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After the 1920s, the theoretical and methodological approach to economics deeply changed. Based on a criticism of Marshall’s work and legacy, a new generation of American and European economists developed Walras’ and Pareto’s mathematical economics. As a result of this trend, the Econometric Society was founded in 1930.

The constitutional assembly was held in  Cleveland, Ohio, during the annual joint meeting of the American Economic Association and the American Statistical Association. The Norwegian economist Ragnar Frisch played an important role in the Econometric Society that was founded to enhance studies based on the theoretical-quantitative and the empirical-quantitative approach to economic problems. In this way, the  founding fathers believed that  economic thinking could be as rigorous as the one that dominates the natural sciences.

At the 5th European Meeting of the Econometric Society, in 1935, Jan Tinbergen presented a paper on ‘A mathematical theory of business cycle policy’ that followed the Econometric Society’s guidelines. His causal explanation of the business cycle began with a priori economic-theoretical considerations about explanatory variables and then he proceeded to test a model.

In the late 1930s, John Maynard Keynes and other economists objected to this recent “mathematizing” approach. Keynes, as editor of the Economic Journal, wrote  a negative review of Tinbergen’s 1939 book A Method and its Application to Investment Activity. This book  presented an statistical testing of business cycle theories based on the application of the method of  multiple regression and  mathematical framing in the form of a specified model. At the core of Keynes’ concern lied the question of methodology. Recalling his own words:

Am I right in thinking that the method of multiple correlation analysis essentially depends on the economist having furnished, not merely a list of the significant causes, which is correct so far as it goes, but a complete list? For example, suppose three factors are taken into account, it is not enough that these should be in fact veræ causæ; there must be no other significant factor. If there is a further factor, not taken account of, then the method is not able to discover the relative quantitative importance of the first three. If so, this means that the method is only applicable where the economist is able to provide beforehand a correct and indubitably complete analysis of the significant factors. The method is one neither of discovery nor of criticism. It is a means of giving quantitative precision to what, in qualitative terms, we know already as the result of a complete theoretical analysis. (Keynes 1939: 560)

In this paragraph, it is clear that Keynes doubted the use of inductive methods of generalization and statistiicial inference to build economic theories because of the peculiarity of the economic systems characterized by:

  • a low degree of homogeneity,
  • a high degree of complexity
  • the lack of stability through time.

Indeed, on behalf of the peculiarities of the economic systems, Keynes highlighted that econometrics turns out to be a method not of testing or of discovery, but of measurement of selected variables.

 

refeences

Keynes, J. M.,  Professor Tinbergen’s Method, The Economic Journal, Vol. 49, No. 195 (Sep., 1939), pp. 558-577. Published by: Blackwell Publishing for the Royal Economic Society. Stable URL: http://www.jstor.org/stable/2224838

Tinbergen, J. A Method and its Application to Investment Activity. Geneva: League of Nations, 1939.

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On a global level, to achieve the 2˚C agreed upon during the Paris Agreement, a decrease in emissions of 40-70 percent (relative to 2010) should be obtained by 2050. According to Bloomberg New Energy Finance, 2017 global green investments exceeded 2016´s total of $287.5 billion. With strong government policy support, China has experienced a rapid increase in sustainable investments over the past several years and nowadays this country is the leader of global renewable investments. Besides, as of 2017, giant wind projects spread between the U.S., Mexico, U.K., Germany and Australia.

Considering the global market at the beginning of the 21st century, sustainable or green investments have gone through three stages—Envirotech, Cleantech and Sustaintech (2017 White Paper, Tsing Capital Strategy & Research Center).

First, the envirotech stage has been driven by environmental technology in addition to government policy and regulations. Envirotech investments have aimed to address traditional environmental issues, such as solid waste treatment, water treatmen and renewable energy.  Considering the related business models, the envirotech business has been characterized by capital intensive investments reliant on scaling up for competitive advantage.

After the emergence of the envirotech stage, cleantech investments have described those green investments driven by technological innovations and cost-reduction. Among other examples, we can highlight solar photovoltaics, electric vehicles, LEDs, batteries, semiconductors, and energy efficiency-related investments. The requirement of long research and development periods in cleantech business models has created high technical barriers for competitors.

The latest evolution of green investments has been defined as the sustaintech stage where digital and cloud based technologies are currently being applied to accelerate sustainable investments through the removal of environmental, energy and resource constraints. Venture Capital investments have successfully funded sustaintech companies  through the past several years, such as  Opower, Nest, Solarcity and Tesla. While Google acquired Nest for $3.2 billion in 2014, Oracle acquired Opower for $532 million in 2016.

Considering the new business models, sustaintech firms have shifted towards less capital intensive investments and the proliferation of disruptive technologies. Disruptive technologies are playing a key role in sustainable development such as the Internet of Things, Artificial Intelligence, Augmented Reality/Virtual Reality, Big Data, 3D Printing and Advanced Material.

  • Internet of Things sensor technology are enhancing sustainability with regards to energy efficiency, water resources and transportation.
  • Artificial Investment technology, satellite imagery, computational methods are being used to improve predictions to improve agriculture sustainability.
  • Virtual Reality and Augmented Reality (AR/VR) technologies have shown signs of potential to transform business processes in a wide range of industries.
  • Big Data has been oriented to optimize energy efficiency and to reduce the cost of clean technologies -related to solar panels and electric vehicles, for instance.
  • 3D Printing technology can improve resource efficiency in manufacturing and increase the use of green materials.
  • Advanced Materials technology can substitute non-renewable resources by recyclable and it can also enable efficiency in power devices

Indeed, $13.5 trillion in investments are needed in energy efficiency and low-carbon technologies up to 2030 to meet the Paris Agreement’s.  Considering the investment landscape, despite the new investment frontier, we are still far from this target. The case for climate action has never been stronger.

 

 

 

 

 

Current food challenges involve issues ranging from land and food access to commodity price volatility, besides national and international regulation. Although the scope and intensity of these challenges vary according to the different economic and social situations of countries, the debate has been global.

Today, once again, these issues arise deep concerns on behalf of the 2017 WTO ministerial conference  that has just been closed, in Buenos Aires, Argentina. Indeed, the WTO has not seemed to enhance effective actions on long-standing proposals. Agriculture negotiations remain among the most important and challenging issues. These negotiations began in 2000 as part of the mandated “built-in agenda” agreed at the end of the 1986-1994 Uruguay Round and, then, they were incorporated into the Doha Round launched at the end of 2001.

The process of globalization of capital in agriculture and food production has shaped a global network of institutions that supplies the worldwide food markets. Contract farming and integrated supply chains are deeply transforming the structure of the agriculture and food industries and, as a result, they have put the local farm sector under high pressure. Further, the expansion of big investment projects, led by transnational companies and institutional investors, has expose small farmers to a situation of hunger and food insecurity by expelling them from the land where they live. In addition to these challenges, the biotech revolution and the introduction of genetically improved varieties of seeds have fostered structural changes.

While the agriculture and food systemic changes are linked to financial and trade flows – mainly profit-driven – international organizations and non-governmental organizations have shaped hunger reduction projects. More recently, for example poverty and hunger reduction targets have been included in the Millennium Development Goals (MDGs) of the United Nations Development Program (UNDP). In truth, hunger and poverty are correlated issues. They are primarily linked to land access, income distribution, employment and food prices, among other factors.

In this scenario, even with the global financial crisis, international prices for agricultural commodities remained substantially above historical averages. Some factors contributed to these high prices:  growth of the world’s population, growth of the Chinese GDP and the urbanization of China. As a result,  at the end of the 2000s, the FAO predicted the global challenge of “a decade of high food prices” and pointed out the need to increase food production.

Since 2014, global commodity crop prices have come back to pre-food-crisis levels. Indeed, the pre-crisis rising food prices turned out to draw investment into agriculture, mainly in the U.S., Brazil, Argentina, Ukraine, and other exporters of commodity crops, such as corn and soybeans. However, according to the Institute for Agriculture and Trade Policy (IATP), the American exports of corn, soybeans, wheat and cotton at prices has been characterized by significant “dumping margins”.

What seems relevant to recall is that the financialization of cop prices and their volatility are systemic challenges. On behalf of these challenges, there has been a global increase not only in the vulnerability of small farmers but also in the number of chronically hungry people – that amounts more than 800 million. Considering this background, after a decade of high prices, current low crop prices and dumped crops – without effective WTO proposals and actions – will drive the most vulnerable people even more into hunger and poverty.

References

FAO. The future of food and agriculture – Trends and challenges. 2017. Rome.

Institute for Agriculture and Trade Policy. Excessive Speculation in Agriculture Commodities: Selected Writings from 2008–2011. Ben Lilliston and Andrew Ranallo (Editors). IATP, 2011. Available on line at: http://www19.iadb.org/intal/intalcdi/PE/2011/08247.pdf.  Accessed 29 July 2016.

United Nations. The Millennium Development Goals Report 2012. Available on line at: http://www.un.org/millenniumgoals/pdf/MDG%20Report%202012.pdf. Accessed 20 April 2016.

WTO. 2017 Ministerial Conference. Agriculture. https://www.wto.org/english/thewto_e/minist_e/mc11_e/briefing_notes_e/bfagric_e.htm

Olivier Blanchard and Lawrence Summers has recently called for a reflection about the macroeconomic tools required to manage the outcomes of the 2008 global crisis  in their paper Rethinking Stabilization Policy. Back to the Future. The relevant question they address is: Should the crisis lead to a rethinking of both macroeconomics and macroeconomic policy similar to what we saw in the 1930s or in the 1970s? In other words, should the crisis lead to a Keynesian approach to macroeconomic policy or will it reinforce the agenda suggested by mainstream macroeconomics since the 1990s?

Since the 1990s, mainstream macroeconomics has largely converged on a view of economic fluctuations that has become the basic paradigm of research and macroeconomic policy. According to this view of unexplained random underlying shocks, the fluctuations result from small shocks to components of demand and supply with linear propagation mechanisms which do not prevent the economy to return back to the potential output trend.  Considering a world of regular fluctuations:  (1) dynamic stochastic general equilibrium (DSGE) models are used to develop structural interpretations to the observed dynamics, (2) optimal policy is mainly based on monetary feedback rules- such as the interest rate rule- while fiscal policy is avoided as a stabilization tool, (3) the role of the finance is often centered on the yield curve, and (4) macro prudential policies are not considered.

As the real-world of financial crisis does not fit this representation of fluctuations, Blanchard and Summers, following the influence of Romer’s reference of the DSGE regular shocks as phlogistons, assess that the image of financial crises should be “more of plate tectonics and earthquakes, than of regular random shocks”. And this happens for a number of reasons (1) financial crises are characterized by non-linearities that amplify shocks (for instance, bank runs), (2) one of the outcomes of financial crises is a long period of depressed output followed by a permanent decrease in potential output relative to trend as the  propagation mechanisms  do not converge to the potential output trend,  (3) financial crises are followed by “hysteresis” either through higher unemployment or  lower productivity,  .

Almost ten years after the 2008 crisis, among the current “non-linearities” that led to the current deep policy challenges, Blanchard and Summers also highlight

  • The large and negative output gaps in many advanced economies,  in addition to low growth, low inflation, low nominal interest rate, reduction of nominal wages in advanced economies,
  • The interaction between public debt and the banking system, a mechanism known as “doom loops” since higher public debt might lead to public debt restructuring that might turn out to decrease the level of banks’ capital and, therefore, this situation might increase concerns about their liquidity and solvency.

Considering the current policy challenges, they suggest to avoid the return to the pre-crisis agenda or even to avoid the adoption of what they call “more dramatic proposals, from helicopter money, to the nationalization of the financial system”. In their view, there is the need to use macro policy tools to reduce risks and stabilize adverse shocks. As a result, they suggest:

  • A more aggressive monetary policy, providing liquidity when needed.
  • A more active use of fiscal policy as a stabilization macroeconomic tool, besides a more relaxed behavior in relation to fiscal debt consolidation.
  • A more active financial regulation.

Interesting to say that Blanchard and Summers mention the importance of Hyman Minsky in warning the special role of the complexity of finance in contemporary capitalism. However, in the defense of their proposal, they should have remembered the Minskyan concern:  Who will benefit from this policy agenda?

Any policy agenda  refers to forms of power: there are tensions between private money, consenting financial practices and national targets that emerge in the context of  the neoliberal global governance rules.

Indeed, almost ten years after the 2008 global financial crisis, it is time to rethink the contemporary political, social and economic challenges in a broader context and in a broader and longer perspective.  Power, finance and global governance are poweful interrelated issues that shape livelihoods.

The concept of nudge became popular after the publication of the 2008 book Nudge: Improving decisions about health, wealth, and happiness, written by Cass Sunstein and the most recent Nobel Laureate, Richard Thaler.  According to the authors, nudge refers to “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not” (Thaler and Sunstein, 2008).

In a previous paper, Thaler and Sunstien (2003) highlighted the paternalistic intention and the libertarian tone that overwhelm the concept. As a result, while policymakers shape contexts of individual choice towards optimal policy goals, individuals are free to choose.

Currently, nudges are used to foster social policy goals, such as the so called consumer protection. The aim of the nudge approach is both to test non-coercive alternatives to traditional regulation and to enhance cooperation between the public and the private sector.  Indeed, after 2008, a Behavioural Insights Team (BIT) was created in the UK and in many others countries – like Australia, Canada, the Netherlands, Germany, U.S. and Qatar. Since 2010, the Behavioural Insights Team (BIT) in the UK has been exploring and testing policy options by means of randomised controlled trials (RCTs). Taking into account the American experience, the Obama’s administration stimulated the introduction of nudges in new regulations to generate welfare with cost effectiveness.

Considering this background, the relevant question is: which are the reasons that explain the increasing acceptance of the nudge approach to public policy?

First, the use of nudges in public policy seems to be associated to the broader processes of deregulation and privatization in the context of financialization.

Second, the focus on individual behaviour is consistent with a neoliberal agenda where the new approach to public policy enhances the illusion of free individual choice. In this respect, Ramsey (2012) highlights the real burden on individuals that actually result from labor market flexibility and increasing indebtedness. In his own words: “Deregulation and privatisation often imposed greater choices on individuals (e.g. pensions). Forced to make choices, individuals were invited to regulate themselves according to particular norms of behaviour. Thus in consumer finance markets individuals must learn the appropriate norms of credit and savings behaviour and become financially literate. More recently insights from behavioural economics have been harnessed to ‘nudge’ individuals to change their behaviour

Third, behind the partnerships between the public and the private sectors that aim at developing new forms of non-coercive regulations, there is, in truth, a set of economic and political interrelations that shape the financialization of corporate strategies in sectors that used to be related to public services. For example, in relation to the health sector, Maryon-Davis (2016) addresses: “Today’s most liberal governments tend to resist calls for regulatory approaches to health behaviour. They are averse to regulating industries such as the tobacco, alcohol and food industries for fear of interfering with companies’ rights to sell their legal products and their legal obligation to shareholders to maximise profits. They tend to be even more reluctant to pass laws directly curtailing the personal freedoms and behaviour of individuals.”

Following the nudge approach, the responsibility for public welfare is shifted to individuals. In spite of encouraging active civic engagement, this approach to public policies seems to neglect the social constraints that restrain individual autonomy. Finally, it is worth noting that, while putting emphasis on individual behaviors and choices, the nudge approach dismisses the global increasing economic, social and political challenges at national, state and local levels.

 

References

Goodwin, T. (2012) Why we should reject ‘nudge’. Politics, 32(2), pp. 85-92.

Maryon-Davis, A. (2016) Government legislation and the restriction of personal freedom. In F. Spotswood (Ed.) Beyond behaviour change: Key issues, interdisciplinary approaches and future directions. UK: University of Bristol Policy Press.

OECD (2015) OECD Regulatory Policy Outlook 2015. Geneve.

Ramsay, I. (2012) Consumer law and policy: Text and materials on regulating consumer markets. Bloomsbury Publishing.

Thaler, R. H., and Sunstein, C. R. (2008) Nudge: Improving decisions about health, wealth, and happiness. U.S.:Yale University Press.

Thaler, R. H., & Sunstein, C. R. (2003a). Libertarian paternalism. The American Economic Review, 93(2), pp.175-179.

 

The WEA Online Conferences, designed by Edward Fullbrook and Grazia Ietto-Gillies, makes full use of the digital technologies in the pursuit of the commitments included in the World Economics Association Manifesto: plurality, reality and relevance, diversity, openness and ethical conduct.

The current WEA Conference Economic Philosophy: Complexities in Economics, is being led by Prof. John B. Davis and Prof. Wade Hands. There is considerable interest in recent economics in the idea of complexity. However, there are also many different ideas about what complexity involves, making the subject of complexity itself a complex matter!

Thus the plural form – complexities in economics – is purposefully chosen in order to accommodate the following issues in this inaugural conference on Economic Philosophy:

  • the diversity of accounts and conceptions of complexity itself
  • how the nature and content of economics is complex
  • the complex history of economics
  • different approaches to introducing complexity into economics
  • the complex relation between the sociology of economics and its content
  • the complexity of economic philosophy as an interdisciplinary subject
  • the complex interplay between normative and descriptive pluralism

The WEA Online Conferences seek to also engage readers and commentators all around the world considering: (a) the variety of theoretical perspectives; (b) the range of human activities and issues which fall within the broad domain of economics; and (c) the study of the world’s diverse economies; (d) the increasing relevance of .the adoption and use of online discussion forums.

Students, academics and professionals who are interested in Economics & Philosophy can read the Key-note papers of Peter Söderbaum and Robert Delorme in addition to other interesting contributions organized in the following Conference Sessions:

  1. Contributions from the History of Economics
  2. Complexity and Agency
  3. Changing Economics
  4. Methodological Dimension

To see how the Discussion Forum works, click here

The Discussion Forum closes on November 30thDuring this time, we cordially invite you to visit the conference’s website, where you can read and download the conference papers, leave comments, and engage in discussion.

Please first Register to this OPEN ACCESS Conference in order to get your e-certificate!

We are looking forward to receiving your comments.

 

The economist John R. Commons is considered one of the founding fathers of institutional economics. He played a leading role in the developing of the labor economics field by establishing some core principles in his book Institutional Economics: Its Place in Political Economy (1934). Besides, as Kenneth Boulding (1957) stated, Commons’ ideas as a social reformer were very influential in shaping the New Deal and the American labor legislation and social security toward a welfare state.

It is worth noting that some generations of institutionalists in labor economics can be identified since then (Champlin and Knoedler, 2004). After the first generation of Commons and the Wisconsin School, the second generation emerged in the 1950s and included those economists, such as John Dunlop and Neil Chamberlain, who rejected standard economic textbooks and emphasized the role of institutional rules in structuring labor markets and industrial relations. Afterwards, the third generation focused on structural unemployment (e.g., Charles Killignsworth), segmented labor markets (e.g., Michael Piore). This generation also included post-Keynesian economists, such as Eillen Appelbaum.  From 1980 to the present, the fourth generation has been broadened in order to include contiguous fields and new methods of research. Institutionalism has been broadened further to include the new perspective of Ronald Coase and Oliver Williamson that has informed research and model building based on the concept of transaction cost.

Despite de differences between generations, which are the elements that explain the institutionalist labor approach?

  • The economic needs are culturally and historically situated.
  • The rules of economic behavior do not derived from universal laws of nature by are culturally, legally and socially situated.
  • Markets, as legal and cultural arrangements, are characterized by conflict, power relations and inequality.
  • Governments are considered major players within the markets.

Indeed, the theoretical construct in labor economics of an institutional nature considers that:

  1. The microeconomic neoclassical model of demand and supply is misleading as an explanatory device for the study of employment, wages and labor outcomes.
  2. The labor market is not self-equilibrating.
  3. Involuntary employment, interindustry and interfirm wage differentials, besides racial and gender patterns of employment are relevant features of the labor markets in the real-world.
  4. The behavioral models of human agent should consider imperfect competition, theories of market organization and structure, legal rules and social norms.
  5. The study of the labor markets should privilege both realism in economics and a multidisciplinary, social science foundation.
  6. The commitment on a normative level to welfare criteria should include ethical goals.

Considering the relevance of this topic in economics education, students should be aware of the differences bweteeen institutionalist and neoclassical economists. Neoclassical and institutional economics are not just labels, but represent different ways of conceptualizing economics and shaping economic policies.  

 

References

Champlin, D.P. and Knoedler, J. T. (2004) The institutionalist Tradition in Labor Economis. New York and London: M.E. Sharpe.

Boulding, K. (1957).  A look at Institutionalism. American Economic Review. 47:1-12.