Maps and diagrams

My friend Peter gave us Alan Greenspan’s memoir, The Age of Turbulence, as part of our wedding present, and I’ve finally managed to prise it from Raych’s grasp. I’m only a few chapters in, but in the first couple he outlines his development as an economist.

Strikingly, he is an empiricist through and through. He’s at best uninterested and often hostile to theory, especially macroeconomic theory. He developed an early scepticism even about the predictive power of econometrics beyond the short term and the local, though its statistical techniques help to clarify a complex picture. His approach appears to be a brute-force attention to detail. He started with industrial economics, the steel industry in particular (his early work was as a corporate consultant) and built up a picture from there.

In later years I developed some skill in building quite large econometric models, and came to a deeper appreciation of their uses and, especially, their limitations. Modern, dynamic economies do not stay still long enough to allow for an accurate reading of their underlying structures. Early portrait photographers required their subjects to freeze long enough to get a useful picture; if the subject moved, the photo would blur. So too with econometric models. Econometricians use ad hoc adjustments to the formal structure of their models to create reasonable forecasts. In the trade, it’s called add-factoring a model’s equations; the add-factors are often far more important to the forecast than the results of the equations themselves.

If models have so little predictive power, what use are they? The least-heralded advantage of formal models is simply that the exercise of using them ensures that basic rules of national accounting and economic consistency are being applied to a set of assumptions. And models certainly can help maximise the effectiveness of the few parcels of information that can be assumed with certainty. The more specific and data-rich the model, the more effective it will be. I have always argued that an up-to-date set of the most detailed estimates for the latest available quarter is far more useful for forecasting accuracy than a more sophisticated model structure.

At the same time, of course, the structure of a model is quite important to its success. You can’t (or at least I can’t) draw abstract models out of thin air. They have to be inferred from facts. Abstractions do not float around in my mind, untied to real-world observations. They need an anchor. This is why I strive to ferret out every conceivable observation or fact about a happening. The greater the detail, the more representative the abstract model is likely to be of the real world I seek to understand. [p. 36]

This doesn’t surprise me at all. I’ve thought for quite a while that mainstream economics is supported by an exoskeleton of empiricism rather than a backbone of general equilibrium theory. At least the parts that matter. Attacks on a monolithic ‘neoclassical economics’ – conceived as an abstract, ridiculously unrealistic construct – miss the mark, because outside the academy – and even in much of that – this is not how economics is done. Mostly modern economics is about extrapolating data series from past trends, and drawing maps rather than diagrams.

For the love of it

I think I’ll be back writing here very soon, especially with this surprise Easter thing. (It was a surprise to me, anyway.) In the meantime, I just wanted to post this interview with Michelle Masse.

I’ve been meaning to write something about what’s been happening here on campus with a unionisation drive among casual academic staff. We had some minor victories last semester and hope for some big ones this year. It’s pretty exciting, I think. Now is not the time I’m going to do it. But I was struck this week – I filled in teaching for a sick co-worker this week. No worries, I could use the extra money. But the thing is, it comes straight out of her pay packet. We get no sick pay! Essentially, if we’re sick, we subcontract a co-worker. A few weeks ago I heard of a department at Sydney University in which people are teaching classes on a volunteer basis! That is, they don’t get paid; they’re doing it for the experience. Jesus Christ.

Anyway, watch Masse, courtesy Marc Bousquet of the excellent How the University Works. She makes a point Nate has often made, about the effect of academics seeing their work as a calling rather than a job.

Eddie just as Fast on the way down

Things have been a little quiet here, mainly on account of the thesis. After writing all day I just don’t have much energy to write in the evening. Next week the teaching starts again. It might keep being quiet for a while, or I might change the way I use this site. Or it might not – at other points when I’ve been writing hard at uni I’ve also felt like writing about completely different stuff once home. Who can predict when the mysterious blog gods distribute their energies?

But I also want to alert those of you who are not so well-versed in Scandalum Magnatum trivia to a post from last June, when I mentioned a research presentation I had seen on work by Sue Newberry,  Sandra van der Laan and Deborah Brennan on the most peculiar financial structure of Eddy Groves’ ABC Learning childcare corporation:

The really interesting stuff is in the valuation of its assets. ABC doesn’t own the physical property of most of its childcare centres, instead leasing them off a related property trust. ABC itself values its total assets at $2.3 billion. Only $600 million of that is in physical assets. The rest, $1.7 billion, is in intangibles, mostly put down to its centres’ childcare licences. Now, childcare licenses are not exactly assets that can be bought and sold on their own, and they aren’t that expensive to obtain.

Now ABC shares hit rock bottom, on revelations of poor earnings and a stunning pile of debt, and Groves is forced to sell his own shares (and some mansions) to pay back money he borrowed against them. Although it looks like private equity is coming to the rescue (Morgan Stanley is issuing debt to pay ABC’s), it’s all pretty ignominious. Nice spotting Newberry et al.