The use of math in economics

Abiola Lapite opines

…why is it that people who espouse ideologies like anarcho-capitalism, protectionist isolationism and socialism are so allergic to mathematically rigorous modelling of their theses? Could it be because their beliefs are more akin to a substitute religion than anything else, and they dread the prospect of having their ideas controverted by air-tight reasoning?

I think this is the ultimate explanation for the unpopularity of so-called “autistic” (i.e, neoclassical) economics amongst those who hew to the otherwise radically different ideological systems I’ve mentioned above – it prevents them from freely indulging in the sorts of meaningless high-flown rhetoric that is typical of the output of people like Hans-Hermann Hoppe, Murray Rothbard, Pat Buchanan, Michael Hardt, Antonio Negri and far too many other blowhards

A commenter in Abiola’s blog points out David Friedman as an exception to this rule but otherwise I think he’s spot-on. Note that though Hayek critiqued the use of math in economics, he was really critiquing what he saw as an ‘aggregationist’ fallacy in macro economics which conferred a false sense of precision on people who reasoned with macroeconomic aggregates, ignoring the story about relative prices going on underneath. This criticism would nonetheless have been appreciated by a mathematically-oriented microeconomist.

Incidentally many years ago when Paul Krugman actually wrote about economics (something he was very good at writing about) he made similar points about the use of math in economics in this excellent piece.

Exclusive licensing in harbour towage

A little self-promo. The latest issue of the web-based Review of Network Economics is out now and is accessible here. I have an article co-written with Henry Ergas and Teresa Fels, the abstract of which is available here

Crony capitalism is alive and well in Australia

From an article in the AFR on 24 July entitled ‘The big bet’ on Kerry Packer’s latest plans:

James Packer talks with intensity about his deal with British betting exchange group Betfair. “We’ve always believed at PBL that the winners in technology will be the best global businesses,” he told the Weekend AFR. Across the desk is John Alexander, the recently appointed chief executive of Publishing and Broadcasting Limited and the most powerful person in the Packer realm outside the family.

It’s a big moment for James. With the One.Tel disaster behind him, he and a small PBL team have spent 12 months engineering a joint venture with Betfair in Australia and New Zealand …

After months of lobbying, Betfair’s push was rewarded somewhat when the federal government last fortnight opted not to change the Interactive Gambling Act to prohibit online betting exchanges.

That decision, made after the federal government concluded betting exchanges would not contribute to an increase in the level of problem gambling, opened the door for organisations like Betfair to set up shop in Australia.

The decision sat awkwardly with an earlier one to ban online casinos from offering services to Australian residents. Prime Minister John Howard is not noted for his love of gambling. He clearly has a warmer regard for the Packers.

If this isn’t blatant picking of winners and worse, what isn’t? Why ban online casinos but not betting exchanges co-owned by the Packers? This isn’t the only example of favortism towards the Packers of course, as people familiar with current regulations on free to air commercial TV would realise. Kerry Packer truly is the personification of the evil stereotype of politically connected big business that gives capitalism a bad name. While the US continues to produces visionary entrepreneurs like Warren Buffet, Bill Gates and Marc Andressen who succeeded mostly on their merits, Australian capitalism continues to be dominated by these vulgarians who succeed through the art of political contacts.

Dowd's departure

Should a judge retire because politicians attacked him? That is the curious reason given by former politician and retiring NSW Supreme Court judge, Justice John Dowd. According to the Sydney Morning Herald his comments on anti-terrorism legislation had led to Bob Carr calling him ‘utterly irresponsible’ and the Prime Minister accusing him of ignoring the separation of powers in ‘a very partisan way’.

One way of interpreting his decision is that he is admitting that Howard is right – that his comments did involve the judiciary in political debates that it should keep out of. My view is that judges should be more circumspect about political issues than some of them are, since their comments can raise suspicion that they would not impartially and according to law decide cases based on legislation they have criticised in the past. However, I doubt this is how Justice Dowd wants us to see his departure.

I, Robot

A review of I, Robot in Saturday’s SMH nearly put me off seeing the movie. The reviewer claimed that Asimov would be turning in his grave at the way the robots’ behaviour violated Asimov’s fictional Three Laws of Robotics. However despite this I went to see the movie yesterday and came away very impressed. All was explained towards the end (though I figured it out halfway through the movie). I can only conclude that the reviewer didn’t fully understand the twist given to the interpretation of the Three Laws and leveraged his misunderstanding into an anti-Hollywood rant. Without giving away too much let me say that Asimov would have approved of this latest variant on his Three Laws of Robotics stories.

More on Canberra Cabs

I have co-authored an article with NECG Principal John Fallon in today’s Canberra Times on the Canberra Cabs proposal for a Sustainable Transport Commission that would be empowered to, among other things, decide on the number of hire-cars and taxis in Canberra. It’s available here. A snippet:

In June, the ACT Government, in response to a Standing Committee on Planning and Environment inquiry into taxi and hire-car regulations, proposed a series of reforms, including a gradual release of more taxi licences, an offer to buy back hire-car licences and make an unlimited number of hire car licences available for lease (subject to accreditation) …

However, Canberra Cabs has subsequently developed a proposal to buy all the 22 hire-car licences, provided the ACT Government agrees not to increase taxi or hire-car licence numbers as planned, unless justified by demand. The demand criteria proposed have not been clearly defined in public reports of the proposal.

As part of its alternative reform package, Canberra Cabs has also proposed the establishment of a sustainable transport commission to advise on community needs for integrated planning and various transport services, including taxis and hire cars. It appears that the proposed commission would include representatives from the taxi industry and other sectors of the community, and one of its major roles would be defining and implementing the demand criteria for issuing more taxi and hire-car licences.

The Government should … ensure that if such a commission was established that it would be truly independent of vested interests in its decision-making responsibilities and powers. In this respect it should recognise the clear conflict of interest that would arise if representatives of the taxi industry played a prominent and influential role in establishing criteria and deciding on the timing and number of new taxi and hire-car licences that should be made available. Decisions by the commission that affected entry into the taxi and hire-car industries would have implications for licence values. It is one thing for public-policy decision-makers and regulators to be open to feedback from stakeholders and another to create processes that effectively entail capture by interested parties.

Things that make you go 'Huh?'

In yesterday’s Financial Review, occupying the cosy spot right next to the editorial where many years ago one would have been entertained by the flint-dry columns of the eternally scowling Labor heretic Peter Walsh, you can find a long rant by John Hewson. Towards the end of this rant Hewson writes:

I believe that politics is about redistribution and certainly should be focused on helping the ‘have nots’. We seem to have lost all of this.
We boast about how well we’re doing in terms of growth, inflation and unemployment yet, even in our country, we are building an ever-widening gap between the rich and the poor.

Huh?! What has happened to the former ‘feral abacus’? Someone please give the man a free CIS subscription before it’s too late.

Don't call the phone company

I had my first ever encounter with voice recognition technology the other night, when I tried to ring Telstra. They’d rung me a few weeks before, offering me 50 free local calls to switch to Telstra long distance. But for some reason I had to ring them back to get the free calls, and I also wanted the annoying beeps at the start of their long distance calls turned off.

After the bad music stops, an electronic lady asks you to say, in a few words, the reason for your call. Unfortunately it is difficult to recount in a few words the story about getting free calls, or to complain about the beeps. Nothing the electronic lady suggested was right – no, I did not want long distance calls barred, and nor did I want information on Telstra plans. I already knew what the plan was; just not how to implement it.

Eventually I gave up and checked out the Telstra website. You can find there some helpful hints about dealing with the electronic lady. But the technology seems to be at best frustrating, and at worst useless, in dealing with anything but the most common and simple inquiries. I am not sure what would happen if you said ‘I want to talk to a live person’, but that’s certainly a function Telstra needs if it is not to go back to being the infuriating company it once was.

The way around the problem, incidentally, is to send them an e-mail. That way, a real person fixed my two problems within 24 hours.

Blog Comments Awards

Commenters, feel free to nominate yourself or one of your ilk for the Blog comments award. (Link via Tim Dunlop) I’m tempted to nominate Homer Paxton for ‘most minimalist punctuation’, ‘most tangential’ comment and the ability to smuggle the phrase ‘Iron Mark’ into every comment; Dave Ricardo and Ron Mead would tie for ‘most deliberate trolling’, but aimed at different parties.

Why politicians still prefer tax cuts

My CIS paper examining public opinion on taxing and spending (pdf, 29 pages) is finally out today. Part of the argument is summarised in The Australian.

One of the things the paper does is look at why politicians aren’t following polls that show more support for taxing and spending. I provide five possible, and not mutually exclusive, reasons:

1) As public support for more taxes seems linked to prosperity, it is unwise to do anything that can’t be unwound when the business cycle turns again. From the Commonwealth’s point of view, revenue losses are recouped through bracket creep etc, while spending programmes just keep on growing.

2) The public tends not to notice spending increases. The Howard government has increased spending on health and education more rapidly than the Keating government, but gets no political reward for it. People recognise tax cuts because they have more money in their pocket.