Tag Archive for 'Buiter'

Is economics looking at itself?

Patricia Cowen recently wrote a piece for the New York Times:  “Ivory Tower Unswayed by Crashing Economy

The article contains precisely what you might expect from a title like that.  This snippet gives you the idea:

The financial crash happened very quickly while “things in academia change very, very slowly,” said David Card, a leading labor economist at the University of California, Berkeley. During the 1960s, he recalled, nearly all economists believed in what was known as the Phillips curve, which posited that unemployment and inflation were like the two ends of a seesaw: as one went up, the other went down. Then in the 1970s stagflation — high unemployment and high inflation — hit. But it took 10 years before academia let go of the Phillips curve.

James K. Galbraith, an economist at the Lyndon B. Johnson School of Public Affairs at the University of Texas, who has frequently been at odds with free marketers, said, “I don’t detect any change at all.” Academic economists are “like an ostrich with its head in the sand.”

“It’s business as usual,” he said. “I’m not conscious that there is a fundamental re-examination going on in journals.”

Unquestioning loyalty to a particular idea is what Robert J. Shiller, an economist at Yale, says is the reason the profession failed to foresee the financial collapse. He blames “groupthink,” the tendency to agree with the consensus. People don’t deviate from the conventional wisdom for fear they won’t be taken seriously, Mr. Shiller maintains. Wander too far and you find yourself on the fringe. The pattern is self-replicating. Graduate students who stray too far from the dominant theory and methods seriously reduce their chances of getting an academic job.

My reaction is to say “Yes.  And No.”  Here, for example, is a small list of prominent economists thinking about economics (the position is that author’s ranking according to ideas.repec.org):

There are plenty more. The point is that there is internal reflection occurring in economics, it’s just not at the level of the journals.  That’s for a simple enough reason – there is an average two-year lead time for getting an article in a journal.  You can pretty safely bet a dollar that the American Economic Review is planning a special on questioning the direction and methodology of economics.  Since it takes so long to get anything into journals, the discussion, where it is being made public at all, is occurring on the internet.  This is a reason to love blogs.

Another important point is that we are mostly talking about macroeconomics.  As I’ve mentioned previously, I pretty firmly believe that if you were to stop an average person on the street – hell, even an educated and well-read person – to ask them what economics is, they’d supply a list of topics that encompass Macroeconomics and Finance.

The swathes of stuff on microeconomics – contract theory, auction theory, all the stuff on game theory, behavioural economics – and all the stuff in development (90% of development economics for the last 10 years has been applied micro), not to mention the work in econometrics; none of that would get a mention.  The closest that the person on the street might get to recognising it would be to remember hearing about (or possibly reading) Freakonomics a couple of years ago.

Afghan opium production (Updated)

The UN Office on Drugs and Crime has just released their latest report, including details on opium production in Afghanistan. Here are a few of the statistics:

2006 Year-on-year difference 2007
Net opium poppy cultivation 165,000 ha +17% 193,000 ha
In per cent of agricultural land 3.65% 4.27%
Eradication 15,300 ha +24% 19,047 ha
Weighted average opium yield 37.0 kg/ha +15% 42.5 kg/ha
Potential production of opium 6,100 mt +34% 8,200 mt
In percent of global production 92% 93%
Number of households involved in opium cultivation 448,000 +14% 509,000
Afghanistan GDP US$ 6.7 billion +12% US$ 7.5 billion
Afghanistan GDP per capita US$ 290 +7% US$ 310
Total farm-gate value of opium in per cent of GDP 11% 13%
Indicative gross income from opium per ha US$ 4,600 +13% US$ 5,200
Indicative gross income from wheat per ha US$ 530 +3% US$ 546

Make sure you read that correctly: Area under cultivation is up 17% and area eradicated is up 24%. That might make you think (as it did me originally) that the total area producing is down, but you’d be wrong … the 17% was on a huge area and the 24% was on a tiny area. Net productive area went from 149,700 ha to 173,953 ha — an increase of 16%. On top of that, yield per hectare is up 15%, so overall output is up 34%.

GDP/capita is US$310 and — assuming that your crop isn’t eradicated by the US — income from growing opium poppy is US$5,200 per hectare (or $US2,100 per acre). That’s an awfully big incentive. On top of all that, I understand that one of the big appeals of growing poppy is that opium has an extremely high value per unit volume and per unit weight, which are important considerations for a farmer living in a country with very low-quality and high-cost transportation infrastructure.

I wonder how they got the yield up so quickly? Was it improved infrastructure (watering systems), the dedication of better quality land to poppy cultivation, better inputs (fertilizer) or something else? Whatever the answer, that looks to me to be fairly serious evidence of planned investment. These farmers are not just doing this on the side.

This would be a good time to point readers to this opinion piece by Willem Buiter (blog, NBER, LSE) . The discussion by other FT contributors is also well worth reading. Here’s a taster from the first paragraph so you know what he’s saying:

As an economist with a strong commitment to personal liberty and responsibility, my preference would be to see all illegal drugs legalised. The only exception would be substances whose consumption leads to behaviour likely to cause material harm to others.

Further update (30 Aug):

The Economist has produced this graph to illustrate world opium production since 1990:

[ Image removed because it was messing with my site. Click on the Economist link to see it ]