Reddit reviews Microeconomics: Behavior, Institutions, and Evolution (The Roundtable Series in Behavioral Economics)

R1:

Today I bring you this WaPo Op-Ed on how the Carrier deal will return business norms back to ones that favor labor and community because firms will fear Trump’s wrath. Here the author offers a distorted view of America’s past, a dysfunctional view of how contracts and norms interact, and a wayward portrayal of economists as unable to fathom agents and systems which do not follow strict mathematical functional forms.

>There was a time in America when there was an unwritten pact in the business world — workers were loyal to their companies and successful companies returned that loyalty by sharing some of their profits with their workers in the form of higher wages, job security and support for the local community.

The author wistfully describes a past that did not exist when businesses and workers in long term marriages because it was what was right and good for the community.

At its heart this period existed because unionization (or more accurately worker bargaining power) made it possible. Certainly on the point of loyalty, unionization decline is the largest contributor to declining tenure (see Bidwell. As unionization fell, this loyalty also disappeared.
However, unionization's decline can largely be explained by the rule of law (right-to-work laws, unionization process etc.) though governing and business norms played a role (to be discussed).

With bargaining power largely reduce, workers had additional difficulty (for better or worse) attempting to hold their jobs in the face of international pressures and especially technological change as countless economist (Autor just to name check one) have documented.

>modern day economists tend to ignore such shifts in social norms because they can’t quantify them in the same way they can quantify trade flows or technological innovation or changes in educational attainment. They assume that social norms change in response to economic fundamentals rather than the other way around.

This is the sort of things that can ruin my work day as a nominally institutionalist style economist. To begin, several Nobel prize winning economists have done significant work studying norms formation and effects such as North, Ostrom, Akerlof, Akerlof again!.

Beyond this, others have built off these works (Ostrom was focusing on the importance of norms, but not specifically addressing the problem) to try to model norm development in game theory example.

In fact, in Samuel Bowles’ Microeconomics, discusses in detail the way contracts influence the norms and institutions of exchange (Chapter 8, p. 265). The long and short of Bowles’ discussion is that norms are well understood, evolutionary, and in the absence of complete contracting have significant influence on the results of exchange.

Norms matter greatly to economists in the event that contracting is incomplete. One would hope, it seems in vain, that contracting between the federal government and American firms is more complete than most contractual situations.

>the new norm is not longer acceptable, and [Trump] intends to do whatever he can to shame and punish companies that abandon their workers.
>He may even have to make an example of a runaway company by sending in the tax auditors or the OSHA inspectors or cancelling a big government contract.

Many economists see the potential change of market norms that will result from government contracts suddenly being less than 100% enforceable as a problem. Coming back to Bowles, he notes that said norms “are sustained by the structure of the market and other social interactions in which traders routinely engage.” If having government contracts and enforcement become less predictable is to be the new norm of enforcement, surely the market response will be to ask government from some premia in contracting to account for uncertainty. New firms may avoid starting their business under the supervision of this government altogether.

Tyler Cowen points out that the new norms that would arise likely involve more complex contractual agreements to skirt restrictions, degradation of U.S. tech advancement, a ramping of favoritism to levels not seen since the Harding administration, potential de facto capital controls, or at best a politicization of the economy with no real rule of law effects.

>Teddy and Franklin Roosevelt understood that. So did Ronald Reagan when he fired thousands of striking air traffic controllers and set back the union movement for several decades.

Perhaps most crucially, the author here references a variety of Presidents who enforced their support (or lack therefore) for labor, but did so through the rule of law via various anti-trust acts, the championing and enactment of a large set of labor relations legislation, and the decision to enforce laws enshrined in code 15 years prior that had been previously ignored. As opposed to potentially undermining the rule of law as Trump does by leveraging government contracts and regulation.

A bonus on this point is that—though Reagan’s actions may have signaled willingness from government to support changing business norms by supporting them through rule of law—unionization’s decline had already begun years prior to the changes in business norms Reagan’s ruling supposedly incited.

The study of economics is not one that lacks an understanding of how norms influence market interactions. Though I am not as well versed in studies accounting for changes in norms mathematically, I’d wager someone here could produce good examples of studies that do just this through the use of good instrumental variables.

The Carrier deal will likely change norms in business actions, but those are likely to be related to businesses’ certainty in contracting with government during the Trump presidency. Just as is seen in Trump’s cabinet, the only people left to provide work will be those certain they can take advantage of information asymmetry to get a better deal from U.S. governments. Any mass effort to enforce job retention on a scale much more massive than the Carrier deal will be enacted via law and will be just as harmful to business culture as Cowen and other economist predict, but it will be the changes to contractual enforcement that drive these results and not revolution in norms spurred on by backroom dealing.

The standard graduate micro book is Mas-Colell, Whinston, & Green, https://amzn.com/0195073401 – If you have a solid matrix algebra and vector calculus background it’ll be fine for you.

Personally, I feel like the very complicated technical/mathematical arguments used in economics are often an obscurantist / diversionary tool, not as well justified by concrete evidence as their proponents pretend. It’s important to think carefully and critically about the limits of economic models’ applicability, and about whether their assumptions match reality in any particular case.

It’s not particularly math-heavy, but I recommend Bowles’s micro book as a complement/alternative to standard introductory textbooks at an undergraduate level, https://amzn.com/0691126380

I'd go look for Bowles' Microeconomics: Behavior, Institutions, and Evolution on this. It gives you a good theoretical basis on stuff like overusing of resources.

I really like Introduction to Modern Economic Growth by Acemoglu, which was the first year Macro textbook at my alma mater and where I currently teach. He does all his own proofs and includes more on institutions and directed technical change.
For Micro theory, I'd suggest Nicholson and Snyder's Microeconomic Theory: Basic Principles and Extensions, although the standard first year text for graduate school is probably Mas-Collel.
If you want a more heterodox book, check out [Microeconomics: Behavior, Instituions, and Evolution by Sam Bowles] (https://www.amazon.com/Microeconomics-Institutions-Evolution-Roundtable-Behavioral/dp/0691126380/ref=sr_1_fkmr0_1?s=books&ie=UTF8&qid=1510358192&sr=1-1-fkmr0&keywords=behavior+institutions+and+evolu)

First, let me say that I appreciate the effort you put into writing the response. I also want to point attention to one crucial thing you may not be be able to discern:

Ownership is your own moral position

Seriously. Whatever your original position do the same analysis of this concept. Read up on how ownership came to be. Read on differences in ownership of animals, things, people, ideas, natural parks, international water and other things. Think why we have ownership rights and what problems do they resolve.

Above all else do realise that in this discussion you are the young bull with radical ideas. Again I was in your shoes when I was 20. Feel free to PM me if you want. Good luck with further life.

EDIT: I hate to do this as I hate links to literature of the other side. But if you really want to "see the other side" then read this on economics and this on history. I have no other advert than being in your shoes when young. Take it or leave it. At worst is two random books you may download by torrents that may be informative. At worst you ignore it and go on preaching your faith to weak minded. On the other hand If you have a good counterargument or literature then I am more than willing to engage in the discussion.

Behavioral Game Theory: Experiments in Strategic Interaction - Colin Camerer

Microeconomics: Behavior, Institutions, and Evolution - Sam Bowles

Game Theory Evolving - Herb Gintis

Those three are probably the big books in the field. Erst Fehr's research is also really interesting, though he doesn't have a mass market book out yet.

edit: Gintis's follow up: The Bounds of Reason: Game Theory and the Unification of the Behavioral Sciences