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. …

Surveillance, ignorance and a chilling effect

The Guardian, not exactly disinterested, publishes a leader on regulating Apple and its competitors. I would argue, Apple is the example of the 5th Industrial Revolution monopoly and we need to learn how to regulate it and is competitors and it is a problem for the US also. The authors  completely miss the fact that there are new forms of oppression, that of surveillance, caused by the datenkraken.

We need new forms of protest and defence even though we’ve know about it forever. It’s for this reason that we established the rights of privacy and free speech as part of the universal declaration of rights.

This quote is important, it establishes commonalities with their predecessors,

All [ the datenkraken] use remarkably few workers to generate their enormous profits. All operate an internal class system, which concentrates power in very few hands. None have any unions worth speaking of. All rely on the unglamorous work being done far from California, usually by subcontractors. All shuffle their profits around the world in an endless game of “Find the lady” with national tax authorities – a factor that should not be overlooked when it comes to asking why they are so immensely profitable. If this is the model of the company of the future, it will have consequences we have not yet learned how to manage.

They finish with,

The downside of the oil-based economy is now obvious all around us. The symptoms of apparently uncontrollable climate change have become undeniable. Cities are choked with polluting traffic while the seas are choked with plastics made from oil. Whole countries have been devastated by oil riches. The digital revolution seems, so far, much more benign. But the loss of trust that social media both causes and exploits may one day be seen as another form of unforgivable pollution.

I think this is weak, the threat is surveillance, ignorance and a chilling effect. …

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. … …

Quality of Capital

I just found my copy of David Warsh’s “Knowledge and the Wealth of Nations”. I have promised myself that I would review it but on studying the dust cover, I find it says that the long term paradox of falling costs, is explained by internalising i.e. to the growth process, technological change. Such a simple insight, which from today’s view point seems so obvious. It may have impacted the capitalist economists more than the Marxians. …