only the original publishing tier, while the professor/communicator levels are more and more responsive to the lay person’s choice (if it really is the lay person that should be choosing what is discussed, but that’s another question). It is probably always going to be true that the best researchers will not be the best communicators, though Davis’ paper seems to imply that the two orientations of the economics profession should be inhabited by the same person. While that sort of super-human-ness certainly is nice, it seems rare that one would be able to skillfully perform both roles, and so a revolution toward such a system would be attended by very few people.

Now, one could say that a piece of work may become “less relevant” (and I think that is one of the main points here, that the profession/top journals are becoming less relevant) because it becomes less understandable to others, or because it becomes full of information that is not true. My ‘division of labor’ notion is based on the understanding that when Davis says on p. 363 “economic science has not improved its explanatory capacity of the last several years” and reports comments from survey-takers on p. 364 that the profession “fails to explain observable events,” “gain[s] an elegance of sorts but at the expense of relevance,” he is saying something about how more and more, in the top journals, there is high-theory/math-heavy work that is not understandable to the intelligent layperson (or the masters student). “People want to understand the economy, but we are not helping them.” That is; the top journals are not helping them. I think that that is a fine situation. If there is anything to be gained by model-production and heavy statistical analysis, then better mathematicians and scientists can produce those results, and other people can do a better job than they can in transmitting the results.

If Davis and his respondents are stressing that not only has the top-tier journal become more incomprehensible, but more full of false or inconsequential information, and the preference falsification is supporting this propagation of nonsense, then obviously a view of the profession as division of labor would fall short, as the input stage is being fed by garbage. Davis doesn’t quite make clear whether the “less relevance” of the scholastic tradition is producing true and potentially useful data that is incomprehensible, or false and irrelevant data.

Woodruff’s review of “The Mystery of Capital” is a mixture of praise and reproach for the way Hernando de Soto has brought attention to the struggles of the world’s entrepreneurial poor and linked those struggles to possible solutions toward including them into the capitalist system. De Soto’s cause is worthwhile, however development researchers have scrutinized some of what he presents as evidence to support his claims about the importance of property rights for the poor.

Woodruff echoes researchers’ main criticisms, including questioning the reliability of the data de Soto reports, the vague methodology with which he collects it, and the oversimplification that property titling can serve as an easy remedy to poverty. Woodruff suggests that it may be the case that some of the statistics de Soto provides are inflated estimates, exaggerated to make his points. Also perhaps de Soto could have done more to reflect on the previous studies on property titling and how much of an effect it had on opening up capital markets to those in the developing world – one of his major claims is that formal rights to property allow people to use that property as collateral to access credit with which to build their businesses.

However what is well-chronicled and less controversial in de Soto’s book is what Woodruff notes to be its most persuasive points: It is not for lack of entrepreneurial spirit or desire that the poor continue their struggles around the world. Formalizing their economic activities, such as through property titling as de Soto recommends, is one concrete way to begin to bring them up from the underground economies where most of the world’s poor live and work. No top-down development solution could be as effective as the creative ideas that emerge from the bottom up, essentially from the people themselves.

Where Woodruff strongly agrees with de Soto is in the importance of also having an institutional environment within which people’s innovation and hard work will thrive and improve their lives. In this effort, governments can fulfill a specific role by establishing and enforcing the rule of law that will allow economic development to flourish in ways that wealth transfers will not promote. Hernando de Soto’s work on the importance of property rights for the poorest in the world is a key piece to a larger development puzzle, but as Woodruff explains, it is likely not the full picture.

Schelling’s article was originally a commencement speech for graduates of the department of economics at the University of California at Berkeley. As a student in economics, Schelling’s address is very motivating and uplifting given what so often is written about economists and their influence over public discourse. Too often economics is given a hard time for reasons ranging from not being scientifically dependable enough to being too quantitative to be relevant to reality.

Schelling, in response to another economist’s critique that economists know only about five things that are “true, important and not obvious”, outlines in the article the various economic truths that can be relied upon as truths in every sense of the word, and not simply because they can be proven per se. He points to accounting identities such as those found in the textbook of any course on the foundations of macroeconomics; identities such as those found in calculating our national income inclusive of the value of our exports, imports, consumption, and savings. All of these accounting identities are important, but in many ways obscure and intangible to the general public. Therefore not doing much to negate the perception that economics does not deal in the “real world”.

However, what Schelling discusses toward the end of his speech is much more compelling and accessible to almost anyone who has any inkling about the economic way of thinking – he addresses the idea of the proverbial “no free lunch”. Schelling counters this popular economic idea by focusing on a more entrepreneurial perspective and that is that there are actually many free lunches just waiting to be discovered, created, and consumed. These free lunches, as Schelling describes them, come from gains from trade and from accepting that economies are not zero-sum games, but instead malleable and dynamic spaces that can expand or contract depending on the interventions, institutions, and innovations that enter them.

By communicating the possibilities rather than the limitations of an economy, economists can enlighten more people about how markets can work to make societies more productive and prosperous. Freer markets can make societies more prosperous. So add yet another thing that economists know that is true, important, and not obvious.