Filters

What are the filters? Some things I've seen recently make me think this question should be asked more often in politics and the social sciences.

What I mean is that all social structures - markets or the state, hierarchies or coops - act as filters: they select for some behaviours and against others. The question is: which ones?

Standard Econ 101 tells us that, under some circumstances, free markets filter in activities which maximize efficiency and consumer welfare and filter out sub-optimal ones.  

However, these circumstances are not ubiquitous. Nick Bloom and John Van Reenen have shown (pdf) that there are "a large number of firms who appear to be extremely badly managed" - which means that actually-existing markets don't wholly filter out inefficiencies. In their new book Phishing for Phools George Akerlof and Robert Shiller describe how, markets select not for welfare-enhancing behaviour but for "manipulation and deception." And we have several models - ranging from Akerlof's market for lemons to Tervio's talent markets and Witte's survival of the unfittest theory - which show that markets can filter in bad products, mediocre employees and lucky bluffers rather than filter them out.

However, inadequate or counter-productive filters are not just a problem in some markets. They are also a problem in hierarchies. The Dilbert and Peter principles (pdf) tell us that firms promote incompetents, in part because managers lack the ability to spot ability.  

Bad or missing filters are also a feature of government and policy-making. When Simon and I talk about bubblethink and mediamacro we are complaining that the media filters good economics out of public discourse and bad economics in; the Overton window is an example of a bad filter.

If the media is a bad filter, there's also a missing filter in policy-making, as Simon says:

I think most people imagine politicians outside government as having at their disposal a huge network of assistants, each of which is plugged into a huge network of advice coming from individuals and think tanks. There is certainly a huge amount of advice out there, but you need some knowledge to filter good from bad, research based ideas from ideological ones etc. And that is the problem: there is no army of experienced assistants doing that job.

My point here is partly to remind us of the old truism that there is failure in markets as well as governments. But it's also to endorse points made recently by Arnold Kling and Dani Rodrik. Economics, they say, should not be (just) about model-building but model selection. In my context, this means asking whether models of good filters, such as textbook perfect competition, are more applicable than models of bad filters. The answer, of course, will vary from place to place - a fact obvious to all but silly ideologues.

If we were serious about improving markets and the state, we would focus much more upon the question I began with. We'd ask of particular markets and state functions: what behaviour is filtered out and what in, and how can we improve these filters? I fear, though, that the bad filters which select against good policy-making prevent this question gaining the prominence it deserves. 

Comments

[Ben]

Finally are economists coming blinking into the real world?

[aragon]

Speaking as an occasional filter, I have my own personal albatross and which means no recognition and no payment. I am not a policy entrepreneur in that I do not represent sectional interest other than the public interest as I perceive it.

It is conventional economic theory, that now is a good time for public investment with interest rates at zero or negative.

Both letters agree on this, and it would be the path of least resistance.

As a filter, or at least the position I am in, you get to propose and then watch as it gets modified, by other inputs, with better access, sometimes out of all recognition.

People disagree with, misunderstand, or deliberately misrepresent policies.

Modern Monetary Theory is a school of economic thought, with it's own (academic economist) supporters and detractors and competing theories with whom you can engage.

But the policy called Peoples QE by Richard Murphy was not endorsed by MMT economists in advance.

Flip flopping is a sign of lack of understanding or conviction however a little policy wiggle room acts as a prophylactic. Because you disagree with a policy does not make it poorly thought out, it's foundations are in MMT. Jeremy Corbyn relies on economic advice from Richard Murphy and Ann Pettifor etc

https://en.wikipedia.org/wiki/Modern_monetary_theory

I am not an Member of Parliament or a paid assistant, I have no formal standing, and I am not plugged in to a network other than the internet. But I do apply my own knowledge experience and world view.

I am not acknowledged, I am just a cypher.

The policy is on it's own now, I disagree with Simon Wren Lewis and many others on details or even principles, and as they say in the military 'incoming'...

[Dipper]

Peter Principle ... tell us that firms promote incompetents,

No. It says firms promote competent people and don't promote incompetent people.

[Blissex]

«what behaviour is filtered out and what in, and how can we improve these filters? I fear, though, that the bad filters which select against good policy-making»

Oh man, "good policy-making" depends entirely on whose interests the policy-making is for.

For example the "conservatory building classes" consider (fiscal) wage-austerity and (monetary) property-boosting policies as "good policy-making" because it makes their income grow and their costs shrink.

The filters are there to give cover to the policies that are "good policy-making" for some interests but not others...