Protesters who are trying to upend the “fantasy world” of economics

(And no, not everything in economics -- let alone economic policy proposals -- has an overwhelming consensus behind it, but there are definitely some things, like free trade...)

Last time I looked if you took labor out of the process, all you'd have left were assorted piles of raw commodities and disappointed wishes for the future.

Not even marketing can save you from this terrible fate.

(Unless you work for Cards Against Humanity, in which case - well played over Christmas.)

>This is a group of students railing against something that they don't understand.

Indeed, for assorted values of 'students.'

The additional Marxian "embedded labour" in the sewing machines and even the ad agencies reponsible for building brand equity doesn't even get close to identifying why Prada handbags cost more than artisanally made ones though...

Citation needed.

I'm not a huge fan of it but I understand the concessions that have to be made.

This student protester thinks your mother's sauce should actually be valued more than Ragu on the store shelf. And while you might value your mother's sauce more highly, few other people would share that same valuation. Her labor has no impact on its objective value -- the averaging together of all the subjective valuations of people who want to buy sauce.

I doubt anybody would claim that this gift has more value that a hand-made sweater that might have taken a few dozen hours to knit.

The value of such hand-made gifts is not coming from the time spend preparing them.

No, it doesn't. Its true that most of the stuff that's taught in introductory undergraduate economics classes does, but outside of that there is quite a lot of work -- even within the broad segment of the economics community that still views the rational actor model as a useful baseline -- exploring how actual behavior in real situations differs from the expectations derived from the rational actor model.

And an hour of time of a person who studied hard, got good grades, and went through college should be compensated same as high school dropout? Your logic while nice in a "we are all equal fairy tale" way, immediately breaks down society because it devalues education, intelligence, and hard work tremendously.

E.g. Is it just as valuable for a farmer to till his fields by hand with a hoe and produce food at a subsistence level as it is for another farmer to use modern equipment and provide food for 100 other individuals? This is a rough approximation - pre-industrial farming population was >90%[0] and modern farming population is <1%[1] in industrialized nations.

[0] Based on a figure from this article which gives a figure for 1862 in the US http://www.pbs.org/wgbh/amex/trouble/timeline/

[1]http://www.epa.gov/oecaagct/ag101/demographics.html

As mentioned elsewhere, hours of labor is pretty thoroughly discredited. It implies that I could cause something to be worth more just by using inefficient methods. It fails to capture the idea of marginally decreasing utility. Basically, the value of something is in the eye of the beholder, and tying value to production labor just completely fails to see that.

Since Google was created by a relatively small group of people during a relatively small period of time, wouldn't this imply that one of those hours spent creating Google web search was far more valuable than, say, an hour mopping a floor?

While true that everyone's hours take the same amount of time, don't the results of some people's hours of work save far more hours for everyone else?

The delta between the price generated by the supply/demand curve and the value according to the two things being traded is the entire point of microeconomics as I know it. It's why a trade is a net-positive event for society; both sides must place a greater value on the thing they are receiving from the trade than the thing they are giving up in the trade, or the trade will not take place. There's a bajillion caveats that apply to special cases, but they are, indeed, special cases.

The entire mathematical underpinning of modern economics is precisely a separation between price and value. Take that away and the whole thing is gibberish, and I do not mean a rhetorical or political sort of gibberish, I mean mathematical gibberish. It's the whole foundation.

(To be clear, I'm far more confident about microecon than any particular macroecon theory; I tend to line up with Eliezer that macroecon is anti-inductive: http://lesswrong.com/lw/yv/markets_are_antiinductive/ Note that doesn't mean "Let's just give up and decide it's Marxist"... it's means you pretty much can't know how it works, any theory you can write down is almost instantly made wrong.)

"the older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor."

Well, if by "should" you mean your own opinion, that's your own opinion. In the real world, though, it wouldn't work. Without feedback about what society needs embedded in prices, everybody would just want to do the fun stuff. Unfortunately, in this universe, "the fun stuff" and "what we need to do to live" don't always overlap. Feedback is too important, any significantly-sized system will fly apart without it, and that's why this debate is so important and why Marxism must not be allowed to win, nor any other economic system that sets out to destroy feedback because sometimes the feedback is unpleasant to certain people. If you want civilization to keep rolling along, you need feedback, and if you have feedback, some of it is going to be negative. Anything that successfully removes all the negative feedback will also destroy civilization. Within that constraint there is still a lot of freedom to work with, but it is an immutable constraint.

(And if you feel inclined to take the cheap & easy shot about it all being "negative feedback", or how only certain people are getting the "positive", you really don't understand what feedback is or how it works. Turn off your political brain for a moment, go study how negative and positive feedback interact in something like a gasoline engine. Then maybe come back and consider how those ideas may apply to an economy, rather than starting from trying to create an argument with "negative" and "positive" feedback as if they're black and white paint, as if they are "bad" and "good" respectively, when in fact that's not even the right dimension to measure them on. Studying feedback in ecosystems is also good; the economy resembles ecosystems in many ways, and in fact microecon can even be used to model certain aspects of ecosystems with no humans, too, so that might be even more apt.)

If you just mean that you value things based on that criterion, I don't think anyone will have much of a problem with that. But of course, price implies an agreement between multiple parties on the value of some good.

To take this to its extreme: If Superman existed, would he be just as valuable as a normal person? If he needed a kidney, would it not make sense to move him up on the transplant list? After all, doing so would save countless lives. At some point, the disparity in abilities becomes so great that only an ideologue can claim people are equal. I agree that it's important to lift the veil of ignorance only in special circumstances (employment, limited educational opportunities, etc), but one should avoid defining people as equal when what we really should be doing is treating them as equal.

One should also note that who is doing the work isn't important. It's what is being done that matters. Whether it's an executive or a janitor, the same amount of good is being done volunteering at a soup kitchen. The difference is that the executive could do more good by working at his job and donating an hour's worth of pay to the soup kitchen. That's the sense in which a person can be more valuable to society. From Money: The Unit of Caring[1]:

> There's this thing called "Ricardo's Law of Comparative Advantage". There's this idea called "professional specialization". There's this notion of "economies of scale". There's this concept of "gains from trade". The whole reason why we have money is to realize the tremendous gains possible from each of us doing what we do best.

> This is what grownups do. This is what you do when you want something to actually get done. You use money to employ full-time specialists.

1. http://lesswrong.com/lw/65/money_the_unit_of_caring/

And obviously not a lot of neurosurgeons have IQs of 90.

Some people can do more, and get paid more.

Then again, some people bust ass all day in the rain as a linesman for the electric co while risking their lives for 60k while the cast of Big Bang Theory gets a mil an episode to sit on the couch.

C'est la vie.

That value is not absolute. That's just the value to me as his or her current employer. The same receptionist would have different value to an employer with a different cost structure. This is why an intermediary like price is required.

> The older I get, the more I think that "value" (our social evaluation of worth) should be based on nothing more than hours of labor.

> An hour of labor from someone with a 130-IQ might carry a higher price on the market than an hour of labor from someone with a 90-IQ

1. These two statements are fundamentally at odds. The mere existence of a market price directly implies that some number of market participants have made their own judgments about the value (to them) of that hour of time.

2. "hours of labor == value" is the fallacy behind make-work programs where people effectively dig ditches and then fill them back up. There's nothing changed when they're done; how do you capture that economically?

So, according to Marx, almost everyone is worth more than they are valued. The difference becomes profits. And since most companies generate profits (if they dont, they become bankrupt), it follows that most workers are paid less than their worth.

A big difference between the marxist view and mainstream economics, is that marxists consider the relationship inherently exploitative. Workers are forced to sell their labour cheaply because they are under duress. If they refuse the deal, they wont be able to buy food and then starve. Mainstream economists consider it a completely voluntary exchange (afaik -- but i could be wrong on this) and does not concern itself over "wage slavery."

Btw, Marxism never claimed that people should all be paid the same. Only that you should be paid what you are worth instead of valued.

But I agree with DanielBMarkham in that economists are generally working in good faith (though I have my doubts about Krugman). It's just not very easy to see your own biases.

No, its not. Economics deals with measurable phenomena in the material world.

> can accept the impartiality of astronomers coming to a consensus of how close the star Proxima Centauri is to earth. Insofar as deciding how the pie should be divided up, to call that a science with people working in good faith is absurd.

Deciding how the pie should be divided up is not within the scope of the science of economics. Predicting how the pie will end up divided given certain starting conditions and policy frameworks, OTOH, is.

I claim that it is taught and in the context of a foundational model to build upon. Critiquing the 101 model in any field is a straw-man argument.

Politics and economics are deeply intertwined, I agree to the claim earnestly, but it was not the point of my post, nor was it a primary point of the article. The article is directed at academic economics, so I address the attacks on academic economics. Politicians clearly have different incentives than economics (in fact, there is a robust field within economics, Public Choice Theory, which addresses the incentives of politicians and collective actors), and to judge an academic pursuit by politicians' self-serving interpretations of it is disingenuous. If the objection of the protesters is politics, then protest politics, not one of the tools they abuse.

>You also ignore the fact that the few heterodox economists that exist are utterly ignored by policy makers - even when they continue to make correct predictions about future economic outcomes.

See above - the article and my comment address academics, not politics.

>Rigorous intellectual deconstructions have existed for decades. They have a much better predictive record than mainstream 'wisdom', but they continue to be ignored by the profession.

They have indeed, and only some few have better predictive records - I'd love to hear which you are referring to (connotation = honestly curious).

I'll explain this by saying that you conflate the profession of economist with the profession of politician or politician's supporter.

I'll finish by noting that free-market liberalism is not a political consensus, and in fact "unfettered [free-market] [capitalism]" (and various synonyms) is commonly used as a pejorative among the political left of many leanings, and any support for the idea among the political right is lip-service at best and clearly hypocritical based on the often corporatist leanings of right-wing policy.

Those on the right who do support free-market liberalism fall more toward Ron Paul and the Tea Party (neither a perfect representation of the ideal, though closer than the majority of the right) and supporters of the man or the party are clearly NOT the political mainstream, but at best a vocal minority.

Those on the left supporting free-market liberalism (various anarchist groups and left-libertarians) are, if anything a smaller influence than those on the right, or at least a less discussed vocal minority in the news.

The mainstream of both right and left follow remarkably similar economic policies differentiated by the rhetoric used to support them, both tending away from free-market liberalism.

The conflation of politics and economics turns most public discourse into a religious war, rather than a reasoned interpretation of academic progress on many fronts (and, as you note, public ignorance of many of those academic fronts).

>So.. because you are to lazy to look up whether they have made good arguments you assume that they haven't?

Because I was at work and had limited time, I was limited to the resources linked in the article, which included a very non-rigorous page which is more concerned with its manifesto and self-congratulatorily declaiming the "mainstream." I also had the content of the conference they were protesting, and the quotes in support of their views.

The conference, as others have pointed out numerous times covered some pretty heterodox views to begin with, and that it was their choice of target as representative of the mainstream implies a naive understanding of what is and is not mainstream economics.

The quotes of the protesters and the economics these quotes represent are not heterodox so much as well-refuted theories, again, as others have covered numerous times in other comments.

>>A rough equivalent would be protesting a physics conference because the solar system model of an atom is not representative of reality.

>No. That would imply that they are cranks and you have no evidence of that. It's like you already have made up your mind on what to think without listening, which is kind of why they have to resort to demonstrations in the first place. :)

I have laid out above my reasoning for not putting merit toward their academic rigor. I, personally, loathe the "economics" put forth as support for popular political policy of the day, so I came into the article sympathetic to the thesis. Every element of the article and supporting evidence I was able to find based on my limited time during work pointed to the conclusions that I drew.

Finally, it is clear without needing further research that they do clearly hold the belief that the following quote is representative of mainstream economics:

"the fantasy world of neoclassical economics — a faith-based religion of perfect markets, enlightened consumers and infinite growth that shapes the fates of billions."

This belief is a strawman caricature of an introductory economics model. To declaim mainstream economics based on this understanding is hopelessly naive and is exactly akin to declaim modern physics because of the solar system model of an atom (another 101-level model which is an un-nuanced but accurate in broad strokes model used to introduce new students to a field).

Whether the quotation above is central to their argument, or tangential, my comparison holds. Further, the case is much stronger that the quotation above is of primary concern to their argument, which only strengthens any critique based on it.

I appreciate your feedback on how to come off less dismissive of the original article.

I'd like to clarify my own position though, as your post makes me feel I was not entirely clear. I claim that the picture the protesters paint of neoclassical economics is a straw man.

Perfect markets and enlightened consumers are not an assumption in neoclassical economics, nor are they required to support free trade (to use your own example of an issue with wide agreement).