It’s Christmas time, and that can only mean one thing at the Economist: Time to run a story on the Deadweight Loss of Christmas*. What, you might ask, is the deadweight loss of Christmas? In general, a deadweight loss refers to “the difference between the satisfaction a person gets when she spends a dollar on herself and when a well-meaning benefactor spends that dollar on a present for her.” (From the Economist story.) Deadweight loss as a concept is often applied to taxes, but also can cover situations involving externalities or monopolies (see wikipedia, as usual).

Ok, so far so good, now on to Christmas. Each year, millions of people give millions of other people presents. And each year, a few well-meaning economists go on a rant about it. Because gifts are often things that recipients would not buy for themselves, gifts are seen as creating a deadweight loss – the dollars spent on the gift are smaller than the presumed benefit. “Inefficient!” they cry. “Pareto Sub-optimal!” they protest. Just give money! Christmas should be like a giant derivative swap – many gifts would cancel out, leaving some marginal redistribution from the old to the young, and richer relatives to poorer ones.

But what are economists missing? Well, for one, they are missing the utility of the giving of the gift to the giver. That is, the joy each of us gets (or doesn’t get) from shopping for our friends and family, and finding something that they like. For two, economists miss the potential to give gifts that a recipient could not buy – admittedly, a small number of cases for adult to adult gifts, but still significant. Any gift brought back from a vacation, or created by hand, seems like it ought to not produce a deadweight loss. So, at a minimum, the economists (and their media popularizers, e.g. The Economist) should be a bit more specific, based – giving store-bought, generic gifts to people you don’t know very well produces a deadweight loss over and above giving money (and assuming that the utility of the giving is low, which is plausible, since this is, by assumption, a generic gift bought at a store for someone you don’t know well). Third, the usual sociological concern: economists miss the way that gifts reinforce social ties. To translate for the economists, gift giving may produce a positive externality by creating and strengthening social networks, which in turn produce positive economic (and non-economic) outcomes (think “social capital”, James Coleman-style).

So, to reiterate: stop being Grinches, economists! Enjoy the season! Of course, being a secular Jew, I might have a slightly biased perspective on the whole situation, having received exactly 2 Hanukkah gifts and 1 Christmas gift, all of which were great. Apparently, this is not typical – most gifts do resemble the sort that economists criticize, and most people give and get an awful lot of them. Even so, benefits 1 and 3 might still apply. And anyway, that some gifts are worse than others would be a great finding, one that might help Christians find the true meaning of Christmas (which is, after all, the worship of society). Or, to summarize: give a meaningful gift to anyone you receive joy from so giving, give gifts that are creative and unique, and give gifts to friends and family you want to stay connected to, and your gifts will not produce any deadweight loss.

(Note: This whole analysis is premised on what I think are reasonable, but perhaps worthy of testing, assumptions: that the giving a gift of cash does not usually produce the same kinds or magnitude of benefits for the giver and that gifts of cash do not reinforce social bonds the same way as more thoughtful, but less economically theorized!, gifts.)

* To be fair, a second Economist story (hoisted from their own archives) is a bit more nuanced, and makes some of the same points I do (with an additional emphasis on the way that gifts have an added value by the virtue of being gifts). Their punchline? “The lesson, then, for gift-givers? Try hard to guess the preferences of each person on your list and then choose a gift that will have a high sentimental value. As economists have studied hard to tell you, it’s the thought that counts.”

I realized that I’ve been neglecting this blog a bit. One huge event has happened in the past couple weeks in the narrow space of “things I’m interested in that many are not”: the passing of Paul Samuelson, Nobel Prize winner in Economics and more or less founder of the modern tradition of mathematical economics rooted in the synthesis of marginalist microeconomics with Keynesian macroeconomics. Samuelson wrote the dominant graduate and undergraduate economics texts of the mid-20th century. The undergrad text was the first to place Keynesian macroeconomics at the center of the field in a way that was understandable to undergrads.

There have been a number of good obituaries, mostly laudatory, with a hint of criticism from some of the more heterodox folks. Here’s Krugman’s, as usual probably the best at being both insightful and easy to read. But for a slightly more pessimistic take on Samuelson’s impact on the field of economics, here’s a paragraph by Arnold Kling (hat-tip to Organizations and Markets):

[P]rior to Samuelson’s formalization in economics, there were a lot of papers published that lacked clarity and insight. Now that formalization dominates, we also see a lot of papers that lack clarity and insight. If you compare the most insightful mathematical papers with the average non-mathematical papers, math wins. But one can also run the comparison the other way and reach the opposite conclusion.

Love it or hate it, heavy-duty math is here to stay in Economics, and it’s Samuelson who brought it. Let’s let him have the last word:
“I don’t care who writes a nation’s laws, or crafts its treatises, if I can write its economics textbooks.”

Adolf Berle was really quite cool. As co-author of The Modern Corporation and Private Property (1932), Berle kicked off the next 7 decades of corporate governance debates, and offered insights whose full value has arguably been under-appreciated (specifically, the notion that “owners” is an outdated way of describing shareholders, who are but claimants on uncertain residual claims, and also that corporations must be understood as political as well as economic entities). In politics, Berle served in the FDR administration in a variety of roles, helping to craft the New Deal. After WWII, Berle returned to writing about changes in the American economic system and the role of corporations. In a 1959 book, Power Without Property, Berle presents updated data on the concentration of economic power and his own analysis of new developments (particularly interesting: he foreshadows the rise of large institutional investors, like pension funds, which would become a key topic of corporate governance research in the 1980s).

Here’s the best quote so far, summarizing some of the things Berle has to say:

We live in a system described in obsolete terms. We have come to believe our own repeated declarations that our society is based on individual initiative – whereas, in fact, most of it is no more individual than an infantry division. We assume that our economic system is based on “private property.” Yet most industrial property is is no more private than a seat in a subway train, and indeed it is questionable whether much of it can be called “property” at all. We indignantly deny that we are collectivist, yet it is demonstrable that more than two-thirds of our enterprise is possible only because it is collectivist: what is really meant is that the State did not do the collectivizing. (p. 27)

Berle and Means wrote something similar in the last few chapters of The Modern Corporation, but obviously Berle felt the need to repeat and refine this argument (reasonably enough as the argument was mostly ignored by those citing TMC): we continue to think the economy in terms that made sense to Adam Smith even though our system looks incredibly different. We think of shareholders as owners, but what do they own? What decisions are they entitled to make about the thing they supposedly own, the traditional definition of ‘owning’ something?

Berle also has a lot of nice arguments about why separating out economics and politics makes so little sense in an era dominated by large corporations who are checked by labor unions, governmental regulation and public opinion much more than by the vagaries of the marketplace (here he echoes Galbraith, but the argument goes back further). Berle suggests that we should think of corporations as non-Statist political actors, and that we should think of economics and politics as inseparable:

“The two systems are, and perhaps always were, interlocked. … It is a fair question now whether sound academic distinction can be made between political science and economics.” (p. 17)

I would have loved to sit Berle and Polanyi down in a room together and ask them to swap notes. Berle’s thesis that the economic and political systems are “interlocked” is a nice complement to Polanyi’s argument that economy is “embedded” in society. And perhaps if the two had met, Polanyi would have been able to come up with a better analysis of the rise of the large corporation (something missing from The Great Transformation and I don’t think found in his later work, though I have not yet searched exhaustively).

The economics blogs are all a-twitter over a new research paper by Davide Cantoni that looks at the influence of protestantism on economic development in Europe, 1300-1900. Here’s Tyler Cowen on Marginal Revolution linking to it, and here is a short analysis by Simon Johnson of Baseline Scenario. Cantoni tests the hypothesis by comparing the growth in cities in Protestant vs. Catholic parts of Germany (this is from a quick skim). Cantoni finds no significant differences in city size that can be explained by religion.

So.. what do we make of this? Does it matter to us if Protestant cities did not grow faster than Catholic ones? Has Cantoni properly understood Weber’s hypothesis? One possible objection would be that Weber’s point is that Protestantism sets up the iron cage, but once it’s set up it doesn’t really matter whether or not you are a Protestant, and that this data might be too macro and with too big of gaps in time to see such trends. Although, Weber is also trying to understand why England takes such a lead in the industrial revolution (if I recall correctly). Hm.

Anyway, it’s interesting to me that economists are still reading someone like Weber at all, and trying to prove or disprove him. It’s also interesting to think about what the consequences of such empirical attempts to assess classical theories should be for the teaching of classical theory – how do you deal with contemporary accounts of historical phenomena that differ so strongly from those used to justify the theory itself?

These started as facebook status messages, but I thought folks here might enjoy them.

How do you know you’re an economic sociologist?

… you might be an Economic Sociologist.
Add your own in the comments!

Yesterday, on my sister’s recommendation, I acquired The Dispossessed, a famous novel by Ursula K. LeGuin that tells the story of two worlds, one an egalitarian anarchist collective, the other patriarchal and “propertarian” (i.e. like us), and a physicist who travels from the first to the latter. The book is rooted deeply in social theory, and echoes of Durkheim (or Parsons) and Marx abound – all this language about functions and dysfunctions, critiques of property and fundamental assumptions about human nature (profit-seeking vs. intrinsic desire to be productive and creative), etc. Reading the book, I was struck by the core of a syllabus for a social theory and science fiction course. Here’s a rough sketch of some ideas:

First Chapter: Society and Stuff!
Durkheim, The Division of Labor in Society and Rules of the Sociological Method
Marx, Capital (selections obviously, same for the above) and the Manifesto (probably). Oh, and some bits about alienation from the 1844 Manuscripts.
Ursula K. LeGuin, The Dispossessed

Second Chapter: The Disenchantment of the World/Industrialization
Weber, The Protestant Ethic, stuff on Bureaucracy maybe, not sure what else.
Kurt Vonnegut, Player Piano

Third Chapter: Sex & Gender
Not sure which bits of theory to put here. I’m tempted to say some of Judith Butler, and maybe Iris Marion Young, and definitely Anne Fausto Sterling (probably Sexing the Body)
Ursula K. LeGuin, The Left Hand of Darkness (a book set in the same vague universe as the Dispossessed, which follows an anthropologist visiting a world where humans don’t have a sex, but rather become one sex or the other when they go into a mating period).

Ok, I thought I had more than three stellar examples, but I’m having trouble remembering them. I thought I had something to pair with science studies itself (perhaps Stephenson’s Diamond Age or Snowcrash and Latour’s Reassembling the Social? There’s got to be something better about the interaction and co-construction of the natural and the social, the human and the non-human. I mean, it’s what science fiction is all about!). Do you all have any ideas? Think excellent science-fiction and commonly taught or excellent Social Theory.

In recent days, I’ve discussed with a number of colleagues issues surrounding commodification, commensuration, valuation, etc. One question popped into my head while talking with a faculty member and I’m curious if any of you out there can think of a good answer or example. There are many stories in the discipline about the rise of standards, systems of valuations, metrics, etc. For example, Bill Cronon’s classic work on the implementation of grades for grain. Or Wendy Espeland’s recent work (with Sauder) on the US News and World Reports rankings of universities. There are plenty of examples of this sort – new metrics being imposed on a previously non-metric space*. Other examples, such as the Human Development Index (see Wherry 2004), show times when a group proposes a new metric to replace an old one – HDI as a better measure of welfare than GDP/capita. Ok, so far so good.

Do we have any examples where a metric or quantification scheme was successfully overthrown, but not by being replaced with a new metric? That is, where some set of things that had been ranked or valued quantitatively moved to a system where rankings were purely qualitative, and no formal order was used? E.g. if suddenly all the universities stopped filling out the US News and World Reports forms and people stopped buying their guide books, and nothing else replaced it. Has anything like that ever happened? If so, under what circumstances? If not, why not? Why does quantification seem to be a one-way process?

* Apologies for the topology language, it’s hard for me to resist here.

One of the questions that plagues good liberals is, why are some people so resistant to the notion of anthropogenic climate change? There are many answers to this question, of course, and I certainly don’t claim to have a good handle on all of them. Naomi Oreskes has done some fascinating work on the subject, first showing that there is in fact a scientific consensus on climate change and then continuing to try and see how it is that so many people still think that the science is out. Some of that analysis focuses on how certain industries adopted the tactics used by Big Tobacco in its war against public health. Fascinating, and depressing, stuff.

Re-reading Goffman’s Frame Analysis, I was struck by another explanation rooted at a slightly different level (although compatible with the other stories floating around). In the first chapter of the book, after the fabulously reflexive and humorous introduction, Goffman introduces the notion of a “primary framework”: “[A] primary framework is one that is seen as rendering what would otherwise be a meaningless aspect of the scene into something that is meaningful.” (p. 21) Goffman goes on to suggest that there are two broad classes of primary frameworks: natural and social. Natural frameworks are defined by the lack of an agent: “It is seen that no willful agency causally and intentionally interferes, that no actor continuously guides the outcome…. An ordinary example would be the state of the weather as given in a report.” (p. 22)

So, following Goffman, one of the central problems facing climate change activists is to convince people that their primary framework for understanding weather itself is wrong – willful agents have been causally and intentionally interfering with it for hundreds of years, although not in a planned manner, and thus the weather needs to be in the “social” rather than “natural” primary framework. Either that, or we need to abandon the distinction entirely – humanity has gotten too big for its britches, and “‘Away’ has gone away”.

In case you haven’t seen it, the website Know Your Meme is a handy guide to the intricacies of the crazy fads that “the kids these days” are into, from keyboard cat to the Numa Numa dance. In addition to being a potentially useful resource for the internet-savvy, but not too savvy, academic, the site also has a pretty robust understanding of the dynamics of memes. This week’s edition, on the auto-tune phenomenon, is a great example and features an extended cameo by Weird Al to boot! The video tracks the rise of auto-tune from Cher’s “Believe” through T-Payne and onto the web. The video notes that auto-tune has gone through 3 stages of meme-ness – introduction, overexposure, and parody and remix. This third stage is what makes a meme great – everything from T-Payne’s self-parody in the SNL digital short “On a Boat” [Note - Not Safe For Work]*, to the incredibly work of the Auto-Tune the News folks. Now we await the fourth stage of the auto-tune meme: equilibrium.

I don’t know this literature well, but does this analysis of memes track with the Diffusion of Innovation literature? What, if anything, is distinctive about internet memes? Is the parody/remix stage theorized in that literature? Or are memes just a nice example of an old phenomenon?

Here’s my favorite Auto-Tune the News:

* Also, there’s an amazing Anime Music Video of “On a Boat” using the recent Miyazaki movie, Ponyo, available here.

As part of our required introductory survey of the logics and methods of social inquiry, graduate students at Michigan spend a week each on a variety of methods (surveys, comparative/historical, field/observational, etc.). This week we are doing “network/relational methods” which translates roughly to economic sociology, the one subfield I’m certified to have an opinion about. I was talking with a more advanced graduate student, also in Econ Soc, about the choice of articles, and what we would pick given 4 articles to introduce economic sociology with a focus on networks to a general group of 2nd year grad students (all of whom read Polanyi as part of their required methods course). We quickly arrived at the same four articles:

Krippner (2001) The Elusive Market: Embeddedness and the Paradigm of Economic Sociology

It was a fun exercise, and a fun way to think about introducing your subfield to those not versed in it. So, two questions for the audience: One, what do you think of this list for network-y econ soc? Two, what four articles would you use to introduce your subfield and its major debates in a way accessible to someone totally unversed and potentially uninterested in it?

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