On 16 March, I queried the journal to which I most recently submitted my paper on operationalizing the difference between indifference and indecision. To-day, I received informal e.mail from the editor letting me know

The paper is accepted, pending some (substantial) revisions. You’ll be getting the formal material from the journal soon.

I dread the thought of subtantial revisions, but it's to be presumed that I can live with the changes demanded. The state of things appears to be excellent.

As previously noted, I submitted my paper on indecision to yet another journal on 28 July. On 11 August, the reported status of the paper was changed to With Editor. Yester-day, 12 December, that was changed to Under Review, which indicates that the paper has been sent onward to one or more reviewers.

Editors generally have the authority to reject papers on their own authority. If they think that a paper might be appropriate to the journal, then they send the paper on to one or two reviewers, with ostensible expertise in the specific area of the paper. These reviewers judge the paper to be suitable as it stands, or suggest revisions that would make it suitable, or decide that it is unlikely to become suitable even after revision. At some journals, editors have the authority to over-rule reviewers, but such is rarely done.

Most submitted papers are rejected by editors before they reach reviewers. Most papers that reach reviewers are rejected by those reviewers. Most that are not rejected are required to be revised in some way, small or large.

I don't know why the paper was listed as With Editor for almost exactly four months. The editor may have been too busy to evaluate the paper at all, or may have spent a fair amount of time in his-or-her own evaluation of it, or may have had trouble finding a reviewer for it.

Paul Krugman walks into a bar, and asks How much for a scotch, neat? The bartender looks at him, and thinks What could a Keynesian know about money? So he says One trillion dollars. Krugman gets on the phone, calls the Fed and the White House, and they send over $1 trillion. As Krugman is drinking, the bartender remarks You know, we don't get many Keynesians in here. Krugman replies Well, with these prices, it's no wonder!

A recent comment by Zenicurean notes, implicitly, that economic pædagogy often uses a widget as a hypothetical economic good.

I most frequently use the veeblefetzer (borrowed from Harvey Kurtzman) when I want a good about which the audience will know little or nothing, and the hot dog when I want a good that will seem familiar.

I like the hot dog as an example in part because it has a long tradition in economic education while being fairly absurd as an artifact.

I also like it because it is easy to explain the idea of a shift in the demand curve using the hot dog. First, I present my students with a set of prices, polling them as to how many hot dogs they would buy at each of these prices; that gives us an initial demand curve. Then I discuss some of the things that are permitted to go into hot dogs, and we repeat the process for the prices. (So far, the demand curve has always shifted inwards.)

But the main reason that I like to use hypothetical hot dogs is because I think back to a question on the economics GRE when I took it.[1] In the set-up for the question, a family was working-out its annual budget, and decided that they would spend $800 per year on hot dogs, regardless of the price of hot dogs.[2]

The question was of what sort of demand elasticity were here displayed. Elasticity is a measure of sensitivity or responsiveness, with a general form of

or of (Whether there's a negative sign and whether an instantaneous form is used is based on what's convenient and practicable.) In the case of demand elasticity, the y is quantity demanded, and the x is unit price. One might think that demand responsiveness could be measured more simply by slope (Δy/Δx or dy/dx), but elasticity has a useful property. When elasticity is less than 1 in absolute value, responsiveness is sufficiently weak that expenditures (the product of quantity demanded and unit price) increase as price is increased; whereäs if elasticity is greater than 1, responsiveness is sufficiently strong that expenditures shrink as price is increased. The seller gets less revenue by increasing prices in the second case, where the curve is said to be elastic (sensitive); the seller gets more revenue by increasing prices in the first case, where the curve is said to be inelastic (insensitive).

If the elasticity is exactly 1 (in absolute value) then quantity demanded drops or rises to exactly off-set any price change; expenditures are constant as price changes. This is called unit elasticity. (BTW, a demand curve that is everywhere unit elastic will be a hyperbola.)

On the GRE, I was supposed to identify the demand curve of the family in the question as unit elastic, and so I did. But, because I'm not autistic, I was also greatly amused by this example. Imagine a family that is conscientious enough to budget, but they eat hot dogs. Imagine a family that budgets, but budgets such that if a hot dog costs $1600 then they will try to buy half a hot dog, and if a hot dog costs a penny then they will buy eighty thousand g_dd_mn'd hot dogs!

I laughed when I read this question. And, because I made multiple passes through the test, I glanced at that question repeatedly, laughing each time. I was the only person in room laughing. (The room had people taking different subject GREs, and I may have been the only one taking the economics test.)

When I use hot dogs as an example, it's mostly just in fond memory of that hypothetical family, crazy for hot dogs.

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[1] This tale may seem somewhat familiar to those who read my now long-since-purged LJ.

[2] The amount may have been $600 per year, or perhaps $400 per year; it has been quite some time since I took that test, and I don't remember. But, mutatis mutandis, my remarks hold.

A financial bond or note is a promise to pay some fixed amount at some given date. Two things, beyond the promised amount of payment, determine the price of a such an instrument.

First, there is the associated danger of a default. A possibility of default turns the bond or note into a sort of lottery, in which the actual pay-off could be the full, promised value, or nothing, or anything in-between (at least, anything reaizable in terms of the minimum division of the payment), or even some new pledge, promising a later payment of some sort. Each of these outcomes has some associated plausibility, and the lottery is valued accordingly.

Second, there is also the fact that the instrument is a promise of future payment; since pay-off cannot itself be put to immediate use (as consumption or as investment), its price is discounted to reflect time-preference and the forgone productivity of assets used to buy it.

Just to get the gist of that clearly, imagine that the value of a lottery were simply that of the mathematical expectation of its pay-off. The price of a bond would then be discounted expected pay-off.

So far, the causality here is just flowing one way. Possible-pay-offs and their probabilities determine an expectation or something like that, and then time-preference and productivity determine the present value of that expectation or expectation-like value, and that's the price of the instrument. And if the pledge were issued by a private institution, that would generally be it.

On the other hand, when such instruments are issued by a state, politics can make things interesting.

The Greek state is going to default on repayment of its borrowing. Its citizens are simply not willing to accept the costs to them of full repayment. In fact, they're not willing to fully repay what remains after politically possible subsidies from other states. Those who have lent money to Greece will receive less than they were promised.

The price of bonds issued by the Greek state already reflects the expectation of default. This reduced price is going to be used against bond-holders, both against those who are paying it now, and against those who paid a higher price and have held onto their bonds even as value dropped (as they gambled that the Greek state would not default or at least not default as much as some expect). What will happen is that populists, anti-rentiers, and opportunists will argue as if all bond-holders had paid that steeply discounted price, and as if those who paid that price lose nothing if they only recover the nominal purchase price.

And what makes that interesting is that it means that causality should now be flowing cyclically, where present price pronouncèdly affects the relative plausibilities of possible pay-offs, even as these continue to affect present price.

I've not sat down to work-out a formal model. But, while I don't expect that the equilibrium price of a Greek bond would be zero, I don't know that one can rule that out. (On the other hand, while economic equilibria are useful in understanding and approximating, the world is never in equilibrium.)

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I do think that something might be said here about the ethics of sovereign debt.

It isn't heads of state or of government, or treasurers, or legislators as such who repay this debt. It isn't voters as such who pay-off this debt. It is tax-payers as such who pay-off sovereign debt (except where it is paid by selling assets such as territory and state enterprises). Sometimes the tax-payers weren't even born when the state went into debt. Moral claims against them for repayment are thin at best. I once read buying sovereign debt compared to buying shares in pirate ships (which one could at one time do openly in some places, and can still do quietly in some places), and I think that comparison quite apt.

On the other hand, it is plain that most of the Greeks protesting against austerity measures are signally unconcerned about the welfare of the Greek tax-payer; they just want any resources drawn from him or her to be directed to them.

If one wanted to know the solution to particular mathematical problem, and found that different groups gave different answers, then it might be interesting to hear or to read what each group said about the motives of rival groups, but one really ought to chose which answer or answers were correct based upon principles of mathematics, rather than based upon which groups seemed most noble. If one lacked the competence to decide the issue based upon principles of mathematics, then it would probably be best to resist coming to any decision if at all possible.

Likewise, if one wanted to know the solution to a particular problem of the natural sciences, but found that different groups gave different answers, then it might be interesting to hear or to read what each group said about the motives of rival groups, but one really ought to chose which answer or answers were correct based upon principles of science, rather than based upon which group seemed most noble. If one lacked the competence to decide the issue based upon principles of science, then it would probably be best to resist coming to any decision if at all possible.

And if one wanted to know what sort of social policy ought to be applied to some case, but found that different groups gave one different answers, then it might be interesting to hear or to read what each group said about the motives of rival groups, but one really ought to chose which answer or answers were correct based upon principles of science in combination with rational criteria for evaluating ethical philosophies (if, indeed, those criteria are not themselves scientific). And if one lacked the competence to decide the issue based upon such principles, then it would probably be best to resist coming to any decision if at all possible.

Now, all of that ought to be obvious; but consider how much pundits and the major media focus on personalities and theories of motive when it comes both to policy and to science applicable to policy, and how little real science and how little careful dissection of philosophical case is presented. If one party wants one thing, and another wants something different, then we are given some tale of the nobility or at least the level-headedness of one group, and of the knavery or foolishness of the other; accompanying this narrative will be cartoon physics, cartoon biology, or cartoon economics. If ethics are relevant, then one might get cartoon philosophy of ethics, or some ethical philosophy might be implicitly imposed, as if no rival philosophy were conceivable. (If something is treated as good, there generally ought to be an explanation somewhere of what makes it good. If something is treated as bad, there likewise ought to be an explanation of what makes it bad.)

This practice is so prevalent because so many listeners and readers unthinkingly accept it. And I'm not just talking about low-brow or middle-brow people. The self-supposed high-brow folk, more educated and ostensibly more thoughtful, accept this practice. Most of the people who would, if they read them, say that the previous four paragraphs were trivially obvious accept this practice. I don't simply mean that they don't cancel subscriptions or write angry letters to the editor; I mean that they allow their own beliefs to be shaped by some group engaging in the practice. They fall into attending to one narration of this sort, and let it guide them until and unless some crisis causes them to turn their backs on it, at which point they almost always begin to be guided by a narration using the same basic practice to advance some different set of policies.

Sometimes, one must make a decision, with nothing upon which to go except the discernible motives of conflicting parties. In those cases, one should bear in mind that, except to the extent that they are reporting brute fact (rather than interpretation), one typically learns more about the narrators themselves from what they say (and avoid saying) of their opponents, than one learns about their opponents. (And one should not allow the emotional appeal of a narrative to lead one to pretend that one must make a decision that one can in fact defer.)

Sometimes a person or group of persons will present a system of lies that they know to be unsustainable, with the intention of gradually abandoning the pretense. The purpose is largely to pay the costs of truth in installments which, by virtue of their distribution, are more bearable than would be the cost if borne more immediately. (There may also be the hope of identifying a point at which the lies remaining are sustainable.)

This is how the Clinton Administration handled its sex scandal (calling the process telling the truth slowly) and how John Edwards seems to have handled his.

It is now how world leaders are handling the disintegration of the European Monetary Union.

The prevailing rates of time preference and understandings of the nature and origin of wealth vary markèdly amongst the cultures within Europe. By comparison with northern European nations, southern European nations tend to have very high rates of time preference and have less reälistic understandings of wealth, so that they are relatively less willing to save and to invest.

Under a union of shared fiat currency, if fiscal policy remains at the discretion of each state, then some states are able to adopt an otherwise unsustainable fiscal policy which other member states become obliged to support in order to support the shared currency.

A system of enforceable fiscal policy rules was not adopted at the time of the monetary union. The states of all of these nations are representative democracies of one sort or of another, with a strong sense in each nation that popular will must ultimately be obeyed, so that unpopular regimes would be quickly over-thrown; and national sovereignty is important in most or all of these nations. Additionally, few state officials are keen to lose their own power, and therefore most resist a surrender of power to the European Union unless they imagine themselves either as retiring or as moving on to positions within the Union as such. Under these circumstances, a monetary union could not be founded with sufficient mechanisms to compel southern European states to behave like northern European states, especially as northern European states wanted an ability to stray at their own discretion from their norms, during extraordinary circumstances; so, instead, the union was formed based upon wishful thinking.

Rather than behaving as many wished, some member states acted as was feared and as should have been expected.

The peoples of the southern European nations might like best to be bailed-out by the tax-payers of other nations; but failing that option, with their rates of time-preference and with their illusions about wealth, they would rather leave the monetary union than adopt the habits of northern Europeans; they would certainly not be willing to subject themselves to the rule of German bankers, regardless of what their states might want. Meanwhile, whatever northern states might want, their peoples are not willing indefinitely to subsidize the vacations and retirements of southern Europeans. And the democratic impulse will bend the wills of these states to those of their respective peoples.

The political leaders of the European Union are acutely aware of the beliefs and powers of the peoples of their respective nations. Most leaders of Western-style democracies understand the situation as well. (Officials of states such as that of the PRC are, however, likely to stare with a sense of outraged bewilderment.) Yet virtually all are maintaining the pretense that the EMU may plausibly be saved.

Nor is it merely state officials who are doing this. Newspapers and magazines have been confronted with explanations of why the Monetary Union cannot be fixed, but most choose to pass over them in silence. The financier George Soros, who has been insisting that the EMU must be preserved, has more recently spoken of the desirability of Greece and Portugal leaving it; yet he is aware that Italy will almost certainly default, and that Spain is very likely to do so as well.

It may be that these leaders are stalling with absolutely no Plan B, but I believe that the real point of present discussions ostensibly on how to save the Monetary Union is actually to buy time to develop and agree upon a plan to unwind it, with a minimum of political fall-out and of economic damage. The unstated objective is to preserve as much as possible of the existing political and economic order, with most or all of the same people in its ruling class.

After the fiasco with Theory and Decision (see my entry of 28 March and that of 18 April), I submitted my paper on indecision to yet another journal on 23 April.

To my surprise, that journal gave my paper for review to someone whom I regard as having a markèd conflict-of-interest. I know to whom they gave it because the rejecting review that I received on 16 Jun was, also to my surprise, attributed rather than anonymous.

Some of the criticism was legitimate, but would best have been handled by directing me to revise-and-resubmit. Some of the important criticism was absurd.

For example, the reviewer declared

this is not how one writes proofs in general (except may be in logic)

Considering that the propositions are almost exclusively formal logic (there not being much arithmetic to the structure), it's rather to be expected that the proofs will look as proofs (in or out of quotation marks) do in logic.

And, in defending the attempt to distinguish indecision from indifference found in Indifference or Indecision? by Eliaz and Ok, the reviewer wrote that Mrs Watson (a hypothetical agent presented in that paper)

is indecisive whenever she deems multiple choices as choosable

But she also deems multiple choices as choosable when she is indifferent, and in both cases (according to Eliaz and Ok) makes her decision by flipping a coin.

(In fact, Eliaz and Ok claim something more interesting about what distinguishes indecision from indifference, but an observable distinction does not result from it.)

I stared for a bit, and then sent to the reviewer a simple request for permission to cite the review in future versions of the paper. (I offered no argument or evaluation; I just requested permission to cite.) The review is plainly not itself a publication; it seems closer to being a personal communication. And one is supposed to secure permission before citing personal communications.

I waited for some days, and got no reply. I concluded that none would be forth-coming. I therefore effected what changes I felt should be made given that I could not cite the review, both to make straight-forward improvements, and to preëmptively meet repetition of what I regarded as illegitimate criticisms.

Then I went over my big spread-sheet o' econ journals, and selected the next journal to which to submit the paper. As with previous submissions, I read the author guidelines, and did some further rewriting and reformatting to tailor a version specific to that journal. I made the new submission on 28 July. Its reported status when I checked this morning was the same as that when I completed the submission process, so I presume that no editor has accepted assignment to it.

A previous entry quotes a foot-note from Austrian Marginalism and Mathematical Economics by Karl Menger; that foot-note is tied to a sentence that I found particularly striking.

(musings on the relationship of mathematics to economics)

Since some of the recent visits to this 'blog are by way of search strings containing preference symbol, I put together a table of characters frequently used to represent preference relations. Click on the graphic for a PDF file providing symbols, their interpretation, their Unicode values in hexadecimal and in decimal, the names given to these symbols by the Unicode Consortium, and the LAΤΕΧ mark-up that one would enter for each of the symbols.