Mathematics in Economics

I am entirely too impressed with myself at the moment. 

I have been working since this morning on trying to tease out a model from my various notes and ramblings on corruption, the topic of my economics thesis. Suffice to say that I spent a good portion of my time standing in front of a whiteboard jotting down equations, solving for n, binomially expanding, etc. 

I’ve been told (or is the word warned?) by my professors that mathematics is a tool of economics, but it is not required to do economics.  I buy that; however, had I not my knowledge of mathematics and the ability to apply it to economics, I would find it extremely difficult to formalize what would otherwise be a model weaved together by notions that often escape the notice or care of economists.  Economics has a language, and mathematics is a very important part of that lexicon. 

It is much easier for me to go to my professors, or other economists, with a set of descriptive equations, point at n, and say “That’s the state-civil society dissonance factor.  That’s what we need to find a way to measure.”  I am capable of weaving an analytic story, but why say with 1000 words what you can illustrate with a couple equations? 

Mathematics may only be a tool in economics, but more and more I find it to be an absolutely essential and integral tool for understanding and expanding on my field. 

More Fed Transparency?

I just finished reading this articleover at Yahoo! Finance that the FOMC has moved to increase both the frequency and long-term outlook of the Fed’s publicly released economic forecasts.  All this, Chairman Bernanke says, will make it easier for the Fed to do its job by increasing the lines of communication between the central bank, investors, and consumers. 

So to a certain extent I can buy that greater transparency on the part of the Fed is good.  When markets are able to make more reliable predictions of interest rate activity, firms and consumers can adjust their investment and spending decisions accordingly.  This will decrease the intensity of a policy shock on the economy, insofar as the latter can impose growth-mitigating volatility on the economy.  It should also increase accountability, which I’m sure makes some people quite happy. 

However, I think there are some important drawbacks to still greater transparency on the part of the monetary authority.  For one thing, when the Fed does not act as expected, the adjustments that markets will make will be far more drastic as participants – firms and governments (both international and domestic) and consumers – will have likely developed more unflexible forecasts – explicit or implicit – of interest rates;  that is, greater transparency may reduce the flexibility of market participants thereby creating the risk of high degrees of volatility when the Fed does not act as suspected.

The other problem, which I think is less understood and perhaps therefore more insidious, is that as the Fed increases transparency it risks its position a source of nominal changes in the economy and instead becomes nothing more than an instrumental variable in market decisions.  In econometric-speak, Fed actions may lose their causal link to economic activity and instead become only highly correlated with it.  To the extent then that households now rely, with justification, on changes in Fed policy to make investment and spending decisions, they will become unmoored from this bastion of economic stabilization.  Might the federal funds rate go the way of the yield curve as those who have come to rely on it to make safe bets on the economy will at some point in the future find themselves suffering huge losses due to their suddenly-unfounded faith?  I think it’s possible. 

Greater transparency is a victory for the free-marketeers at Cato (which is where, incidentally, Bernanke announced this decision), but it may have unintended consequences the magnitude of which we can only begin to guesstimate.  One I can think of off the bat is that more impetus may fall on government to affect the economy through fiscal policy.  That’s not going to make Cato, Bernanke, or any other free-market advocate, very happy. 

The Job of Student – A continuation

A week ago, I attended the second lecture in the Liberales Artes series here at the University of Mary Washington.  The speaker was Christopher Nelson, the President of St. John’s College in Annapolis, MD, the so-called “Great Books school.”  I found Mr. Nelson’s talk refreshing, especially in light of my comments about the previous speaker, Dr. Mary Taylor Huber. 

Mr. Nelson’s speech focused in general on the relevance of a liberal arts education in the 21st century and onward.  He suggested that a liberal arts education is one that, literally, liberates one from the low-browed monotone discourse of the masses, providing a person with the means – and the desire – to question the status quo and provide alternatives to it.  If this strikes a reader as a little arrogant, or even as a little classist, I would have to agree with you.  Neither does my one-sentence summary, for all its artistic melodrama, misrepresent Mr. Nelson, who was happy to invoke Plato and T.S. Elliot whereever he could.  My far-left tendencies gave me pause during his speech to consider that some people are perfectly happy fixing cars and running computer networks all their lives, and far be it from me to tell them they’re missing out.  Well-funded technical schools are at least as important to society as liberal arts college. 

Having said that, I still agree with Mr. Nelson that a society will benefit when a large number of its citizens have been exposed to multiple perspectives by way of a liberal arts education.  I was also happy to hear him say that students need to be accountable for their learning, as I believe this statement and his expansion on it were sorely missing from Dr. Huber’s talk.  Learning is a two-way street, to use a cliche, and while teachers can make certain resources and class time available to students to help them learn, it is the student’s responsibility to desire to learn.  Bingo! Students might be going to college just to get a job or to just get away from mom and dad, but I agree strongly with Mr. Nelson’s assessment that a necessary condition for admission to a liberal arts college should be “a demonstrated desire to learn.” Academic success surely follows when the latter is combined with a thoughtfully structured classroom environment.

I think any future syllabus for a class of my design might read something like this:  “Your grade will reflect not only the knowledge you acquire in this course, but also the knowledge you create and instill in your classmates through class discussion, presentations, etc.  In sum, to even think about receiving so much as a C in this course, you must show me that you are actively engaged in the learning process.” 

I think I would give students a variety of means to satisfy this requirement.  Having ample office hours, reserving class time for discussion, and requiring regular and thoughtful blogging or wiki development are all methods I have seen my professors use.  I would, however, raise the stakes for the student a bit more. 

On Racism

Steve posted a reply to my previous entry, and I think it merits a second entry:

…[I]f the Bullet article and quotations were correct, the students involved were stupid, insensitive and rude, which is probably not unique among first year students.  The question I’m asking is absent the offensive poster, would we be accusing the students of racism, or just poor judgment?

Short of the offensive poster, no I don’t think we would.  However, if we define an action as right or wrong (or, more to the point, racist or not racist) by whether or not anyone was aware of said action, then I think we undermine the idea of any absolute morality (take that as you will).  If the poster was racist – and I think it was, regardless of intention – then the apparent lack of an outcry prior to public exposure of the matter is of great concern to me, because it means either that no one was aware of its racist qualities, or that people tacitly agreed with the racist message that was implied.

Certainly first year students will make significant errors of judgment – I know that from first hand experience.  But then, the only people I hurt by my errors in that year were myself and, arguably, my family.  Regardless of who one hurts, however, I think that we can agree that a settling of accounts is necessary. 

Unfortunately these errors of judgment are now public and were particularly painful for  others.  Ignorance may be bliss, but that does not negate the racist nature of the material, nor the apparent lack of a negative response prior to the cleaning staff’s discovery.  The men involved are learning a hard but deserved lesson, and I don’t think any of them are exempt from criticism insofar as they tolerated the poster.

Ultimately it will come down to the following questions:  If the pain is unintentional, is the person who commits the action that causes the pain thereby not responsible?  For instance, are laws against involuntary manslaughter justifiable?  This is a broader question which I will leave you to decide.  However, I do believe there is room for the men involved – as well as the entire campus- to learn a very important lesson.  Racism is not merely an irregular and heinous act in our society, despite what we often think.  My reading, research, and personal exploration has led me to the conclusion that racism is deeply seated in most facets of life.  Blacks are not to be robbed of agency by this explantion, but a fair assessment must conclude that opportunities are both overtly and surreptitiously denied to blacks on a regular basis because of their skin color, and that the same can not be said of white people.

So no, we would not be accusing them of racism if the poster was unknown. Actually, we probably we wouldn’t even be calling them rude and prone to errors of judgment if the staff had not found the poster.  But it is known, and that is a good thing since it exposes the actions to public scrutiny, and I am hopeful it will create a constructive dialogue about issues of race that is made all the more desirable by the utter homogeneity of the student population. 

Reading Critically – A comment

A recent incident involving a tasteless, many are saying racist, poster found in a freshman residence hall has created quite a stir on the UMW campus.  This week’s edition of the University of Mary Washington school newspaper, The Bullett, included a letter from one of the residents of the building, whose associates were quoted extensively in the above-linked story, questioning the veracity of the article and the journalistic quality of the paper in general.

My biggest problem with this argument is that it assumes that people would not be angry if they new “the real story.”  It is true that most people would  like to know the real story, but that signifies that students, faculty, staff, and administrators here are reading the school newspaper with a critical eye, seeking facts and filtering out bias whereever they believe it is present.  There are likely those who take what they read at face value, and I will grant that this is an enormous mistake on their part.

Still, anyone reading a second- or third-hand account of anything in any journalistic piece should always keep their guard up.  Bias is everpresent, and whether you are reading The Washington Post, The Wall Street Journal, your local school newspaper, or my blog, you should only take at face value that which you can verify.  I will grant that at least one advantage of a well-established newspaper over a college newspaper is that much bias can be inferred directly by regularly reading the Op-Ed page.  Perhaps the unfortunate weakness of The Bullett is that its editorials rarely give us an eye onto the latent biases of the editorial staff, only comments on irrelevant matters of dubious value.  This does not, however, negate the truth of the basic facts of the case.  Mr. Bloom’s letter to the editor, while perhaps justified in some respects, does not deny that students printed out and posted a piece of paper in public with a smiling white man embracing a sobbing black man with the caption “Slavery Reinstated:  Get yourself a strong one,” and neither does it deny that the people responsible for the poster and their peers demonstrated a complete disregard for those who were understandably offended by it. 

Mr. Bloom, after critically reading the original story, your response, and the comments you and your peers have posted publicly online, it is still clear to me that the actions and comments of your friends were stupid, irresponsible, and latently racist in nature. 

“Dating” College – Time to Break Up?

In this second entry, I want to continue with the theme of reflecting on my education by examining the conflicting influences I feel both to stay at college for another semester…. and to get as far away as possible as soon as possible. 

First, why stay?  In a word, academics.  I enjoy learning, and I’m coming to realize that I thrive in a more structured learning envrionment (I will broach this topic in another entry).  What’s more, there are some really fascinating classes that will be offered next semester, one of which promises to be an extremely unique experience.  There will be an advanced macroeconomics seminar taugh by my academic advisor and friend, Steve Greenlaw.  I denied myself the opportunity to learn in such a setting under him last semester in the belief that I would enjoy another class better, but I regret that choice now. 

Also next semester the anthropology department will be offering its economic anthropology course, a class that I have been hoping they would offer every semester for two years. 

Saving the best for last, my thesis adviser and developmental economist Shawn Humphrey is offering a hands-on policy development and implementation class in conjunction with a local development NGO… all under the guise of a seminar.  This would be a highly unique experience and I am sorely disappointed that I will be missing this class, most of all. 

To restate then, the only thing that is pushing me to stay here is my desire to learn just a little bit more in an environment of my own choosing.  Next semester would promise a very fascinating and, possibly, eye-opening experience.

So why leave? 

Because I’m 26.

Because my girlfriend and I really want to start out lives together.

Because just about everything about this place besides my professors bothers me, and even they drive me nuts from time to time. 

This last point deserves some expansion.  I think that I can split up my grievances into three categories: frustration with the administration, frustration with the student culture, and frustration with the strictures on my education due to an unwillingness or inability to teach certain topics.

With respect to the administration of my college, I find it to be altogether a lumbering and stupid giant of red tape and beauracracy. This is not to slander any one person; rather, the administration lacks a visionary at its vanguard, especially after our former president’s run-in with the law last semester.  I could register a multitude of complaints about the problems this creates, but they are all the typical enormous-glob-of-an-organization grievances.  In general, however, I think the poor administration leads to a disaffected student body, a demoralized teaching staff, and a generally poorer education and overall experience here.

I am also fairly unhappy with the student culture.  I find students to generally be one-dimensional both in their academics and their personal lives, and it does not help that the typical student comes from a fairly narrow cross-section of life experience (white, upper middle-class, usually from northern virginia and or the north-central eastern seaboard).  I want to be careful how judgmental I am, because I am older and and I have had more experience in the “real world.”  Nonetheless, I get the sense that this student body is lacking more than its typical counterpart on other campuses.

My final, and quite tertiary, complaint is that there are limits on how far my education can proceed here. Part of this is self-imposed because of time constraints of my own device.  The other part, however, is a frustration with the ways in which my education in economics has been limited, I feel, by the unwillingness or inability of my economics professors to put a little mathematics into their courses.  I am not the only person to complain about this – there are two other seniors currently doing/planning theses that are equally frustrated with the department in this respect.  We are all three of us potential graduate students in economics, and we are concerned that we are unduly prepared for the mathematical challenges of that environment, despite taking several courses in math independently. These are skills that are going largely unused in the context of our actual specialty, and we find this to be frustrating.  Nonetheless, this is a highly particularistic complaint; the quality of education that the professors do offer is the only thing keeping me here, as discussed above. 

All this makes me wonder if going to college is a little like dating someone.  In some cases, the infatuation can last a long time, several months or even a couple years, before the little things about the person really start to bother you and you have to ask yourself: “Is it worth ending the relationship just because of annoying habit X?”  If so, then better to end it before you start to fight and argue. 

Well, literally, I am starting to fight and argue with almost all aspects of this school.  Conclusion: It’s time to move on. 

Currently Reading – Greenspan’s “The Age of Turbulence”

I am not quite halfway through Alan Greenspan’s “The Age of Turbulence,” the central banking legend’s part memoir, part treatise, which was published just a few weeks ago.

It really is a fascinating book.  I am reading it not as someone who is of a particular political mindset, nor as someone who would feign to have the highly developed skill set that would be necessary to target the man with either criticism or approbation for his term as the chairman of the Federal Reserve.  Instead, I am reading it as a student of economics, and I am finding Greenspan to be a surprisingly lucid writer with a dry wit, a reasonably humble personality, a keen intellect, and a single-minded fascination with all that his field of study has to offer.  Whether or not he paints a rosy picture of himself, his techniques, or his attention to detail, at the very least I find his portrayal of a man devoted to uncovering the driving forces in markets to be both inspirational and educational. 

I am inclined to recommend this book as assigned reading in a classroom.  I think his methods are exemplary, and in that sense, certain chapters would give students a sense of the importance, limits, and possibilities for collecting and interpreting data.  At the same time, he has been on the front line of most economic booms and busts for the past 50 years, and as such much of the first half of his book would be an excellent supplement to more in-depth analyses and/or class discussions.  The latter half of his book (though I have not finished it yet, but I will be sure to comment on it later), provides a normative assessment of the world around him and the present and future of the global economy.  It is, as such, an excellent conversation starter for any class discussion on economic issues or policy for students at any level in the field.

I would not mind hearing the opinions of others on their take of this book, but regardless of how one feels about the man’s policies, he strikes me as a prolific thinker and an astute observer, and his thoughts are worth the trip to the library or the bookstore.   

Socially Responsible Investing @ The Green Festival

I wouldn’t call myself much of an activist, but I spent a very satisfying weekend in DC attending the Green Festival, an annual gathering of the progressive tribes promoting social and environmental justice (I’m not trying to define those terms – just quoting my gracious hosts).  I’m wary of people on the extreme ends on either side of the political spectrum, because I often find the level of misinformation (and disinformation!) to be beyond my tolerance level.  Yet while there was a fair amount about which to be skeptical this weekend, by and large the discussions were reasoned and moderate.  I was particularly fascinated by the idea of Socially Responsible Investing (SRI, in the biz), in which investors pay a premium both in transaction and opportunity costs over normal investment portfolios in order to ensure that the businesses in which they invest conform to standards of labor, environmental impact, human rights issues, and more.

You heard right: People using capitalism to get the social and environmental justice they seek.  To me, this is a fascinating development.  I really wondered if there wasn’t an unspoken undercurrent of division amongst different factions at the convention:  Those who see the market capitalistic system as a means to an environmentally sustainable end, and those who still believe that, by its very nature, capitalism is incapable of providing incentives for such sustainibility.  

In any event, I really admired the SRI business model, though I’m certain the jury is still out on whether it will gain more influence.  It also raises a very interesting question.  To the extent, say, that investors are taking a hit in the realm of returns in order to ensure that the firms in which they invest conform to “sustainable” standards, the question of whether this is wise investment must turn on whether firms that practice business in a way acceptable to SRI investors are going to be more profitable in the long-run.  This, in turn, will depend on the ultimate causes of problems like global warming, and on whether governments begin to regulate business in such a way that those which received SRI dollars would be more adroit in maneuvering through any new constraints.  

Finally, SRI raises all sorts of interesting research questions, not least the standard willingness-to-pay research that might be used to determine the expected value of new environmental initiatives, international labor standards, etc. to firms making their own investment decisions, as well as to society-at-large.

So I just want to say to (most) of the exhibitors and speakers at the Green Festival that this skeptic was more impressed than discouraged by what he saw, heard, and read this weekend.  Keep up the good work and the impressive degree of innovation. 

World of Warcraft Research: A Brief Note

I have been surprised and encouraged by the number of downloads of my draft on RMT and World of Warcraft over the past month or two.  So surprised that I myself downloaded it just to refresh my memory.  I opened it up, started reading it, and was dismayed with the introduction!  I wonder if I put up an older draft that had not been thoroughly edited.  The intro just makes for terrible reading.  I would like to revisit the draft and do a little bit of editing, but in the meantime I’ll leave the current draft available. 

Hopefully, the atrocious style did not turn off the mildly curious from the get-go!

Reflecting on Education: The Job of Student

This is the first of a few entries which I will devote to discussing my educational experience, and how it has aligned (or not) with my expectations.   

Last Thursday, I attended the first of what is to be a series of lectures at my college on teaching in higher education.  This particular presentation was given by Dr. Mary Huber, and focuses primarily on the ways in which professors interested in improving their quality as educators have sought to accomplish this goal.  She concluded that professors must form a community across and within disciplines, seeking advice from one another and sharing successes and failures, all as part of a larger process of discovering better ways to best serve in their role as educator.  The archaic scholasticism that seems to pervade the higher educational system was downplayed.  At the same time, Dr. Huber suggested that more hands-on activities utilizing modern communications technologies (blogs, wikis, etc.) and demonstrations of theory in practice is a fertile ground since it plays to the skills and expectations of the modern student. 

Noticeably lacking from the presentation was any mention of the role of students in the educational process.  I tried to bring light to this fact during the Q&A session by asking, in so many words, whether there was any room for students in this reform of higher education.  Her response, again in so many words, was “Yes.”  Apparently, my question was simply not blunt enough. 

A fellow student blogger did a fine job some months ago of expressing the frustration some students feel about the lack of interest amongst their classmates, and I have discussed the need for an inclusion of students in the reform process in higher education a long time ago in a comment @ Pedablogy, so I will not restate those ideas here.

I do want to say that ignoring or downplaying the vital importance of students’ desire to learn (or lack thereof) will retard any attempt at reform in higher education; that is to say that I would hypothesize that this desire is a necessary condition for meaningful reform.  To a certain extent, better teaching methods will encourage students who want to learn but have a hard time doing so in the traditional classroom, but Huber’s assumption seems far too optimistic:  All students, on some level, want to learn, and higher educators just have to find ways to connect to those students.  This strikes me as unrealistic.  

To me, an F seems a just reward for failing to show interest in a class.  This may seem harsh, but I don’t think there is anything wrong with feeling like the guy asleep behind me in class is free-riding on my tuition.  He’ll still pass, he’ll still get his 40k/yr job.  Meanwhile, that’s one more person that my professor still has to waste her time on, grading his work, wondering why he isn’t interested, spending time trying to figure out how to engage him.  HE DOESN’T WANT TO BE ENGAGED!!! 

How can my professors better teach me?  By ridding themselves of the distractions personified in other students who don’t give a damn.  With their knowledge, direction, and attention unimpeded by obligations to serve students who could care less, the already high quality of my education would increase to greater heights.  I’m thinking that Dr. Huber and I might be on extreme opposite sides of this debate, and clearly there must be some compromise, but I just want to be sure that students are held accountable for their education, too.