Archive for May, 2010

Nobody Reads the Introduction

May 27, 2010

The ‘unofficial’ (it’s not linked to from his official page) homepage of Ken Judd was brought to my attention. Ken Judd demonstrates the resistance against computational methods he has met in economics. In particular, he shows the ignorance and insulting attitude displayed by editors of Econometrica and members of the Econometric society. Of course, it’s a serious matter, and as far as I can tell, Ken’s anger and frustration is warranted. It is entertaining too, when Ken reports some of the stupidity he has to deal with:

The lead article of the silver anniversary volume of Econometrica began with an inaccurate description of the math programming literature, ignoring methods developed over 30 years ago. Trying to defend this paper, [a former/current North American council member of the Econometric Society] said, “It really did no harm since no one reads introductions.” I agree that experts in a field likely don’t read introductions, but is that the only audience? My reply was “I bet many graduate students read introductions.” I guess the lesson here is that readers should not trust introductory material in Econometrica articles.
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Gang Leader for a Day by Sudhir Venkatesh

May 26, 2010

I just finished Sudhir Venkatesh’s Gang Leader for a Day and am amazed. I did not expect it to be so interesting. I knew about Sudhir Venkatesh from his appearance in Freakonomics (the book) and knew he was an interesting figure with some extraordinary experiences to tell of. However, where Freakonomics were a bit dull and drawn out in parts, Gang Leader for a Day is interesting and facsinating throughout. Notwithstanding, the comparison is unfair; Freakonomics is about applied economics and some surprising and amusing conclusions thereof while Gang Leader for a Day is mostly descriptive of gang life in Chicago, in all facets.

Sudhir Venkatesh tells the story of when he, as a graduate student in sociology at the University of Chicago, wanted to study poor, black people in Chicago and ended up hanging out with and befriending a drug gang operating out of a public housing project. From being treated as a potential danger and an alien, he ends up tagging along as the leader of the gang rises in the city-wide gang network. On the way, he sees the interplay between the gang and the wider community, for good and for bad.

On of my favorite passages in the book:

J.T. [the gang leader] was far more enthusiastic about my project [to study the informal economy of public housing projects; how people survive] than I’d imagined he would be, although I couldn’t figure out why.
“I have a great idea,” he told me one day. “I think you should talk to all the pimps. Then you can go to all the whores. Then I’ll let you talk to all the people stealing cars. Oh, yeah! And you also have folks selling stolen stuff. I mean, there’s a whole bunch of people you can talk to about selling shoes or shirts! And I’ll make sure they cooperate with you. Don’t worry, they won’t say no.”
“Well, we don’t want to force anyone to talk to me,” I said, even though I was excited about meeting all these people. “I can’t make anyone talk to me.”
“I know,” J.T. said, breaking into a smile. “But I can.”
I laughed. “No, you can’t do that. That’s what I’m saying. That wouldn’t be good for my research.”
“Fine, fine,” he said. “I’ll do it, but I won’t tell you.”

Read this book; I cannot imagine it not being interesting to anyone.

Can Anything More Insane be Imagined?

May 25, 2010

Suppose that, at a given moment, a certain number of people are engaged in the manufacture of pins. They make as many pins as the world needs, working (say) eight hours a day. Someone makes an invention by which the same number of men can make twice as many pins as before. But the world does not need twice as many pins. Pins are already so cheap that  hardly any more will be bought at a lower price. In a sensible world, everybody concerned in the manufacture of pins would take to working four hours instead of eight, and everything else would go on as before. But in the actual world this would be thought demoralizing. The men still work eight hours, there are too many pins, some employers go bankrupt, and half the men previously concerned in making pins are thrown out of work. There is, in the end, just as much leisure as on the other plan, but half the men are totally idle while half are still overworked. In this way it is insured that the unavoidable leisure shall cause misery all around instead of being a universal source of happiness. Can anything more insane be imagined?*

Hardly. Perhaps that the little book The Limits to Growth takes the time and space to quote Russell on it; that the authors thought it to be a good idea and a rhetorical winner to seemingly have Russell on their side. They were wrong.

* The quote is originally from Bertrand Russell (1935), In Praise of Idleness and Other Essays, pp. 16-17, transcribed from Meadows et al. (1972), The Limits to Growth, p. 181.

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A Farewell to Alms by Gregory Clark (Part Three)

May 21, 2010

Its been a while since I finished the third and last part of A Farewell to Alms; let me knot down some thoughts. I’ve commented on part one and two earlier; after discussing the pre-industrial world and the Industrial Revolution, Clark devotes part three to the development in the world after the Industrial Revolution. While all parts of Clark’s book is interesting, the final part was the part I enjoyed the most. Perhaps because he discusses current issues and more familiar problems, or perhaps because of his ideas are in fact interesting. It could also be Clark’s powerful expression and how he violently dismisses the economic mainstream.

Clark begins part three by discussing world growth since 1800: While some societies has become very rich, others are still poor, many even poorer than before the Industrial Revolution. Clark calls the development the Gread Divergence and raises the puzzle Why did it happen? Clark seem to have the answer. Before he gets to it, however, he wastes no time characterizing the economic mainstream for failing to understand and deal with the observed divergence:

Commentators, having visited climate, race, nutrition,  education, and culture, have persistently returned to one theme: the failure of political and social institutions in poor countries. Yet, as we shall see, this theme can be shown to manifestly fail in two ways. It does not describe the anatomy of the divergence we observe: the details of why poor countries remain poor. And the medicine of institutional and political reform has failed repeatedly to cure the patient […] Yet, like the physicians of the prescientific era who prescribed bloodletting as the cure for ailments they did not understand, the modern economic doctors continue to prescribe the same treatment year after year through such cult centers as the World Bank and the International Monetary Fund. If the medicine fails to cure, then the only conclusion is that more is needed [p. 328].

The main source of the divergence, Clark claims, is differences in efficiency. In particular, the difference is ‘rooted in an inability to effectively employ labor in production’ (p. 329). As he does throughout the book, Clark justifies his claim with ample evidence and a number of examples. Seldom has I read a book which collects, discusses, and uses as much data to drive the arguments home. From the evidence, Clark concludes:

Thus the crucial variable in explaining the success or failure of economies in the years 1800-2000 is the efficiency of the production process within the economy. Inefficiencies in poor countries took a very specific form: the employment of extra production workers per machine without any corresponding gain in output per unit of capital [p. 351].

Clark moves on to discuss evidence of differences in the quality of labor across societies. These differences, however, did not stem from the Industrial Revolution; rather, they were inbuilt in the societies from the Malthusian era. So what changed during the Industrial Revolution to produce the Great Divergence? There are three main reasons, according to Clark (see pp. 365-366). The first is that, under the Malthusian trap, differences in the quality of labor had no effect on the average income, only the population level. When population and income were decoupled, the differences in quality of labor expressed itself through the Great Divergence. Secondly, modern medicine reduced the subsistence wage such that populations could expand despite lower incomes than earlier. Thirdly, modern production techniques increased the wage premium for high quality labor.

When it comes to the causes of differences in quality of labor, there is no satisfactory theory, according to Clark (p. 370).

Arriving to the final chapter, rather exhausted, I must admit, after Clark had laid out his theory of world economic history in three, extensive parts, I ended up underlining almost the entire chapter. I cannot put it all in here, but the chapter, titled ‘Conclusion: Strange New World,’ begins like this:

God clearly created the laws of the economic world in order to have a little fun at economists’ expense [p. 371].

The value of a strong, opening line cannot be underestimated! Some more bashing on mainstream economics cannot hurt, either, seemingly:

Our economic world is one that the deluge of economics journal articles, working papers, and books devoted to ever more technically detailed studies of capital markets, trade flows, tax incidence, sovereign borrowing risk, corruption indices, rule of law serves more to obscure that to illuminate […] The great engines of economic life in the sweep of history demography, technology, and labor efficiency seem uncoupled from these quotidian economic concerns [p. 372].

In the end, Clark makes an interesting observation on the research into happiness; income seem to have only a slight effect on happiness. Clark offers the potential conclusion that humans may be programmed to be strivers for the relative rather than the absolute; the contented ones have been sorted out. At any rate, if happiness was our measuring rod, it leads to somewhat surprising conclusions (see pp. 376-377; perhaps the surprise is that happiness is not what society strives for).

Although Clark’s outlook is a simple one; the Industrial Revolution is the one, significant event in world economic history, he makes room for further dwellings on the issue in the last paragraph:

World economic history is […] full of counterintuitive effects, surprises, and puzzles. It is intertwined with who we are and how our culture was formed. No one can claim to be truly intellectually alive without having understood and wrestled, at least a little, with these mysteries of how we arrived at our present affluence only after millennia in the wilderness, and of why it is so hard for many societies to join us in the material Promised Land [p. 377].

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Mathematical Models

May 20, 2010

Models are coherent representations of systems and/or of the processes therein, and may consist of words (‘word models’), graphs or equations. Words alone can often describe complex systems or processes adequately, as in the case of natural selection (Darwin 1859).* Graphs can also make compelling cases, as did, for example, the trophic pyramid of Lindeman (1942). However, equations that capture essential aspects of systems or processes always outperform word or graph models, if only because the application of standard albebraic or other mathematical rules to these equations often leads to the discovery of unkonwn properties of the systems or processes in question. This non-intuitive, and in fact wondrous property of mathematical descriptions (Wigner 1960) has, moreover, the distinct advantage of allowing the testing of hypotheses about future states, or previoiusly unobserved features of ecosystems, besides allowing for testing the adequacy of the initial description (p. 212, Pauly & Christensen, 2002, Ecosystem Models, in Handbook of Fish Biology and Fisheries, vol. 2, Hart & Reynolds (eds.), pp. 211 – 227).

* See Pauly & Christensen (2002) for references.

Picture of the Day

May 19, 2010

Fisheries Classics: The Pacific Salmon Fisheries

May 18, 2010

A while ago, I had the opportunity to read Crutchfield and Pontecorvo’s book on the Pacific salmon fisheries. The Pacific Salmon Fisheries, published in 1969 and subtitled A Study of Irrational Conservation, was an early contribution to the empirical literature on fisheries economics. The subtitle clearly signalled Crutchfield and Pontecorvo’s opinion on both the current and historic regulations of the fisheries. Perhaps the status as a ‘classic’ can be debated; notwithstanding, its scope and ambition is nothing but impressive: The Pacific Salmon Fisheries discusses theory, describes the various salmon fisheries along the North-American Pacific coast; the gear, the environment, the regulations, and their histories, it discusses the different fisheries potential and performance, and finally alternative regulations.

My favorite part of the book is the illustrations of overfishing and overcapitalization in both the Alaskan and Puget Sound fisheries. In particular, Figures 9 and 10 on pages 58 and 59 highlight the problems in the Alaskan fisheries:

From the figures, it is clear that in the period 1930’s to 1960’s, while total catch went down (top curves in both panels), average catch per fishermen went down (left, middle curve), total number of fishermen went up (bottom, left curve), and gear use (middle and bottom, right curves) went up: More men with more gear catching less fish. Two simple pictures illustrating the fundamental fisheries problem: The Tragedy of the Commons. Why did this happen? After all, the Alaskan fisheries were old fisheries already in the 1930’s and assumed to be in rent-dissipated equilibria. It turns out, however, that prices of salmon increased steadily throughout the period (see Figure 8, p. 57).

An interesting and amusing thing about the figures in The Pacific Salmon Fisheries are that they are handdrawn and, for the most part and of unknown reasons, not on a linear scale. Perhaps there was an agenda involved?

Crutchfield and Pontecorvo’s analysis of the fisheries in the Puget Sound did not produce any happier conclusions. They wrote:

As long as the present situation continues, there can be no real hope of economic health in the fishery. Any increase in relative prices of salmon is promptly swallowed up by increased entry, rising costs, and more stringent pressure on the physical resource and those charged with its management. It simply leads to a new equilibrium, no more satisfactory than the previous one, with a net loss to the economy as a whole as more factors of production are trapped in the fishery (p. 196).

To me, The Pacific Salmon Fisheries represents the first, truly convincing evidence of overcapitalization in fisheries and is certainly a classic all fisheries economists should be familiar with.

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If someday…

May 4, 2010

I’m not sure exactly why, but I’m reading The Limits to Growth by Meadows et al. (1972). The book created debate at the time, and is still a sort of reference for arguments against infinite growth if I got it rigth. Anyway, on p. 86 (paperback, 1st printing), I read the following paragraph:

If man’s energy needs are someday supplied by nuclear power instead of fossil fuels, [the] increase in atmospheric CO_2 will eventually cease, one hopes before it has had any measureable ecological or climatological effect.

That was 1972. Innocent days.