Maths, Economics and Mark Blaug

I just read Modern Economics is Sick, on the Real World Economics Blog which uses a quote from Mark Blaug to substantiate its thesis,

“Mainstream economics has become increasingly irrelevant to the understanding of the real world. The main reason for this irrelevance is the failure of economists to match their deductive-axiomatic methods with their subject.”

Mark Blaug (1927-2011) did more than any other single person to establish the philosophy and methodology of economics a respected subfield within economics. His path-breaking The methodology of economics (1980) is still a landmark (and the first textbook on economic methodology yours truly ever read)

One day, I’ll have look at it. …

On protecting air quality

On protecting air quality

Do Lewisham Council have a view based on science about the impact of green space, or the change in the amount of green space on air quality. ( I am advised that the quality of the planting may/will also impact this calculation, as of course would distance from the green space.)

It would seem useful to knowand I can’t find anything useful that goes beyond sq. m. …

Dallio on Economics

I am tidying the flat of items I have kept for too long, and came across an unread copy of Ray Dallio’s “How the Economic Machine Works”. I had been pointed at it by a then work colleague who had asked me to comment.

I didn’t feel in the mood to read it, and know I don’t want to keep it and so I googled it to create a bookmark but came across this 30 minute video, which can of course be consumed at double speed.

Dallio constructs a macro-economic model based on productivity growth, and credit cycles.

I have problems with his ignoring of the impact of monopoly on prices which given his rigid adherence to demand pull inflation theories could be a problem because he requires that over pricing leads to a dropin demand which doesn’t necessarily occur in monopolistic markets. He treats savings as a purchase of assets i.e. as spending; I am not sure that’s right.

He makes no mention of the marginal propensity to spend/save i.e. ignores the fact that the poor spend more of any incremental income than the rich. There is a limited discussion of fiscal policy.

He argies that the real economy i.e. the economy in terms of goods and services ignoring prices, grows at the rate of macro productivity growth.

There is no mention of international trade in his model.

I am unclear what causes the turn round in his long term debt cycle i.e. why does it change from benign to catastrophe. (Is it just animal spirits reacting to inflation and/or the micro debt burden? Or maybe its banks getting cold feet about the creditworthiness of thier borrowers.)

He argues that when the long term credit cycle moves to bust there are only four things that policy makers can do in order to reduce the total debt burden, restore creditworthiness and start spending again,

  • Cut spending (Austerity)
  • Reduce debt (Defaults & Restructuring)
  • Redistribute wealth (from the wealthy)
  • and print money

He argues that the first three are deflationary i.e. will reinforce the recession but the final one does not. (I can’t see how taking money from the rich and giving it to the poor is deflationary because of the short term higher propensity to spend of those with lower incomes.) He argues that these policies need to be balanced and that changes in income/product must be greater than the change in the debt burden. This reminds me that he does not seem to discriminate between domestic and government debt.

He finishes with three personal lessons, the last of which I heartily agree,  don’t borrow too much, don’t charge too much, and keep yourself up to date i.e. improve your productivity. …

Sectoral Balance of Trade

As one does I am considering the international trade implications of copyrighted products? I wonder what the balance of trade state is, over the last five years for Standard Industrial Classification (SIC) groups J.58 broken down to 58.1 & 58.2, J.60, J.62, M.72, R.90? These are Publishing inc. computer games and other software, Programming and Broadcasting, Computer Programming and Consultancy, Scientific Research and Creative Arts and Entertainment?

It would also be good to see the balance of trade for the UK drug industry but it is no longer a single SIC and I am afraid that much as for the five SIC classes above, the real surplus/deficit will be hidden through inter-company transfers, i.e. the import is by one company that buys from a another foreign division of itself and the trade is a sterling internal market trade. …

Perez: cycles, bubbles & golden ages

Carlota Perez in TECHNOLOGICAL REVOLUTIONS AND FINANCIAL CAPITAL: The Dynamics of Bubbles and Golden Ages in a, to my mind, successful, attempt to explain Kondratiev Long Waves, creates a theory of cycles of technology and output. I find her arguments, illustrated by powerful historical example to be compelling,  I cannot understand why her theories are not more popular.

She argues that there have since the turn of the 19th Century been five technology revolutions, of motion and textiles, the original British industrial revolution, followed by railways, steel, oil & cars and latterly silicon, computers and the internet.

I came across the ideas a number of years ago and was revising an unpublished blog article which includes a piece about her book and ideas; I made the above collage and thought I’d share it now. … …

Time in the Garden

My mind turns to Gardening Leave, not because I have any outstanding disputes with any of my ex-employers but because there seems to be a lack of clarity as to when and why one might use it if one was an employer.

If someone is on Gardening Leave they remain an employee and may not work for anyone else, although this also depends on the terms of the employment contract. In a world of zero hours contracts, this maybe a part of the law that will be re-examined.

For full time workers though, more and more companies are placing terms in their contracts that if one should, say, invent a new cheese in one’s back garden, then the company claims the exploitation rights. All inventions belong to your employer. It’s unclear if another month, or three months would make much difference though, but protecting the company’s intellectual property remains a motive for delaying people leaving as does getting them off site and off the IT systems.

Another key advantage is that the employee cannot work for a competitor, again, employers often via employment contracts try and restrain people’s ability to compete with them on quitting, but this is fraught with legal risk; keeping them on the books is legally much safer. Many sales staff may find themselves constrained in this way and the strengthened data protection laws will make it harder for them to take their address books with them.

A specific and unusual example of this is where staff of regulatory, political policy or law enforcement organisations leave their job to work for regulated entities. In fact, the public sector has constraints on this, but they have been weakened in time over the decades. The public sector employment contracts nearly all have clauses similar to private sector non-compete clauses but restraining public servants from working with organisations that they had regulatory or procurement relationships with. Despite this many lobbying organisations employ ex-politicians, civil servants and police. (In some ways, the movement in the other direction is more corrupt.)

The final example is where someone has financial or judicially regulated authority within the organisation. It’s usually inappropriate to leave such senior staff in place once they have resigned, and certainly of there are question marks on their remaining commitment. This of course is compounded where a compromise agreement has been signed to avoid the need to undertake disciplinary or redundancy processes. Management need to ensure that they are acting in the interests of the organisation’s stakeholders and protect themselves against a class action.

That’s where the Labour Party finds itself. A huge swath of its senior staff have put in their notice, they remain able to exercise their authority and for some reason are being permitted to work their notice, in some cases it would seem an extended notice.

It should be noted that for the ex-employee, if someone with a full time job, one or three months gardening leave can be a welcome gift. …

Abolish Performance Reviews

I recieved in my inbox an article on Adobe’s experience on abolishing their annual appraisal process. One reason was cost, they calculated it took the equivalent of 40 FTEs to run the process which illustrates the distraction of management time. The article quotes quality guru W. Edwards Deming who says,

It nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and politics.”

They replaced their previous stack ranking system with a more flexible and empowered system, divorcing formal performance from salary/bonus decisions.

It proved to be more popular with managers and staff, with one employee reporting

… that a feeling of relief has spread throughout the company because the old annual review system was “a soul-less and soul crushing exercise.”

One side effect was that involuntary terminations increased but voluntary terminations reduced, It ought to be a happier place to work. …