Stiglitz and Smith

In the New Republic, Joseph Stiglitz sings a familiar tune, lamenting the downtrodden economy:

We have not yet sunk into an "official" recession, but it has been more than half a year since any new jobs were created, and, meanwhile, our labor force continues to grow. If the Great Depression undermined our confidence in macroeconomics (the ability to maintain full employment, price stability, and sustained growth), it is our confidence in microeconomics (the ability of markets and firms to allocate labor and capital efficiently) that is now being destroyed. Resources were misallocated and risks were mismanaged so severely that the private sector had to go running to the government for help, lest the entire system melt down.

Interestingly, Stiglitz uses the same reasoning in his diagnosis of the U.S. economies ailments that he used in his prescription to Make Globalization Work. Bad markets let people do bad things. In Making Globalization Work, remember, he decried ease with which special interests could overrun and undermine the international institutions. Now, he takes aim at the American financial markets whose opaque information structures shield corporation's greed from consumers' eyes:

The task of unraveling all that went wrong in our financial system is a difficult one, but in essence the financial system's latest innovation was to devise fee structures that were often far from transparent and that allowed it to generate enormous profits--private rewards that were not commensurate with social benefits. The imperfections of information (resulting from the non-transparency) led to imperfections in competition, helping to explain why the usual maxim that competition drives profits to zero seemed not to hold.

He concludes, "The invisible hand often seems invisible because it's not there. At best, it's more than a little palsied. At worst, the pursuit of self-interest--corporate greed--can lead to the kind of predicament confronting the country today." I see no problem blaming corporate greed; my problem is with his slight attack on Adam Smith. The invisible hand line above seems glib, and when coupled with the first graph, it seems unfair:

More than 75 years ago, confidence in the market economy got a rude shock as the world sank into the Great Depression. Adam Smith had said that the market led the economy, as if by an invisible hand, to economic efficiency and societal wellbeing. It was hard to believe that Smith was right when one in four Americans was out of a job.

Of course, we can believe that Smith was right, thanks to the (at the time surprising, sure) assignment of the Theory of Moral Sentiments. Smith's theory required moral actors for it to be eventually fair. In the context of Stiglitz's analysis, Smith's warnings, in fact, seem more believable: we see how the market falls down when people exploit weaknesses with improprieties. Sure, Stiglitz -- the capable writer that he is -- was likely using Smith as merely a rhetorical motif or even a strawman, but when you're lamenting the misuse of information, you probably shouldn't publish incomplete (if only contextual) information yourself.

Importance

Just in case anyone forgets while we don't have a seminar together, this is just a reminder that we are all unbelievably important.

Rawls' Biography

Here's a bit of Rawls' biography that gives insight to his philosophy that we've studied thus far. Hat tip to Marginal Revolution for the quote.

As Thomas Pogge has noted in his recent biography John Rawls: His Life and Theory of Justice, Rawls was especially sensitive to issues of luck because of a sad occurrence in his own life. Two of his brothers died in childhood because they had contracted fatal illnesses from him. Pogge calls the loss of the brothers the “most important events in Jack’s childhood.” In 1928, the 7-year-old Rawls contracted diphtheria. His brother Bobby, younger by 20 months, visited him in his room and was fatally infected. The next winter, Rawls contracted pneumonia. Another younger brother, Tommy, caught the illness from him and died.

Luddites and Apologists

(Cross-posted from cmcabroad.com/abhi just to add some fresh content and get your input.)

I'm something of a technology elitist, sure. Just today I scoffed at my boss's old floppy disc, and regularly I mock typographical missteps. Nonetheless, I understand that people have different levels of experience and different points of view, so I can at least appreciate this opening to Lee Gomes's recent op-ed, "Note to the Next President: Avoid Computers."

"The two presidential candidates this year, in addition to all their other, more-significant differences, also present two contrasting perspectives about the extent to which personal-computer technology can be integrated into someone's everyday life."

That was about all I could appreciate.

Gomes makes the obvious diagnosis of McCain's computer illiteracy, but then, instead of dismissing, let alone lamenting, the candidate's technological conservatism, he rationalizes it, arguing that it's best for a president to keep distance from computers, the internet, and (those dreaded) blogs.

"The severe time rationing is necessary because a computer, far from making you more productive, instead loads you down with things to do, and it's important for the machine to know who is boss."

He just threw the 21st century under the Straight Talk Express.

To be fair, there is some force to Gomes' argument. Yes, the president can have an aid check his email, and sure, the computer wouldn't sit well on the Resolute desk. But no, we shouldn't enroll the president in computer class, as Gomes wishes: "If I were the chief of staff at the White House, I would have some sort of computer, not in the Oval Office itself, since it wouldn't match the furniture, but one office away. I'd push the president to spend, say, 20 minutes a day on the machine -- whether he would complain about the limit or about the mandated time." Or at least, we shouldn't have to.

This compartmentalization of new technology is crux of Gomes' pitch, as it hopes to free the president from the "distractions" of the internet, but it betrays his skewed worldview. He views the internet and the information age as small areas of our life: at best, a useful business tool, at worst, a distracting indulgence. It is a necessary evil in his mind, something to be used sometimes, but controlled always.

This is the modern equivalent of seeing the trees but missing the forest.

The information age has already transformed the way we work and the way we interact. We're more connected - and sure, sometimes more distracted - than ever, but the Blackberry isn't the enemy. It's a tool, one of many; tools that are breaking down the top-to-bottom communications structure of the 20th century and piecing together increasingly wide and dense networks. In fact, some expect this structural change to strengthen and develop our democracy (read this compelling call for "Politics 2.0" by members of the Sunlight Foundation). In a recent Atlantic Monthly article, Marc Ambiner explained that, already, Britain and other European countries have incorporated internet into governance, expanding access and increasing participation: for nearly two years now, British citizens have been able to seek redress from their government with online petitions. The Atlantic piece rightly notes the shortcoming of the system, as many petition go unattended to and none have guaranteed affect. But, it's just a start, and there are always blunders at the beginning. Moving forward, it will take attention, understanding, and willingness to unlock the full potential of internet participation--and that potential could translate directly to political power, as Ambinder explains:

"But it’s worth noting that some of the best-known presidents in U.S. history have stood at the vanguard of past communications revolutions—and that a few have used those revolutions not only to mobilize voters and reach the White House but also to consolidate power and change the direction of politics once they got there."

Here we see the political cost to Gomes' (and arguably McCain's) skewed worldview: by compartmentalizing the internet, you squander its potential. The Luddites thrashed about London, wrecking the machines and factories of modernity, denying its promise of a better future. Similarly apprehensive, a Luddite-in-chief is in some ways more damaging: muting the enthused, clamoring for a new way to participate and strengthen our democracy.

It's not simply a matter of updating his facebook page, the next president will lead the country, and hopefully the world, during an exciting and sometimes tumultuous technological revolution. To lead, he should, at least, know what's happening--let alone look to what's ahead.

Summer Reading: Richard Posner

The NYT's Paper Cuts Blog has an article outlining some suggested reading for anyone interested in reading more Posner.

If anyone reads any of these, go ahead and post a review.

Thinkers

The Freakonomics blog at the NYTimes has a fun game:

The e-mail gods recently delivered this interesting query from a reader named Derek Wilhelm:

I go to the University of Richmond, which requires [us] to take a class called Core, where we read famous historical books. (Gandhi, Marx, Plato, Augustine, just to name a few). Anyway, my question for you is: Who do you think is the greatest modern-day thinker?

I love this question. It first requires you to define what a “thinker” is, and also raises the question of what incentives exist in the modern world to be a thinker. Also, is someone a great thinker if they’re never able to communicate their thoughts to a broad audience?

Its comments section has gems, such as Lil' Wayne, Yogi Berra, and Homer Simpson, and some more serious nominations--Foucalt, Chomsky, and Dawkins. See for yourself.

The definition, I think, is tougher than nominations. Any thoughts on either?

Link...

Btw this might be useful...

Economist Debate

Economist Debate on Corporate Social Responsibility

The Economist debate on corporate social responsibility opens today. Covering sensitive and sometimes contentious issues of environmentalism, corporate governance and profitability, this could prove to become a heated discussion.

The proposition: "This house believes that without outside pressure, corporations will not take meaningful action on sustainability."

Does this remind anyone of Milton Friedman's essay? I think that it could be fun for us to post in the debate- at least it would be fun for me. I'd be curious to see how we fare as well as see what you all think.

As a side note, it makes me sad that this blog has begun to fall into disuse. Many of you are going abroad next semester, and this is one of the few ways for me to stay in touch with you. I hope that you guys keep posting interesting thoughts and allow me to stay intellectually connected with you all. This debate- cough- would be one good opportunity.

Patents and the Poor

Joseph Stiglitz wrote on Intellectual Property rights and the poor, opposing strict patent rights that benefit drug companies. For another perspective, I'm linking to an article by the director of a free-trade think-tank in Ghana who opposes patent-breaking on the grounds that it hurts the poor.

If countries start breaking patents, though, firms lose out on sales. And they’re less able to finance the development of new cures. That’s a blow to the public health efforts of all countries, rich and poor. Ghana’s health Minister told me that he fails to see how people could hold antagonistic positions against pharmaceutical companies, because in his own words "if drugs are being made, then people must be sick somewhere-it is not for charity".

Poor patent enforcement also gives rise to potentially harmful copycats. The generic pharmaceuticals manufactured in the developing world often don’t comply with international safety regulations. Low-quality and counterfeit drugs are common. The WHO estimates that 10 percent of the world’s drugs are counterfeit. Patent-theft is making the problem worse.

I feel as though Stiglitz could successful refute this account on the grounds that Africa makes a small portion of the pharmaceutical industry sales and that the small loss of profits is tiny compared to the benefit of making life-saving drugs available.

"The Poor Stand to Lose from Anti-Patent Crusades"

Scalia on 60 Minutes

Here's a nice summary of Scalia's position on constitutional interpretation. I'd recommend watching the video, though, as the interviewer does keep going after him, and Justice Ginsburg joins in as well.

"But what you're saying is, let's try to figure out the mindset of people back 200 years ago? Right?" Stahl asks.

"Well, it isn't the mindset. It's what did the words mean to the people who ratified the Bill of Rights or who ratified the Constitution," Scalia says.

"As opposed to what people today think it means," Stahl asks.

"As opposed to what people today would like," Scalia says.

"But you do admit that values change? We do adapt. We move," Stahl asks.

"That's fine. And so do laws change. Because values change, legislatures abolish the death penalty, permit same-sex marriage if they want, abolish laws against homosexual conduct. That's how the change in a society occurs. Society doesn't change through a Constitution," Scalia argues.

He's right, you know, that society doesn't change through a constitution; change is left for spry junior senators from Illinois. Nonetheless, some values may not change, and they may need to be protected for democracy to be democracy...



Nonetheless, it's hard not to respect his argument and his entertaining fervor:

"I can be charming and combative at the same time," Scalia replies. "What’s contradictory between the two? I love to argue. I've always loved to argue. And I love to point out the weaknesses of the opposing arguments. It may well be that I'm something of a shin kicker. It may well be that I'm something of a contrarian."

Transcript linked here.

Obama, Sunstein and Libertarian Paternalism

First off, I dedicate this blog posting to Abhi who ran into me this weekend and scolded me for not reading this blog.

In a story that encompasses all parts of our PPE major, Salon Magazine examines "libertarian paternalism," a movement started by Cass Sunstein, and its connection to Barack Obama and his economic advisors.

Thaler and Sunstein describe a style of government in which citizens are free to choose -- how they invest their money, how they give away their money -- but the options among which they can select from are structured so as to steer them in the socially correct direction. Designing those options, they write, is a process known as "choice architecture." Government, they argue, needs to do a better job picking choices.

By now readers are probably wondering how Barack Obama fits into all this. Easy -- Obama's chief economic adviser, Austan Goolsbee, is a paradigmatic choice architect. Thaler exerts considerable influence on Goolsbee's views.

What's everyone's thoughts on this? I personally wish Sunstein would have chosen a better phrase than "libertarian paternalism."

Link: Is Barack Obama a Libetarian Paternalist? [Salon]

Berkeley takes a cue from Stiglitz

Stiglitz asserts that a more effective regime to foster innovation would be government prize funds. I agree that prize funds would be a great incentive for researchers to find the "big" discoveries. Yet, like many others (Epstein) I believe that the big problem in R&D is high initial costs of production. If the government had a guaranteed fund to cover the high initial costs of drug research, the government could then work with the drug companies to offer medicines at cost to developing countries and slightly above to developed countries. The drug companies would not be able to price gouge because the high initial costs would have been reduced to zero. Also, the fund could have conditions (half or no payments for minor improvements in existing research) to ensure that companies actually produce worthwhile drugs rather than rehashes of old ones. However, it appears that Stiglitz is right. Prize funds are probably better at stimulating researchers and innovators than excessively strong IP laws or guaranteed funds. The University of California-Berkeley seems to be taking his message to heart. Over $100,000 in award prizes were given to students. Take a look for yourself.

Useful Rules

Any of these sound familiar from seminar or tutorial...

Marx and Obama

William Kristol shows Marx some love and Obama, as usual, none whatsoever in a recent NY Times article. Of course, I disagree with a lot of it, but the top is what's relevant:

I haven’t read much Karl Marx since the early 1980s, when I taught political philosophy at the University of Pennsylvania. Still, it didn’t take me long this weekend to find my copy of “The Marx-Engels Reader,” edited by Robert C. Tucker — a book that was assigned in thousands of college courses in the 1970s and 80s, and that now must lie, unopened and un-remarked upon, on an awful lot of rec-room bookshelves....

Hurley helped us prove that wrong, but I suppose I can (gasp) agree with Kristol on this:

Or, more succinctly, and in the original German in which Marx somehow always sounds better: “Die Religion ... ist das Opium des Volkes.”

Now, this is a point of view with a long intellectual pedigree prior to Marx, and many vocal adherents continuing into the 21st century. I don’t believe the claim is true, but it’s certainly worth considering, in college classrooms and beyond.

Certainly.

A Pretty Tax?

Is this sufficiently Rawlsian?

Gonzalo Otalora has written a book entitled ¡Feo! (Ugly!), which calls for the taxation of good-looking people to counteract the natural advantages they have over munters. "Countless studies show that ... it's easier for them to find jobs; they're paid more and find partners more easily," he says. The "manifiesto del feosexual" also calls for the levy to be donated to the ugly, and for photo requirements on job applications and airbrushing in magazines to be outlawed.

The Claremont Journal of PPE? You wouldn't do it.

This may make me a nerd, but from time to time, I check the website of UPenn’s PPE program. It has a solid rubric for charting out PPE coursework, which I find to be particularly useful during class registration. While snooping around today, I found out that the Penn program produces a PPE journal once a semester. Its form mirrors other academic review journals. Therefore, it not as sexy as it could be; however, I think it is an interesting idea. Given the stellar make-up of our PPE program, I think we could produce a better journal and a better title (SPICE: A Student Perspective of Institutions, Choice, and Ethics). Let me know what you think.

http://www.sas.upenn.edu/ppe/Students/SPICE-spring2007.pdf

Deconstruction and Progress

Stanley Fish, French Theory in America

I shared this with Hurley earlier with the questions below (copied-pasted). I suppose it's worthwhile to incorporate more people in the discussion.

I'm unfamiliar with Bacon and Derrida, but the article above got me interested. Mostly, I'm left unnerved. Here's the worrisome section:

Obviously the rationalist Enlightenment agenda does not survive this deconstructive analysis intact, which doesn't mean that it must be discarded (the claim to be able to discard it from a position superior to it merely replicates it) or that it doesn't yield results (I am writing on one of them); only that the progressive program it is thought to underwrite and implement — the program of drawing closer and closer to a truth independent of our discursive practices, a truth that, if we are slow and patient in the Baconian manner, will reveal itself and come out from behind the representational curtain — is not, according to this way of thinking, realizable.

Fish's argument seems to call into question progressivism, at least my understanding of it: what can man progress to, if not truth? I had presumed the rational inquiry to be an adequate guide in political (and philosophical) life, but it seems now decapitated by the deconstructionists. Also, does this limit the possibility of a quiet truth--that is, a truth that we can approximate and even reach, but not know? Odd, then: faith would buttress and validate the rationalist agenda. Or is the solution less clean: tangible progress needs no independent grounding, it is empirical. We are free to determine our own metric (be it lives saved, jobs created, etc) to measure political progress. This seems at once commonsensical and hollow.

Am I reading this completely wrong?

Welcome Importance

Given our ideological and intellectual differences, I find solace in our one commonality: self-importance. Just as each vice has its habitat--drinking, TNC; moral flexibility, your summer internship--blogs, as you all must know, now house, encourage, and indulge importance. Please, don't try to control yourselves.

Please post interesting news articles, thoughts on the readings, or, if you must, your résumé.

Cheers,
Abhi