Friday, 28 October 2016

Everything bad ever is the fault of neoliberalism or orthodox economics or both

I respect Mike Joy's work looking at river quality. But man he makes a hash of things when he strays from what he knows about. His oped in today's Dom Post ... it's hard to know even where to start. It is an embarrassment to the institution that employs him.

The piece's central thesis is simply wrong. He claims that orthodox economics ignores externalities. Anyone who has taken a principles-level course has encountered externalities. It is in every principles-level textbook I have ever seen. It's sometimes covered badly, but to the extent it's covered badly, it's to leave the students with the impression that any external cost justifies government action rather than focusing down on policy relevant externalities (Pareto-relevant technological externalities that affect choices at the margin rather than having inframarginal effect).

Policy can and often does screw things up. Mike goes on at length about the negative externality imposed by intensive dairying and how that's the fault of orthodox economics.
The orthodox economics of intensive dairying discounts these externalities because they are met by the public, economically and environmentally, not by farmers.
That's not the fault of orthodox economics. Bog-standard orthodox economics says to use something like the nutrient management regime in place for the Taupo catchment to address negative externalities. It doesn't say "dump all the crap in the river because somebody else's problem." That's like the classic kind of case that a Principles or Intermediate lecturer might use to illustrate an externality problem and then have the students think about potential solutions.

This is David Suzuki level illiteracy. Did Mike learn his econ from David Suzuki? Is there nobody at Massey whose principles lectures he might consider attending? There are some decent economists at Massey. Maybe he should go ask one for a Principles text.

There's a pile of other mess in the piece. He cites the Club of Rome's Limits to Growth as follows:
"Sustainable economic growth", a principal objective of orthodox economics, is an oxymoron according to a real science conjecture that growth within any closed system – including population and economic growth within Earth's closed biosphere – is ultimately unsustainable.   The Limits to Growth report published in 1972 by the Club of Rome tested this conjecture through computer simulations of a future Earth under various assumptions.   Its "business-as-usual" simulation predicts catastrophic "overshoot and collapse" of the global economy, natural environment, and human population from about 2020 onwards.   Disconcertingly this projection has accurately tracked 40 years of subsequent statistical data.   Accordingly it must be heeded as real science.  
That's interesting. I have a copy of the Second Edition of the Limits to Growth (1974). Here are some of the real science predictions they made. This is totally real science that hasn't at all been disproved.
  • Exponential population growth that would not abate but population greater than 1970 levels is unsustainable;
  • Growing gaps between rich and poor countries because of faster growth rates in rich countries;
  • "Desperate land shortages before the year 2000 if per capital land requirements and population growth rates remain as they are today" [referring to shortages of agricultural land]
  • Running out of non-renewable resources, with scary graphs about Chromium. You know about the big Chromium shortage right? Noticed how the cars don't have chrome bumpers anymore? Totally evidence.
  • While rising GDP per capita would reduce family size in developing countries, the proportion of families wanting four or more kids is totally increasing in income in richer places. You've seen a lot of families around with four or more kids in rich places, and especially among richer people, right? 
  • Population greater than 1970 levels is unsustainable.
All that's wrong. Population growth is levelling off and the problem in rich countries is potentially declining population absent migration. Poor countries are growing faster than rich countries, with dramatically slowed growth in rich places. Chromium prices in 2014 were higher than in 1974 in real terms (but lower than the price in 1975!), but has anybody heard of some looming shortage? No. There's also no shortage of food and no looming shortage of food. The main places where there's scarcity of food are places that have explicitly rejected 'neoliberalism': Venezuela and North Korea. Family size in rich countries is declining. There's plenty of chrome for anybody who wants chrome. Simon won his bet.

The main thing that the Club of Rome really got right is carbon dioxide emissions and global warming - although they missed the declining carbon intensity of production.

But carbon emissions aren't a problem of neoclassical economics either. That's a problem of not putting in a global carbon tax or a global emissions trading regime. There are tons of orthodox economists that lefties would call 'neoliberal' who are in Club Pigou. It would be a fun exercise to go through the membership list of Pigou Club and see how many times each member has been called a neoliberal. I don't think the number would be small, especially for Mankiw, but I can't be bothered to check. Anyway, if you think there's something called neoliberal, well carbon taxes are totally neoliberal. 

Here's another:
The divide between the rich and the poor, despite "trickle down", is growing faster in New Zealand than in any other developed country.
Is growing. That's the present progressive tense. Something that grew and continues to grow. Ok. What about this then?

Just look at that growing growth! It's totally growing. Scary growing. Like the Chromium shortage and Mike Joy's credibility.

Do university academics' duties as critic and conscience of society require them to talk nonsense about stuff well outside of their fields of expertise?

Massey might consider asking Joy to get an economics degree if he intends on continuing to purport expertise in the topic.

I think the Foote, 2015 piece he cites is one on which he's coauthor. If it is, then isn't it a bit odd to cite a piece favourably without noting you helped write it? About that study:
Professor Frank Scrimgeour, director of the Institute for Business Research at Waikato University, slammed the research as "sloppy" and argued its bold claims could not be substantiated.

"The authors do not do any original data collection, estimation or modelling," he said.

"They synthesised existing data without ensuring that measurements are consistent through space or time.

"Foote, Joy and Death are right that there needs to be holistic conversation in New Zealand regarding performance of the dairy industry but papers like this do not enhance the conversation."


  1. I hope Joy and Death undertake further collaborations in future.

  2. "Do university academics' duties as critic and conscience of society require them to talk nonsense about stuff well outside of their fields of expertise?"

    That is how most people interpret it.

  3. The writer (Mr Crampton) appears to inhabit some kind of parallel universe.

  4. Mr Crampton must inhabit the same 'other' world as many of our esteemed 'leaders'. Utterly detached from reality, and yet cocooned in a comforting web of conveniently chosen 'scientific proof' that it's all just fine !