Hello and welcome,
This blog is intended as an antidote to mainstream or neoclassical economics. Though other blogs like this exist, I feel few of them offer a ‘ground up’ critique. As an economics student, I can credibly claim to know what is taught on undergraduate courses, and hope to demonstrate clearly and intelligibly that much of it is built on incredibly suspect foundations, and is often internally contradictory.
I do not wish to define this blog only as a negative, though, and am particularly interested in popularising the fact that Keynes did have a lot to say about the cause of slumps, and emphasised prevention through monetary policy. Again, I am far from the first person to highlight this, but I feel it deserves more exposure.
I’d characterise myself as a post-Keynesian, but one who is finding it increasingly difficult to defend capitalism given recent events. I’m open to new economic ideas, though, no matter where they come from.
New readers: I strongly urge you to read my FAQ to get acquainted with my views, particularly if you find yourself in disagreement – it answers many of the most common objections.
Comments: Try not to flood a single thread with only your comments. If you are abusive then that will be straight up deletion; I will also delete comments if I feel you are not engaging arguments and generally being a nuisance (that means you, Rothbardians!)
Contact me at unlearningeconomics [at] gmail.com
#1 by richard lawson on December 17, 2011 - 11:24 am
“…finding it increasingly difficult to defend capitalism “.
I personally find it better to avoid using the c-word, since, like “socialism”, it carries a massive emotional charge and near-zero informational charge.
It is very clear that capitalism is crying out for radical reform, beginning with closure of tax loopholes and tax havens, followed by many other specific reforms. But “Smash Capitalism” as a slogan (I know you didn’t say that, but people do) is a slogan that suggests the smasher wants to go back to the old command economy.
Maybe it is helpful to distinguish between mega-capitalism (which seems to be pretty toxic) and micro- and meso-capitalism, which might yet be harnessed to serve the interests of ecology?
#2 by Unlearningecon on December 17, 2011 - 12:11 pm
Well a Socialist would argue that Capitalism inevitably becomes mega-Capitalism due to the constant accumulation of profit and the fact that it eventually corrupts the political system and uses it for its own gain. They would argue that Capitalist power structures mean that true reform is not possible.
Given recent events, I’d find it hard to disagree with them.
Also, the only two choices are not ‘command economy’ and ‘capitalism’. Market Socialism – true worker ownership of firms, but with the price system we currently have – sounds pretty good to me.
#3 by bilbaoboy on January 20, 2012 - 1:36 pm
A comment on ownership
Here in the Basque country we have the Mondragón Coops (fairly well documented in the UK ) and many worker-owned limited companies (with a variety of disequal levels of ownership among workers). There are many types, capital and consumer goods manufacturing, services, banking; large and small..
I work with both types and can assure you they can have many problems of their own and despite my sympathy I see no inherent superiority of the model. On the contrary, some Coop members consider themselves owners in the good times, employees in bad times..; extremely slow and/or poor decision-taking, lack of innovation, excess of business conservatism, losing rising stars to places where they can triumph (professionally) more easily and for greater reward (you don’t have to be greedy to want what your talent would get elsewhere).
Attractive in theory, but more complex than it seems. Great when they work but not the solution to your worries.
#4 by Unlearningecon on January 20, 2012 - 1:45 pm
Interesting comment, thanks.
#5 by human mathematics on February 21, 2012 - 5:40 am
Which capitalism?
#6 by Unlearningecon on February 21, 2012 - 1:24 pm
Any form of private ownership of capital and the wage system, as it seems to be a breeding ground for corruption.
#7 by paul on February 3, 2013 - 2:25 am
Even within hunter-gatherer societies with little obvious capital to hold as private ownership, similar greed to be found in those hunters who catching two edible prey consumed one, lay back to rest, then return with remaining one to their collective to receive credits for sharing their remaining profit from their hunt.
#8 by Unlearningecon on February 3, 2013 - 11:41 am
I don’t think greed didn’t exist before capitalism, or will not exist after it. The question is: does the system amplify and reward it, or is it a marginal issue?
#9 by Christopher Rogers on April 6, 2012 - 7:00 pm
Sir,
May I say your blog is a welcome relief and most informative for those of us who do not claim to be economists and are sick and tired of being bewildered by terminologies and theories that by right should be consigned to a dustbin.
Your assault on the foundations of neoclassical and neoliberal economic orthodoxy are clear, concise and easy for a layperson to understand – indeed, coming from a politics/history background one is reminded of the the struggle for the Reformation and Catholic Churches response to Luther.
Well done and I now look forward to reading your input on a regular basis.
#10 by Unlearningecon on April 6, 2012 - 7:12 pm
Thanks a lot for the kind words.
#11 by paul on February 23, 2013 - 1:17 am
All systems possess greed, albeit sometimes one may need closely follow the creeds in a system to recognize them.
Our first challenges is to accept some greed as human whim, whilst disliked within a range reason will require only verbal admonishment.
The second challenge is to clarify then educate so clear is the point exercise of greed will cease to be ignored for all to be aware – hopefully recognize, the point at which such greed and those practising it shall be dealt with by society.
Then is task to accuse, to judge, then appropriately and reasonably deal with those felt to exceed the reasonable.
#12 by paul on February 23, 2013 - 1:44 am
Doubt most calls for radical reform, radical reform more like an earthquake or tsunami, rather accept change as part of living, change is ongoing, less disturbing so more acceptable when gradual.
Gradual is a product from democracy, democracy also ensuring all are able to become involved in the discussion and determination of what changes to take place.
Those who chose not to become involved thus less room to argue.
Those with most to lose from closure of tax loopholes, tax or other advantages, shall resist “reforms” though hiding their opposition under other covers.
Challenge is to ensure discussions include clear notice of where attempts to advantage or disadvantage are being hidden.
#13 by daveianhickey on May 23, 2012 - 11:49 am
Just subscribing
#14 by Unlearningecon on May 23, 2012 - 4:37 pm
Thanks!
#15 by jp on May 27, 2012 - 6:56 pm
Hi, just want to say, I wouldn’t worry much about being “negative”.
In a time where neoclasical theories not only still prevail, despite having failed epically, but are taken to even more extreme conclusions (by the austrians etc.) your blog provides a valuable service.
Adorno (the german philosopher) called “constructive criticism” groveling criticism and said that by defining and stating precisely what is wrong, one already points in the direction of an improvement of the current conditions.
I think your blog does this and, as pointed out above, in an easy to understand way.
#16 by Unlearningecon on May 28, 2012 - 2:25 pm
Good points, reminds of a quote from JKG about the conventional wisdom. Something along the lines of “the conventional wisdom should not be conceded to, accorded any reverence, etc.” Unfortunately I can’t find it online and don’t have time to pore through my copy of The Affluent Society.
#17 by Kristoffer on June 11, 2012 - 6:28 am
I’ll wright this here as I don’t se an e-mail adress to contact yo on. I very much like your blog and read it regularly and as a Twitter user I figured i’d follow you on Twitter too. But I can’t. When I try to enter your account I can’t even read your tweets. It just says ”
Loading Tweets seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.”.
And then nothing happens. This happens every time I try to enter your account. So I was wondering if you have heard this from anyone else or am I the first?
I’ve never experienced this before. Could you have blocked me perhaps? If so why?
#18 by Unlearningecon on June 12, 2012 - 10:57 am
Not sure what’s going on there – I’ve never heard anyone mention this problem before. What’s your name on twitter?
#19 by Kristoffer on June 12, 2012 - 5:46 pm
Yes, I do seem to be blocked. That’s what it says when I push the “Follow” button (“Sorry, you can’t follow this user (because they’re blocking you.”).
@pelle_jons
#20 by Unlearningecon on June 13, 2012 - 6:15 am
I have unblocked you, thanks for letting me know.
#21 by Dennis Leech on July 1, 2012 - 2:24 pm
I have tried to send a tweet in reply to your question: “Is it true the founding fathers only supported the vote for property owning white males?” but it has not appeared in the conversation. I don’t understand why a reply does not appear as such but as a new tweet.
The point I wanted to make is that the US constitution of 1787 was worse than is implied in your question: it is taken for granted that the franchise would be restricted to white males. The constitution laid down the rules for apportioning seats in congress to the various states which read as follows:
“Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.” (Article 1, Section 2)
So a slave counted as 3/5 of a person, which meant that the votes of white males in southern slave states counted more than those in the north. This fundamental lack of democracy was therefore built into the USA from the start and it was not amended until 1868 after emancipation. (Native Americans were still excluded if they paid no tax, even then.)
Dennis
#22 by Unlearningecon on July 1, 2012 - 10:07 pm
Hi Dennis, thanks for the response. That’s pretty horrifying and serves to strengthen my lingering feeling that Marx was right about political debate and visions of ‘justice’ simply being a reflection of conditions at the time.
3/5ths of a person is also oddly specific. Any reason fort his or was it just arbitrary?
#23 by SM on August 27, 2012 - 12:17 am
3/5ths was a compromise between the north and south over representation/taxation. The south wanted all slaves to be counted towards representation while the north wanted none (since slaves were seen as property) and they compromised on a 3/5ths solution. It is sometimes argued as something positive because for the first time a slave was considered to be a person and not property (according to the anti-slavery constitution crowd).
Also note women had the right to vote in Rhode Island until 1808 and it was taken away.
#24 by Ragweed on September 10, 2012 - 9:58 pm
I believe the 3/5ths compromise also had to do with taxation – the southern states wanted slaves to count for representation, but not for taxes, and vise-versa.
As for the issue of sufferage, it was left up to the states to determine sufferage. Generally state consitutions limited the vote to white males with certain property qualifications, though I think some states allowed free blacks to vote if they met the property qualifications. Also, there were often religious restrictions. I recall digging up the qualifications for Massachusetts and a couple of other states a few years back, but I cannot find it easily now.
One of the interesting aspects of these laws was that citizenship was often NOT a requirement for voting, though they usually had a residency requirement (for Mass it was 1 year, if I recall).
New Hampshire was the first state to eliminate the property requirement in 1792, and most states followed in the 1830-1850 period, though I don’t think it was fully eliminated until the 14th Amendment.
#25 by Marco on August 8, 2012 - 9:58 am
Hi,
How are you?
We recently ran the article ‘20 New Economic sites you should read’ on Mindful Money which featured your blog. http://www.mindfulmoney.co.uk/12649/knowledge-bank-/20-new-economic-sites-you-should-read.html
The piece was part of a wider series exploring the ‘New Economists’ and their ideas for alternative approaches to neo-classical thinking. The series was well received but only scratched the surface of an area that we feel deserves a wider and continued discussion than currently exists in the mainstream media.
So to do that, we’d like to pick up where we left off, starting with a brief Q&A with some of the major players and would really appreciate it if you had a few minutes to answer our Q&A. It will be published on the homepage of Mindful Money and form part of our wider coverage in this area. And of course we would keep you informed of any further discussion it stimulates.
I look forward to hearing from you,
Marco
#26 by Unlearningecon on August 13, 2012 - 2:34 pm
Hi Marco, thanks for the note. I’ve been on holiday so apologies for the late reply.
I’d be happy to talk about this with you via email, sounds like a good idea but I’d like to know roughly what to expect. You can email me at
unlearningeconomics@gmail.com
#27 by Tarik on August 15, 2012 - 10:04 pm
John C. Bogle is an interesting case of a low-cost mutual ownership that appears to benefit the investor. Do you feel this is a good example of how a company can be structured so that corruption is minimized? Is this what you mean by “market socialism?”
From a recent NYT article:
http://www.nytimes.com/2012/08/12/business/john-bogle-vanguards-founder-is-too-worried-to-rest.html?smid=pl-share
I found these two paragraphs interesting:
“Strategy follows structure,” he says, explaining that with no parent company or private owners to siphon profits, Vanguard can keep costs lower than anyone else. That was always his goal. “The only way anyone can really compete with us on costs is to adopt a mutual ownership structure,” he says. “I’ve been waiting all these years for someone to do it, but no one has.”
One reason is surely that there’s no profit in it. Despite Vanguard’s size and success, Mr. Bogle is no billionaire. For comparison, Forbes lists the personal wealth of Edward C. Johnson 3rd, the chairman of Fidelity, as $5.8 billion. By contrast, Mr. Bogle says his own wealth is in the “low double-digit millions.” Most of it is in Vanguard and Wellington mutual funds in which he invested via payroll deduction during his long career.
——-
#28 by Unlearningecon on August 23, 2012 - 7:35 pm
It is, yes, thank you for the link.
That actually contains the primary rebuttal to the glibertarian point that ‘if worker ownership were so great, it would have happened already.’ Even if it is good for overall efficiency, it isn’t for individual profits.
#29 by Jacob Richter on October 6, 2012 - 8:36 pm
You should consider supply-side political economy of another sort. Maybe Post-Keynesians won’t admit this, but much of their economics borders on supply-side political economy from a labour perspective. “Increasingly difficult to defend capitalism”? A Reaganite once called Marx a supply-side economist. He was right and wrong: supply-side political economy for labour.
Also check out Guy Standing’s Precariat book, though it has notable policy shortcomings.
#30 by Unlearningecon on October 7, 2012 - 12:45 am
I’m not exactly sure how post-Keynesian economics is similar to supply side economics in labour or any other area?
#31 by Franz on November 28, 2012 - 7:48 pm
“Any form of private ownership of capital and the wage system, as it seems to be a breeding ground for corruption.” Feb 2012
And there wasn’t corruption before capitalism? Even more egregious corruption than with capitalism ?
#32 by Unlearningecon on November 28, 2012 - 7:55 pm
No? I didn’t say that.
#33 by Franz on November 29, 2012 - 4:57 am
On Feb. 21, 2012?
#34 by Unlearningecon on November 29, 2012 - 2:05 pm
I said what was in the quote. What followed was your own construction.
#35 by Franz on November 30, 2012 - 2:52 am
Yes. I understand that. I was asking my question based on yourearlier comment. (I wasn’t registered at the time so the reply button would not appear, hence I asked in the manner.)
Nevertheless, wasn’t there corruption before capitalism? And wasn’t much of that corruption more egregious then under capitalism?
My thought is that currently so much of our corruption In the U.S. is either enabled by the governmentor a result of government (Note: I believe government is to protect rights and establish laws which prevent corruption, but that is absent in the current milieu, hence corruption has increased greatly.)
#36 by Unlearningecon on November 30, 2012 - 11:35 am
Yeah, corruption can exist without capitalism. I am not aware of the empirical facts on corruption before capitalism, but I don’t think it necessarily matters as long as a significant degree of corruption still exists.
By definition this is true. I’m guessing the difference between me and you (and libertarians and the left in general) is that I see government as a part of capitalism rather than something of an outside interference.
#37 by peter darley on December 7, 2012 - 9:36 am
Hi,
Since I retired, I have studied, with increasing perplexity, economics. Now you are telling us to unlearn economics. Rather than a multi-page book by Steve Keen, I can debunk economics in a few words—what is the value of labour?
I recently concluded that the whole ‘science’ of economics has a fatal flaw—it has never been able to objectively value labour.
Since labour is the prime cost of any economic activity (tracing back through the antecedents a la Bastiat), it is depressing to realize that we actually ‘know’ very little about anything—most of what we think we ‘know’ is merely opinion and perception.
Of course, books make money while sentences do not.
You recall the extraordinarily stupid statement by Angela Merkel—”The primacy of politics over markets must be enforced”— during the Greece Debt Debacle, 2011. This is what happened in East Germany, Angela, with results that we all know. If economics (such as it is) is the science of how society produces and distributes scarce resources and politics is the means of distributing the economic product, it should be obvious that distribution cannot occur without prior production.
Maybe a different starting point should be considered.
If you go back to your high school physical chemistry you will discover Lavoisier’s Law of the Universe, which states: “The total amount of matter in the universe is unaltered, whatever changes take place in its distribution. Nothing can be created, and in every process there is just as much substance before and after the process has taken place. There is only a change in the form of the matter.”
Everything made by man eventually returns to the dust from which it came.
Regards
Peter Darley
#38 by Unlearningecon on December 7, 2012 - 12:58 pm
Well, Marx obviously had a lot of work on the value of labour, and you will see Keen has addressed this argument.
I don’t really consider economics analogous to physics – there’s no reason for an equivalent, of, say, the conservation of mass. If anything it seems more analogous to biology, with it being human-based and all.
In fact the problem Merkel identifies (though she does not practice what he preaches) is the fact that existing economics separates political from the market, where the two are actually inseparable. All markets are governed by laws and collective, institutional or individual rules that we do not notice or choose to ignore.
#39 by freedomthistime on December 23, 2012 - 1:41 pm
“I’d characterise myself as a post-Keynesian, but one who is finding it increasingly difficult to defend capitalism given recent events.”
Props to you for writing that. Most economists seem to simply assume the existing distribution of power and particular forms of major institutions as some kind of inevitable (and mostly unmentionable) background upon which to analyse the economy “positively”. Pointing out that the background exists is not the done thing in polite company. Going a little further, one might see mainstream economics as little more than a rationalization for this existing distribution of power – and argue that this is the reason why the latter supports it. I don’t know if I would necessarily go quite that far, but I think the tendency is there. To me, concepts like the Efficient Market Hypothesis and Pareto Optimality, to the extent that they migrate over from purely academic exercises to “informing” public policy making, have echoes of Voltaire’s “All is for the best in the best of all possible worlds”.
Anyway, I’d be interested in what you make of current ecological arguments against capitalism as a system. Marx defined capital-ism by the M – C – M’ sequence of capital accumulation, so let’s go with that definition for the sake of argument. I see a potential (and I think actual) conflict here between ongoing capital accumulation / ongoing economic growth (which is a non-negotiable structural requirement of the system, as Marx and others would have it) and ecological limits. Mainstream economists seem to implicitly acknowledge this tension; they will take economic growth as a given and then attempt to placate environmentalists with arguments about “decoupling”. But I don’t think the arguments make much sense. I had a go at briefly explaining why I think so here: http://steadystate.org/economic-theology/
What do you think? Do ecological limits mean the end of growth? Does the end of growth mean the end of capitalism? That’s what Marx’s detention seems to imply – how could you thereafter accumulate capital? Are attempts at “green capitalism” thereby fundamentally misguided? Is capitalism constitutionally incapable of becoming “sustainable” – just as one could not make a lion into a vegetarian?
#40 by Unlearningecon on December 24, 2012 - 12:41 pm
Yes, absolutely. Capitalists will always look to cut down their work force to lower costs. If there is no expansion they will rely on cutting costs more to increase profits. The result is unemployment, as we see every time there is a recession. Hence, an attempt at ‘sustainable capitalism’ would have to entail vast restrictions the activity of capitalists which of course would not work.
There is a possibility that sufficiently strong social attitudes might quell the rise of unemployment, as in Japan where firms generally take workers on for life. But even there, there are problems with youth unemployment (and there has, of course, been some growth). Not to mention that that kind of thing is a historical anomaly.
#41 by sandjar on February 19, 2013 - 5:21 am
Dear Author,
I take issue with the way you position these discussions as “Unlearning Economics”. Some of your posts suggest that we should throw economics out the window and find something else. There are even some fancy new terms I’ve never even heard of before. I appreciate how you challenge conventional wisdom in economics, but you have to admit that fundamentally you are trying redefine or reframe economics. We are still talking about resources, choices and behaviors which is what economics has always been about since Hommurabi. So let’s stop with sensationalist headlines starting with the title of your blog.
#42 by Unlearningecon on February 19, 2013 - 9:29 am
It’s not a sensationalist headline, it has a genuine and specific meaning: studying economics, in my opinion, instills people with certain assumptions and framings which it is very difficult to ‘unlearn.’ For example, they see the economic sphere as special and take things such as minimum wage effects, comparative advantage, lump of labour etc. to be self evident truths that need no evidence. There are also other things – I document my thoughts on the matter here. The purpose of this blog was to escape this mental framing.
#43 by sandjar on February 19, 2013 - 2:40 pm
Thanks. I like @moiracathleen’s response to that post. I can’t comment there for some reason so I’ll just post here. You say that government vs market framing is flawed, but you don’t offer an alternative framing. At least it wasn’t very apparent to me.
I spent a lot of time in various econ schools (US, Europe & Central Asia). I agree that economists have a tendency to be elitist with respect to their discipline and have a “you just don’t get it” attitude. But that attitude is no more or less arrogant than any other academia especially in social sciences. That’s a problem of academia in general, not just economics. Economics just happens to be very powerful (rightfully or not) in impacting how we govern our society.
#44 by Unlearningecon on February 19, 2013 - 4:09 pm
I don’t, but if you have a map that is wrong, you don’t use it, even in absence of another.
Elsewhere, I have suggested class.
Yeah, this is true. It has been said that debate is so vitriolic in academia because the stakes are so low. Unfortunately, in economics, debate seems to be bitter but the stakes are actually very high.
#45 by W on March 6, 2013 - 7:52 pm
I´ll write down here my own mainstream-economics´ definition:
.
If you found Latex code to be troublesome within your blog´s philosophy (scope or even, academic adversaries´stance against the blog, so to speak), just don´t post this comment at all (delete it at once!). Greetings!!
#46 by Unlearningecon on March 7, 2013 - 1:38 pm
I understand your comment as saying economics is circular/tautological. Joan Robinson regularly asserted this, and I think her criticism carries a lot of weight wrt utility, marginal productivity and capital.
#47 by W on March 7, 2013 - 2:53 pm
Thanks for the references on the topic!! I wonder whether the problem lied within the matching of the limit (math) process concept, and the frameworks within which the limits are taken (broadly, lets say: in the given example, the problem remains that of pretending that the function
should work when that´s not the case). This approach could obviously be worked at large…
#48 by Anthony Migchels on March 26, 2013 - 3:22 pm
Unlearning economics is a great goal. It’s also reasonable that an independent appraisal of Marx can sidetrack one momentarily when slowly climbing down the rabbit hole.
But Marxism is just the other pole of the Dialectic Capitalism vs. Communism.
Both sides are owned by the same people. They both centralize power and both are materialistic.
Relearning economics focuses on Interest-Free economics.
#49 by freedomthistime on March 27, 2013 - 3:55 pm
Hi Unlearning,
This is a reply to your comment to me on 25/3 on your recent interest rates blog. Sorry for putting it here, but you closed comments on that blog! So…
_______________________________________
Hi again Unlearning, I didn’t intend my comment as a criticism of your blog/data, I just wanted to mention/recommend an interesting book I’d read.
To answer your question, Werner definitely looks at long term rates – see fig 6.4 (for Japan) and fig. 6.7 (for the U.S.) which clearly shows these long term interest rates following growth, not leading it. I thought monetarist theory said that interest rate changes would lead (to) money growth changes ? Isn’t that the entire basis for central banks officially stated policy of fiddling around with decimal places on interest rates, supposedly to slow or encourage growth? e.g. we have a lot of central bankers now lowering rates down to effectively zero (and even talking about going negative) to try and (they say) get the banks lending again. Werner says this won’t make any difference – it didn’t in the case of Japan through the 90s (which the early chapters of his book show) – because interest rates are largely irrelevant to the macroeconomy.
The next paragraph after those I originally quoted is this:
“The enigma of the interest rate also means that when the next central banker asserts that he is raising rates to slow growth, or that he is lowering rates to stimulate growth, we know that he is talking nonsense. Since rates, especially those set by central bankers, are the result of economic growth, they cannot at the same time be the cause.”
#50 by Unlearningecon on March 28, 2013 - 10:37 am
Yeah, it does that automatically after 30 days. It’s annoying sometimes, as with now, but saves me responding to random comments on god knows what post I’d forgotten about.
It is possibly not a textbook position, but it is the monetarist position of, for example, Milton Friedman. For them, the quantity of money in circulation is what matters, and interest rates will rise or fall depending on ups and downs (respectively) in the economy. Scott Sumner is the modern expositor of this story.
It’s funny, the reason I was resistant is because it actually seems to go against my framework more, which is the one where the CB sets the interest rates and the money supply responds endogenously through private credit creation. Nevertheless, evidence is evidence and I’ll take a look.
#51 by Magpie on April 5, 2013 - 6:35 am
Unlearning
This is probably a very unusual request, but perhaps you could help me with this.
Partially inspired by a challenge Prof. Nick Rowe issued to critics of mainstream economics, partially inspired by your own example, I’ve decided to give mainstream economics a fair hearing.
So, I’m studying, little by little, on my own, about microeconomics and I’ve come across the so-called “law of the diminishing marginal product” of production theory (one variable, one fixed input).
This is supposed to be an __empirically observed__ regularity in production. But no book I’ve seen ever mentions any _empirical evidence_ for this alleged law, which is, let’s say, puzzling, given that this is supposed to be an empirical thing.
I was wondering, do you know of any empirical study covering this subject?
Thanks in advance.
#52 by Peter Nicholls on April 5, 2013 - 10:01 am
Robert Nielsen attempts to look at the issue of marginal productivity of labour. It may give you an idea of where to take research next?
http://robertnielsen21.wordpress.com/2013/02/20/challenging-economics-marginal-productivity-of-labour/
#53 by Unlearningecon on April 5, 2013 - 10:58 am
There really isn’t a lot of evidence for this. Blinder’s study, evaluated here, found only 11% of firms face decreasing returns, while the classic, Eiteman and Guthrie, found about 5% of firms saying their cost curves match something like that found in textbooks.
Insofar as diminishing returns do exist, it’s likely to be in agriculture. (On twitter somebody suggested football (soccer) officials).
#54 by Magpie on April 5, 2013 - 4:13 pm
Thanks guys for the links! They are much appreciated.
Okay, it seems there aren’t many studies on this matter and what little empirical evidence exists in support of the MPL seems rather underwhelming.
Let’s try something more basic: is there any study supporting the “law of diminishing marginal returns”?
I imagine that, as it purportedly reflects a technical relationship between inputs and outputs, if the law of diminishing returns is valid, then it should be easily documented.
In fact, it would seem easy to design an experiment to that effect. Say, in agriculture (as Unlearning mentioned), an agronomic study could divide a plot of land into equal subplots (presumably equally fertile and subject to the same weather), control for water and seed quality; and assign work teams of increasing size, using the same technology, so as to measure the resulting crop.
Is there any study providing evidence in support of the alleged law of decreasing marginal returns?
#55 by Unlearningecon on April 6, 2013 - 12:01 pm
Honestly, all I have seen are just-so stories. Sorry I couldn’t be of more help.
#56 by Magpie on April 6, 2013 - 1:55 pm
No need to apologize and thanks anyway.
“Honestly, all I have seen are just-so stories.”
The same here.
Somehow, the lack of data doesn’t surprise me…
#57 by Magpie on April 20, 2013 - 11:03 pm
I’ve kept digging as much as I could on this matter and my preliminary findings reveal some quite interesting things.
Intellectual honesty forces me to admit something: the experiment I proposed, to the best of my knowledge, was never performed and for a very good reason: strictly speaking, it cannot be performed.
In the paragraph above I made the same mistake John Bates Clark made. Either this means that I am as “smart” as he was, or that he was as stupid as I am.
#58 by Unlearningecon on April 21, 2013 - 12:39 pm
You’ll have to elaborate on exactly which experiment and mistake you mean.
#59 by Magpie on April 22, 2013 - 9:27 am
The experiment I mentioned above, in #54, to measure the diminishing returns of labour in a farm.
In that experiment, strictly speaking, one cannot isolate the variable “labor” (say, measured in men-days) from the variable “capital” (say, measured in $).
#60 by Unlearningecon on April 22, 2013 - 1:47 pm
Yes, absolutely true. So all you have are fables, coupled with denials that it doesn’t matter whether firms actually do this, they behave as if they do, and a complete whitewashing of the empirical literature!
#61 by Engineer on April 17, 2013 - 12:35 am
Read “Economics in One Lesson” by Henry Hazlitt. It’s a rather short book and quite cogent. I think you’ll find that you’ve been taught a lot of bunk and drawn the wrong conclusions.
For instance, Keynes didn’t say what you think he said. He never said that massive constant monetary inflation was a good solution, he said it was only good in slumps, but then you had to unwind it afterwards.
Yet our government has no interest in ending the inflation, they just continue it… and that is bad for the economy.
Here you are blaming “capitalism” for the results of monetary policy.
Of course you are doing this because you’re a liberal, and you’ve drank the koolaide. But if you look at history, it doesn’t agree with you.
#62 by Unlearningecon on April 17, 2013 - 1:07 am
I always cringe when someone appeals to Hazlitt seeing as the guy barely even understood economics, yet, armed with only a year of college he decided to write a condescending, simplistic book claiming to teach it to those far better educated and more intelligent than him (eg Keynes).
Speaking of Keynes: my idea of Keynes is based on reading Keynes first hand – I know precisely what he meant, which was that the rate of interest should be kept low to stimulate private investment and stabilise the economy; in the case of depression, public programs were required to boost the economy.
Ouch! That’s quite an insult. I’m actually a socialist, and to us being called a liberal is pretty damning indeed.
#63 by swedishpotato on May 5, 2013 - 8:44 pm
Interesting blog this. I’m now following. Looking forward to reading a few more articles.