Month: October 2020

Essay 58: Machlup and Knowledge-Watching

Fritz Machlup is an underappreciated emigre economist from Vienna. His 1962 book, The Production and Distribution of Knowledge in the United States (Princeton University Press, 1962), is a “bible” of knowledge-watching and the zones where knowledge meets information, where Machlup was very prescient.

Fritz Machlup was an Austrian-American economist who was president of the International Economic Association from 1971–1974.  He was one of the first economists to examine knowledge as an economic resource, and is credited with popularizing the concept of the information/knowledge society.

Born: December 15, 1902, Wiener Neustadt, Austria
Died: January 30, 1983, Princeton, NJ

Machlup distinguishes five types of knowledge:

  1. Practical knowledge
  2. Intellectual knowledge
  3. Small-talk and pastime knowledge
  4. Spiritual knowledge
  5. Unwanted knowledge

These five kinds of knowledge are discussed and analyzed in Machlup’s The Production and Distribution of Knowledge in the United States starting on page 21 (and are discussed in Daniel Bell’s The Coming of Post Industrial Society, 1976, Basic Books, page 175).

The more comfortably one can link types 1, 2, and 4 in the list above, the more “together” one’s understanding might become.  One does not have to be “dismissive” of Type 3.

Pleasant diversions are a a part of life and have their honorable place. One reason (to give a simple example) we’re drawn to poets like Wallace Stevens is that they seem to “sit comfortably” in their various (knowledge) roles: insurance salesman, poet, thinker and don’t “line up” or “array” these types of knowledge in a conflictual way but seem to “smile down” on all of them finding beauty everywhere.

Workaday knowledge might not have to “fight with” other kinds of knowledge. Insurance, say, is a form of risk-management and risk is essential to life and economics, as we have seen elsewhere.  Economics looks at cost-benefit–risk-uncertainty all together when it goes beyond the narrow confines of academe to become a fuller quest.  Cost-benefit analysis by itself is too restrictive.  Start with Machlup as a highly intelligent “backdoor” into these domains of knowledge, information, learning, social contexts.  This would help give you a handy additional “flashlight” on schooling in society including universities and campuses.

Essay 57: The Issue of Deep Rhythms in History: Second Look

We have already seen, in the previous essay, that world violence against the vulnerable is a deep and constant theme or rhythm in world history, one that is “dutifully” avoided. (This avoidance may be called another rhythm all its own.)

In the realm of finance (Kenneth Rogoff’s book This Time is Different is about financial rhythms and cycles), we also sense deep echoes and rhythms:

Consider this entry on the medieval Florentine banking houses the Bardi and Peruzzi:  “These Florentine families gave their names to two great banking houses of the 14th century, commanding assets far greater than those of the later and more famous Medici bank.  They advanced loans to European monarchs, most notably Edward I, who used the money to finance his campaigns in the Hundred Years’ War.  He and his successors reneged on his debts in 1345, which led to bankruptcy for the Bardi and Peruzzi forms and sent shock waves through the European economy.

The Medici rules Florence from 1434-1494, long after these Europe-wide shocks.  Bond finance (governments borrowing from their own people as well as outsiders) to finance wars emerged out of insecurity on all sides of war finance and culminated in the brilliance of the Rothschilds (as Prof. Niall Ferguson’s contemporary two-volume history of this family shows).

Thus, wars and war finance have many centuries of gestation and provenance and defaults and shock waves were well known in the European economy of the fourteenth century long before the Medici and their famous patronage of the arts and their prominence in Papal politics.

One might argue that these are rhythms and echoes that have to do with deep structures like militarily organized violence (wars) and political organizations from kingdoms through states.

If you combine these two essays (56/57) you get a money-and-violence super-rhythm which goes on today.

Consider the Larousse entry on the Frescobaldi family:

“One of several banking families in 14th-15th century Florence with European-wide interests. 

“Their clients included Edward II of England, whose wars with Scotland they financed in exchange for customs revenues.

“The royal default on debts led to a crisis for the Frescobaldi bank in 1311.”

(Larousse Dictionary of World History, ed. Bruce Lenman, Houghton Mifflin, 1995, page 343)

This also shows you war-and-finance had a major destabilizing role in Europe long before our modern period and constitutes a potential rhythm or proto-rhythm.

Essay 56: Are There Deep Rhythms in History?

Kenneth Rogoff of Harvard wrote a very intriguing book in recent years with the title, This Time Is Different with the implication that fundamental discontinuities (i.e., this time is different) are questionable, if one looks deeply enough.  In the introduction of the book, the author raises the questions of “deep rhythms in history” without answering his own question.  Here’s a potential organizing principle: the world is always a system of violence directed at the weak. Take this entry from the Larousse Dictionary of World History:

Arawaks

The original inhabitants of the Bahamas (Lucayos) and the Greater Antilles (Taínos) who practiced a subsistence agriculture based on seafood, game, maize and cassava using Neolithic technology.  They live mainly in coastal settlements of large villages with caneyes (family houses) and bohios (chiefs’ houses) and had a hierarchical politico-religious structure based on a hereditary ruler, the cacique, who possessed a ceremonial stool (dulho).  A priestly caste-controlled worship of gods of place and nature (zemis) and ceremonies which led to heaven (coyaba). 

They were exterminated as a people by the Spaniards after 1519.

The words maize, tobacco, potato, hammock, canoe and hurricane all derive from the Arawak language.

If we think of the Rohingas of Myanmar, the Yazidis, the Tutsis in Rwanda, and the Darfur people in Sudan, of recent decades, we see a deep rhythm in history: the destruction of the unprotected.  Notice that the first Jewish ghetto in Europe (Venice) was established in 1516 around the time that the Arawak murders begin on a systematic basis.

This never-really-discussed basic rhythm of group violence has been glorified (e.g., The Iliad of Homer, the Aeneid of Virgil, the Old Testament, Scandinavian sagas, Japanese “war tales” such as the Heike Monogatari, etc.)

The omission in all education of this world-violence theme gives students a false sense of “how the world got to now.”

Essay 55: Sharply-Focused and Informative Data for All Students

BEA News: Gross Domestic Product by Industry, 2nd quarter 2019 and annual update

The U.S. Bureau of Economic Analysis

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release:

Professional, scientific, and technical services; real estate and rental and leasing; and mining were the leading contributors to the increase in U.S. economic growth in the second quarter of 2019.

The private goods‐ and services‐producing industries, as well as the government sector, contributed to the increase. Overall, 14 of 22 industry groups contributed to the 2.0 percent increase in real GDP in the second quarter.

The full text of the release [archived PDF] on BEA’s website can be found here.

The Bureau of Economic Analysis provides this service to you at no charge.  Visit us on the Web at www.bea.gov.  All you will need is your e-mail address. If you have questions or need assistance, please e-mail subscribe@bea.gov.

Essay 54: Movies as an Off-Campus “Open University:” Antonioni’s La Notte (The Night, 1961)

Michelangelo Antonioni was an Italian film director, screenwriter, editor, painter, and short story author.  

Antonioni died on July 30, 2007 (aged 94) in Rome, the same day that another renowned film director, Ingmar Bergman, also died.

He is best known for his “trilogy on modernity and its discontents”—L’Avventura, La Notte, and L’Eclisse from the early sixties.

One “hidden pillar” of the world Antonioni depicts in his movies is that “you are what you read.” This gives the viewer a “meta-intelligent” (latent overview signal) handle on the world being depicted:

In La Notte of 1961, Antonioni starts with an image of the Pirelli Tower in Milano, the most famous skyscraper of its time in Italy. In contrast to the impressiveness of the building, the characters in his movies are trying to “navigate” boredom and the enveloping sense of ennui.

One of the characters in the movie is said to be reading the masterpiece by Herman Broch, The Slkeepwalkers:

The Sleepwalkers (original title Die Schlafwandler), is a 1930s novel in three parts, by the Austrian novelist and essayist Hermann Broch. 

Opening in 1888, the first part is built around a young Prussian army officer; the second in 1903 around a Luxembourger bookkeeper; and the third in 1918 around an Alsatian wine dealer.  Each is in a sense a sleepwalker, living between vanishing and emerging ethical systems just as the somnambulist exists in a state between sleeping and waking.  Together they present a panorama of German society and its progressive deterioration of values that culminated in defeat and collapse at the end of World War I.

Antonioni implies the characters he depicts are a new version of “sleepwalker.”

When the movie starts, the characters played by Marcello Mastroianni and Jeanne Moreau visit a friend in the hospital who mentions his new work on Adorno.  Adorno (1903-1969) was a German-Jewish theoretician who wants to understand how the world has gone off the rails leading to WWII and the death factories of the Nazis.  He argues that this is connected (paradoxically) to the relentless rationality of “The Enlightenment” and works in a “dialectical” way (i.e., something becomes its opposite).

In the movie, there’s a scene where the author played by Mastroianni is at a book talk concerning his new book.

In other words, the world Antonioni is depicting, a kind of “odyssey” of ennui made confusing by gleaming architecture such as the Pirelli Tower of Nervi (built from 1955-1958) shown in the opening shot of the movie.

The books mentioned in the movie confirm the director’s “you are what you read” motif.

The recent book: The Sleepwalkers: How Europe Went to War in 1914 by Christopher Clark is consistent with this sense of things.

Essay 53: Incomplete One-Field Analysis

Prof. Neil Shubin of the University of Chicago is an outstanding paleontologist/evolutionary theorist and has written marvelous books such as Your Inner Fish:  A Journey into the 3.5-Billion-Year History of the Human Body.

“Cleverly weaving together adventures in paleontology with very accessible science, Neil Shubin reveals the many surprisingly deep connections between our anatomy and that of fish, reptiles, and other creatures.  You will never look at your body in the same way again—examine, embrace, and exalt Your Inner Fish!”

Prof. Shubin has done outstanding work in trying to understand post-dinosaur mammalian history and timelines.  (Rise of the Mammals was a recent PBS program that is relevant.)

What is inadequate about all such “bones-and-stones” approach to “how we got here” is that the human creature is ultimately downstream from culture as expressed in language (epic poems) and images (e.g., the Lascaux caves in France, say) and fossils, as wonderfully intelligent as the detective work is, are one flashlight and not the system of “searchlights” one really needs to understand anything.

The very first lines of Homer’s great epic, the Odyssey shows you this:

“Sing in me, Muse, and through me tell the story of that man skilled in all ways of contending, the wanderer…”

(Quoted from Robert Fitzgerald’s translation.)

Here one sees the cultural soul of the human: the invocation of muses, gods, the telling of stories, the singing of songs, contending and wandering.

All evolution: cosmic, earthbound, whatever, does not capture the essence of humanity as the first words of Homer’s Odyssey where words, songs, stories take us into the human while the fossils and fossil archaeology are fascinating material infrastructure, as Prof. Shubin’s outstanding skeletal digs and “detective work” show us.

Essay 52: Economics Reconsidered to Include Uncertainty

Standard definitions for economics say that it is about “cost-benefit” thinking. Everything costs time or money or effort or lost opportunities but offers different levels of expected benefit.  Economics, in this view, matches decisions to this “menu” of items and prices.

Actually, that is not a complete description at all because economics is about cost-benefit–risk-uncertainty thinking and that implies one needs to get into the dimensions of risk and uncertainty. 

A real decision involves more than costs and benefits but implies all kinds of “how can I be sure?” questions which means risk and uncertainty considerations. 

World-watching modified in this way is explored at policyuncertainty.com (Kellogg School of Management, Northwestern University)

This implies the need for new indicators such as:

Call for papers:  “Uncertainty and Economic Activity:  Global Perspectives” [PDF]

The extraordinary rise in trade policy uncertainty [archived PDF].

Policy News and Stock Market Volatility [PDF].

They say that practitioners of a field are always like general “fighting the last war” not this one, like the French generals in 1940 who were mentally in 1914. 

One must augment all economics textbook talk in this direction of risk-and-uncertainty without which all analyses are like backward-looking “stills” as opposed to forward-looking “moving pictures.”  All standard textbooks are uninformative on these issues.

Essay 51: “The Whole:” a Quick Second Look

We started this book with a quote from Wittgenstein “Light dawns gradually over the whole” and argued that the meaning of the “whole” is and will be elusive forever.

That is as it should be:

Think of the final pages of John Dewey’s classic book, The Quest for Certainty.  You’ll sense how Dewey oscillates between the “pin-down-ability” of the “whole” and its eternal slipperiness:

“Diversification of discoveries and the opening up of new points of view and new methods are inherent in the progress of knowledge.  This fact defeats the idea of any complete synthesis of knowledge upon an intellectual basis.  The sheer increase of specialized knowledge will never work the miracle of producing an intellectual whole.  The astronomer, biologist, chemist, may attain systematic wholes, at least for a time, within his whole field.

“Man has never had such a varied body of knowledge in his possession before, and probably never before has he been so uncertain and so perplexed as to what his knowledge means, what it points to in action and in consequences.”

(Dewey, The Quest for Certainty, Capricorn Books, 1960, pages 312/313)

Wholeness, Dewey senses, like the white whale in Moby-Dick, “won’t sit for a portrait.”   That is why the student should take an eternally “non-rigid” answer to these questions which are “arguments without end” and that’s fine.

Essay 50: Useful Data From the Bureau of Economic Analysis

Useful Data for Every Student Whatever your Major in College.

The U.S. Bureau of Economic Analysis

BEA News: Personal Income and Outlays, September 2019

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:

“Personal income increased 0.3 percent in September after increasing 0.5 percent in August. Wages and salaries, the largest component of personal income, showed no change in September after increasing 0.6 percent in August. 

“The full text of the release [archived PDF] on BEA’s website can be found here. 

“The Bureau of Economic Analysis provides this service to you at no charge.  Visit us on the Web at www.bea.gov. All you will need is your e-mail address.  If you have questions or need assistance, please e-mail customerservice@bea.gov.”

Essay 49: Postdicting the 2008 Great Recession: Macro and Finance

Prof. George Akerlof (2001 Nobel) shows how macroeconomics overlooked the issue of financial stability as a pillar. He argues that Rajan’s 2005 paper and talk were uniquely prescient on this.

This is why we find thinking about, say, the Panic of 1873 so instructive especially when one adds an “omnidirectional” analysis: In 1873, we get Around the World in Eighty Days with the transport revolutions that make winning this bet about circling the world in eighty days, at all possible: railroads, steamships, etc.  London is shown to have emerged as the world money center, as described in Walter Bagehot’s classic Lombard Street. The opening line of The Magnificent Ambersons is (in paraphrase):  “The financial crisis of 1873 destroyed the fortunes of most people but made the Ambersons and this was the basis of their magnificence.”

The novel The Age of Innocence by Edith Wharton, set in the 1870s, shows the financial shocks of 1873 as a major player in the story.

Prof. Adam Tooze of Columbia published in 2018 a masterful account of finance and macro and politics relevant to our 2008 fiasco in his Crashed:

Crashed:  How a Decade of Financial Crises Changed the World

Hence Akerlof’s depiction, in the current Journal of Economic Perspectives, of how macroeconomics became separated from financial instability analyses is key:

“The Keynesian–neoclassical synthesis that had emerged by the early 1960s put constraints on macroeconomics. Foremost, it divorced macroeconomists from working on financial stability.  Luckily, after the crash of 2008, the prior work of finance economists has been belatedly acknowledged, and the subfield of macro stability has also emerged as quite possibly the most vibrant research frontier in economics.  Nevertheless, macroprudential concerns remain as back matter in the textbooks.  Correspondingly, macroprudential policy is undervalued in the councils of government.  Yet its importance remains, given the likelihood of another crash.”

In this context, little damage could be done by macro models lacking the details of the financial system.  But exclusion of such detail (with the attendant possibility of financial crash) from standard macroeconomics could be a problem in a different context: if the financial system changed in fundamental ways.  That was exactly the topic of Rajan’s (2005) Jackson Hole talk, “Has Financial Development Made the World Riskier?” [PDF] which did predict the crash of 2008 as it actually happened.  In terms of the skeletal model, had that “financial development” beyond a well-supervised banking system with deposit insurance driven the financial system out of the safe region of always hold?  In September 2008, the answer to Rajan’s question became clear: “yes, it had.” 

Journal of Economic Perspectives—Volume 33, Number 4—Fall 2019—Pages 171–186

What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years [PDF] by Prof. George Akerlof.