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November 23, 2013


Luis Enrique

This I semantic quibbling, but I think the theory of CA is correct, but by that I mean it correctly tells us one of the things that happen when trade occurs. The simple model is not a complete picture of the world, and we should not call a model wrong when we observe things that are not part of it, like countries trading the same good. But it's more than a quibble, it's where critics misunderstand economic models and 'reject' them for the wrong reason.


The macro vs micro paradigm is an interesting thread in the history of thought, which you can trace from Neoplatonism (at least) via the hermetic tradition (golden section, Fibonacci etc) to early modern science (Newton was supposedly the last alchemist).

From there it proceeds, via political theory and the notion of equilibrium (Hobbes et al), to the social sciences, of which economics is a branch (despite the festishisation of numbers, which is just a hermetic relic). As above, so below, etc.

Of course, both macro and micro are abstractions and therefore poor substitutes for the complex and messy thing that is the real world, despite their utility in discourse ("models" in current parlance).

The problem is the twin belief (delusion?) that a dynamic system can be frozen at a point in time, and that a portion of that system can be representative of the whole. Despite the maths, this is just magical thinking.

Why don't we gate-crash the barbie, beat the shit out of Jurgen (he sounds a twat), and help Kostas finish off all the booze?


Jurgen coming off his diet is no more a solution than Kostas finding menial jobs.

The problem is that Jurgen doesn't value anything Kostas can produce; not his menial labour, not an extra burger.

Your bigger barbeque make-work scheme is no different to having Kostas dig ditches, except it wastes more beef.


" And you trust Chinese products because German firms manufacture in China, apparently. Oh dear.!"

Oh dear!
Coppola seems quite stupid!


What if Kostas kicks the shit out of Jurgen? Not recommending that, just wondering how it fits into the model.


@Luke You get to repurpose the model as political theory?

Frances Coppola


Many people - including that commenter, and also you, apparently - misunderstood my remarks about Germany and imports. The point I was making was that if German products are better than others - or are believed to be - then German consumers would have little incentive to buy imports. They would "buy German". The commenter's observation that some "German" products are actually manufactured in China didn't in any way alter that point.

Frances Coppola


Indeed, the entire exchange with Tim and in the comments on his blog and mine was about macro versus micro. My final comment to Tim after a long email exchange about comparative advantage (most of which went into my "subjective value" post):

"Mind you none of this has anything to do with my post, which was about the fact that trade deficits & surpluses sum to zero across the globe, so if all countries are to achieve the dream of a trade surplus, we need to trade with Alpha Centauri. We are discussing microeconomics, but the post was macro."


Frances - I perfectly understood your point about German imports. But your response to that comment was rather silly, don't you think?

You chose to pick on that aside (which you still choose to interpret uncharitably) whilst ignoring the fact that after demanding to see a German who would ever prefer foreign imports, one had just themselves.

I would have been more impressed if you had employed the principle of charity when dealing with a point, particularly if the point is not being made in the commenter's mother tongue.

Chris is very good at this, even in the face of ignorant and rude comments like my own.


Chris has some seriously woolly thinking on display in this post.

"The problem is simply that the barbecue isn't big enough." is just a reframing of

"Kostas might be able to beg for other menial jobs, but there's no reason to suppose this will be enough to keep him employed."

..with a totally different conclusion tacked on. Why is "more barbeque" any different to "more menial jobs done"?

Both are unwanted additional activity. The problem is that they are unvalued, and therefore do not occur. Chris only sees the problem as that they do not occur.

Saying "we just need more" does not address this problem of unwantedness.

Now on a macro scale one could argue that the economy is so complex that if just did indeed "just do/consume more", perhaps stimulated by government, then we/Jurgen might actually realise we value the (perhaps unforeseen) output of that activity after all, and we don't feel so frugal. It is just that there is a tragedy of the commons effect, and poor visibility of outcomes, that makes us feel thrifty on an individual basis. That is the essence of the Keynesian thrift paradox.

However you can't get that argument by considering a two person model where there is no tragedy of the commons and the outcomes are pretty much visible to both participants. Jurgen does not WANT to come off his diet, and forcing him to do it won't change his mind.


Hello mates, fastidious paragraph and fastidious urging commented here, I am truly enjoying by these.


Am I the only one to believe that such simple examples tell more about the way the economy works than economics? (or should I say, they are economics, and economics should use more of them)

Frances Coppola


describing me as "stupid" on the basis of a couple of comments that you didn't like is somewhat extreme. By all means tell me I am wrong, but please refrain from ad homs.


As usual - thank you for your excellent contribution to the debate.
But as Kostas' hunger grows he will be willing to accept lesser grade jobs...until... Who knows?
Let's face it, there are people living in dismal conditions in the Gaza strips, in Indian and Bangladesh slums or in Brazilian favelas. They come to accept their situation by building a preudorational framework based on heuristics, tradition and/or religion. This I know firsthand because my in-laws are in a similar predicament and react with typical Italian fatalism "what can we do, this is our life, this is our cross...".
Moreover the big economic powers have the resources to capture the general public by means of their disproportionate contribution in terms of taxes paid and general perception of wealth creation. As we've just seen in Switzerland with the rejection of the 1:12 initiative on top salaries, the man in the street is afraid of losing the big tax payers cum employers and therefore is willingly giving up his negotiating power in exchange for ever smaller and lesser grade patties...
A huge feedback loop is building up - how can we possibly bring it to a halt??


@ Andrew - saying the barbecue should be bigger is NOT the same as saying Kostas should do more menial jobs. A bigger barbecue means that Jurgen does more too, whereas Kostas doing more menial jobs means him working harder, relative to Jurgen.
Sure, Jurgen doesn't want to come off his diet; my point is just that he and Kostas would do more work if he did.
Of course, a two-person metaphor abstracts from some features, but any metaphor, model or story does so.
Can I suggest that you think a little more yourself before accusing others of "woolly thinking"?


Wasent it smith that said that US should do what it did best, export skin, leather and agricultural products and let UK do what they did best i.e. industrial production.

Well Hamilton and so on did of course not that, they did understand that they had to skip the liberal nonsense and protect their infant industry to climb the ladder and get better of.

In the restaurant business there is many Jurgens that want to cut in in the thin slice of fancy barbeque while its Kostas that start like mc Donald's and serve mediocre burgers and became fitly rich and worlds largest restaurateur.


I disagree Chris. I still think this is woolly.

You have simply specified more activity. This means that Kostas is going to go from no work to some work. It is unclear whether Jurgen would end up doing more or less work, that depends on the new division of labor. But you would think Kostas'share would increase relative to Jurgens, going from that base of zero.

All of which is irrelevant. You have suggested performing additional activity, producing unwanted outcomes, solely for the benefit of Kostas. This is functionality identical to Kostas doing some menial work, for similarly unwanted outcomes. Whatever Kostas does extra, the result is not actually wanted by Jurgen. As I said you can argue that this doesn't scale up to a macro economy because of tragedy of commons effects and poor visibility of outcomes on that scale. But Jurgen knows what extra he can achieve with Kostas'help. And he doesn't want it.

If you think that Jurgen increasing activity a bit too would help, you will have to explain why. Apparently he doesn't want to as things stand.

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