The Case for Industrial Farming?

Blake Hurst, a farmer from Missouri, has written an interesting response to critics of industrial farming techniques. Michael Pollen's The Omnivore's Dillemma receives most of his criticism, and in the process he defends the farming practices, both for livestock and plants, that are widely condemned in a slew of recent books. I am not quite ready to give up on organic food altogether, but his arguments are good enough to make me highly uncertain – which, for me, is familiar territory.

Rationality and markets

I've now had a chance to read the article that Steve referred to in his post of June 24. I am not convinced by the claim that their evidence indicates that rationality is not required for market efficiency. The experiment on which this claim is based does not require the participants to access their own preferences or assess their own economic welfare. They are given reservation prices for a good that has no value to them at all (deliberately defaced baseball cards), and paid for making deals. They only way they could act "irrationally" in such circumstances is if they did not understand the instructions. The "equilibrium" that is reached is indeed the one the experimenters constructed, but it does not correspond to an efficient competitive market because information is limited (transaction prices are not publicly reported), and the law of one price does not hold. This experiment does not get at the psychological mechanisms that cause choices to depart from preferences, and preferences to depart from welfare. No conclusion about "efficiency" is warranted.

They use a separate but related experiment to determine if this "market experience" makes their subjects more rational, and conclude it does. The evidence seems to confirm this, but the effect is so small that I doubt it can be consistently replicated.

The canonical theory of consumer choice is a wonderfully flexible thing. It can be interpreted in such a way that it covers any conceivable behavior. The problem is that these interpretations empty it of content. It becomes a mere tautology, explaining nothing. I'm afraid that this paper is in the spirit of these tautological constructions of economics.

Love in Truth Part II: On Development

In the second section of Caritas In Veritate (Love in Truth) Benedict gives three requirements for true development: freedom, truth, and charity. This section forces the reader to think well beyond the notions of development that reign in economics and public policy.

First, his eloquent defense of freedom in development:

Integral human development presupposes the responsible freedom of the individual and of peoples: no structure can guarantee this development over and above human responsibility. The "types of messianism which give promises but create illusions"[38] always build their case on a denial of the transcendent dimension of development, in the conviction that it lies entirely at their disposal. This false security becomes a weakness, because it involves reducing man to subservience, to a mere means for development, while the humility of those who accept a vocation is transformed into true autonomy, because it sets them free. 

Here Benedict seems to be critiquing theories of development that are overly technocratic. It is probably not a stretch to say that China's experiment with forced communal agriculture falls under this category. It might also be fair to say that uncompromising capitalist reforms imposed on a population could also fall prey to this critique, if in the process people's freedom to preserve important traditions is sacrificed on the altar of lowering transaction costs.

Benedict's second requirement for development is respect for the truth of our vocation (to pursue development). This he explains in the following way:

the Christian vision has the particular characteristic of asserting and justifying the unconditional value of the human person and the meaning of his growth. The Christian vocation to development helps to promote the advancement of all men and of the whole man.

We cannot limit development to the traditional economic domain of increasing wealth and opportunity, nor can we be content to improve the lot of many at the expense of the few. Thus we cannot pursue development separate from a strong commitment to the value of each person, in their entirety, as God intended them to be.

The last requirement for development, charity, ties this discussion back to the previous section. Here he gives us the most beautiful passage thus far:

Underdevelopment has an even more important cause than lack of deep thought: it is "the lack of brotherhood among individuals and peoples"[52]. Will it ever be possible to obtain this brotherhood by human effort alone? As society becomes ever more globalized, it makes us neighbours but does not make us brothers. Reason, by itself, is capable of grasping the equality between men and of giving stability to their civic coexistence, but it cannot establish fraternity.

Benedict is calling us to fully engage both our heads and our hearts in our vocation, because our goal is not only to improve the material well-being of our fellow human beings, but to restore relationships.

This understanding of development is wonderful in its completeness and compassion, though the term "development" as it is commonly used in economics is much more limited. It may be fair to say that all of economics (or at least all of the interesting parts) fall under this definition of development, and this vision could provide a nice broad framework for Christian activity in economics.

Love in Truth Part I

I have started working through Pope Benedict's recent encyclical Caritas In Veritate (Love in Truth). He starts the letter with an introduction that meditates on the necessity of Charity and Truth in combination. One good quote:

A Christianity of charity without truth would be more or less interchangeable with a pool of good sentiments, helpful for social cohesion, but of little relevance.

This could be a mantra for Christian economists.

One of the themes of this introduction is to enlarge Christians' sphere of charity. Benedict states the problem as follows:

The risk for our time is that the de facto interdependence of people and nations is not matched by ethical interaction of consciences and minds that would give rise to truly human development.

Thus the problem is one of international social justice. He builds his case for social justice on the notion of "the common good:"

To take a stand for the common good is on the one hand to be solicitous for, and on the other hand to avail oneself of, that complex of institutions that give structure to the life of society, juridically, civilly, politically and culturally, making it the pólis, or "city". The more we strive to secure a common good corresponding to the real needs of our neighbours, the more effectively we love them.

And this common good is rooted in his definition of Charity:

It [charity] gives real substance to the personal relationship with God and with neighbour; it is the principle not only of micro-relationships (with friends, with family members or within small groups) but also of macro-relationships (social, economic and political ones).

The point here is that he will not allow an escape into personal-but-not-social virtue. We cannot settle for individual justice and not also justice in institutions:

This is the institutional path — we might also call it the political path — of charity, no less excellent and effective than the kind of charity which encounters the neighbour directly, outside the institutional mediation of the pólis.

So far so good. But to what degree are we justified in using the coercive force of the state as a means to be charitable and love our neighbor? He explicitly endorses the "political path" of charity, but does not justify the using the means of the state to make the overall system more just even when individuals are not willing to do so on their own. This is where things get messy. Perhaps this will come in the next section, perhaps someone will provide said justification in the comments section.

Working Paper: The Impact of Homework on Academic Achievement

I am nearing the point of submitting my job market paper for publication, and have a new draft of the paper. I also am testing out Academia.edu – a social networking site that links academics by institution, field, etc, and allows you to post papers. You can view/download my paper here.

New Experimental Evidence About Markets and Rationality

The paper that won the 2008 Arrow prize for senior economists looked pretty interesting, especially in light of John's arguments about the standard neo-classical assumptions. The article is available online here, though Calvin does not have access to the journal (which is a shame) but I have the article from inter-library loan if anyone is interested.

Here is the abstract:

Assumptions of individual rationality and preference stability provide the foundation for a convenient and tractable modeling approach. While both of these assumptions have come under scrutiny in distinct literatures, the two lines of research remain disjointed. This study begins by explicitly linking the two literatures while providing insights into whether market experience mitigates one specific form of individual rationality—consistent preferences. Using field experimental data gathered from more than 800 experimental subjects, we find evidence that the market is a catalyst for this type of rationality. The study then focuses on aggregate market outcomes by examining empirically whether individual rationality of this sort is a prerequisite for market efficiency. Using a complementary field experiment, we gathered data from more than 380 subjects of age 6-18 in multi-lateral bargaining markets at a shopping mall. We find that our chosen market institution is a filter of irrationality: even when markets are populated solely by irrational buyers, aggregate market outcomes converge to the intersection of the supply and demand functions.

The BofA-Merrill merger

Last night's installment of Frontline was designed to give Ken Lewis's point of view on the forced merger between Bank of America and Merrill Lynch. The point seemed to be that Lewis did what the government (Paulson and Bernanke) wanted him to do, even though he didn't like it, because it didn't look to him like it was in the best interest of BofA's shareholders. They even suggested (or had Maria Bartiromo suggest) that John Thain did the right thing by getting a good price for Merrill's shareholders. Lewis feels like he was punished for his good deeds--taking the TARP money and rescuing Merrill.

I find it hard to be sympathetic to either of these guys. As the story points out, toward the end of the negotiations, Thain was more concerned about lining his own and his buddies' pockets than anything else. And he was either willfully ignorant or deliberately deceptive about the depth of Merrill's problems. It seems to me that Lewis has no cause for complaint if he went into this knowing that the reason he was doing this was to save the financial system, and that he really had no idea how bad Merrill's balance sheet was. Lewis also knew that the Treasury stood ready to rescue his bank if the losses were large enough and, after all, he did have that TARP money. Nor is much said about the Treasury's efforts to find another buyer. I'm disappointed in Frontline. When are we going to get a documentary that takes a public-interest point of view?