:Fixed Point

Our group at work is divided into three separate sections, because of the building layout rather than representing any commercial rationale. Consequently loose social groupings form around these ‘pods’. In my pod, the absense of myself and a senior partner has led to an overall reduction in social networking opportunities and a general feeling of ‘flatness’ in the environment. One colleague suggested that a way to prevent such a loss in the future would be to lock to exits from our pod, thus keeping us locked in.

I proffered, cheekily, that perhaps the correct incentive was for the pod to be more fun in the first place, so I wouldn’t have the incentive to leave.

Of course, in the office, I go where I’m told. In the wider world, we go where the market tells us to go. If you want to keep people like scientists and academics in country, then give them a good reason to, rather than denying others the benefits of their expertise.

Posted by william to General Economics | add a comment

Dani Rodrik has an interesting post on the procedural fairness of trade

a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity.  Trade and technological progress can have very different implications for procedural fairness.  This is a point that most people instinctively grasp, but economists often miss.

In the case where person A is made richare than person B, perhaps because person A engaged in unethical or immoral behaviour, then as Dani says, our perception of whether the resulting distribution is acceptable or not depends on these issues. However, isn’t that just a symptom of incomplete accounting, i.e. not accounting for the negative externality person A causes on person B. Surely if accounted for then we wouldn’t have need to run into the roadblock Dani describes.

Another issue is that surely perspective is important. In the quote above, if you are a factory owner in Vietnam employing young children  for long hours making designer clothes, it doesn’t look particularly innovative to us. But to the alternatives faced by those labourers, the introduction of the factory is innovative. You can’t talk about fairness without including the other side in the debate.

However, I think Dani is right when he asserts that the procedural issue is one of the reasons why laypeople and economists often differ in their assessments of free trade. My view is that this reflects differences between the groups of whether externalities exist and what, if anything, should be done about them.

Posted by william to Trade | add a comment

For those students who attended the lecture last night, here are the behavioural-economics-slides.ppt. I’ve added a slide to reflect some comments and ideas from the class discussion. After the weekend, I’ll give a few additional pointers to the sort of thing that you might be tested on in an exam.

Thanks again, and apologies for overunning.

Posted by william to Behavioural economics | add a comment

Natalie Bennett has discovered freecycle - a way of getting rid of stuff you don’t want and either can’t be bothered to sell it, or have a social conscious. Perhaps because of its social objective, she thinks it’s an endorsement of Marx:

I’ve always thought that the valuable bit of Marx is that simple but powerful concept: “from each according to their ability, to each according to their needs“, and that, with absolutely minimal organisation and absolutely no officialdom, is what freecycle delivers. Plus more: it delivers space and convenience to those who feel these are hard to find, and it brings together different elements of society in a constructive, cooperative way

I’m missing something here.  In her second sentence Natalie could be describing a free market, yet she thinks freecycle is a modern interpretation of Marx. The problem of of course is that in true Marxism, a persons needs weren’t to be interpreted by a mere individual, but by a collective conscience, motivated by a social goal. Freecycle, by linking individuals and giving them the power to choose who gets what is just the free market in action; rationing may not occur through price  as we know it, but at least it’s left to the wisdom of the individual. Not something Marx completely endorsed.

Posted by william to Wisdom of markets | 2 comments | show comments » | « hide comments

No, I haven’t gone crazy, though if I have, there is method in my madness.

France is a great country. Wonderful cities, some of the biggest European companies fighting it out with the worlds best; a fairly successful auto industry, and a health system and public transport network that the British could die for (in the case of the health service, that’s not an aphorism).

But if you’re not one of the protected elites or a tourist, then France is far from great. France needs fixing. And it’s only when things are broke, really broke that somebody tries to fix them.

Sarkozy has promised a few liberal reforms, but they are mere tinkering, and do little to address the most fundamental problem with France: it’s sclerotic labour market. The generous welfare provisioning, and other problems like lack of risk-taking and innovation, are all second order effects. With less rigidity in the job market with employees attracting workers throught their own packages, it’s likely that the extent of public provision wouldn’t need to be so great. A generous welfare state also ensure the continuance of the system: who would vote for labour reform if it was tied to the end of their fat pension?

That is why Segolene needs to win. Her ‘reforms’ - in reality maintaining, if not strengthening the current system - will cause France to buckle. It will probably be ugly and painful to watch the Fifth Republic go down like a vin de table in the Ritz, but at least then France will be broke. And somebody will have to fix it. And fix it properly.

Posted by william to Politics and economics | add a comment