It reminded me a little of a famous quote by Samuelson: “Remember that in a perfectly competitive market, it really does not matter who hires whom; so have labor hire capital”. In fact this statement was made by him in direct response to Marx’s claims. I think it’s from a paper he wrote on the labor theory of value. It was written in 1957, if you’re interested in looking it up.

I think you’re right that when we assume competitive markets, this is what occurs. The zero profit condition. Producers are paid their marginal product and so the market clears. Consumers consume at prices equal to their marginal utilities. A general equilibrium price and wage obtains and the result holds.

But where things get a little tricky is your shrugging off of class distinctions as just between producers and consumers (it should probably more accurately be workers and employers in a labor market). The employers have a specific role in the production process: they contract labor from the worker, who uses a set of means of production that is owned by the employer. So, there is more than just this relation between people that make things and people that don’t: there is a contract involved, where some information will nevertheless be unverifiable
(worker effort, for example) and that introduces a political dimension to things. Contracts are legal concepts. Politics inevitably lead to power relations, and soon enough we realize that the labor market is much more complicated than just a simple relationship between employer and worker.

Marx isn’t talking about producers and consumers: he would say capitalists (employers) do both, and so do workers. The main distinction between the two, he argues, is that capitalists own the means of production with which the workers work (how’s that for alliteration?).

I’m no Marxist, but when I say I’m “sticking it to The Man”, I mean to reject the current economic system of capitalist hierarchy in exchange for another system such as worker’s collectives or business practices that do something to attenuate the power relationship mentioned above. I don’t necessarily mean higher taxes on goods or things like that.

It all started earlier this week when I realized I was going to bed hungry. Hm? This was very strange, I thought, because usually I eat a big enough dinner at the right time that my appetite is subsided for the night and I can go to bed not worrying about it. And then, I would wake up that morning and be even more starved! During the day, too, at the strangest times, I would get hungry. What’s going on with me? I would ask myself. I barely excercise, minus the hour or so of walking I do, to and from bus stops and the office. I eat a lot when I do eat, and I eat breakfast, lunch AND dinner. So what the hell is the big deal? And then it struck me.

The average person gets 8 hours of sleep. They’d wake up at 7, have breakfast at 8. They’re hungry again by 1230/1. Then they have a nice dinner around 5/6 and go to sleep at 11. Not too bad, not too shabby at all. But.

The average grad student gets MUCH LESS sleep. In fact this past week I’ve averaged 5 hours. I wake up at 530, have breakfast at 630. By 1130/12 I have lunch. By 4/5 I have a sufficiently large dinner. Then I go to sleep around 12, 1. What’s wrong with this picture? The fact that there are an extra 3 hours in my schedule relative to the average person who gets 8 hours, I actually need to have a higher caloric intake than them.

This makes perfect biological sense. It’s a necessary means for survival. I never thought I’d see the day when I would actually be neglecting my bodily need for food, but then again I never thought I’d see the day when I was actually yelling at a microeconomics textbook. But shit happens in grad school and sometimes you just gotta throw down.

Lesson for the day: make sure, in grad school, when that snack attack hits you are ready. Oh, and tearing out entire chapters on endogenous preferences and mechanism design to light them on fire is NOT the same as “studying” them.

By the way, I put this under the categories “standard of living”, “things they should not have told us”, “training idiot savants”, and “uncategorized”.

This was part of my first problem set for my Microeconomics course with Sam Bowles:

1. Suppose the costs of being a union member are represented by c,  1>c>0
2. Suppose the benefits of being a union member are represented by “b” and these benefits are increasing in the number of union members
3. Suppose “d” represents union density (normalized so 1>d>0)
4. Finally, y, 1>y>0  is the strength of conformist feeling, or a “solidarity coefficient”

Now we can model the utility of a union member as U_m = b - c + y(d-0.5) and the utility of a nonmember as U_n = b + y(0.5-d).

For example, the utility of a member is derived from benefits minus costs (b-c) plus the “solidarity benefits” of a member IF d>0.5. We are assuming here that being around a lot of nonmembers will be uncomfortable for the member and may induce him to switch (and vice versa). The utility of a nonmember is derived from benefits (and no costs, of course) plus the “solidarity” or “conformity” benefits of not having many members around, i.e. IF d<0.5.

Now we want to model dynamics. So assume that members and nonmembers occasionally meet and talk about being in a union or not being in a union, and through this conversation they start to compare utilities.  The probability that a member will meet a nonmember is simply d(1-d) and based on this probability they will compare utilities and evaluate (U_m-U_n). Hence we can say that over any two periods, the change in the amount of members will be governed by the equation:

(change in d) = d(1-d)(U_m-U_n) = d(1-d)(-c +2y(d-0.5))

It would be nice to know if there are any times there will be no change in d, that is, (change in d)=0. This occurs at d=1, d=0, and d=(c+y)/(2y). So, two values of d that will cause no change are when there are all members and all nonmembers. If we are at either of those points, is it possible to move away from them given, say, a few people in an all-member group decide nonmembership is best, or vice versa? Can this happen?

This question is equivalent to asking if the equilibrium points above are stable. We know from calculus that equilibrium points will be stable if the derivative of the function at that point is negative.  Taking the derivative of (change in d) and evaluating it at d=0, d=1 we obtain:

if d=0, y+c>0 will give stability. but both y and c were assumed to be greater than zero, so this will always hold.

if d=1, y>c. y is the strength of conformity or “solidarity” while c are the costs of being a member. So basically what this is saying is that complete membership will be stable if and only if the strength of conformity outweighs the costs of being a member.

While the whole story is obviously not being told here, it does give some interesting insight into worker behavior through a more psychological perspective of why people join unions.  We took an evolutionary approach by modeling how d would change if some people met others and talked about membership/nonmembership and found that we could shed some light on union density.

But what if I told you this same concept was first introduced over 100 years ago?

http://www.economist.com/printedition/displaystory.cfm?story_id=9719105

A small company in London first invested in these buses in 1907, but due to a series of unfortunate financial crises, the idea never fully revved into gear. How would an economist explain an obviously superior form of transportation being pushed aside for a century of fossil-fuel burning technology instead? The math certainly doesn’t add up–any first year grad student taking micro right about this time would be able to tell you that with ease. Then what is it?

The event should recall the parallel example of the development of the QWERTY typewriter system, seemingly directly in the face of proven superior layouts (such as Dvorak’s system, and yes, it has been scientifically proved to be more efficient) .

QWERTY was discussed by Paul David in a paper where he showed that some economic results simply arise from “historical accidents”, things that cannot be explained by economic theory. After a historical accident, all it takes is some social conventions and institutions to be placed around the outcome (in the case of QWERTY, so many typists had already learned it, and it was already applied to so many typewriters), and you get stuck in what may be a Pareto inefficient outcome.

The article brings up the general theme of what history means to economics, as a social science. Many economists seem content to shrug off the role of history as something exogenous to whatever theoretical model they may have developed. They fail to see that a social science is one that encompasses all other aspects of society (not just the aspect governed by seemingly-eternal economic laws), and so any theory that proposes to neglect historical trends is not doing its best to be scientific.  As E.C. Harwood believed, truth is a very difficult thing to pinpoint, and while at times mathematics can give a very compelling argument for finding “the right answer”, things are far from solved by simply taking first order conditions and solving for zero.

And perhaps as a result we may further our quest for knowledge, the true goal of the scientist as argued by Harwood.

As I’ve noted in a previous post, UMass does not start out with your standard micro/macro/metrics. There are both pros and cons to this strategy.  I’ll save you all the debate and just note that it’s really cool to be exposed, first semester, with real world problems that can be answered by history and institutional analysis.

My first course is with Gerald Friedman, and it’s an introductory history course. Among the many readings for this course is “Guns, Germs and Steel”, which attempts a biological/historical/geographical explanation for why some countries are poor today, and others are rich. You see a lot of research attempting to answer this question, especially in the last 30-40 years with the advent of growth theory as a subset of macro, and more recently (10-20 years) empirical applications of growth theory, giving the field a much-needed boost and nudge away from trapping itself (as many people will criticize of game theory) in a little academic corner with little to offer policy-relevance. But this is a nice historical take of the issue.

My second course is political economy 1, which is an analysis of Marxism, basically. There are some other readings by political economists such as Adam Smith, but the focus is generally Marxism. This is the case in most 1-semester sequences in political economy that you will find even at the top schools. Marx is still widely held to be relevant, especially with so many 20th century governments adopting many of his ideas (not always as faithfully as Marx would have allowed, unfortunately).  At UMass we have a 3-semester sequence in political economy, each course with its own focus, generally depending on the instructer.

My last course is an applied micro course being taught by Sam Bowles. Sam Bowles is an economist at the Santa Fe institute. The course examines microeconomics, but through the lens of institutions and market failure. The course revolves around an evolutionary game theoretic perspective of market inconsistencies, and how some of these problems can be solved through the evolution of institutions. Some would put it in the category of the new “behavioral economics” field, or possibly “computational political economy”sometimes called “positive political economy”, nonetheless it’s some really exciting stuff and will probably end up  being my favorite course.

So there’s the rundown… I have a couple of TA sections to teach tomorrow afternoon and we’ll see how that goes. I also volunteered to teach a class that the professor I’m working for is going to miss late November. Teach a class, no problem right?

There’s 400 students in the class. I did not know that when I volunteered.

Help?

            Fellow citizen of cyberspace, I happen to be taking an applied micro course, political economy, and introduction to economic history. Now, whether you’re a neoclassical economist, a heterodox economist, a business economist, a peanut butter and jelly economist, you’re gonna agree with me that doing 100 unconstrained maximization problems will NOT make you a great economist. The director of our program here, Professor David Kotz, notes that to really exceed in economics “sometimes it just takes sheer determination of will” (to paraphrase). It’s the incessant quest for knowledge of our surroundings, a philosophy if you will.

            And that’s just what courses in economic history do. They enlist the help of the philosophers in us to actively take part in understanding how we have gotten where we are. Because nothing else will better tell us where we are headed.

            So, while many of my fellow economics students this fall will be wondering just HOW MANY greek letters could possibly fit into one equation or trying to model the age distribution of their professors’ coauthors (oh, you know who you are), I’ll be trying to figure out how the hell some of these economies got to where they are today.

            In many ways, it reminds me of the summer program at AIER. The framework of both program’s ideas are remarkably similar: construct a program that directs students towards questioning certain widely held ideas through an emphasis on economic history and careful inquiry. It’s simply the stuff that fills these frameworks that is different. But to be honest, I’m enjoying the same feeling of freedom and drive to learn and understand that I enjoyed at AIER.

            In no way am I trying to say that UMass’ program is superior to other more mainstream programs. What I am saying is that for some economist’s future goals, an emphasis more on real world examples and historical analysis is the way to go, and that such an emphasis takes place at UMass.