Home > Regular Features > Monday Message Board

Monday Message Board

September 29th, 2003

As another Monday rolls around, I’m in Canberra for the Economists’ Conference. So, I’m suggesting the starter question for this week’s Message Board. What are the big (unanswered or unasked) questions in economics. Feel free to offer comments on the state of other social sciences or, as always, on any topic that takes your fancy (civilised discussion and no coarse language, please).

Categories: Regular Features Tags:
  1. September 29th, 2003 at 10:04 | #1

    Hmm, I’ll nominate ‘how to aggregate the value of fixed capital stock’.

  2. September 29th, 2003 at 10:34 | #2

    The same one they asked one of the earliest of philosophers, Thales of Miletus: “If you’re so clever, why aren’t you rich?”

    More broadly, if economics is so hot, so effective, why isn’t it effectively self-proving? It should be persuasive and compelling, so that the idea generates effective expressions. Accordingly it seems to me that claims for it are overstated, that it does not truly address its subject matter and possibly never can.

  3. September 29th, 2003 at 10:59 | #3

    Is the physics of relativity self-proving? is number theory self-evident? is evolution self-evident (many people seem to have trouble accepting it to this day)? it seems to me Peter that you’re asking for knowledge to be as close to common sense as possible. my view contrary to many is that common sense *is* common, and frequently wrong

  4. Uncle Milton
    September 29th, 2003 at 11:18 | #4

    Jason, you have overstated the complexity of economics by about a factor of 100.

    90% of economics is a variation on the theme:

    people will want to buy more of something, the lower is the price, and want to sell more of it, the higher is the price. This is not rocket science, despite the best efforts of economists to make it rocket science. Everybody understands this.

    9% of the remaining 10% is a variation on the theme: things have to add up, so more of one thing means less of something else. This is also not rocket science. With a bit of prodding, nearly everybody understands this.

    The final 1% is a variation on the theme of comparative advantage, which as Paul Samuelson once said, is the only proposition in economics which is both true and not obvious.

  5. James Farrell
    September 29th, 2003 at 11:26 | #5

    That’s a pretty harsh comment, Mr Lawrence. Nonetheless, I do find it depressing that 95 percent of first-rate research in economics relates on way or another to the problems of rich countries. These are pretty insignificant next to the question of what can be done for the billion or so people condemned to despair because of armed conflict, disease, famine and cultural decimation, especially in Africa, but also in Asia, Latin America and the Pacific. Unfortunately not many aspects of this misery can be captured by well-behaved, twice-differentiable functions.

  6. September 29th, 2003 at 13:21 | #6

    Economics can’t be an exact science as it involves people, and also, the concept of money is itself an in-exact concept in itself.

    Consider a company report- it presents itself as an accurate, factual thing, but it is in fact merely an interpretation of financial events, and is by no means the only valid interpretation that can be made. Consider the accounts of Bond Corp, State Bank of SA, various government accounting etc.

  7. Greg Bauer
    September 29th, 2003 at 14:19 | #7

    What are all the economists going to do when, as predicted for this century by Arthur C Clarke no less (so it must be true…), technical progress eliminates scarcity?

  8. September 29th, 2003 at 15:07 | #8

    eliminate scarcity?


    land will be scarce…as will be hydrocarbons…energy may or may not be scarce…but even if it isnt, it will just allow us to use up the next most scarce resource much faster…

    environment will be scarce…6 billion people cannot produce as much pollution as you and i produce or we’ll all die of air pollution in about a week…

    peace and quiet may also be scarce…

  9. September 29th, 2003 at 16:11 | #9

    James Farrell puts his finger on the nub of the problem:

    what can be done for the billion or so people condemned to despair because of armed conflict, disease, famine and cultural decimation, especially in Africa, but also in Asia, Latin America and the Pacific.

    Economics, whether command distributive or market productive, is an Enlightenment social science based on the blank slate theory of human nature. Give people the right economic incentives and legal institutions and they will start to produce save and consume like good little homo economici.
    This was the assumption behind the 19th C theories of liberal progress and 20 th C theories of neo-liberal globalisation.
    But there was a ideological Revolution against the economistic way of thinking by Societies in the Eurasian Centre throughout the 20 th C.
    And there is now something of a theological Reaction agaist economism by societies in the Arabic, Negro and Latino South in the 21 st C.
    The question that faces economics is whether the Enlightenment assumption of equally blank-slated human nature is valid (I think not).
    This assumption is critical if economics is to avoid the kind of fiasco that ensued after abstract economic principles were applied will-nilly to Open Societies in Transition such as the CIS.
    If there is a lot of intractable human biodiversity, how much of it is:
    biologicly heritable
    culturally acquired

    Clearly, the spatial distribution of aptitudes and attitudes will have a lot to do with the overall distribution and aggregation of economic values.

    Behind this question lies the problem of what determines the distribution of values in any given society is it – IQ, work effort, looks etc
    Pareto’s Law indicates that distribution seems to be independent of economic systems ie the top 10% get up to 90% of all values, simply as a function of human social status structures.

    In short, what are the fundamental causes behind the universality of Pareto’s Law?

  10. Homer Paxton
    September 29th, 2003 at 16:43 | #10

    Economics is no science and has never been.

    On a more important front I gave my family a listen of RocknRoll Animal the live album of Lou reed from 1975 on a trip from Sydney to Blayney.
    It is 10-15 years since I listened to it.

    I previously thought it was one of the best live albums but now must concede it is THE best album of all time.
    Fantatic guitar work from Steve Hunter and Dick Wagner which would have even Claptoniacs waxing lyrical.
    Not one bad track and what a backing band with Lou Reed at his best with his voice. ( People who saw him in 1975 will know what I am talking about.

    Tim Dunlop I have found the perfect album ( however my wife disagrees preferring moondance).

  11. September 29th, 2003 at 16:49 | #11

    Homer, haven’t you wandered into the wrong site for this topic?

  12. stephen bartos
    September 29th, 2003 at 17:31 | #12

    I’d start by asking why most economists still base their work on pretty crude assumptions about rational self interested utility maximising behaviour.

    I went to Paul Ormerod’s talk at the start of the economists’ conference, and he pointed out that many of the assumptions required to make conventional economic models work have no empirical foundation – eg experimental economics has found that preferences are not transitive (which makes a big difference to a lot of economic theories). It was a great talk, and I hope it will get posted to the web somewhere soon – there’s a draft of it already on Paul Ormerod’s website.

    Could we build a better economic understanding if we junked the psychologically inaccurate assumptions that all first year economics students are taught? On the other hand, without grossly simplifying assumptions the mathematical models that dominate economics won’t work as well, so perhaps this idea won’t get far…

  13. Geoff Honnor
    September 29th, 2003 at 18:27 | #13

    ‘Homer, haven’t you wandered into the wrong site for this topic?”

    Chris – I think Homer is taking JQ’s invitation – to comment on any topic that might take one’s fancy – to heart.

    And can I say that Homer on the intrinsic goodness of Lou Reed is not an exposition that I would willingly have passed up :)

  14. September 29th, 2003 at 18:57 | #14

    I agree Geoff … I just got jealous cos I reckon his comment belongs over at our place … herding cats …

  15. tipper
    September 29th, 2003 at 22:01 | #15

    An area that I’m finding fascinating at present, is the economics of religion. This is based on a largely ignored chapter in The Wealth Of nations.
    “The teachers of [religion] ·, in the same manner as other teachers, may either
    depend altogether for their subsistence upon the voluntary contributions of their
    hearers; or they may derive it from some other fund to which the law of their
    country many entitle them …. Their exertion, their zeal and industry, are likely to
    be much greater in the former situation than the latter. In this respect the teachers
    of new religions have always had a considerable advantage in attacking those
    ancient and established systems of which the clergy, reposing themselves upon
    their benefices, had neglected to keep up the fervour of the faith and devotion in
    the great body of the people. · The clergy of an established and well-endowed
    religion frequently become men of learning and elegance, who possess all the
    virtues of gentlemen, · but they are apt gradually to lose the qualities, both good
    and bad, which gave them authority and influence with the inferior ranks of people.
    · Such a clergy, when attacked by a set of popular and bold, though perhaps
    stupid and ignorant enthusiasts · have no other resource than to call upon the
    magistrate to persecute, destroy, or drive out, their adversaries, as disturbers of the
    public peace. (Smith [1776] 1965, 740-741)”

    From “The Consequences of Religious Market Structure”


    “Competition and commoditization are by no means new to the religious marketplace.
    Despite the longevity and importance of such celebrated monopolies as the Medieval
    Catholic Church, the historical record gives no hint of natural monopoly in the realm of
    religion. Rather, from Old Testament Israel to contemporary Iran, religious uniformity has
    arrived on the edge of the sword, and only the sword has sufficed to maintain it. This
    should not surprise an economist, since the capital requirements and start-up costs for new
    religions are virtually nil. As two leading sociologists of religion recently observed, ãthe
    naturalâ state of religious economies is one in which a variety of religious groups
    successfully cater to the special interests of specific market segments. … Of course, when
    repression is great, religions competing with state-sponsored monopoly will be forced to
    operate underground. But whenever and wherever repression falters, lush pluralism will
    break throughä (Finke and Stark 1988, 42). ãLush pluralismä is indeed an apt description
    for the situation in the United States, where the first amendmentâs anti-establishment
    clause has left the religious market virtually unregulated for the past two centuries and
    more than two thousand faiths now compete for Americanâs attention (Melton 1984-85).”

    James Farrell asks
    “what can be done for the billion or so people condemned to despair because of armed conflict, disease, famine and cultural decimation, especially in Africa, but also in Asia, Latin America and the Pacific.”

    It’s interesting that most of these people live under a monopoly or near monopoly religion.
    Correlation or consequence?

    I read recently that one third of student in colleges in East Pakistan, are studying to be clerics. That’s a lot of mouths to feed, by the community.

  16. Steve Edwards
    September 30th, 2003 at 02:03 | #16

    I have one, John. If the Kyoto protocol will cost Australia too much in foregone growth to implement, is there a viable alternative? This came to mind as I read Lomborg’s column in The Australian. If one is to oppose certain environmental policies for their impact on Australia, are there viable alternatives?

    Could we, to think of one micro-policy, purchase more technologically advanced and fuel-economic cars from Europe?

  17. John
    September 30th, 2003 at 09:52 | #17

    In response to Tipper, there’s a session at the Economists’ conference on the theology of Adam Smith. However, it will clash with one of my presentations, so I won’t be able to report back on what was said.

  18. September 30th, 2003 at 11:50 | #18

    “you’re asking for knowledge to be as close to common sense as possible”, and similar comments.

    No, I’m not asking for that. I’m trying to show that some people really do make overblown claims for economics; this was more widespread in the 1960s than now, but it still happens (Keynesians then, economic rationalists now – and both impervious to intelligent enquiry, liable to very human denial).

    So it’s not me that’s asking too much, it’s me that’s calling that overstated view. Once we cut down to smaller and more manageable issues, then maybe we have a chance of limited successes.

  19. Greg
    September 30th, 2003 at 16:58 | #19

    I thought Homer’s comment was terrific and, as such, more important. (Not that I’m very keen on Lou Reed, having listened too many times to the only memorable song on my only album of his: ‘Walk on the wild side’). And ‘hear hear’ to James Farrell.

    It’s interesting that so many distribution issues have been raised (including my slightly-amended comment: I should have said ‘… eliminates the need for scarcity.’; though this is different from what I believe Sir Arthur actually proposed). Why are some of us so ready to descend into Political Economy at the drop of a hat?

    stephen bartos’s contribution got me reminiscing… First, I remember reading Harvey Liebenstein waxing lyrical on the firm in mainstream economics as a ‘black box’ and how economics could become more useful if it could find a way in and organize the operation of the firm. There’s a bit more on this if you do a page search for him here at [Ref 1]. Second, I also recall a bit of a struggle coming to terms with issues of production, consumption and market psychology in first-year economics – self-raised, of course. So, it occurred to me that perhaps Evolutionary Psychology ([Ref 2], [Ref 3]) has something to offer Economics (not economists!) as the work continues on the operation of the ‘black box’. Evolutionary Psychology is (or, if not, should be) well on the way to revolutionizing mainstream psychology anyway with the development of a long-needed set of fundamental behavioural explanations and principles.

    At this point I would like to defer to c8to’s pessimism and ask instead: What are all the economists going to do when, as a result of their terrible advice to politicians, we all drown in the by-products of our own species arrogance before we get a chance to build the first mass-alchemy machine; or the first real Stargate (SG-2?)1; or the first nuclear fusion power generator, or even to eliminate all disease using nanotechnology: on some of which early theoretical work is being done (if perhaps sometimes fringe)? What sort of distributional issues would all that raise?

    1I believe this would be a variation on the so-called spacetime ‘wormhole‘.

  20. dsquared
    September 30th, 2003 at 17:50 | #20

    Evolutionary Psychology is (or, if not, should be) well on the way to revolutionizing mainstream psychology anyway with the development of a long-needed set of fundamental behavioural explanations and principles.

    This is probably, and sadly true. We should all do what we can to prevent it from doing so.

    (btw, note that these “fundamental explanations and principles” when you get them under the ‘scope, tend to boil down to a sex drive, a desire for status and a need for security ie nothing that wasn’t available in the first book of Freud).

    My great unasked question would be: Why is there *still* nothing approaching a satisfying economic theory of advertising?

    and one that I plan to write on myself soon:

    What do we mean by “liquidity”?

  21. September 30th, 2003 at 18:00 | #21

    I think the most important Big Question in economics today is how can we find a way to manage an economy without depending on growth as main requirement. We need to get away from that model – the shark who can’t stop moving or it dies, or the jar full of bacteria which can reproduce to a certain extent and then the population collapses.
    These are the metaphors I think of when I think of our developed western economies. Also, if I’m allowed two questions, is anyone currently working on this? As an economist, can you provide any links?

  22. September 30th, 2003 at 23:04 | #22

    the other Big Question facing economics is the converse of the one I mentioned above, about the problem that geneticly heritable human bio-diversity posed to mainstream blank-slated abstract, ahistorical economics.
    What are the implications of geneticly modifiable human bio-diversity to economics?
    What if we can extend, enhance and augment natural human constitutions with info-, nano- and bio-tech systems?
    These may be closer than you think and they will effect both traditional variables, such as the rate of interest and traditional structures, such as markets.

  23. dsquared
    October 1st, 2003 at 00:43 | #23

    I’d start by asking why most economists still base their work on pretty crude assumptions about rational self interested utility maximising behaviour.

    This is a bit of a canard, IMO. While lots of economists _make_ this assumption, very little of any importance depends on it and almost all the results which have practical application (ie, everything except for quite rarified existence proofs) can be derived without it. The Soviets managed to get almost all the important results in Samuelson by considering properties of linear programming models.

  24. October 1st, 2003 at 11:13 | #24

    “If, by definition, noone likes stuff that sucks, then why does so much stuff suck?”

    Answer that Keynesians!

  25. October 1st, 2003 at 13:00 | #25

    I’m with Tex, though as usual I don’t communicate as well as I would like.

    Here’s someone reported in the Australian Financial Review of 30.9.03 (page 8), which goes to show that proper economists don’t overboard in believing the overblown claims (and also telling it better than I ever could):-

    “A leading economist says his profession should stop pretending it knows more than it does.

    “In Canberra delivering the Chris Higgins memorial lecture yesterday [29.9.03], Paul Ormerod, Author of The Death of Economics, said most economists’ forecasts were useless…”

  26. Greg
    October 3rd, 2003 at 18:19 | #26

    Mainstream economics has undervalued the potential contribution that environmental economics has to offer policy formulation. The outstanding principle is that in this age of increasingly-widespread environmental degradation, new products and industries that are environmentally-friendly should be the main targets of industry assistance. This is so, because a secular increase in world demand for such products is pretty easy to predict, especially given the strength of the green movement in Europe.

    Any country that invests heavily in green product development therefore has the potential to place itself in a position of very strong Schumpeterian innovatory leadership and to generate future high levels of export demand.

    This, of course, is an out-of-fashion, boring, long-term view though. It’s also one reason why the recent decision to jump on the GMO juggernaut and allow the release of GM canola into the Australian environment for commercial production was so very disappointing.

Comments are closed.