From a good post by Michael Strong:
Martin Seligman, author of Learned Optimism, is the national leader of the positive psychology movement. I recently ran across Martin Seligman's “Presidential Column,” when, in his capacity as president of the American Psychological Association, he describes a decision by the American Psychiatric Association as “shameful.” The context was the psychiatrists' decision not to participate in a joint academic journal designed to facilitate communication and share research findings between the psychological community and the psychiatric community. Seligman's account of the demise of this journal is telling:
“We published our first article and commentary in September 1997. You can read it on the web at http://www.journals.apa.org/treatment.
The dream has ended. In December 1997 the American Psychiatric Association’s Board of Trustees, acting in a closed-door meeting, withdrew from the collaboration (see article on page 42). They cited the need for a “broad review of the costs and benefits of electronic publishing projects.” This, of course, was not the whole story.
In August I began getting messages from their leadership that their board, led by the California trustees, might end their participation. In September, they put their cooperation on hold, citing the “state of the relationship between the two associations.” I was informed that APA’s policy of seeking prescription privileges for psychologists was the central problem. What publishing this scholarly journal had to do with that issue was not clear, but we crafted a disclaimer that reading Treatment did not qualify one to prescribe. It was clear, however, that their final decision to end the collaboration was political. Many of their trustees were worried that any collaboration with APA would legitimize the efforts of psychologists to obtain prescription privileges.”
Both the psychiatric and psychological guilds would be outraged by my notion that we need to legalize markets in happiness and well-being, especially once they realized that that would involve the elimination of occupational licensure. Guilds exist to protect legal prerogatives.
Amazing! I like Michael's phrase “legalize markets in happiness and well-being.” And guilds disgust me.
Will Wilkinson 
I was lucky enough to take my first Macro class from the late Paul Heyne.
What a great econ teacher he was, his “The Economic Way of Thinking” is worth a look if you have $100 bucks or so to spare.
I remember the first thing he told my class 30 or so years ago was, “Making lunch for 4 people isn’t the same thing as making lunch for 400 people.”
But, I don’t think mankind has really come up with anything that impressive in the past 100 years or so.
Powered flight, automobiles, calculating engines etc. were all developed long ago.
Middle management isn’t really that great of an achievement, fork.
The Chinese digging oil wells 800 feet deep 2000 years ago impresses me.
The corrupt operation going on in Sarah Palin’s Alaska these days, not so much.
No great achievements in the 20th century? You’re a hard guy to impress.
However, who said state recognition/enforcement of private contracts developed in the past 100 years? And, to Will’s post, this is only one example of decreased transaction costs. Adoption of the uniform commercial code (1952), and the internet (Al Gore – late ’90s), are pretty good examples too.
Name one modern invention society values higher than indoor plumbing or the light bulb.
Seems we’ve decreased our transaction costs but lost our capacity for true innovation, fork.
Now it’s just a question of how long we can milk the innovations of our great grandparents.
penecillin
The Fat Darrell: http://www.usatoday.com/news/offbeat/2004-08-19-fat-darrell_x.htm
The diesel powered generator, and television.
Really. Visit some slums. They may not have running water, and they will often depend on kerosene lights. But they will have a TV.
How about public key cryptography, the only known way to transmit messages without sharing a key in advance, and video conferencing (scary magical technology that only wizards could have imagined earlier)
I apologize if my posts have been too parsimonious for you to follow. If, however, you are in fact following my logic, do you have anything more to contribute beyond “You’re wrong!! Neener neener!!!”?
I am, in fact, not following your logic.
Your first post suggests that this “complex order of spatially and temporally extended impersonal exchange” is possible because of oil. Your second post asserts that it’s possible because of “wealth.” Your third post suggests that it’s possible because of increased population. I’m sorry for the flippant replies, but these suggestions strike me as increasingly obtuse.
You seem to imply that modern commerce is a byproduct of chance. To the contrary, modern commercial transactions are possible because of the rule of law, and state recognition/enforcement of private contracts (both of which significantly decrease transaction costs). These are deliberate (and brilliant) constructs which have generated massive wealth and well-being.
I might also offer that it’s not oil that makes us wealthy. Rather, it’s commercial exploitation of oil (see exchange below). Again, commerce of this nature is only possible by lowering transaction costs in the manner I describe above.
Here are some questions that point to what I’m getting at:
Generally speaking, when in nature does the development of the complexity that leads to more
efficient exploitation of a given resource precede the availability of the resource in question? Does a genetic
mutation call into existence a heretofore unoccupied ecological niche? Which is the greater hurdle to the
exploration of new territories, the lack of resources to expend on the project whatsoever, or the lack of systems to
do it quickly and efficiently?
When a resource becomes depleted doesn’t the inevitable decision to no longer maintain the cultural and physical
structures erected to exploit it indicate the order of dependencies here? What effect does the advent of the
availability of 12 years of labor in a can for less than $50 have on the relative and absolute values of pre-
existing transaction costs? Is the rule of law easier to enforce with posses on horseback or with helicopters and
video cameras?
Can you imagine a “complex order of spatially and temporally extended impersonal exchange” existing in a society
that didn’t have a whole bunch of energy (meaning wealth– the connection/equivalence between the two should be
obvious) to throw around to support the required complexity/specialization? Relatedly, if you lived on an agrarian
planet with no fossil fuels and your goal is to maximize wealth within a couple hundred years, would you ask the
genie in the bottle to eliminate transaction costs or would you ask him to create large (i.e. earth-like) deposits
of oil and coal?
What effect might a historically atypical but entirely plausible transition from a higher to a lower quality
resource (from oil to solar for instance, as opposed to coal/whale oil to crude) have on transaction costs/overhead
for society? How much of the “progress” we’ve seen rests on a historically contingent and inherently finite
discovery and exploitation of increasingly space efficient energy resources? Was the much slower cultural progress
from 1700 to 1800 really a reflection of much higher absolute transaction costs than existed between 1800 and 1900?
I can’t figure out what a series of coherent, reality based, answers to these questions that is compatible with the
idea that transaction costs matter more to social wealth than the sheer amount of work an economy is capable of
producing would look like. Then again, I’m not an economist.
Just to be clear: I’m not denying that transaction costs are important. If you assume that natural capital does not exist as a factor of production it might even be as important as Will thinks it is, but then one is simply indulging in a different kind of potentially fatal abstraction away from reality that Will decries with regard to behavioral psychology.
I think every credible economic history puts scientific discovery and innovation — especially innovations in energy — at the center of the era of modern growth. So I’m not sure what you think we’re disagreeing about. Economic historians like Doug North and Joel Mokyr will say that the development of cooperation-enhancing institutions gave us science, which gave us big tech discoveries, which gave us immense productivity gains, etc.
That said, in a strict sense, I don’t think there is such a thing as “natural capital.” Without the coordination necessary to do something productive with oil, it’s not worth anything. The prior coordination problems have to be solved before oil becomes valuable.
“The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilization. The cheap prices of commodities are the heavy artillery with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilization into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image. ”
– Some German guy, 1848
Marx was indeed one of the most compelling advocates of capitalism.
That said, in a strict sense, I don’t think there is such a thing as “natural capital.”
Well there’s your problem right there. If there’s no fish in the sea, neither greater capital investments in fishing boats nor the application of harder or smarter labor are going to suffice to increase returns on investment in the fishing industry. In what “strict sense” can such a non-substitutable factor of production be claimed not to exist? How is “assume a healthy fish population” more intellectually defensible than “assume homo economicus” or “assume a can opener”?
This is the crux of my disagreement with you. I applaud your project to bring behavioral empiricism to economics, but I suspect that your unwillingness to expand the purview of empiricism beyond the behavioral arena to be an illustration of Upton Sinclair’s paycheck dependent thinking.
I really don’t grasp your point, and don’t understand your grounds for dismissing mine. Suppose there is a box at the bottom of the ocean that contains infinite energy, produces unlimited food, etc. However, getting to the box requires an immense, complex, cooperative effort. In what sense does the box count as capital if the social coordination required to reach it cannot be accomplished?
Can we agree that neither complex cooperation nor nature is a sufficient condition for growth?
This is a significant improvement over the claim that transaction costs represent the single greatest limiting factor for human welfare.
If there were a magic treasure chest in a bank vault that remained full of money no matter how much you took out of it, would my inability to access the vault negate the treasure chest’s existence? The nature of the value/capital in play here seems irrelevant.
In this scenario, the existence of the magic box serves as an incentive to develop the necessary complex systems to access it. Access to the magic box is the “return” part of “return on investment”. To turn this question around, how do these complex systems arise absent independently existing incentives? If access to the magic box is fully known in advance to be impossible, then the scenario is reduced to an observation that the absence of incentives is functionally equivalent to the absence of incentives.
Your impressive knowledge (credit where due!) of the empirical blind spots of economics vis a vis behavioral psychology seems matched by a lack of knowledge concerning a similar inability of mainstream economics to integrate itself with the empirical findings ecological/geophysical experts. How convenient for you that this ignorance is justified by the triviality/nonexistence of the issue! You really should get your findings published in the Journal of Ecological Economics before they shutter their operations!
The urge to snark would be easier to resist if you just claimed disinterest in the subject rather than offering such weak objections to to it’s validity.
I don’t buy it. By way of example (maybe not a great example, but I’m sure we could point to others), I’d highlight the wealth disparity between San Diego and Tijuana (or the United States and Mexico). I think most people would agree that the disparity has very little to do with access to natural resources, and far more to do with the social constructs that enable/strangle commercial exchange and innovation.
That is, if the magic box is a given, it’s these social constructs such as the rule of law and state recognition of contracts (enabling complex coordinated effort) that renders value from the magic box.
You presume that all peoples will derive the same value from the magic box. On this count I believe that you (and Jared Diamond) are wrong.
“I’d say the wealth disparity between San Diego and Tijuana (or the United States and Mexico) has very little to do with access to natural resources, and far more to do with the social constructs that enable/strangle commercial exchange and innovation.
You just destroyed that straw man there! Unlike you guys, I’m not claiming that the other side of the argument has no merit whatsoever. I would, however, point out that very small changes in historical contingency could easily have had us arguing in spanish about the poor anglos who just can’t get their shit together. This bizarro world, however, would most likely sustain a “complex order of spatially and temporally extended impersonal exchange” funded in large part by astronomical surpluses provided by fossil fuels.
You presume that all peoples will derive the same value from the magic box.
Well, I actually presume that multiple iterations of our little thought experiment would result in historical accidents that lead to different peoples deriving somewhat different values from the magic box, but that the results: a)would be unpredictable from the starting conditions; b) would rarely repeat; and c) would reveal that the process of development of the complex structures required to exploit the box would would create more congruencies between the successful societies than differences. Thanks for asking.
No more chance that our disagreement stems from an excessive love of parsimony on my part, huh?
Likewise. I should have probably stuck with “neener neener.”
Which would not doubt be why India is so rich. And Switzerland so poor.
Transaction costs matter, which is why we should all go an read Yoram Barzel.
My nomination for the most disastrously misleading metaphor in the entire history of economic thought would be John Locke saying that a hunter in a state of nature “mixes his labour” with what he catches. No he doesn’t he takes control of it. Locke’s metaphor encouraged economists to see exchange as the end point of a process of production (which it may or may not be) rather than a purposive act, which it always is. Lock’s mistaken metaphor led to all sorts of bad places, not merely the most famous analytical dead end.
Excellent point. Transaction costs affect everything. That’s why so many tax rules, and so many regulations, are much more troublesome than their authors realize. These things aren’t self-enforcing. They require lawyers, accountants and so on to comply with the regulations or to follow tax provisions, not to mention the time involved on the part of those regulated and taxed. These are real and often expensive transaction costs, and they don’t show up in the regulating agency’s budget.
Your critique of Buiter’s hypothesized baseline is a little too structuralist for my taste. The noble savages were humans just like us. They had the same intelligence and basic goals, even if they lacked particular customs and institutions. Even more so than for us in the civilized world, any interaction with other parties, including trade, involved a great deal of risk. The tribe down the river might want to sell us some flea-ridden hides, or maybe they just want to see the stuff we have and steal it from us while killing four adults and kidnapping a couple of preteens. Maybe you call that a “transaction cost”, but my tribe sees it as more of an existential threat. We’ll just shiver through this winter using the hides we have, thanks. Our baseline is to throw rocks at anyone outside the tribe.
Even this sort of prehistoric scenario planning is unnecessary, though. If we really want to do science (that’s gonna be a stretch for most economists, but let ’em try), then we’re talking about models and hypotheses, not “the truth”. It may be easier to work with a baseline of zero than a baseline of epsilon. If the resulting theory allows us to make falsifiable predictions of future observations, then we have something we can use. If not, back to the drawing board. As my own little structuralist interlude above was meant to demonstrate, the less our economic theories depend on fevered aetiological imaginings of the state of nature, the better.
I’d quibble with “[M]ost of the New Classical and New Keynesian macroeconomics assumes away the problem of contract enforcement. ”
My Macro 301 course the problem of price stickiness–necessary to much of the Keynesian machinery–was explained as an artifact of contracts and transaction costs. It costs time & money to find cheaper, to relabel goods. Administrating auction markets costs even more.
But after that it all becomes much more reasonable. Real human beings aren’t very good at rationality. Begin there. And construct a theory of markets based on assumptions of error, bias, mistakes and subsequent correction.
Raivo Pommer
raimo1@hot.ee
ING-DiBa krise
Vor einer Falle beim Vergleich von Kreditangeboten warnt die ING-DiBa: Unter Umständen droht eine Herabstufung der Bonität durch die Schufa, die Schutzgemeinschaft für allgemeine Kreditsicherung. Das kann zur Folge haben, dass ein Kreditantrag abgelehnt wird oder der Kredit nur zu einem höheren Zinssatz zu erhalten ist.
Keine Gefahr besteht nach den Angaben der Experten, wenn eine Bank Einheitskonditionen für alle Kreditnehmer ausweist und beim Angebotsvergleich keine persönlichen Daten angegeben werden müssen. Aufpassen sollten Verbraucher bei der Jagd nach Kreditschnäppchen hingegen bei Banken, die den Zins von der Bonität des Kunden abhängig machen.
Erkennen lassen sich solche Angebote daran, dass kein fester Zinssatz ausgewiesen wird, sondern mit Begriffen wie beispielsweise “Ratenkredite ab 6,9 Prozent” geworben wird. Um ein konkretes Angebot zu erhalten, müssen Verbraucher bei solchen Geldinstituten ihre Adressdaten sowie weitere Angaben zur Einkommens- und Vermögenslage hinterlassen. Um den bonitätsabhängigen Zins zu ermitteln, fragt dann die Bank auf Basis dieser Daten bei der Schufa an
For all the economist bashing, we do need models that simplify reality to understand the world. In order to tease out the factors that are important in certain situations, neo-classical and Keynesian economists do ignore transaction costs and a whole lot of other things. In some situations, certainly, it is ok to ignore transaction costs. In other situations, transaction costs are a major issue. Some Economists have spent careers studying transaction costs. The very fact we are talking about “transaction costs” is due to Coase, for instance.
People often cite behavioral economics as the future of the general field. Without downplaying the interesting results of behavioral economics, in order to make sense of empirical results we still need theories which will simplify reality in many, many ways. How else will we understand in which situations the results are applicable, or even what the results are.
The best way to look at economics is as a “soft science” like biology. There is never going to be a law or model which completely describes human behavior the way a physicist describes thermodynamics. The world is just too complex. We can, however, use simplified models to gain insight about how the world works in certain situations.
What Ross is really doing is trying to level the playing field between adherents of Catholicism and everyone else, by forcing everyone to assume the same child-bearing cost as Catholics have, thus nullifying the advantage.That is what some people are thinking but i am thinking vice versa.