Christmas message

Click for bigger. Festive greetings to all!

Real-world treats

As ever, there's plenty to chew on in the latest Real-world Economics Review (formerly the Post-Autistic Economics Review). Unsurprisingly, it's a financial crisis special, with three papers each on responding to the crisis itself, and on what it means for the study and teaching of economics. No less inevitably, there's a certain element of 'We told you so...'

The punchiest paper is from JP Bouchaud of Capital Fund Management, who's done some seminal work on the failures of standard market models (eg, "An Introduction to Statistical Finance", Physica A, 313, 1, 238-251). Here, in an expanded version of a short paper first published in Nature in October, Bouchaud outlines the fundamental case for a more scientific approach to financial economics -
Of course, modelling the madness of people is more difficult than the motion of planets, as Newton once said. But the goal here is to describe the behaviour of large populations, for which statistical regularities should emerge, just as the law of ideal gases emerge from the incredibly chaotic motion of individual molecules. To me, the crucial difference between physical sciences and economics or financial mathematics is rather the relative role of concepts, equations and empirical data. Classical economics is built on very strong assumptions that quickly become axioms: the rationality of economic agents, the invisible hand and market efficiency, etc. An economist once told me, to my bewilderment: These concepts are so strong that they supersede any empirical observation. As Robert Nelson argued in his book, Economics as Religion, the marketplace has been deified.
[JP Bouchaud, “Economics needs a scientific revolution”, real-world economics review, issue no. 48, 6 December 2008, pp. 290 - 291, http://www.paecon.net/PAEReview/issue48/Bouchaud48.pdf]

Elsewhere, there's an intriguing paper by David George of LaSalle University, in which he studies the changing meaning of the words 'competition', 'monopoly' and their variants from 1900 to date -
Paradoxically enough, the firm that manages to become the only seller (an economist’s “monopolist”) or the firm that manages to be one of just a few sellers (an economist’s “oligopolist”) now qualifies for the title of “very competitive firm” since it’s the only one (or one of a few) that managed to survive the competitive struggle. Amazingly, the firm that is least able to be described as “competitive” by the old definition (a single firm in a sea of many firms) now is most able to be described as “competitive” by the new definition (a “victorious” or “most able” firm). This is a coup d’état writ large.
[David George, “On being ‘competitive’: the evolution of a word, ” real-world economics review, issue no. 48, 6 December 2008, pp. 319-334, http://www.paecon.net/PAEReview/issue48/George48.pdf]

To download the entire issue (530KB PDF), click here.

The Road to Huddersfield

Sometimes, a good poke around a secondhand bookshop will turn up something that just leaps off the shelf at you. So it was with 'The Road to Huddersfield: A Journey to Five Continents'. A book commissioned by the World Bank from Guardian journalist James (later Jan) Morris in the early 1960s, with a delightfully Yorkshire-centric title - what's not to like?

Huddersfield here is posited as the exemplar of industrialised society, the epitome of 20th century civilisation, the very birthplace of the modern world, whose 'horny, stocky, taciturn people were the first to live by chemical energies, by steam, cogs, iron and engine grease, and the first in modern times to demonstrate the dynamism of the human condition'. Aye, that's right enough.

The assigned task of the World Bank was then (and, more or less, is now) to help those less advanced nations advance along the titular road to Huddersfield - to fund those infrastructure projects which, according to theory, will speed those economies towards the wealth and freedom from want of industrial society, that very state of Huddersfieldness.

After a visit to the World Bank HQ, under the idiosyncratic rule of Eugene Black, Morris travels through some of the recipients of the Bank's aid - Ethiopia, Siam, southern Italy, Colombia, and the Indian-Pakistani borders - in an elegant and picturesque odyssey. Given that the book was commissioned by the Bank, Morris stays remarkably ambiguous about the effects and efficacy of its work - a lot kinder than many of its latter-day (or even contemporary) critics, but no apologist for its occasional incompetence or amorality.

Some 45 years on, some of the descriptions of the countries visited strike a little odd. 'Nobody is starving' in Ethopia, though that country 'is still a long, long way from Huddersfield'. Further East, 'it is no coincidence that Burma, that gilded stronghold of Buddhism, is perhaps the only country on earth that shows no eagerness at all to take the Huddersfield Road." On the other hand, the chapter detailing political and ethnic tensions in the Indus basin seems ever relevant - though some might see a certain irony as Morris notes of Pakistan, 'never did a country seem to need her Huddersfield more.'

It all makes for an intriguing slice of political and economic history. Although it seems slightly unfair that the book's thin section of photographic plates does not show the titular Yorkshire town, but rather its neighbour Halifax - a view from Beacon Hill of a near-unrecognisable forest of belching chimneys. Were it not for the dark satanic smog, now long gone, you might just see my house from there.