There Are Many (Much) Better Reasons to Hate Economics

Emmanuel Subangun wrote in Kompas 2/27/10 op-ed:

As recognized by anyone who ever attended university and had economics course, economics suffers from two plagues. First, to support the claim of economics as a science, the limitation has to be clear. In economics lingo, economics has to be separated from other social facts -- boldly called as, from Latin, ceteris paribus. From this point, economic model is born and, alas, all economic policies are based on models generated this way. The second plague, economics(sic!) is not willing to be registered as social science, so that (sic!) it self-regards as a star (science) that has best understanding on social issues. This creates a superiority complex.

Geez!

Those who ever took econ courses (and elementary research methodology) seriously would understand that ceteris paribus doesn't mean a separation from the so-called economic and social facts. Ceteris paribus (or all else being held constant) means that when you try to explain the effect of a change of variable, you assume that other variables are constant.

Let me repeat this clearly: This has nothing to do with separating the facts, let alone between economic and non-economic facts.

It is about how to tell the effect of, say, proper Econ 101 education, on ability to write a well-informed op-ed. In your observation, you can not really tell it if you do not hold other variables (e.g overall educational level, writing skills, exposures to relevant readings, political bias, the number of economist friends, etc) constant.

Moreover, who said that economists do not consider non-economic facts in their analysis ? Mr. Subangun probably needs to read a whole series on non-economic factors in economics at the diskusiekonomi blog.

On his second claim that economics refused to be categorized as a social science, well, it surely has different methodology than, say, sociology, but it is a social science. Suppose it weren't a social science, does it mean that now we have social sciences, natural sciences, and economics?

Then Mr. Subangun also thinks that Boediono and SMI represent scientific economics, while Pansus common sense. The former fails to convince the latter, hence political communication dysfunction.

Common sense makes you think that the sun revolves around the earth.

Beside, Pansus does not use common sense, but play ill-informed politics. They just either, like Mr. Subangun, don't get the economics right, or, worse yet, for whatever reason, refuse to take well-founded economic arguments for bailout.

Additional flaw: From the quote, Mr. Subangun argues that economists want to separate non economic social facts; but at the same time he suggests that they claim to have best understanding on social issues. Alas, this argument is a contradictio in terminis.

Why I'd Rather Buy Two Cups of Coffee and Muffins

Following a Facebook discussion here, Ujang and I are amazed on how our friends on the left take Naomi Klein's Shock Doctrine seriously. I can not say anything on Klein's argument since I haven't read the book. And here is why.

Imagine you have 10 bucks in your pocket. Then somehow you read Tyler Cowen's review that says

Rarely are the simplest facts, many of which complicate Ms. Klein's presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation in the world, including in America, and it hardly seems that a far-reaching free market conspiracy controls much of anything in the wealthy nations. Second, Friedman and most other free market economists have consistently called for limits on state power, including the power to torture. Third, the reach of government has been shrinking in India and China, to the indisputable benefit of billions. Fourth, it is the New Deal — the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein — that was imposed in a time of crisis. Fifth, many of the crises of the 20th century resulted from anti-capitalistic policies, rather than from capitalism: China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms; New Zealand and Chile abandoned socialistic policies for freer markets because the former weren't working well and induced economic crises.

You may then say, but hey, Tyler is a conservative free-market economist. Fine, what about Dani Rodrik -- a respectable Harvard's KSG economist who is sympathetic to industrial policy and once write a book asking whether globalization has gone too far?

You may expect at least a kinder view. Instead he said that Shock Doctrine is a bad book needs to be trashed and it is very hard to understand how Klein felt good about Argentina in 2002 that just collapsed into a severe economic crisis, with a more than doubling of the share of population in extreme poverty and a 10 percent decline in GDP.

Need more evidence from the left? What about Will Hutton from The Observer, UK?

In her delusional, Manichaean world view, privatisation, free markets, private property, consumer freedom, the profit motive and economic freedom are just other terms for corporate self-enrichment, denial of voice, limitation of citizenship, inequality and, sometimes, even torture. The discredited electro-shock psychological treatment of the Fifties, we learn, informed the thought system of the free marketeers; it is guilt by association and assertion rather than proof, a weaknesses of too much of the book.

The only positive review I came across is from Stiglitz (I can see your baristas here yawn). But even he said:

Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies.

Enough said, it is a small wonder that I'd rather spend my 10 bucks for two cups of good coffee and muffins than Klein's book.

But then the Facebook discussion and the overwhelming praise from my comrades on the left gets me thinking that probably I should give Klein a fair chance. Maybe I can borrow the book from local public library, if they have a copy. Yet one thing for sure, it would have a very hard time to compete with other books I considered worth reading -- and I have a long list of them already.

How to Read Newspaper Without Feeling Sorry

Let us read two examples on how journalist writes a column on bailout issues.

One is Andi Suruji's Kolom Politik-Ekonomi, Sistemik...!, Kompas, 12/26/09. The other is David Leonhardt's Economic Scene, Perhaps, It's Time to Play Offense, NYT, 9/16/08

If I gave Leonhardt's piece an A, what should I grade Suruji's?

To Our Lazy Journalist/Editor

Let me spell it slowly: S, T, I, G, L, I, T, Z and W, E, I, S, S

Got that?

If not, you'd better ask the the panelist you invited, or google it and in 1 second you'll get the said paper; than have this deeply embarrassing headline.

I Hate To Do This Again and Again, and...

...I wish that Kompas had journalists like David Leonhardt, Gretchen Morgenson, or David Warsh in their economics desk, so that some misunderstandings like the following do not come up too often on the paper.

An economic revolution has been started in the late President Ronald Reagan's era. The President believed, in accordance to Chicago Boys (the University of Chicago alumni), that market would work more dynamic and flexible if unregulated. In other words, the role and existence of bureaucracy indeed becomes impediment and prevent market and economic flexibility.

OK, it makes sense, but then the author moves on.

This opinion beats the MIT economist's view, who opts for market regulation. The reason is that there are premises that can not be answered by market (mechanism), that is, the element of greed, that can induce the market players, including the ones in financial sector, to overly exploit their money-grubbing instinct, wanting to make profit by gambling in the speculative (financial) products.

Well, I am afraid that if you open any standard Econ 101 textbook, say from Paul Samuelson's classic, himself an MIT's giant, the reason for market regulation has nothing, I repeat, alas, nothing to do with human's greed. Instead the basic economics itself points out some reasons why market sometimes fails, hence needs some government intervention.

I give you hints: go to discussions on monopoly (or non price-taking behavior), externalities, asymmetric information, and public goods.

Is Import Bad?

Kompas daily said (translated):

In 2000, Indonesia imported 6.037 million tons of wheat. Five years later, in 2005, wheat import increased by almost 10 percent to 6.589 million tons. In 2025, import of wheat is projected to increase three times as much to 18.679 million tons. Soybean import, in the last five years (2003-2007), amounted to on average 1.091 million tons or 60.5 percent of total need.

Good or bad news?

But before answer it, hold on a second, you should hear my story.

In 2000, I bought not a single vinyl LP from the record store next door. Eight years later, in 2008, my vinyl purchase increased a lot to, say, 100 LPs. In 2025, my purchase of LPs is projected to increase god-knows-how-many-times as much to 300 LPs. My comic purchase, in the last five years (2003-2007), amounted to on average 5 books, or 60.5 percent of my total need.

It is a very good news for me, don't you think? Although I run a trade deficit against those record and bookstores, every purchase I made or plan to make implies that I somehow have the money to pay them in order to get those stuffs. In fact, part of the reasons why I work, sell the product or services to anyone but myself (read: export), and earn the money, is to buy those LPs and comic for myself (read: import).

And on independency issue: of course I depend on them. I have to live with the fact that I can not make a record at all and even if I try to draw a comic book, it would be obviously way costlier for me than doing economics (in comparison to, perhaps, Art Spiegelman on comic drawing and economics). It's no dependency, it's just a free trade.

On press (again) and rice imports

I have a similar concern with Aco regarding our press coverage in certain policies. Few weeks ago, the 'consensus' was "fuel price hike is evil," with the portraits of frustrated (urban) population after the policy.

Nowadays, the media reported a series of protest against government's rice import policy. Again, this policy is also considered as 'evil' because it will harm the (rural) farmers.
One leading daily paper published a news (looks more like a feature than news for me) titled "Rice husk price continued falling - decision to import rice has been widely rejected." This story was following an earlier feature, in the first page, about how the decision to import was rejected by the 'people'.

OK, so raising the fuel price was an evil policy. Now, importing rice, as a means to keep food price down, is also evil. Rendra once asked "Good deeds -- good deeds to whom that you meant, Sir?" I am not sure whether Rendra will agree that I am using his line to question the rejection for fuel price hike and plan to import rice. But his famous line is really relevant in this case, indeed.

Another media, interestingy belongs to the same group as the previous one, still wrote a good editorial in this issue, though. The editor pointed out that:

The imported rice will only amount to about 0.002 percent of national consumption, which is estimated at 32.85 million tons this year, against national production of 33 million tons. ... In fact, past experience has shown that farm-gate rice prices always remain stagnant even when retail prices are rising sharply, meaning that the farmers rarely benefit from rice price increases, except those mandated by the government.

The editorial could even be stronger if they quote the SUSENAS statistics regarding the composition of farmers (land-owners vs share-croppers), and how the share-croppers -- which are the majority -- will be benefited from lower rice price. But it is a good editorial, nevertheless, and hope to see more of the likes of it.

Wanted: A Better Press Corp

Some colleagues and I were talking about how cheap the news in the media can be. DeLong's frustration -- see his "Why Oh Why Can't We Have Better Press Corp"-series would as well apply in Indonesia. Worse yet, not only the press fail to deliver objective news, they also do bad journalism. We remembered one case when a newspaper bombastically reported an "expert opinion" using this kind of headline. It didn't even bother to present it as a quotation in the title. (One of the colleagues in fact happened to meet with the expert and the latter told him it was a "grumble out of frustration". He was surprised that the press used it as a headline title).

Another thing. It seems that the press really likes to report in populist tone. So don't expect too much of reading articles about "trade is welfare-enhancing". Instead, you can find easily stuff like "we need more and more protection for the good of the country". I know, people buy the latter, no matter how false it is.

There are more, and there are worse. Pick any newspaper and count the economic fallacies it carries. I bet it is more than five a day, at best (you know why I'm not giving you links for this -- they're ubiquotous). Problem is, many readers don't think they are reading fallacies. In fact, the more populist-leaning a newspaper is, the better sell it seems to make. Maybe second only to gossip papers. It is pervasive, for example, to find statement like "Store A is charging too high a price for its product". So far so good. But then the reporter suddenly changes to be doing op-ed --not merely reporting, and goes on "... and that is evil". Hey, if the seller's selling at high price is evil, what about you asking for too low a price when you are consumer? Does that mean you are evil? (I find it amazing: a person who likes to curse stores that charge high prices turns out to be the fierciest bargainer when he/she is about to buy something).