Just a Mirage? Hopefully Not

This sort of dovetails on what we were talking about last night- companies beginning to go public in support of climate change action. This statement seems like the strongest statement yet from the business community, however. Only time will tell if it is more than rhetoric, but this is it least a sign of hope.

The Good, The Bad, and The Economy

The Good: I saw Westminster Abbey today
The Bad: My laptop died, which is why I haven't posted for a while
The Good: They have a computer lab in the London Center
The Bad: Somebody spilled chocolate milk on the keyboard.

The Economy: Life is pretty complicated, and the distinction between good and bad isn't always clear. Even when it is, the two sometimes seem to come hand in hand. This is especially true for public policy. Some public policy is good and some is bad, but often it is both, depending who you are. Progressive taxes may be good for the poor, but if you're rich you may not be too keen on them. Labor deregulation might be good for the rich, but not so much for the working class. When money is concerned (and money is almost always concerned), it gets even more complicated. Welfare is often pitted against power and interests. What may be good for the majority may be bad for the (let's assume rich) minority. I am often skeptical of the real interests of politicians when they are legislating for the "public good", especially when you realize that many of them are on the boards of the companies that just so happen to profit from the provision of this good.

Separation of church and state? How about separation of state and business? I don't know if either one will ever happen...

Climate Change Talk

Here is a nice article written by Sir Nicholas Stern, one of the leading voices about climate change and possible policy recommendations. Just a couple things about this: I am glad that he goes to pains to emphasize the need for equity among countries on this. Second, I am glad he targets deforestation as a major cause of global warming, because people don't seem to talk about it enough. Anyways, he has a sort of 6 point plan in advance of a major meeting about climate change.

Also, for a "balanced" perspective, if you will, check out these interviews with Stern, Bjorn Lomberg, and Gary Yohe. I guess one of the problems of this whole debate is talking about the GDP "costs" of addressing climate change. There is no serious mention of how cutting back on resource use in general is essential for our growth to be sustainable. It seems any reference to sustainable growth is only tangential. Instead, the emphasis is on what are the costs and benefits with regards to GDP, the ever imperfect but ever-cited measure of all that is good on earth. Oh well, I suppose ecological economics, which would address these issues, is just not on the agenda at this moment. At least climate change is, though- something is better than nothing.

They Don't Really Celebrate Thanksgiving In London

Good thing, too, since the falling value of the dollar coupled with the rising price of food would make that cranberry sauce taste a lot less sweet. It would be hard not to find a newspaper article on the current dollar crises, but here is an article about the "ethanol domino effect" which will help you understand why that turkey and stuffing will be costing you more this year.

Lucky for me, one of my friends parents are in town and are taking a bunch of us out to dinner (no such thing as a free lunch, eh? How about free dinner?)

Sean

Growth Policy Opposed to Social Policy

I am going to say this right from the outset: I don't like the idea of encouraging laissez-faire growth in developing countries and then turning to questions of equity and poverty reduction later. Dani Rodrik seems to say here that this is what we need to do to have any growth at all. Our social policy needs to be distinct from our growth policy. Why can't developing countries learn from our mistakes and encourage equity along with growth? It seems like a false choice he's proposing, that we can either choose growth first, equity second, or equity first, and then little growth at all. I think policy can be smarter than that, but maybe I'm just an idealist. He seems to think that when they do coincide, it is just "luck". But does it have to be?

They Call It Mass Media For A Reason

Ezra Klein talks about market failures in mass media.

Also, there has been a good health care debate doing on, starting with Greg Mankiw here, and a response from Mark Thoma here.

Sean

Just The "Facts"

I found an interesting article on the PAE website about ethics in economics. The lack of any moral considerations (equality, rights, freedom) in standard neoclassical analysis has always been something that bothered me. The author takes a Kuhnsian view of economics as a science, proposing that economic theories are built on foundations and world-views which are value-laden. He highlights the idea of scientific "facts" being inextricably linked to the theories which examine these facts. "Facts" are explored in the framework of a specific theory, not because there are objectively true but because they are deemed important or appropriate by the theoretical framework within which they are examined. Truth" and "value" are not intrinsic qualities, but are labels ascribed by a specific theory or world-view. This type of analysis has been explored in the philosophy of science, but its implications to economic methodology have not been adequately investigated.

There is a lot more to the article, though it is quite dense if you don't have any background in philosophy. I actually think it would be an interesting discussion piece for the group.

More from Rodrik

Here is an article written by Dani Rodrik for Business Day. It is written very much along the lines of his book's theme, and emphasizes the need for adaptability in development policies. At one point he says, "The best-designed policies are always contingent on local conditions." This emphasis on adaptability is obviously not something that the neoclassical model has to offer because of its simplicity. He further states,

As international bureaucracies with a penchant for “best practices” and common standards, these institutions are poorly suited to the task of seeking innovative, unique pathways suited to each country’s particular circumstances.

Anyways, the real reason I found this article post-worthy was one little under-the-radar comment that Rodrik makes at the end: "economics has become richer, too...political economy has become mainstream." It is interesting, because events like the split of the ND department and such tell us that we have mainstream over here, with its neoclassical theory (whatever that means), and heterodox over here, with its political economy. Is this line of thought just a construction? Or are mainstream and heterodox economics utterly unreconcilable? Based on this article, and those discussions of a books, it seems Rodrik would likely say the former is true. It seems like this is a good point of discussion, though, as we tread the murky waters of economics.

WSJ Wrap Up

There has been a lot of discussion in the past few days on a recent WSJ article on income mobility. I tend to agree with Krugman and Cook on their critical analysis of the articles findings, though I think income and it's distribution is only one factor of development which we should pay attention to. Amartya Sen's capabilities approach to development is a much more broad and rich view of human and welfare. We need to look at poverty not just as low income, but as "capability-deprivation" - the denial of substantial freedoms that people value.

Here is another WSJ article which may be just as controversial. It is quite coincidental that I stumbled upon this, as I was just reading another article about the black market in organs. It brings up interesting questions about how we define a commodity and what role government has in regulation. It should be noted that there is a huge black market in organs where sellers (usually from the Third World) can sell a kidney for about $2000, which are then bought by the buyers (usually rich Westerners) for anywhere from $100,000-500,000 (including procedure costs, transportation, etc.).

Sean

Don't Worry, Be Happy

The New York Times has an interesting article on Happiness Studies today. I thought it was pretty interesting, despite my skepticism of almost anything that has to do with happiness studies. The article does a good job at pointing out some of the flaws and inconsistencies of basing a social and economic theory on the maximization of such a subjective and dubious psychological state. I sometimes laugh at the thought that one day, instead of complaining about income inequality, we might be talking about happiness inequality. Democrats will argue that happiness is concentrated in the top 1% of the population and needs to be redistributed more equitably, while Republicans will say that that those who don't have a lot of happiness obviously didn't work hard enough to get it. Then the poor, unhappy immigrants who come to our country will be deplored for bringing down the average happiness of our country, despite the overall gains of happiness to them.

Sounds a bit crazy...

Dani Rodrik's Mainstream Identity Crisis?

At one of the linked blogs on this blog, Crooked Timber, there is a lively blog seminar discussion about One Economics, Many Recipes: Globalization, Institutions and Economic Growth, a book by Dani Rodrik (whose blog is also linked on this blog- blog blog blog). I was reading through the different commentaries on the book (which seems extremely interesting, so maybe when I make it to Thanksgiving I will take the time to read it). A couple of them stuck out to me because they really seemed to emphasize how carefully Rodrik tread when addressing the issues in development economics. Aside from the debate about whether the Washington consensus is good policy, there is some good discussion about how non-mainstream theories enter into this book or do not. I don't have time to give a couple interesting sound bytes, but I suggest that you go to Crooked Timber and read through all the commentaries (if you have an hour to kill).

The two in particular that address neoclassical/heterodox tensions are Henry Farrell's "More Politics, Many Recipes" and David Warsh's "Through the Hourglass". Basically what I drew from these two commentaries is that: a) Rodrik seems adamant about establishing himself as a mainstream economist that uses mainstream approaches (he says explicitly in his intro that he will not draw from "political economy"-his quotes- in his analysis); and b) He ends up criticizing many of the mainstream approaches and using extra-economic approaches in his formulations.

I think this quote sums it up best:

"it seems to me that a more accurate title for the book would be “One Economics (plus some extra-economic reasoning, Many Politics, Many Recipes.”

Maybe Dani Rodrik has found a way to sneak heterodox thinking under the mainstream's noses- I am pretty excited to read the book and find out for myself.

Status consumption

I think this is a pretty unique example of the type of "status consumption" we were talking about in our meeting the other night. The following is a quote from the book "Planet of Slums", and it deals with how the Third World elites live.

"Laura Ruggeri stresses the contemporary quest of deracinated third world elites for a 'real imitation life', modeled on television images of a mythified Southern California."

The book goes on to give examples of Third World neighborhoods named 'Beverly Hills' (Cairo), 'Orange County' (Beijing), and Palm Springs (Hong Kong). Upscale shopping malls, tennis courts, and Starbucks are the norm in these self-sufficient communities.

Apparently, Third World elites have decided that So-Cal is utopia (and, honestly, who can blame them...), so now elites are in a race to prove who is the most Southern CalifornIA-ized (yes, I made that term up). Given that I can't rationally explain why anyone in Hong Kong would need a "theme park where Disney comic strip characters are surrounded by mock Greek columns and neo-classical pavillions," I'll take a stab and say that said theme park is Hong Kong's elite's attempt to prove that they've now achieved status akin to the elites of the developed world.

Whether they should want to is an entirely different question.

Undue Faith in Markets

Alright, I don't want to sound too radical on this one. I do believe that markets are often good mechanisms for running the economy. However, I was reading this speech from the Fed Chairman of Atlanta. In the speech, he was talking about the longer term impact of the housing bubble bursting. He ultimately came to this conclusion:

In my view, the most likely story line is one involving a moderate slowdown in economic activity over the coming quarters, with a return to growth near trend by late 2008 as the housing sector begins to recover. Underpinning this story is the view that our modern market economy has a keen ability to self-correct as opportunistic capital moves into depressed markets. Markets correct. And market solutions are preferable. This transition already is happening in the market for subprime mortgages. In this story, financial markets may endure some more weeks or months of volatility, but I believe they will find a restructured state of "normality," involving improved risk management practices, reduced leverage, and greater transparency.

It's a little disconcerting how much faith this man places in markets. He believes that markets will, by their own volition, restructure to prevent any future problems in the housing market. I find this a little hard to believe, considering that the irrationality of markets is what led to this housing crisis in the first place. I would much rather hear him say that institutions would lead to different structures that would be more stable, or that the Fed itself would tighten lending standards (or, God forbid, that the government would subsidize subprime loans, so that lower middle class people need not pay 8 or 9% interest rates to own a home). But, in summary, I don't see markets fixing these things are their own. That sort of belief is not even good neo-classical economics; it's just stupid.

QUEHST?

Questioning and Understanding Economic History in Society Today

I don't think we should change our name, but I thought it was a clever way to preempt my post (though I tend to think I am more clever then I really am....you decide...)

Knowing history is very important. The historical evolution of man - including the physiological, social, institutional, material, and philosophical changes - tells a rich and fantastic story about what we were, what we are, and what we may become. We can look at where society is today, but to abstract that from history can lead to innumerable misunderstandings and inaccurate assumptions.

This is especially applicable in our current discussion on economic theories. Economics has a long history full of differing and diverse theories. We need to look at history to understand the development of the theories in hopes of understanding the current situation today, where one theory has come to predominate our understanding of economics.

The PAE website has a section laying out what they believe to be the foundation of the development of neoclassical theory. Due to "physics envy" economists in the mid to late 19th century set out to create an economic theory which was more scientific and mechanical (in the Newtonian physics sense). They didn't see individuals as interconnected in a complex set of social interactions and influenced by a multitude of endogenous as well as exogenous forces (no physics pun intended), but rather as homogeneous actors, which were even given a cool scientific sounding name: Homo economicus! Add that to a few decades of intensely mathematical (a.k.a. intensely abstract (a.k.a. maybe not to intensely applicable to reality)) theorizing and, voila! You have the current incarnation of neoclassical economic theory!

This brief summery lays out very nicely what may be the origins of neoclassical theory but is limited in its analysis in the theory's development of hegemony over all other theories. That needs to be a major focus, and we must begin to ask questions like: Why did one theory rise up and above all other theories to dominate all research in this field? Why didn't those other theories rise to prominence? Was the neoclassical rise to prominence due to the validity of the theory's content or were there underlying social or political forces that aided in the theories diffusion? What social and political forces exist now to uphold this theory's dominance?

These are some questions that need to be looked at if we want to change the direction of economic research and education.

Sean

More economics majors night

One more point along the lines that graduate schools are perpetuating the dominance of neoclassical economics. The question was posed to Waller and Evans about whether graduate schools looked favorably on second majors. The answer was basically no except for math-related majors (math, engineering, etc.) which means that secondary majors in other social sciences like political science, sociology, history, psychology - topics essential to the field of heterodox economics - are not considered useful by graduate economic programs.

This gives all aspiring economists a huge incentive NOT to pursue these other fields which seem to have economic relevance. It's this kind of thing that perpetuates the dominance of neoclassical economics and keeps heterodox economics on the margins.

Economics Majors Night

Tonight, I attended economics majors night with Greg. We both went there trying to figure out what the hell to do with an econ major (and left with some answers, shockingly enough). While the blabla from the career center people was not particularly interesting, I did get a lot out of a small discussion with Professor Waller and Professor Evans, both from the Econ & Econometrics Department. Now, obviously, these are two professors who are very mainstream. However, they did say a couple things tonight that raised some questions for me. The main topic of our conversation with them was econ grad school. They were talking about the pros and cons and what-not, as well as what we need to apply, yada yada yada (apparently Linear Algebra, Diff Eq, and Real Analysis are requirements). Someone asked about whether grad schools looked at service and volunteering when considering applicants, and the answer was a sharp no. Waller expounded on this, saying that Grad schools look for a very narrow type of person, for better or worse, and ultimately care about whether you can unearth problems and solve them.

Now, one of the main focuses of this group is to unearth problems in economics. However, because of our limited skill sets and training, we do not really have the ability to solve the problems. So, my question is this- how useful is heterodox economics, if it only raises concerns but does not provide real world solutions. Waller said that ultimately, people will only listen if you can give them a solution and a number. Should we limit ourselves to this paradigm? If not, what purpose will heterodox economics serve? Is there some way the two can be integrated?

Anyways, these are the questions I left tonight with. Interestingly, as we were leaving, Greg and I were talking, and we both sort of agreed that getting a PhD in econ might be a worthwhile endeavor (math course barriers aside). As this path begins to look like a very possible reality, how can I keep the concerns of heterodox in mind while solving problems? A night of questions, indeed.

Frustrations… Economics Teaching… Accountability?

Today, similar to most days that I have intermediate macroeconomic theory class, I walk out frustrated. The lecture is intriguing because it involves the whole economy and it provides ways of thinking about and describing the way the world works. It is exciting to think that I am learning something everyday that directly corresponds to real current events like the Fed’s actions [to cut interest rates] and efforts [to slow declining economic growth rates]. Though the topic is interesting and I love the challenge of trying to figure out what can be done, I dislike the way we are taught to think about the issues.

I feel like I am not being taught to think, but rather I’m being taught one theory’s approach to the problem. This one approach can theoretically guide the economy back to equilibrium and to a state of continuous economic growth. It is frustrating because to make the theory work, we have to make outrageous assumptions. Today, we had to make the assumption that prices are fixed.

At one point in class, we were trying to see what would happen in the economy if output was “too low”. We started by supposing changes in money supply and how that would affect interest rates and ultimately consumption and investment – but through all of this we had to assume that prices remained constant. So, I raised my hand and asked a question trying to point to the unrealistic nature of the assumption. I cited the current increases in raw materials and food prices across the economy and therefore voiced my discontent with the assumption that in our current economy obviously didn’t hold. The professor answered my question by saying, “Well, today we are just learning the Simple Keynesian Model…We’ll get to that later.” This is a response that I have often gotten repeatedly. While I understand that we need to first learn the basics, I feel like it is important to be able to critically engage unrealistic assumptions as they are made and to discuss potential alternative assumptions. I have never seen this done in one of my required economics courses at Notre Dame.

At the intermediate theory level—the highest level required (and offered) in the Notre Dame undergraduate economics curriculum—one would assume that a student could critically think about the theory and try to really engage in a discourse with it. Unfortunately, my experience makes me think this isn’t possible at Notre Dame. My efforts in trying to critically engage the lecture material presented in class feel futile.

As a result, I’m trying to start a discussion/learning group with others in my macro class to try to prepare in such a way that we can critically engage the theory. If my efforts continue to be futile, I think one of the purposes of QUEST ND will be further affirmed: students taking courses in the undergraduate economics curriculum at Notre Dame aren’t actually learning to think critically about the field of economics. Instead, they are being taught to absorb and regurgitate the neoclassical theory, and in the process being discouraged from engaging in meaningful discourse with other schools of economic thought.

As a result, I think students of economics at Notre Dame are being stripped of the opportunity to engage in the pursuit and sharing of truth. Furthermore, economics students are being marginalized as their professors discourage them from taking part in a forum where, through free inquiry and open discussion, students can pursue a genuine education.

“What the University asks of all its scholars and students, is not a particular creedal affiliation, but a respect for the objectives of Notre Dame and a willingness to enter into the conversation that gives it life and character. Therefore, the University insists upon academic freedom that makes open discussion and inquiry possible.”
- ND Mission Statement http://nd.edu/aboutnd/mission-statement/

If you are interested in helping me hold the University accountable to its mission, especially in the economics department, which has undergone (and continues to undergo) substantial changes, please email me and I can add your name to our QUEST ND listserv.

Felipe

QUESTnd@gmail.com

Low Standards=Bad Results

Tyler Cowen over at Marginal Revolution (one of our linked blogs) had this to say this afternoon:

"'Charge 80% per year on a loan in the U.S. and you're called a usurer. Charge 80% on a loan in Latin America or Africa and you can be a poverty-alleviation charity.'

That is Dean Karlan and Jonathan Zinman, in today's WSJ, "In Defense of Usury," p.A18. Karlan and Zinman discuss their study showing that micro-credit borrowers in South Africa are better off for receiving the money, even when they pay very high interest rates."

Maybe this is just the CST minor in me, but maybe instead of sitting here defending 80% interest rates (remember that many of our capitalist friends in America get worked up when the Fed Funds Rate cracks 5%) we should try to figure out how we can get this money to people at lower rates. The point is not that people are willing to pay 80% on these loans. Remember that there are people in America who are willing to work for $5.15 an hour. We could substantially increase their consumer surplus if we got these micro-loans into even the 20-30% range. But, again, that's probably just the CST minor in me. Maybe if we could get developed governments to subsidize these charities, rather than sit on the sidelines and prop up the macro-institutions like the World Bank and IMF, those lower rates might become a reality.

(Re)Definitions

Simplification, and often oversimplification, is an unfortunate necessity of any sort of social analysis. In economic analysis, we often group individuals into one of two categories: supply or demand, ignoring gender, age, race, religion, or any of the multitude of differences that may be embodied by these individuals. There are many problems with this sort of oversimplification of variables, which can lead to misguided theories, misinformed public policy, social unrest, etc.

One big part of the problem is the often vague definitions given to these variables. I touched on this issue in one of my previous comments. What exactly do we mean by "the economy"? What is "value" and how should we measure it? What does it really mean to be "productive"? Growth, equilibrium, efficiency, maximization - all these words are taught, talked about, written about, and absorbed with little to no thought about their definitions and real life applications. The article for next week explores the definition of economic growth and whether it is a good thing or even possible in the long run. As we work on making economic analysis more real and pragmatic, we need to come up with more real and precise definitions or what and how we are analyzing society.

There are several interesting articles/books that comment on this issue. One is an article by Clifford Cobb titled, "IfThe GDP Is Up Why Are We So Down". It examines what factors we choose to count as "economic" in our measure of GDP and what is being left out that maybe should be included. There is a book by Herman Daly titled "Beyond Growth"that deals with the distinction between growth and development, as well as other pertinent issues concerning the environment (Felipe, I never got to thank you for recommending this to me last year. Thanks!). There are various works of philosophy that deal with the issue of value and how to define it. I'm no philosophy expert, so I don't have any specific recommendations (Elena, could you help me out here?)

I apologize if this post came out jumbled or slightly incoherent. Lack of sleep plus sugar high does not equal intelligible blogging...

TGIF

Sean

Paul Krugman's The Conscience of a Liberal

For those of you who are familiar with Paul Krugman, you likely have enjoyed reading his op-ed columns in The New York Times. While Krugman is seen by many as a pundit because of this type of work (some consider him a "shrill liberal" because of his steadfast criticism of dubya), he is actually a well-respected economist. I initially became familiar with him because my principles classes-both taught by heterodox folks-used his micro and macro textbooks, and I found them quite good. You can imagine that I awaited with bated breath, when, after reading his columns for a couple years, Amazon.com informed me that I could pre-order his new book, The Conscience of a Liberal. I received it on it's release date, and read it over fall break.

Now, Krugman would likely be characterized by many as a "mainstream economist" which might be (but shouldn't be) anathema in the circles of this blog. However, having read over 100 off his columns (available at pkarchive.org), I have found that he is very aware of the power relationships and importance of institutions that shape the real economy. While he may be somewhat beholden to mainstream measures of economic progress, he is very progressive in his vision of how that progress is achieved. And, further, he is respected as a very good economist (he teaches at Princeton and won the John Bates Clark medal for outstanding economists under the age of 40).

As for the book itself, it is essentially a look at the economy of 20th century America (with frequent comparisons to Western Europe) through a political lens. Ah- now you see why we should probably take a listen. Essentially, Krugman works against the idea that the success or failure of the economy drives politics and shows how politics in America have shaped the economy. Krugman ultimately espouses the various institutions that, coming out of the Great Depression, led to what he calls the Great Compression. Krugman touts the influences of FDR's New Deal in the 1940's, which he sees as three-fold: 1) the support of labor unions through a pro-labor NLRB; 2) higher taxes on the rich ultimately redistributed to the poor; and 3) war-time pressure from the government to increase working class wages. The result of these 3 reforms was the Great Compression, a period from 1944-1970 in which the middle-class became larger than ever, real wages were high, and there were fewer rich people than ever.

Naturally, because of the influence of money in politics, the elites would not have this arrangement for ever. Thus, the Great Divergence, a development that started in the 70's and has carried into the present day. Krugman points to the rise of movement conservatism, an amalgam of different interests, ultimately geared to reverse the egalitarian outcomes of the US economy. Now, there has been a lot written about how the Religious Right had turned otherwise liberals into conservatives, and thus allowed for the business Right to push its reforms. Krugman, however, points out that the key factor in the rise of movement conservatism, and thus the Great Divergence, is exploitation of racial bias. Piggybacking on the Democratic Party's support of Civil Rights, he argues that the Right used racial undertones to turn the solid South into a conservative region. This is ultimately his thesis: that the use of race has been the key component in the rise of the Right over the last 3 decades, and ultimately, of the rolling back of labor unions, high taxes, and fair minimum wages.

Krugman thus fingers the political economy of the US. The Right has exploited race to push its economic reforms, which have increased inequality. He believes, however, that there are signs for hope. As it turns out, the institutions of the New Deal have proved resilient enough to keep hope. Social Security is still around, the minimum wage has been raised again, and tax cuts will likely be rolled back (as for labor, it is hard to know what might happen). Krugman fingers health care reform as the next step in reaffirming that the state can be a force for economic equality. It seems clear at this point that no matter who comes out of the Democratic primary, health care will be a major issue on the table, and thus the time is ripe for universal health care to finally be a reality in the US.

In his conclusion, Krugman writes, "I believe in a relatively equal society, supported by institutions that limit extremes of wealth and poverty. I believe in democracy, civil liberties, and the rule of law. That makes me a liberal, and I'm proud of it." Thus, Krugman leaves us with a view of the economy, through institutions, as a force for good. While his calls for reform are not purely bottom-up, they are ultimately based around the idea that members of a democratic society can in some ways shape the results of their economy. While this sort of liberalism may be mainstream economics, and while many of the reforms called for, including unions and health care reform, still work through the markets, I have a hard time not liking what I read in this book. I recommend it as a good introduction to the political economy of the US in the last century. If anybody would like to read it, I would be perfectly willing to lend out my copy.

If you're looking for more Krugman, his columns appear in the NYT op-ed page on Mondays and Fridays. He also has a blog that he writes in pretty frequently at http://krugman.blogs.nytimes.com/. If you've made it all the way through this attempt at a book review, then thanks. If you would like to read a more extensive review that really captures Krugman's thesis, check this out.

Il/legal Economics (This Is Not Just About Immigration, I Promise...)

One area of "economics" which I have recently become very interested in and which is almost completely ignored in neoclassical theory is non-market, black-market, and unquantifiable transactions. Many neoclassical economist dream up a world where informal or illegal transactions, drug smuggling, human trafficking, slavery, bartering, arms flows, money laundering, etc., don't exist, and theorize around this illusion. Fortunately, non-economists have filled the void, analyzing the effects that the "illicit" has on the global economy. Carolyn Nordstrom, an Anthro prof. at Notre Dame, has spent years analyzing illicit economics and illegal networks, finding out how astoundingly large, organized, and powerful they are. She has written several papers ("Invisible Empires" is a good, concise one and can be found in the library database) and books on the subject. She explains that the influence of these illegal networks can have far-reaching macroeconomic effects, affecting things like interest rates and inflation. Of course, illegal transactions are more common in developing nations (the movie Blood Diamond actually does a good job exposing how diamond smugglers were able to circumvent international embargoes to sell diamonds which were providing money to buy arms, which were also smuggled, for the warring groups), but some estimates have claimed that 20-30% of the US economy is illegal (the definition of illegal is somewhat ambiguous here, but we are still talking TRILLIONS of dollars...). Anyways, it is interesting stuff to think about.

Sean

p.s. for any of you grammar fiends out there, I always get confused about whether to italicize or quote paper titles, book titles, and movie titles. I apologize if my previous post contained such errors.
p.p.s. does anybody else have this problem too? If so, please tell me so I don't feel so bad...