Archive for the ‘economics’ Category

An Exercise in Economic Thinking

Monday, 13 July 2020

Yester-day, I posted a problem to Facebook:

Assume that the market for CEOs of large corporations is very tight, with directors competing ferociously for candidates. How will the burden of a tax on compensation to CEOs be distributed between the CEOs and the stockholders? If a heavily progressive tax is placed on the incomes of CEOs, what will happen to the pre-tax income levels of these CEOs?

So far, for whatever reasons, no one has offered answers, though the answers should be obvious. What makes the exercise interesting is the inversion of the answer to the second question. A great many people who could correctly and quickly answer the question itself it would almost surely miss the inversion if not asked the question.

Making Your Vote (or Non-Vote) Count

Sunday, 14 June 2020

In nearly every election of a state official, even those in which only a few hundred voters participate, the margin of victory is more than one vote. What that means is that, if any one voter had refrained from voting, or if any one abstaining voter had not abstained, the candidate who won would still have won. Some people — even some very intelligent people — conclude that the vote of an individual has no efficacy beyond that of other acts of expression. Those people are missing something.

Indeed, one's vote or refusal to vote has absolutely no effect on the election at hand. There are various things that one can do prior to the election which may help one candidate to achieve a margin of victory, or prevent another from achieving such a margin. But one's own vote isn't going to make any difference in that election.

However, as potential candidates and parties decide what to do with future elections in mind, they look at margins of victory in past elections. Potential candidates decide whether to run and, if they choose to run, how to position themselves, informed by those margins. Parties decide their platforms and whom to nominate, informed by those margins. With large margins in their favor, they feel free to alienate a greater number of potential voters; with small margins or losing margins, they consider what to do differently in order to pull voters who previously voted for another, or who didn't vote at all.

Thus, an individual vote or the decision not to vote has a small effect — but its only effect — on later elections and on behavior of those who are acting with concern for later election.

The least effective thing that a potential voter can do is to vote for a candidate whom he or she dislikes. People in America who have held their noses to vote for the Democratic or Republican nominee in order to stop the nominee of the other party did worse than to throw-away their votes; they have helped to ensure that the next pair of choices would likewise be disagreeable, and that the behavior of officials in the mean time would likewise be disagreeable. It is only if one genuinely thought that one of these candidates were worthwhile that one should have voted for him or for her, and then still only to affect the next election and interim behavior of officials.

The most effective thing that a potential voter as such can do is to vote for a candidate of whom that voter approves, even if that candidate has no chance of winning, or to submit a ballot from which no candidate receives a vote. An increasing number of people are doing the latter, either in expression that no candidate is worthy, or to challenge the legitimacy of the process in a way that makes it difficult for these people to be dismissed as apathetic by apologists for the process.

Coming Diagnoses of a Failure of Capitalism

Friday, 17 April 2020

The way in which the political left conceptualizes an economy is a variation on how technocrats more generally conceptualize it. The left imagines the economy as possessing a kernel of processes that take inputs and produce outputs based upon purely technologic considerations. What distinguishes these processes as a kernel is that they are jointly self-sustaining; setting aside natural resources, the kernel produces everything necessary to maintain itself. Depending upon technology, the kernel may do nothing more than to sustain itself. The left often imagines an economy that does nothing more as a subsistence economy; but, as a matter of logic, they might imagine an economy as technologically constrained to produce exactly what it does to continue replicating itself, yet providing a fairly high standard of living. In any case, they more often imagine the kernel as producing a surplus, which is to say production above and beyond that necessary to sustain the kernel. Allocation and composition of the surplus is imagined to be determined not just by technologic considerations, but also by social power. This is why the left often does believe and still more frequently seems to believe that economics is a zero-sum game; they believe that for some people to get more, they must either leave less of the surplus for others or, still worse, must reduce the kernel. Because performance of the kernel is imagined to be determined purely by technologic factors, while it may be acknowledged that in our world resources have been priced largely by markets and hence inputs have been determined largely by markets, it is believed that, ultimately, the markets had little real choice; that they had to settle on relative prices that simply conformed to technologic considerations. The imagined kernel is as if an inflexible machine, however complex it may be. It is only pricing of commodities within the surplus that is imagined to be flexible.

The lock-downs that have been the political response to the SARS-CoV-2 pandemic are variously imagined either as shutting down production outside the kernel, with economic activity labelled as essential continuing, or indeed as going further to shut-down much of the kernel itself. As the lock-downs come to an end, it will be expected by many — including many not on the political left — that the economy will pick-up at about where it was before the lock-downs. If one imagines the proper inputs to each part of the kernel (or of the economy more generally) as technologically determined, then restarting the economy is a simple matter of resuming those proper inputs. If the kernel is believed to have been kept in operation, then what remains is again to allocate the surplus roughly as it was, or (in keeping with left-wing values) with a greater share given to those who are not wealthy.

The economy will not pick-up where it left-off, because the technocratic conception in general and the left-wing conception in particular are so terribly wrong. But the political left will diagnose the failure to restore the economy quickly as a failure of capitalism — either to solve a problem of technologic programming or to produce a socially just or fair division of the surplus. And, so, they will demand that the state become further involved, to take greater command of those industries that they regard as within the kernel, to strengthen worker unions, to establish floors on wages and both floors and ceilings on salaries, and to redistribute income through transfer programmes.

Voigt and Value

Friday, 10 April 2020

In a previous entry, I asserted that Voigt's Zahl und Mass in der Ökonomik contain[s] more error than insight. Here, I'll discuss one of the more egregious errors. In section V, Voight writes

An die Spitze der Erörterung dieses vielberufenen Begriffes sollte gestellt werden, dass es Einheiten des Wertes giebt, dass man also untersuchen kann, wievielmal so gross ein Wert als ein anderer ist und Güter gleichen Wertes durch einander ersetzen kann, dass also der Wert ein eigentliches in einer Kardinalzahl ausdrückbares Mass hat.

which may be translated as

At the forefront of discussion of this much used concept should be placed that there are units of value that one thus can investigate how many time as large a value is as another and can replace goods of the same value with each other, that thus the value has a real measure expressible in a cardinal number.

I'll deal first with the point that it seems that one can investigate how many times as large a value is as another.

Numbers are used in many ways. Depending upon the use, what is revealed by arithmetic may be a great deal or very little. Sometimes numbers are ascribed with so little meaning that we may as well consider them strings of numerals, the characters that we use for numbers, and not numbers at all. Sometimes numbers do nothing but provide an arbitrary order, good for something such as a look-up table but nothing else. Sometimes they provide a meaningful order, but one in which the results of most arithmetic operations are meaningless, as when items produced at irregular intervals are given sequential serial numbers. (The difference between any two such numbers tells one which was produced before the other, but little else.) Sometimes the differences between the differences are meaningful, as when items are produce at regular intervals and given sequential serial numbers. And so forth.

Monetary prices are quantities, but they are more specifically quantities of money; that does not make them quantities of value nor proxies of quantities of value. One would have to show that the results of every arithmetic operation on such a quantity of money said something about value for it to be shown that value were itself a quantity.

The second part of Voigt's claim is that one Güter gleichen Wertes durch einander ersetzen kann [can replace goods of the same value with each other]. But an equivalence between things corresponding to the same numbers doesn't make results of the application of arithmetic to those numbers meaningful. (Consider lots of items produced at irregular intervals, with each item in the lot given the same serial number, unique to the lot but otherwise random.) And we should ask ourselves under just what circumstances we can and cannot ersetzen one set of commodities of a given price with another of the same price.

Nor does somehow combining the use of quantities of money for prices with a property of equivalence imply that value is a quantity.

Voigt is unusual not in making this unwarranted inference, but in so clearly expressing himself as he does. From the observation that prices are usually quantities of something, which quantities increase as value increases, most people, and even most economists blithely infer that value itself behaves as a quantity.

A Translation of Voigt's Zahl und Mass in der Ökonomik

Wednesday, 8 April 2020

In early 2013, I made freely available a transcription of Zahl und Mass in der Ökonomik: Eine kritische Untersuchung der mathematischen Methode und der mathematischen Preistheorie (1893) by Andreas Heinrich Voigt. I have to-day completed a first pass of a translation of this as Number and Measure in Economics: A Critical Examination of Mathematical Method and of Mathematical Price Theory. Although I believe that there are many errors to be corrected in that translation, I am making it available. I do not plan to use a different URI for corrected versions.

I have been very disappointed by my reading of Voigt's article. I regard it as containing more error than insight.

In the course of translation, I found and corrected extremely minor errors in the transcription of the original. A name was at one point misspelled by me, and I failed to capitalize a word beginning a sentence. I also marked a die die as questionable which I've since concluded was deliberate. I do not believe that anyone could have been led to a mistaken reading as a result of those errors, but I have naturally corrected them.

I may change the URI for the transcription, moving it from another domain to place it amongst the uploads for this 'blog. If so, then I will edit entries to reflect that change.

Published

Thursday, 20 February 2020

On 20 February 2020, a year to-the-day after I submitted my paper Formal Qualitiative Probability to The Review of Symbolic Logic and nearly five months after I was notified that a revised version had been accepted, Cambridge University Press published the manuscript on-line.

(I believe that an unchanging DOI 10.1017/S1755020319000480 will be used for whatever is the latest version of the article, as it is type-set for paper publication and eventually assigned to a specific issue.)

This work was badly treated across journals of philosophy. Regardless of whether any of my future work is perhaps best regarded as philosophic, I will henceforth avoid submitting to such journals.

Ideas of Choice

Monday, 11 November 2019

I have been more actively working on the decision-theory paper off of which the probability paper was spun. And this effort has me thinking about the meanings of choice.

As I noted in an earlier entry to this 'blog, my paper on indecision used choice to mean no more or less than selection. I defined relations of preference in terms of choice functions, which are functions that select a subset from a set of options. Defining relations of preference in this manner seems to explain preference in terms of something called choice rather than explaining the thing called choice in terms of preference. But something called choice is often said to result from preference. Certainly, we want somehow to explain selection by persons of alternatives (even if that which explains cannot itself be observed directly!), and some notion of preference represents an attempt at explanation.

(However, if preference is the proper explanation, then preference must be very changeable; much of real-world behavior does not conform to a constant set of preferences. And people do such things as regularly selecting {A} from a set {A, B, C} yet consistently selecting {B} from a set {A, B, D}; perhaps in such cases we can still contrive an explanation in terms of preference, but we should be dubious of such explanation. I don't think that we should reject the word choice if the selections that people actually make aren't driven by preference. If preference does not provide a proper explanation, then perhaps some more general concept does. And perhaps by teasing-out what people intend by the word choice when they intend something narrower than selection, we can arrive at that generalization. That's one of the reasons that I sometimes press some people, especially fellow economists, to tell me what they intend by the word choice or by coördinate terms, when they reject its application where it seems to me to fit. I'm not trying to catch them in error or Socratically to teach a lesson to them; I'm trying to engage with them in an important investigation. But, important doubts about the use of preference in descriptive theory not withstanding, preference makes considerable sense in prescriptive use. Indeed, that sense in prescriptive use is one of the reasons that we so easily accept it in descriptive use, and even assures us that it must at least approximate a realistic description fairly well, because unreasonable behavior is costly.)

Identification of a preference is sometimes itself called choice; but sometimes preference is instead expressed in terms of whom or of what one would choose, if given the choice; and, sometimes, after a preference is expressed, the response is something such as You don't get to make that choice! In conscious identification of a preference, one selects an ideation; in reporting such an identification, one selects an utterance; and these ideations or utterances are selected in a way different from the way in which their subjects are, except in odd, self-referential cases.

In discussion of decision-making in a world of uncertainty, I've found use for an idea that I call practical choice, by which I mean selection of an option which selection causes that option to be effected with certainty.

In a world without uncertainty, there would be a simple division between what one could attain and what one could not. Preference amongst the unattainable would ex definitione be without practical significance. Discussion of preference amongst the possible would be operationally equivalent to discussion of practical choice, and rational agents would always attain that possible state-of-the-world that they most desired.

When we begin to speak and write of uncertainty, we are actually speaking and writing of cases in which we may make practical choices amongst options that would, in turn, affect the state-of-the-world in imperfectly predictable ways. Hypothetically, I might not care about those effects; I might only care about the options that I can practically choose; but, with those options properly identified, that hypothetical is highly implausible and sterile. And, otherwise, it now becomes quite relevant to consider the difference and relationship between preferences amongst things that are subject to practical choice and preferences amongst things that are not subject to practical choice. Preferences amongst things that an agent cannot practically choose will determine preferences amongst things that she can.

(Our practical choices are more limited than some might at first realize. An agent has practical choice of no more than some mental states; and selecting amongst these mental states delivers no more power over other possibilities than to increase or decrease the probabilities of those possibilities. Given the selection of one mental state, one's arm is more likely to move, but there is at least some terrible possibility that it will not. Indeed, given the selection of one mental state, one is more likely to recall a desired datum, but there is a possibility that one will not. Still, in many cases we might, without doing too much violence to realism, pretend that our practical choices include operations that we think almost surely to follow upon our exercise of actual practical choice. For example, one might calculate as if one had a practical choice of whether to propose marriage, while acknowledging that one did not have a practical choice over whether one would marry the other party.)

The concern of my paper on indecision was in identifying a difference in observable behavior distinguishing indecision from indifference, and I didn't want that distinction to be simply self-reported. When an agent was undecided between X and Y rather than indifferent, I needed a difference in selection from a set in which X and Y options, rather than a difference in selection amongst utterances or somesuch. In hindsight, I wish that, in that paper, I'd discussed conceptions of choice more than I did, and had explicitly written of practical choice. Perhaps accordingly I will someday revise the working version of the paper.

Acceptance

Monday, 23 September 2019

On 22 September, I was informed that my article Formal Qualitative Probability had been accepted for publication by The Review of Symbolic Logic. I do not yet know in what issue it is to be published.

Up-Date (2019:11/03): I have not yet received a galley-proof of my paper nor a copyright-assignment form. I have learned that the journal publishes papers on-line before scheduling them to a specific issue of the journal, so I will probably be in the odd position of having a DOI and a URI before I know the issue in which the paper is to appear.

A Suggested Reform of Educational Institutions

Sunday, 17 March 2019

For some decades, one of the clear and worsening problems with American institutions of formal education has been administrative bloat. I suggest a legislative response.

For institutions at each level of education, the mean and standard deviation can be determined for administrative expense per pupil in 1975. That is to say that these figures could be computed for kindergartens, for elementary schools, &c. For each level, these two figures can be summed and then that sum adjusted for price-inflation. In 2020, both the legislatures of the constituent states and the US Congress could pass laws such that, beginning five years after passage of the legislation (which in this case would be in 2025), no educational institution would receive any direct funding from the states (including the federal state) if its administrative expenses per pupil exceeded that computed amount, and no grants or guaranteed loans would be given to students beginning degree programmes at institutions whose administrative expenses exceeded that amount.

Energy Costs and the Costs of Energy Exchanges

Saturday, 9 March 2019

From technocrats, I often hear or read a claim that it would no longer make sense to extract petroleum when reserves were depleted to the point that extractions took more energy than could be got from the petroleum. What is unstated in the reasoning is that the value of an energy source is solely determined by the quantity of energy that it could yield; but that proposition is mistaken.

When petroleum is extracted, not only is one quantity of energy exchanged for another, but a quality of energy is exchanged for another. Petroleum is extracted by the use of mechanical or hydraulic energy. Those forms of energy might be derived ultimately from the burning of petroleum, but they might come from other sources instead.

When energy is converted from one form to another, as when a motor converts electrical energy into mechanical energy, that conversion too is an exchange, and as a practical matter those exchanges invariably involve a loss in the useable quantity of energy; that consistent loss is a matter of thermodynamics. Yet the change in form is implicitly deemd to be worth the loss in quantity.

A world in which the extraction of petroleum involved a net loss in the quantity of available energy would be very different from the present; if that state were somehow reached to-morrow, it would be catastrophic. Even just a decline in the net gain in the quantity of energy from extraction is note-worthy when it occurs (as is an increase). But, in a more gradually changing world, petroleum could and probably would continue to be produced even under circumstances that required a sacrifice in the net quantity of available energy.