Categories
Books, essays and others Economics History & heritage Liberty

[1032] Of dismal science: it mocks liberalism, not economics

I managed to finish up a book on new year’s eve. It might be an odd way to celebrate the eve to you yappies but I am not to blame for that. Eid fell on Sunday and so, though I had the free will not to, I decided to tag along with my family to visit my grandma in Malacca.

Finishing up a book on new year’s eve allowed me to start reading a new one on January 1 itself. I bought three new titles into my collection earlier; of the three, I decided to start with Beinhocker’s The Origin of Wealth. Initially, I thought it would be dry but the first chapter truly attracts me. It starts with a history of economics.

This is what I learn from the first chapter: economics is called a dismal science by Peter Carlyle not because the discipline is all about doom and gloom. Specifically, as it is commonly thought, the term was a reaction to Malthusian theory which suggests that with exponential population growth vis-à-vis geometric food production growth, population would collapse sooner or later.

As mentioned in the notes of The Origin of Wealth, the term “dismal science” was coined by Carlyle in his work, Occasional Discourse on the Negro Question, to mock the “alliance of economists and abolitionists”. Carlyle was a proponent of slavery while liberal economists were standing on the other side of the river, fighting for abolition of slavery. It really has nothing to do about economics having a pessimistic worldview.

On Wikipedia:

Developing a deliberately paradoxical position, Carlyle argued that slavery was actually morally superior to the market forces of supply and demand promoted by economists, since, in his view, the freeing up of the labor market by the liberation of slaves had actually led to a moral and economic decline in the lives of the former slaves themselves.

So, next time, be careful on how you use the term “dismal science”. It might not mean what you meant within the original context it was used.

Categories
Economics Society

[1026] Of internet disruption and Adam Smith’s little finger

What lesson could we derive from the recent Taiwanese earthquake?

Adam Smith is right.

The earthquake caused massive communication disruption across East Asia. The local blogosphere blogs incessantly about the disruption and the frustration and inconvenience that it brings along.

I have yet to see a blog that talks about the victims of the earthquake though. Even the mass media, local and international, are concentrating on the repair effort of the damaged transmission cable, not on the direct victims, the ones that have lost relatives and friends.

In 1759, in The Theory of Moral Sentiments, Adam Smith writes:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment.

…And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquility, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night ; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own.

Or, paraphrased by Mel Brooks:

Tragedy is when I cut my finger. Comedy is when you walk into an open sewer and die.

While the first part is true, Smith continues:

Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.

Whether the second part of the “finger and earthquake scenario” would occur, that is yet to be seen. But we certainly will not see it coming from Prime Minister Abdullah Ahmad Badawi. After taking a short leave from holidaying abroad, he has gone back on vacation. This is amid warnings of a second wave of floods.

Categories
Economics Liberty

[1021] Of handicrafts: the next controlled item

For those that support price control on essential items such as sugar and gas, they’d argue that such control is essential to prevent suppliers from manipulating prices at consumers’ expense. They’d say, the control mechanism is there to protect us, the consumers. Well, today, in the name of protecting us the consumers, handicrafts might be the next essential item:

RAWANG: The Government may consider introducing a price control list on selected local handicrafts to prevent profiteering.

Culture, Arts and Heritage Minister Datuk Seri Dr Rais Yatim said several parties had complained about the vast price differences in certain handicrafts and therefore it was time that the Government looked into the matter seriously.

Let’s see if there would be handicraft shortage in the market…

Yes, I know. If shortage does occur, it’d be almost absurd.

Allow me to anticipate the next controlled items. I bet your would be favorite cup, you would be smelly pillow, your teddy bears, action figures, chocolate, cherry, your would be favorite t-shirt, your life…

Categories
Economics

[1020] Of flood, aid and economics

While relief effort is underway amid criticism, the government announced yesterday that flood victims are to get monetary aid:

Fair use. The Star. December 24 2006. Scanned by Mohd Hafiz Noor Shams.

Between food or other typical aid — henceforth, I shall refer to as commodity — and cash, which actually is the best to offer?

First, assume that there’s a constant amount of amount of cash and commodity for aid throughout this blog entry.

In circumstances where commodity supply is relatively stable, aid in cash might be the best. The reason is, every person has his or her (for simplicity’s sake, let me use the pronoun “he”. For all the feminists out there, I still love you guys! Or rather, girls) own preference. A person most of the time knows what he wants or needs the best. In economics, a person’s well-being could be measured by utility function. A utility function according to Wikipedia is “a measure of the relative happiness or satisfaction (gratification) gained by consuming different bundles of goods and services“. While utility is a basic concept in economics, it’s something hard to measure by a third person and usually, the person himself knows his utility own function the best. Through the person’s own preference, he, assuming rationality and complete information, will maximize his own consumption under relevant constrictions accordingly.

In emergency where shortage is widespread however, cash aid might not be the better mean of relieving victims of any disaster. This is especially so if the cash value isn’t large enough to purchase sufficient food and other necessary survival materials such as blanket, clothes, etc. During severe shortage period, prices will be higher than during peaceful times and with a specific amount of cash, a person will be able to buy less amount of food and other things that matter vis-a-vis during stable time.

A commodity-type aid is superior to cash-type aid if and only if the cash value of commodities is greater than cash value. Cash-type aid is superior to commodity-type aid if and only if the value of cash is greater than the value of the commodities. In short, the superiority order of the two kinds of aid depends on the value of the an aid relative to the other.

It must be noted that this comparison ignores the fact that monetary aid has considerably less logistical problem attached to it compared to the other aid type.

Regardless the two scenarios, an aid beneficiary could achieve higher welfare given any aid endowment if the beneficiary could trade with, of course, other people.

Categories
Economics Politics & government

[1019] Of Krugman is ditching Rubinomics for realpolitik

The Republicans and the Democrats are the yin and yang. They balance each other in many ways. Yesterday, Paul Krugman suggests that the Democrats should stop playing a balancing role (reg. req.):

Now that the Democrats have regained some power, they have to decide what to do. One of the biggest questions is whether the party should return to Rubinomics – the doctrine, associated with former Treasury Secretary Robert Rubin, that placed a very high priority on reducing the budget deficit.

The answer, I believe, is no. … Rubinomics made sense in terms of pure economics, [but] it failed to take account of the ugly realities of contemporary American politics. …

In a saner political environment, the economic logic behind Rubinomics would have been compelling. … Since the 1990s were an era of peace, prosperity and favorable demographics…, it should have been a good time to put the federal budget in the black. And under Mr. Rubin, the huge deficits of the Reagan-Bush years were transformed into an impressive surplus.

But the realities of American politics ensured that it was all for naught. The second President Bush quickly squandered the surplus on tax cuts that heavily favored the wealthy, then plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war. And you can even argue that Mr. Rubin’s surplus was a bad thing, because it greased the rails for Mr. Bush’s irresponsibility.

The Economist’s View has a copy of the article.

Jugding from Stiglitz’s writings, Stiglitz would probably support Krugman. In the Roaring Nineties, I think, Stiglitz isn’t too supportive of Rubinomics and advocate instead more spending and investment on intangible and tangible public infrastructures. His rationale is that the returns from investment would be large enough to justify the cost.

Regardless, what Krugman says does make sense politically, but economically, I feared the worst if the Democrats choose to disturb, if I may say so, the balance in the “Force”.