I'm hoping Lorenzo hasn't gone to bed (he may have - it's quite late on Saturday evening in Australia). I'm sure he'll have a response :)
For my part, "not just in the US" applies to this observation: "my intuition is that the main problem in the U.S. economy is that too many highly educated people work for government and for non-profits, where they mostly make trouble for the productive sector. There are workers who could be useful and decently paid in infrastructure, energy production, and housing construction—if the moochers would get out of the way."
In the UK & Australia, NGOs and many charities have become actively destructive to the wider economy, and not just through obvious things like encouraging their members to block roads during protests.
Seem to recollect that a contributing factor in Sturgeon's recent political demise was the many NGOs "ideologically captured" by transgender dogma telling her what she, apparently, wanted to hear. In notable contradistinction to what most of the public, and even the few intellectually honest members of her own party, were trying to tell her.
The criticism of not crediting Nobel Memorial Herbert Simon with satisficing is absolutely fair and will be corrected in the published version.
Satisficing does not seem, however, to have been taken up all that much. Maximisation is much more tractable mathematically. Also, satisficing does have a bit of a “how long is a piece of string?” problem. Hence the point about salience. Not sure how more mathematically tractable it makes the concept, but it does at least point to what to consider.
I have no particular problem with the land/labour/capital division in factors of production. You can, for instance, usefully analyse the politics of trade post steamships and railways on the basis of which was scarce or plentiful in a particular country: scarce factors of production favoured protection, plentiful factors favoured free trade. Two out of three determined whether free trade or protectionist pressures won.
The skilled/unskilled labour division strikes me as better analysed as there being a spectrum in the mixing of labour and capital. That is, they are different factors of production, but often not separate.
The bigger problem is with lumping in financing with the “rest” of capital. Ownership follows who covers the risks: which is about financial resources much more than physical plant and equipment. Calling it all “capital” muddies thinking and encourages “wind-up toy” analyses of economic growth.
Using migration to raise returns to capital, but depress returns to labour, has problems, apart from increasing inequality and social division. If you want to encourage technological progress, you want higher wages not lower: more productive workers that generate a bigger return in adding capital.
As for gardening, etc. services in Australia, they are provided by bog-standard self-employed providers, often on a franchise system, not notably dominated by migrants. One is quite likely to have native-born folk providing gardening services to migrants. https://en.wikipedia.org/wiki/Jim's_Mowing
Also agree that treating migrants as interchangeable widgets is pretty silly.
The multiplying categories of capital, the produced means of production, is an issue. Part of the problem is that Economics tends to be a little exchange/transaction obsessed and less concerned with connection. Coercion, exchange, connection and structured sharing (“pooling”) are the base social interactions. Gifts, for instance, are investments in connection. Calling connection ‘social capital’ helps economists consider it, though not as much as they should. (The anthropologists’ term of ‘relational wealth’ is perhaps not much of an improvement.)
As for too many folk in non-productive (or even anti-productive) jobs absolutely. Patterns of such interior colonisation of our societies will be a continuing theme in future essays in the series.
"Coercion, exchange, connection and structured sharing (“pooling”) are the base social interactions. " sounds a bit Fiske's four models: authority ranking, market pricing, equality matching, and communal sharing
Yes, except not all connection is either authority ranking or equality matching and not all authority ranking is coercion. If the flow of resources is your starting concern, the four I nominated work better.
Re: "it is fair to say that within the economics profession, Simon’s evolutionary focus is more the exception than the rule. The complaint about mainstream economists’ relentless focus on maximization has some merit."
No doubt, when individuals choose a means to an end, they often choose a course that readily seems "good enough" for the purpose, instead of carefully selecting the best means. "Satisficing" is a real thing.
Evolution is a distinct concept. Evolutionary biology and economics are alike insofar as both disciplines study processes of "variation and selection." However, economics, unlike biology, relies on the concept of choice in its study of these processes. In evolutionary biology, variation and selection are unintentional (mutations and survival of the fittest). In economics, humans may choose an intentional strategy of *investment* in order to introduce a variation (e.g., Chat-GPT4) in hope (or expectation) that other humans will choose to acquire the product for their own purposes.
In modern economic processes, the institutional contexts are markets and regulations. Choice is everywhere. Choices may variously involve habit, satisficing, maximizing, conformity (norms), heuristics, emotions, etc.
A fascinating question is whether and how the higher animals, too, make instrumental choices that produce evolution (variation and selection).
Evolution in nature is myopic ("gradient-climbing"). Lower animals do not deliberately "take one step backward now, in order to take two steps forward later."
Processes of variation and selection in human culture involve complex mixes of intentional and unintentional forms of both variation and selection. Instrumental choices (an aspect of intention) sometimes aim (pragmatically or lazily) at what is good enough, and sometimes (carefully) at what is best. Markets in any case then sort it out.
Evolution works on strategies, which need not be intentional but do involve behaviour.
That humans create, choose and shift niches in the ways we do does make us a very unusual species. Indeed, one can argue that niche flexibility is our evolutionary strategy.
The flow of highly educated people into government and NGOs is also a result of immigration. Private sector firms are competing on price. They'll hire a cheaper immigrant if they can. Government and NGO are hiring at least partially on status and connection. Natives have a comparative advantage there.
The economy adjusted, just in a dysfunctional way. Future members of the American professional class became future members of the American NGO class because it's cheaper for professionals to hire folks locked into H1-Bs.
The inflow of low-skilled immigrants exacerbates these trends, and reduces the incentives to invest in relatively capital intensive approaches. Why hire a few relatively skilled Americans to build and run back hoes when you can hire a dozen Hondurans with shovels for 30% of the price?
The best book I have read on Darwinian natural selection and economics is Geoffrey Hodgson & Thorbjørn Knudsen' s "Darwin's Conjecture: The Search for General Principles of Social and Economic Evolution" (Chicago, 2010).
> Are all of these highly-educated immigrants mowing their own lawns and cooking their own meals?
I''ll nerdly take that as a literal request for information.
I do most of the mowing and cooking at our house, but we do have a gardener, nanny and cleaner who collectively work about 10 hours a week for us. In confirmation of what Lorenzo says in his own reply, most of those hours are done by native-born white Australians, my wife and I are foreign-born nonwhite Australians.
> If so, then this is a very inefficient way to run an economy.
10 hours a week of paid help is probably efficient for us, given the particulars of our circumstances. More generally, I think it means Australia - for better or worse - has got enough of an income gradient that it's common for moderately rich people to buy household labour from poorer people. By and large, that situation is not the result of immigration.
"But one of my big complaints about mainstream economics is its continued use of the aggregates of “capital” and “labor,” when those concepts are heterogeneous. The attempt to describe production in terms of exactly two factors is a failure, in my view."
I don't think you've explained why this is a failure, either here or later.
"Yet Warby tries to rely on this distinction. Of course, he immediately has to modify it in order to emphasize the difference in the supply of skilled labor and unskilled labor. That gives you three factors of production, not two."
What? Why is this three? If there are 100 types of capital, we can't say they are all capital?
"But then you have to look at all of the other differences that affect relative prices. Not all college degrees are equally financially rewarding. Not all differences in economic rewards can be explained by education. Economists have come up with more categories of “capital” than I can even remember. Social capital, networking capital, relationships capital, emotional capital, identity capital, institutional capital, cultural capital—all of these, and more, have been proposed."
It seems some of these types of capital might actually be qualities of labor. Either way, the boundary between labor and capital seems rather squishy to me but I can't think why that is a problem other than making things a little less clear.
I'm hoping Lorenzo hasn't gone to bed (he may have - it's quite late on Saturday evening in Australia). I'm sure he'll have a response :)
For my part, "not just in the US" applies to this observation: "my intuition is that the main problem in the U.S. economy is that too many highly educated people work for government and for non-profits, where they mostly make trouble for the productive sector. There are workers who could be useful and decently paid in infrastructure, energy production, and housing construction—if the moochers would get out of the way."
In the UK & Australia, NGOs and many charities have become actively destructive to the wider economy, and not just through obvious things like encouraging their members to block roads during protests.
NGO funding is a way of keeping family fortunes in the family at least one more generation.
Seem to recollect that a contributing factor in Sturgeon's recent political demise was the many NGOs "ideologically captured" by transgender dogma telling her what she, apparently, wanted to hear. In notable contradistinction to what most of the public, and even the few intellectually honest members of her own party, were trying to tell her.
The criticism of not crediting Nobel Memorial Herbert Simon with satisficing is absolutely fair and will be corrected in the published version.
Satisficing does not seem, however, to have been taken up all that much. Maximisation is much more tractable mathematically. Also, satisficing does have a bit of a “how long is a piece of string?” problem. Hence the point about salience. Not sure how more mathematically tractable it makes the concept, but it does at least point to what to consider.
I have no particular problem with the land/labour/capital division in factors of production. You can, for instance, usefully analyse the politics of trade post steamships and railways on the basis of which was scarce or plentiful in a particular country: scarce factors of production favoured protection, plentiful factors favoured free trade. Two out of three determined whether free trade or protectionist pressures won.
The skilled/unskilled labour division strikes me as better analysed as there being a spectrum in the mixing of labour and capital. That is, they are different factors of production, but often not separate.
The bigger problem is with lumping in financing with the “rest” of capital. Ownership follows who covers the risks: which is about financial resources much more than physical plant and equipment. Calling it all “capital” muddies thinking and encourages “wind-up toy” analyses of economic growth.
Using migration to raise returns to capital, but depress returns to labour, has problems, apart from increasing inequality and social division. If you want to encourage technological progress, you want higher wages not lower: more productive workers that generate a bigger return in adding capital.
As for gardening, etc. services in Australia, they are provided by bog-standard self-employed providers, often on a franchise system, not notably dominated by migrants. One is quite likely to have native-born folk providing gardening services to migrants. https://en.wikipedia.org/wiki/Jim's_Mowing
Also agree that treating migrants as interchangeable widgets is pretty silly.
The multiplying categories of capital, the produced means of production, is an issue. Part of the problem is that Economics tends to be a little exchange/transaction obsessed and less concerned with connection. Coercion, exchange, connection and structured sharing (“pooling”) are the base social interactions. Gifts, for instance, are investments in connection. Calling connection ‘social capital’ helps economists consider it, though not as much as they should. (The anthropologists’ term of ‘relational wealth’ is perhaps not much of an improvement.)
As for too many folk in non-productive (or even anti-productive) jobs absolutely. Patterns of such interior colonisation of our societies will be a continuing theme in future essays in the series.
"Coercion, exchange, connection and structured sharing (“pooling”) are the base social interactions. " sounds a bit Fiske's four models: authority ranking, market pricing, equality matching, and communal sharing
Yes, except not all connection is either authority ranking or equality matching and not all authority ranking is coercion. If the flow of resources is your starting concern, the four I nominated work better.
Re: "it is fair to say that within the economics profession, Simon’s evolutionary focus is more the exception than the rule. The complaint about mainstream economists’ relentless focus on maximization has some merit."
No doubt, when individuals choose a means to an end, they often choose a course that readily seems "good enough" for the purpose, instead of carefully selecting the best means. "Satisficing" is a real thing.
Evolution is a distinct concept. Evolutionary biology and economics are alike insofar as both disciplines study processes of "variation and selection." However, economics, unlike biology, relies on the concept of choice in its study of these processes. In evolutionary biology, variation and selection are unintentional (mutations and survival of the fittest). In economics, humans may choose an intentional strategy of *investment* in order to introduce a variation (e.g., Chat-GPT4) in hope (or expectation) that other humans will choose to acquire the product for their own purposes.
In modern economic processes, the institutional contexts are markets and regulations. Choice is everywhere. Choices may variously involve habit, satisficing, maximizing, conformity (norms), heuristics, emotions, etc.
A fascinating question is whether and how the higher animals, too, make instrumental choices that produce evolution (variation and selection).
Evolution in nature is myopic ("gradient-climbing"). Lower animals do not deliberately "take one step backward now, in order to take two steps forward later."
Processes of variation and selection in human culture involve complex mixes of intentional and unintentional forms of both variation and selection. Instrumental choices (an aspect of intention) sometimes aim (pragmatically or lazily) at what is good enough, and sometimes (carefully) at what is best. Markets in any case then sort it out.
Evolution works on strategies, which need not be intentional but do involve behaviour.
That humans create, choose and shift niches in the ways we do does make us a very unusual species. Indeed, one can argue that niche flexibility is our evolutionary strategy.
The flow of highly educated people into government and NGOs is also a result of immigration. Private sector firms are competing on price. They'll hire a cheaper immigrant if they can. Government and NGO are hiring at least partially on status and connection. Natives have a comparative advantage there.
The economy adjusted, just in a dysfunctional way. Future members of the American professional class became future members of the American NGO class because it's cheaper for professionals to hire folks locked into H1-Bs.
The inflow of low-skilled immigrants exacerbates these trends, and reduces the incentives to invest in relatively capital intensive approaches. Why hire a few relatively skilled Americans to build and run back hoes when you can hire a dozen Hondurans with shovels for 30% of the price?
"Why hire a few relatively skilled Americans to build and run back hoes when you can hire a dozen Hondurans with shovels for 30% of the price?"
Analogously, a feller buncher can cut far more logs than a bunch of fellers ... 😉🙂
https://en.wikipedia.org/wiki/Feller_buncher
The best book I have read on Darwinian natural selection and economics is Geoffrey Hodgson & Thorbjørn Knudsen' s "Darwin's Conjecture: The Search for General Principles of Social and Economic Evolution" (Chicago, 2010).
> Are all of these highly-educated immigrants mowing their own lawns and cooking their own meals?
I''ll nerdly take that as a literal request for information.
I do most of the mowing and cooking at our house, but we do have a gardener, nanny and cleaner who collectively work about 10 hours a week for us. In confirmation of what Lorenzo says in his own reply, most of those hours are done by native-born white Australians, my wife and I are foreign-born nonwhite Australians.
> If so, then this is a very inefficient way to run an economy.
10 hours a week of paid help is probably efficient for us, given the particulars of our circumstances. More generally, I think it means Australia - for better or worse - has got enough of an income gradient that it's common for moderately rich people to buy household labour from poorer people. By and large, that situation is not the result of immigration.
"But one of my big complaints about mainstream economics is its continued use of the aggregates of “capital” and “labor,” when those concepts are heterogeneous. The attempt to describe production in terms of exactly two factors is a failure, in my view."
I don't think you've explained why this is a failure, either here or later.
"Yet Warby tries to rely on this distinction. Of course, he immediately has to modify it in order to emphasize the difference in the supply of skilled labor and unskilled labor. That gives you three factors of production, not two."
What? Why is this three? If there are 100 types of capital, we can't say they are all capital?
"But then you have to look at all of the other differences that affect relative prices. Not all college degrees are equally financially rewarding. Not all differences in economic rewards can be explained by education. Economists have come up with more categories of “capital” than I can even remember. Social capital, networking capital, relationships capital, emotional capital, identity capital, institutional capital, cultural capital—all of these, and more, have been proposed."
It seems some of these types of capital might actually be qualities of labor. Either way, the boundary between labor and capital seems rather squishy to me but I can't think why that is a problem other than making things a little less clear.