R.I.P. Christine Radford
My mother, Christine Radford, died yesterday aged 91. A tough, tough lady who outlived my father by almost 40 years. Old age finally ended her run. May we all have such a life.
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Peter Radford / Economics / austerity, recovery, Spain /
Spanish Triumph?
It’s all a bit annoying. Really. I have just read the Economist’s article about Spain. The article is titled “Back on its feet”.
Such a title might lead you to imagine that the article is about a triumphant return to prosperity. But no.
Instead we are told that unemployment is down to 22.5%. This is down from a peak of 26.3% back in 2013. Growth, we are told, has ‘sparkled’: it rose to an annualized rate of 3.8% in the first quarter and rose again a little further in the second.
Wow.
These are the fruits of severe austerity. They are ‘the vindication of reforms’ the right of center government put in place in 2011.
Double wow.
One of these reforms was to shake up the labor market by making it easier to fire people and to tear down the divide between full time employees and their temporary co-workers. Presumably this reform was designed to instill fear into everyone and to turn them into quasi-part-timers. In any case it worked: just look at that amazing unemployment figure of 22.5%. Only 22.5%!
What a triumph.
Other efforts have slashed corporate taxes from a whopping 30% to a new low (in 2016) of 25%. Further reforms have slashed red tape and made it easier to set up a business. So if you have been unemployed for years you can now start your own business. If, of course, you have any money left to use as start-up capital.
These reforms have seen Spain shoot up the most important table of all: the “ease of doing business table”. Spain now ranks 33rd in the world (out of nearly 190 economies) rather than languishing down in 52nd where it was before all theses amazing reforms.
Go Spain!
At the end of the article we hear something about theses reforms being pretty much irrelevant and that the real problems all had to do with something called a financial crisis and bailing out private sector banks. But we all know that’s not important.
No. What’s important are those structural reforms.
After all they have slashed unemployment! It’s only 22.5% now.
Of course Spain is back on its feet. What economy wouldn’t be buzzing along if its unemployment rate was a mere 22.5%?
Sorry Economist: the story is one of disaster not triumph. It is of lost lives, lost hopes and lost dreams. And those ‘reforms’ are like the leeches of yesteryear: they are the product of economic theories that lack an understanding and empathy for real people.
Let’s all hope that our Spanish friends are tough enough to withstand the damage inflicted by the cure being thrust upon them. And let’s all hope that one day these reckless and violent cures are seen for what they are: inhuman evil.
Peter Radford / Economics / economic theory /
Some Issues Re-visited
Hmmm.
It seems that some people misunderstood my comments regarding neoclassical economics.
Allow me to reiterate and, perhaps, clarify.
I want to say that I regard neoclassical economics as a triumph. A wonderful achievement. Brilliant.
Please read the fine print: that brilliance has nothing to do with relevance, reality, or any other such yardstick.
All I am saying is that within its own confines, with regard to its own rules, and with respect to the limits placed upon it by its multitude of excellent practitioners, neoclassical economics has been an extraordinary success.
Further, and more to the point, I am saying that the number of instances of economies we find within the space of all possible economies described by neoclassical economics is tiny. So tiny we are unlikely ever to experience one.
So tiny that neoclassical economics, triumph or not, can be regarded as insignificant as having valid application to the vast majority of instances within that space.
It is thus a triumph, but a useless triumph.
At its very best – and this is an enormous stretch – it acts a very rough and dull caricature of the kind of economy we actually experience. Like all caricatures it has a vague resemblance to what we find around us, but on closer inspection it totally lacks the necessary detail for us to use as a portrayal of reality. It is useful, therefore, as a tentative first step, but we must discard it immediately if we want to delve far into any economy we are likely to encounter.
There may be economies, somewhere, that resemble those of neoclassical economics. People in those economies may actually be the oddballs that neoclassical analysts have theorized about. The firms may act along neoclassical lines. All the bizarre and twisted assumptions that the neoclassical system requires to possess the internal coherence that it demonstrates may actually exist in that far off place.
That they don’t here on planet earth is my point.
That actual economies require a different economics, a better understanding of human behavior, and a less weird description of business, does not detract from the intellectual achievement of the people who built the neoclassical system. It simply means that their effort is irrelevant. It means we all need to stop picking holes in something that, by its own measures, is a great success, and that we ought, instead, build something else. Something that stands up to a more rigorous set of standards.
Something that, in other words, requires rigor not to mask irrelevance and insufficiency, but, rather, to reflect the instances of economic activity we are likely to encounter. Rigor as elucidation not rigor as obfuscation ought guide us.
It is time for us to stop taking the easy route of simply picking at the strange world posited by the neoclassical thinkers, and to start replacing it.
And, as I tried to say before, I think that means ditching simplicity and replacing it with an embrace of complexity.
We ought leave those infinitely small instances of supremely simple economies that must lurk in the distant corners of the space of all economies somewhere to the neoclassical folk. Well done them! Our job is greater and more difficult. It is also more important and relevant.
We need to build theories that match the complexity of reality. Where we understand reality as being the majority of instances of economies we are likely to encounter in real life.
Does that clear things up?
Peter Radford / Commentary, Politics / Jade-Helm, Obamacare /
America the Bizarre
I think I mentioned here the lunacy of the Jade-Helm conspiracy. For those who missed it Jade-Helm 15 is the name of a rather large US military exercise being conducted over the summer. The activities extend through a number of southern states. Those are the states who benefit most from US military base spending – the jobs and cash those bases generate are a major subsidy for some states that otherwise rival poor Greece for fiscal instability.
Our red state brethren are famously patriotic too. They wave flags of all sorts – some patriotic, some traitorous – at every opportunity. They supply a number of our most aggressively hawkish Senators and their even more hawkish Representatives. Apparently there is no world problem that cannot be resolved by a good old bombing.
So, it may come as a surprise to you to learn that those same red states – some of them at least – appear to be concerned that Jade-Helm is not a training exercise at all. No, not at all. It is actually a cleverly disguised attack on those states. Yes, the internet is full of conspiracy theories claiming that the US military is about to invade … the US.
Stupid as this may seem to the more sensible amongst us, Jade-Helm managed to prompt the Governor of Texas to alert his local national guard contingent so that they could monitor Jade-Helm and, presumably, fight off the invaders if need be.
Now, why would the US want to invade the US?
To enforce Obamacare of course – why did you need to ask?
Obamacare is so frightening for our red state friends that they fear invasion, military occupation, and being forced to get cheap health care at the end of a gun barrel.
It is within this climate of careful reasoning and calm thought that we are entering our next presidential election season.
Good luck everyone, it can only get worse.
Donald Trump might become a viable GOP candidate.
Oh. Wait …
And to make matters worse we now hear that some soldiers were shot at during the start of the exercise. Two days in a row. At the same place. By the same person. Was anyone providing security for these soldiers?
Oh. wait …
Bizarre indeed.
Peter Radford / Commentary, Economics / Dodd-Frank, inequality, Obama, SEC, wages /
The SEC rules on CEO Pay – Sort Of
I have a friend who counts bank reform as one of Obama’s signature achievements. Maybe. But what he probably doesn’t realize is that it is only just now getting implemented.
Hidden amongst the weeds of the Dodd-Frank legislation was a provision authorizing the Securities and Exchange Commission to order publicly traded companies to publish the ratio of CEO to median worker pay.
That rule was finally voted on this week. That is five years after the legislation was passed.
The delay in enforcing the rule was caused, at least in part, by the massive push back by big companies. Presumably they were embarrassed by the ludicrous differential that has opened up in that ratio.
One of the major reasons business gave for objecting to the rule was that it is very difficult to calculate how much they pay their employees. Really? It doesn’t seem that way when they announce cost cutting programs aimed at boosting earnings per share. Somehow I think businesses have a pretty good idea of their payrolls. After all they are notorious for being picayune over every little detail that might cost the CEO a part of his or her bonus.
They also argued that compliance with the rule would cost them about $1.7 billion a year. Imagine that. Running a fairly routine calculation based on one of the most frequently run databases they have costs that much. I don’t think so.
Either that or I think the SEC ought to worry about the ability of these businesses to report their earnings accurately.
Big business seems to lie about the cost of compliance every time it is asked to provide basic information to the public. There is no reason to imagine that it wasn’t lying this time too.
Predictably the vote at the SEC was along party lines. The Republicans are very jealous of their image as protectors of big business. Furthermore throughout these past five years business has managed to install a number of amendments to the rule that will make the ratio appear less outrageous than the original rule would have: they can exclude foreign workers, they can choose the ‘sample’ of employees upon which the calculation is made, they can exclude a percentage of part-time workers, and so on.
Nonetheless getting the rule enforced is a step, albeit a small one, in the right direction.
One last thought: if its that hard to calculate a median of worker compensation, I wonder how difficult it must be to calculate the marginal cost of labor that economic theory argues is the basis upon which firms decide their employment requirements. Surely marginal theory isn’t just a figment of the minds of a few conservative economists is it?
On the other hand, having struggled many years ago through a maze of cost accounting at a variety of big businesses I can vouch for the irrelevance of marginal theory without having to worry about the calculation difficulties businesses face when asked about their payrolls.
Realism is not one of the major attributes of business when faced with calculating the cost of regulation. Nor is it a key aspect of economic theory.
Realism? That would spoil the fun. Wouldn’t it?
Addendum:
For those counting, this rule enforcement is a major setback for SEC Chair Mary Jo White who is renowned for caving to those whom she is tasked to oversee. She famously refused to order companies to publish their political donations. Apparently political transparency is bad for business. And Mary Jo is all about being pro-business.