Review of Steve Keen's talk at the Uni

I am now finally back in Glasgow, ready for yet another exciting semester at the University. Classes don’t start until Monday, but that doesn’t stop societies to hold events and guest lectures. One of these was the visit from Steve Keen, the Australian controversial economist routed in the post-keynesian tradition.

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I wasn’t too familiar with his works beforehand and I really enjoyed learning a bit more of his approach to economics. Some of the data usage, especially his simulation program MINSKY was beyond me, though. Nevertheless I found some interesting points in his talk.

He’s a heterodox economist, very fond of attacking the neoclassical consensus, which is also his focus. For instance he made a splendid explanation for how certain models used in conventional micro economics (Perfect Competition; Indifference curves;  Demand Curve Aggregation) are not only unrealistic but also internally incoherent. This was refreshing, as was his pounding away at the “Money Neutrality” idea in macro. Neoclassical economics normally argue that money is neutral in transactions going on in the economy, i.e. money is the common denominator of heterogeneous goods and services simplifying exchange of these goods and services, but that it doesn’t impact the transaction itself. However, it also argues that money is just a number, and what matters is the ratio between the values of goods. The prime example is, if the money supply would double overnight and everyone suddenly would have twice the amount of money they had yesterday, neoclassicals say this won’t affect the economy because prices would also double, maintaining relative prices as they were before. This is one of the reason they see inflation as harmless. 

That is of course mistaken, as money supply increases doesn't happen that way; they flow through the economy from bank lending and (artificial) credit expansion, where some groups access those new money before other groups do – also, as Keen pointed out, we consume predominantly out of habit, habits used to certain numbers for certain goods. Even if I suddenly have access to twice as much money on paper, I might still hesitate before buying goods of twice its “normal” price, regardless of the rational approach such an action would entail. 

On the disappointing side was more profound issues in the approach to economics. There was a comment from the audience saying that economics is unscientific when it uses a priori axioms, suggesting its methodology should mirror the hard sciences. Surprisingly, Keen agreed, and added that he doesn’t view economics as a science – rather a discipline. Perhaps a mere tautology, but it is ironic to the point of laughter, when he ten minutes earlier praised the usage of mathematics in economics. 

That’s funny, Professor: see, mathematics is a science that solely uses a priori axioms, just like geometry or logic. Demote a science on the basis of incorrect methodology is an adequate critique, but then it should be held consistently, even to "your own" sciences.  

I don't think Keen is actually placing these disciplines in the same category of “unscientific academia” as economics, but that's what his comment yesterday implied. On the contrary, and this is a point over which Austrians and Neoclassicals fight, you have to use a priori axioms in economics, or else you’re fumbling in the dark. The Economy is us. We are always changing, reacting to new conditions and information. Thus, contrary events can occur simultaneously. If you disregards a priori axioms and only rely on data collection like in the hard sciences, you might have instances where these events cancel out, or even produce a reverse effect, leading the scientist to mindless conclusions. Since economics involve people's actions, which are prone to change at whims and desires, we cannot simply observe data and draw conclusions from those, such as a biologist would. Keen's claim is nonsense. 

That leads me to the second disappointment in Keen’s approach. He’s firmly dedicated on using data, putting into his MINSKY simulation, yielding predictions and explanation of how the economy would work given certain inputs. Again mistaken on his own grounds; people are not “chess men you move on a board”, (to quote the Keynes vs Hayek rap video), "their dreams and desires ignored". Believing that you can map every event in future economic conditions smells of the same convictions Hayek viciously attacked in his Nobel Lecture Pretense of Knowledge in 1974. I thought we were past that...

Murphy and Callahan, back in 2001 when Murphy was still at NYU, added several striking critiques to Keen’s work in their review, for instance about labour economics. Keen does an excellent job taking down the labour theory of value, then turns around and constructs a “real price theory of value”, falling in the same Marxian trap of ignoring the subjectivity of costs.

Overall I must admit I was glad to finally get a taste of his work. After running into his name now and then does yield some interest in a person. Though I'm far from convinced. He has several methodological as well as logical flaws to account for.

A great way to start the semester – I really hope for more occasions to discuss the essence of economics. 

Mainstream Economics - What were you thinking?

They rest of you students, do you experience some kind of deeply surpressed anger when your lectures focus on misguided topic or even tell you incorrect points?

I do. Normally in socialist topics such as Public Policy, but today - last lecture of the semester - I'm directing my critique towards Economics. First a disclaimer. My impression is that someone regarding Economics as a hoax and their practicioneers as evil advocates for capitalism, would be somewhat surprised by the fact that economists disagree on things. Yes, we do. Quite strongly.

Ok, so large parts of the prestegious education given in Economics is what's normally referred to as Mainstream Economics or Neo-Classical Economics developted and originated in association with University of Chicago (thus, Chicago School of Economics). They normally come out in favour of free markets and limited government intervention, thus the resemblance with us, Austrian Economists. From today's lecture, I'll highlight some points that set us apart.

Redistributing Wealth from Rich to Poor

Our lecture was making the point that, overall, from a societal point of view, taking £1 away from a rich person in order to give a poor person food, would be beneficial. This, on the grounds that the marginal utility increase for the poor guy would be a lot larger than the marginal utility loss of the rich guy. The way Neoclassicals would go about this is that such an action would produce better effects for all, thus worth doing. Some kind of utilitarian moral ground.

Anyway. For Austrians this is proposterous, and somewhat bothersome that a hundred students of economics might carry such a claim into their work-life, employing that knowledge. Why? Because such a statement would require you to make interpersonal utility comparisons. That is; compare how much utility person A derives from any event in comparison to how much person B derives from identical action. This is impossible, and where Neoclassicals' mistake lies. You simply cannot make such comparisons; it is inherently incorrect - and even if it weren't, how are you to measure that? Rather, who is to measure that? People prefer stuff, rather than value them according to a numerical, measurable list in their heads. Any kind of statements of the sort that "Person A gains 5 units of utility from playing a video game, and Person B losses 2 units of utility from producing such a game" is misguiding. Humans don't act that way: we prefer something over something else, a preferance that constantly changes. The only way we can conceive this, thus giving us economists something to work with, is through prices paid on a voluntary basis.

So, no, you can't conclude that £1 is more useful for a starving poor person than taking away £1 from a rich guy. Simply incorrect.

Personal IRONY of NeoClassicals 

Lecturer: I don't like working for the government.
Student: Why not?
Lecturer: I did research in a consulting project once, where we came to a conclusion only to find that the government refuted the findings. "That's wrong, we can't use that", they said. I don't want to work for someone that decided the outcomes before I've made the research.

Seems credible, right? That's funny, because that's exactly what Austrians accuse NeoClassicals for;

Walther Block uses the example of his PhD studies at University of Chicago on the effects of Minimum Wage, and found that sometimes minimum wage was correlated to increased employment - contrary to what the NeoClassicals normally concludes. He checked his numbers, but they were correct. What did his supervisor say? "Block, you moron! Do it again, get the correct result!".

Funny that my lecture refuses to work for the government, on the grounds that they only want a particular outcome of any study, and then goes on lecturing NeoClassical Economics, which is guilty for the exact same charge.

"In the Exam you're not required to show comprehensive knowledge

- You're required to show textbook knowledge"

Ok, do I even have to assert this one? Lovely way of showing the NeoClassical idea that everything is the way they've once concluded it to be, and diverting from that renders you 0 points on an exam. Funny, especially when so much in their teachings is made on epistemologically senseless grounds.

Another day at University. It never ceases to surpise you, does it?

University Unions on strike AGAIN

Ok. Apparantly some of the University Unions are on strike today (again, since they shut the Library down just a few weeks ago).  So, here we go.

I'm not a fan of Unions, big surprise, and I'll explain why. But first we have to begin with what an employment is. An employment occurs when someone (employer) values the services someone else could provide (employee) higher than the cost for that service (wage + social costs). Likewise, an employee voluntary sells such service when the value of the wage exceeds the cost affiliated with that service (time, unpleasantness, opportinuty cost etc). If some of these conditions are unfullfilled, there's no employment. Essentially, employment is a voluntary exchange of goods and services just like anything else (additionally, there's a bunch of regulations and government restrictions for that when employment occurs, but that's beside the point). It is also influenced by the demand of such services relative to the accessability to it, that is supply.

Only this far, striking would make little sense. If you, as an employee feel you can provide better services elsewhere or you're selling your service for too low amount, the only action for you is leaving. Go to the place that'll value your abilities higher/more accurately. Stop messing around waving signes, playing socialist revolution. Consequently, if you prefer the wage payed to you for the service you provide over whatever your alternative might be the action is staying. Provide that service, and stop hindering the lives of others (in this case, students who require access to the Library; you could even argue that the Unions are liable to reimbursing the tution-paying students for losses due to the strike, but that's also a bit beside the point).

Ok, second of all, now let's consider the points and demands the Union's actually making. The core of it, like most strikes, involves increased payroll. The argument is that 1% increase in salary is actually a cut, because current UK Inflation is at around 3%, thus the salary recieves is worth ~2% less than a year ago. That is correct, in real terms it is a pay cut. And they argue that to be unfair, especially since the UK Universities aggregate surplus is £1 billion a year, or something like that.

Here we have a few issues. First of all, pooling all the surplusses of the 150+ Universities in the country is greatly misleading, but obviously screaming "1 BILLION A YEAR" sounds a lot more intimidating than the actual truth. What's the real deal? So, let's have a look at Uni of Glasgow Financial Statements for 2012:


Uni of Glasgow Financial Statement 2012
Income               £440m

Expenditure       £430m

Surplus:               £10m
Margin:                2,27%

This income consists of some £150m straight from governmental funds, making the income rather risky; political instability, changes of government budgets or conditions for student loans etc can occur rapidly, putting the University's financial position at risk. Hence, if the Scottish Government decided to cut Higher Education expenditure by some 10% or so, the University will be showing red digits. Apart from that, if faced with a reduction of students, not even substantially large, same thing would happen; red digits.

But still, £10, can't the margin be reduced a little? On the contrary, arguying from a financial stability point of view, it should be increased. Tesco, for instance, runs with 5-6% profit margins, and financially healthy companies such as H&M or Apple carries some 40-50% profit margins. Definately no, 2,27% margin is not excessive in any way.

Following that line of thought, if the margin is low already (and virtually can't be reduced), what effects would an increase of wages have? Three options: 1) fire some staff, while others get their salaries increased, 2) allocate more funds to wages than other University costs such as facilities, technology, library etc, 3) demanding more money from the government (essentially, increased taxation).

If 1), you redistribute money from some people to pay others, 2) you reduce the service/usefulness of facilities, university buildings, lecture halls etc, 3) through taxation, you take money from everybody in Scotland, in order to pay for University staff. In either case you're taking money from other groups in order to met your demands, some of which could arguably be a lot worse of an outcome than a general ~2% pay cut. Typical Union thinking.

So consider the entire argument for a bit. The bottom line for this strike is that "University Staff deserves more". That, in turn, relies on the propositions that they can't "make their ends met", implying that they're underpaid. From quickly googling the avarage salaries of Uni of Glasgow staff, I found digits of around £15 000/year for the lowest paid staff (somewhat around the levels of relative poverty line, which I discussed the other week). Probably not accurate for all serviced the staff provide, and I'll look for some more digits later today when I talk to the strikers. Putting that amount into comparable sites such as Global Rich List, gives us the following result:
£15 000 amounts down to top 3,23% income-earners world wide. I hear 'Solidarity'? 'Decent wage', you say?

Ok, striking per se, is absolutly preposterous and riddiculous. BUT, even considering the Unions' demands, the picture turns even uglier; people, top 3%-earners in the world, are refusing to fullfill their commitments on the ground that they're underpaid. For real? Is that some kind of sick joke? An insult to anybody else earning less than that?

To the rest of the world, or anyone with a pair of working glasses, that's like Bill Gates (or any other super-wealthy guy) refusing to work because he finds his wage too low. Get real, and stop striking.

Seminar Time - And the tendency of intervention

As I take the introductory course of Public Policy here at University of Glasgow, I also attend the weekly 1-hour long tutorials in the course. To be fair, put aside all the obvious objections I have towards this subject, its lecturers and the ways in which  it is taught, the Tutor of my neat seminar group is great. She openly displays her opinions and always let us discuss freely our own ones. Shame time is such a scarce resource.

Naturally, as most of the group consists of sociologists or students of other social sciencie, the tendency is very much towards an intervetionist "The State Will Fix Everything" kind of idea. And, yet as natural, whatever comment I make disrups the status quo of allowable opinion, at times producing a war in that little room of ours.

Todays subject; Health Inequality. Appearantly, the percieved and measures "Inequalities" in health related areas in Glasgow are particularly interesting to sociologists due to the fact that they are heavily correlated to geography within the city. It even has given name to the international phenomenon of WHO.

Our tutor gave us the task of suggesting Policies to Solve this Problem (a future post will be dedicated to explain why it isn't even a problem to begin with). What types of policies did my wonderful group come up with?

1) Regulations
2) Tax on unhealthy food
3) redistribution of income

It's gotta be a good life these keen supporters of public policy have. The answer to EVERY question is STATE INTERVENTION or STATE REGULATION. It's a bit like listening to Keynesian Economists, their magic trick being INCREASED SPENDING.

It's a funny world we live in.

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Oh, btw!

During this mornings lecture (Time of first Thatcher critique: 22 minutes) we were fed the faulty socialists' concepts of transforming correlations to causality; Health in Glasgow, we were told, are appearantly determined by 1) Race, 2) Gender, 3) Social Class 4) Geography and OF COURSE the almighty Income (and Income inequality). Funny that, I had the impression determinism was long ago considered a bit out of fashion, if you'd like. That individuals make choices, preferes DIFFERENT THINGS was of course readily discarded as some black magic Mumbo Jumbo. Funny.

Why Social Scientists need to learn math

Obvious statement: math is useful for a lot of things.

Yesterday morning I had an infamous lecture of Public Policy. It's interesting in the sense that you can predict the kind of socialist ideas that'll come out of it;

1. Thatcher was bad, 
2. Critique of Neoliberalism, 
3. The horrible effects of market economy

Yesterday was a special day in that the third was arguably not even included. However, the Professor did give a good start, critizising neoliberalism ideology after a mere 9 minutes of speaking. Even better, I think he set some kind of record; 4 minutes into the class, his first severe charge against Thatcher was laid. Impressive.

Not to say that this example means anything in particular, but I suppose it's fair to assume that Public Policy at University of Glasgow foster a rather strong hatred towards anything non-socalist, especially if it can be connected to Thatcher & Co.

Enough, what I wanted to convey today was the surprising lack of math insights and how that cripples the social scientists. This was his example:

Amount of UK Labour force in Manufacturing employment:
1978      28,5%
2009      10%

Conclusion; only a third of the people who worked in manufacturing 30 years ago, remain in that industry today.

Wait. Read that again.

Ok, well, no. First of all, people change jobs. They can change occupation/exit or enter industry, especially over a 30 year period. Second, a fair share of the people employed in 1978 will have moved on to enjoying a life of retirement by now. But 10/28,5 = 0,35, so the math still works out, doesn't it?

Math issue: between 1978 and 2009 the population (and the distribution of people in working age) have changed significantly. Thus, if inputs in a %-figure changes, the output changes. That is, 10% of the Labour force in 2009 is most likely not 1/3 of 28,5% of the Labour force in 1978.

Additionally, I've even stopped being suprised of the cases where people misuse Percentage for Percentage Point, ending up with completely flawed conclusions. My point here is that social scientists tend to have a limited understanding of math and what affects the numbers (especially regarding %). And, as they use statistics and math in describing their field, they inevitable end up with flawed or unsupported conclusions. That's a serious issue, heavily diminish the value of their study, should this be a theme for a larger part of social scientists. Let's hope it isn't.

If you're to use math or statistics, you need to understand what comprice and influence them. If you don't, you'll end up misinterpret data. Some kind of "know-thy-limitations" argument, I guess.

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This lecturer also gave me some idea to why there are so many socialists in University environment - and what happens to them afterwards. Well, in his case, some of them seem to remain at Uni, teaching Public Policy (or some other fluffy subject like sociology).

Welcome to Libertarian Uni!

Hey!

Welcome to the Libertarian Uni blog!

As a first entry I'd like to describe what will be the future of this blog. I am a libertarian writer, originally from the country held as 'the Heaven of Welfare', and I am strongly opposed to socialism. Travelling and languages marvel me, if such personal desires are interesting enough. I study Economics and Economic history at the University of Glasgow and I'm fairly new to the UK life. Fascinating in many ways!

Enough mumbo-jumbo. This is a blog about libertarianism. It involves some economics, most likely influenced by the Austrian School of Economics to which I belong, and a whole lot of socialist 'welfare state' ideas. It came about a few weeks ago, when I had been bumping into socialist anti-capitalism ideas, calls for the government to do this or that, media articles about rent controls, regulations and overall student ideas.

After certain events, I found that I needed to channel the reactions I had from such experiences. Upset Facebook-posts only go so far. All in all, this is how I channel the everyday socialist, interventionist and plainly weird ideas University Life gives me.

Enjoy!