May 20, 2010

Big changes

Posted in Miscellaneous at 12:30 pm by Eamon Aghdasi

There’s been quite a lot going on for me recently that has pulled my attention away from this blog. First and foremost, last month I got married and my wife and I were completely absorbed by the enormous requirements of planning a wedding. Afterwards, we took about nine days for our honeymoon (Costa Rica, which was loads of fun), but then came back to the post-wedding reality of gifts, thank-you cards, unpacking, and other miscellaneous starting-life-together duties. It’s been fun, but it’s sucked me away from the blog as well as other things.
 
The other big change is my job. I’m in my last few weeks at my current auto insurance role and will be joining an emerging markets strategy team in mid-June. Since a lot of what I’ll be doing is based on macro trends and global markets, this might mean that the subject matter for the blog will have to be dramatically narrowed. I’ll figure this out some time in the next few weeks.
 
For now, there are a handful of topics I’ve been daydreaming about writing about:
 
– Labor mobility
– Auto insurance and signaling
– Last weekend’s MPA/ID 10th year anniversary (some interesting presentations, hoping to write down some of my reflections)
 
If this blog is going to be axed or neutered in a month, I’ll have to try and get everything in. Stay tuned.

January 23, 2010

What we have here is a failure to coordinate

Posted in Miscellaneous tagged at 1:15 am by Eamon Aghdasi

Why does the recent ruling by the US Supreme Court on corporations and political influence strike us as so potentially dangerous? The answer lies not in the legal side of the issue, but rather the economics of how individuals consolidate to influence decisionmaking.

This past Thursday’s ruling by the US Supreme Court — to reduce limits on political campaign contributions from corporations, labor unions, and other organizations — has ignited a frenzy of debate over the original intention and the appropriate modern interpretation of free speech in America. As someone who is concerned about the influence of corporate interests in politics in general, my initial reaction was one of alarm. I personally have felt that this is maybe the biggest problem facing our country today, and it is hard to argue that the Supreme Court’s decision won’t exacerbate the situation.

Source: bendib.com

It’s clear to me that from a legal perspective, both arguments on this issue have validity. The point argued by a slight majority (five of nine justices) — that corporations are entitled to First Amendment protections and thus can not be differently restricted in their political contributions — is hard to refute, if one focuses on the language of the Constitution itself. Nonetheless, one could easily respond that this was never the intention of the authors of the Constitution, and that the ruling would have destructive effects on democratic institutions. The complexity of the issue is summed up by the words of Justice John Paul Stevens, who sided against the court’s decision. Stevens conceded that “we have long since held that corporations are protected by the First Amendment”, but ultimately concluded that “the court’s ruling threatens to undermine the integrity of elected institutions around the nation”.

But regardless of the legal correctness of the ruling, there is the issue of ruling’s actual effects, and this is where many of us feel a chill down our spines. We imagine a world where corporate interests have even more sway in legislation than they have now, and the voices of individuals are drowned in a sea of lobbies and interest groups. But is this really what will happen? Wouldn’t a free market for information produce the best possible political decisions, just as it does in goods markets? The argument is that if the market for information and political influence are free, then the elements with the most to gain will push and spend the hardest to get their policy choices to the front in Washington. Just like people vote with ballots, the free market allows the nation to vote with dollars. At least that’s how the narrative reads.

Most people with sense, however, take a look at American politics and realize that this narrative doesn’t quite play out in real life. There seems to be something getting in the way of this neat and just market scenario, and skewing the distribution of influence towards the big players. But most of us can’t really put our finger on what that something is.

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September 15, 2009

Krugman on the state of economics

Posted in Miscellaneous at 3:06 pm by Eamon Aghdasi

I just got around to reading Paul Krugman’s New York Times Magazine article, “How Did Economists Get it Wrong?“. Brilliant breakdown of the shortcomings of economics as a social science as it stands today. If you haven’t read it already, I highly recommend it.

Here’s a bit that I think summarizes the article:

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.

Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.

I’m definitely on board with this argument (let’s face it, it’s easy to recognize what Krugman’s talking about now that we’re on the heels of crisis, and much more difficult before the crisis’s onset). There is value in the “elegance” of an economic model, but I think too many economists have an obsession over elegance. I realize it allows for models that, had they not been oversimplified, would lose their usefulness. The stumbling block is not the simplicity of the models themselves, but the tendency to actually believe that the model is perfect in practice, that for instance, human beings are perfectly rational beings in real life.