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Raivo Pommer-estonia-www.google.ee
raimo1@hot.ee

Cyberspione

Ein Spionagenetzwerk mit dem Namen GhostNet hat weltweit mehrere hundert Computer infiltriert und deren Nutzer beobachtet. Kanadische Forscher haben dieses Geisternetz entdeckt, das innerhalb von weniger als zwei Jahren aufgebaut worden sein soll und noch aktiv ist. Der Betreiber sei unbekannt, wie die New York Times berichtet.

Die Forscher am Munk Center for International Studies in Toronto gehen davon aus, dass mindestens 1295 Rechner in 103 Staaten infiltriert worden seien. Dazu sollen Computer von Botschaften, Außenministerien, der Nato und des Dalai Lama gehören. Die infizierten Rechner stehen dem Bericht zufolge unter anderem in Brüssel, London und New York. Betroffen waren die Außenministerien von Iran, Bangladesch, Lettland, Indonesien, den Philippinen, Brunei, Barbados und Bhutan. Außerdem seien Systeme in Botschaften von Deutschland, Indien, Südkorea, Indonesien, Rumänien, Zypern, Malta, Thailand, Taiwan, Portugal und Pakistan gehackt worden. Dabei hätten die Hacker Malware installiert und Daten von den befallenen Computern empfangen sowie versendet.

Exiltibeter wollten es wissen

Die Systemeinbrüche wurden dem Blatt zufolge entdeckt, nachdem Mitarbeiter des Dalai Lama die Kanadier gebeten hatte, ihre Rechner auf schädliche Programme wie Viren zu untersuchen. Das geistliche Oberhaupt der Tibeter, das im Exil lebt, wollte damit sicherstellen, dass seine Rechner nicht von der chinesischen Behörden überwacht werden.

From the article:

"Krugman says he found himself in the science fiction of Isaac Asimov, especially the "Foundation" series—"It was nerds saving civilization, quants who had a theory of society, people writing equations on a blackboard, saying, 'See, unless you follow this formula, the empire will fail and be followed by a thousand years of barbarism'."

His Yale was "not George Bush's Yale," he says—no boola-boola, no frats or secret societies, rather "drinking coffee in the Economics Department lounge." Social science, he says, offered the promise of what he dreamed of in science fiction—"the beauty of pushing a button to solve problems. Sometimes there really are simple solutions: you really can have a grand idea."


Well, that about says it all, doesn't it?

Where is Ayn Rand when we need her?
And this is from Newsweek, which is hardly a pro-market publication.
Steve, can you (or anyone else) recommend his stuff on international trade as being worth reading? I've not read it. Someone (Don Boudreaux?) mentioned his book Pop Internationalism as being good.
Bonus Q: was his international trade stuff worthy of a Nobel (whatever that acutally means)?

The biggest problem with Krugman's Nobel was the new economic geography side. On both sides, the parts of "his" ideas that are good were thought up by others first. Krugman was mainly the publicizer of it all, the so-called "new international trade" and "new economic geography," that allow for taking into account economies of scale via the Dixit-Stiglitz model of monopolistic competition. At a minimum, the prize should have been shared by Dixit (Stiglitz already got one) and Masahisa Fujita, who first applied the model to economic geography before Krugman did, but was not cited by Krugman.

Indeed, something not mentioned in the article is Krugman's problem with not citing the work of other people, along with misrepresenting the state of affairs in certain fields, whatever one thinks of his ideas more broadly. Something not mentioned in this article is what an ass he made of himself publicly in the mid-90s by going after Brian Arthur in Slate, claiming falsely that Arthur was not citing appropriate people in regard to increasing returns. Kenneth Arrow of all people defended Arthur against Krugman on that one, although what is clear is that the person Krugman was annoyed that Arthur was not citing was himself.

Barkely,

For as often as I've heard what Krugman's Nobel was awarded for and gotten the basic descriptive gist of it...as you point out, I've heard of it to substantiate any policies initiatives with regard to global trade.

What exactly is it that Krugman "came up with"?

A model?

A numeric-based explanation?

I guess what I'm wondering is how it's applicable in real world situations.

Any thoughts?

"the so-called "new international trade" and "new economic geography," that allow for taking into account economies of scale via the Dixit-Stiglitz model of monopolistic competition."

What relevance does these models have for Austrian economics? Wasn't the concept of imperfect competition refuted back in the 40's by Hayek and later, in the 70's, by Kirzner?

The bottom line is that Krugman is a deeply dishonest character.

Barkley has a LOT of courage for an academic to come out an say anything about this.

Tenured professors are not usually known for their courage or their character -- more professionals should be telling the public the truth about their very powerful peer at the NY Times.

The public deserves it.


Professor Rosser wrote:

"The biggest problem with Krugman's Nobel was the new economic geography side. On both sides, the parts of "his" ideas that are good were thought up by others first. Krugman was mainly the publicizer of it all, the so-called "new international trade" and "new economic geography," that allow for taking into account economies of scale via the Dixit-Stiglitz model of monopolistic competition.

At a minimum, the prize should have been shared by Dixit (Stiglitz already got one) and Masahisa Fujita, who first applied the model to economic geography before Krugman did, but was not cited by Krugman.

Indeed, something not mentioned in the article is Krugman's problem with not citing the work of other people, along with misrepresenting the state of affairs in certain fields, whatever one thinks of his ideas more broadly."

If I understand it correctly, New International Trade (NIT) has an insight in explaining trade (conducted by individuals and firms) between England and Portugal (or the U.S. and Canada)
that was absent in Ricardo or his classical contemporaries. (I see by a Wikipedia piece that Smith evidently did have a NIT innovation in his book. Did PK give him a nod? Just asking.)
Would I be correct in thinking that an understanding of trade between Alaska and Florida, or Maine and Hawaii would not be improved by NIT because these don't involve international trade? But an understanding of trade between traders in Detroit and Windsor would be because whatever they are trading (beer, fruit, etc.) crosses imaginary lines called national boundaries?
Sounds a bit NITwitish to me, although I'm willing to play along for the ride.


Speaking of "international" trade, check out the April 6 issue of Business Week, "M&A: Behind the Heat on Global Deals," about China's nixing of the Coke-Huiyuan deal:

"Companies can expect stepped-up deal screening elsewhere as well. A decade or so ago about the only anti-trust law anyone cared about was that of the U.S. Then the center of gravity for enforcement switched to the European Union. But now competition cops have gone global. According to a survey by law firm White & Case, 115 governments currently regulate mergers, up from 68 just five years ago."

I wanna be an M&A cop!
Guess that's one area where "market fundamentalism" and the Washington consensus and all didn't have much impact.

John V,

Krugman provided more easily understood accounts of certain ideas developed by others (such as Masahisa Fujita). The policy implications of these ideas are controversial and not clear cut, although some have interpreted them as justifying something like infant industry arguments for protectionism as in a world of economies of scale where whoever gets to be biggest first gets to survive and be the great exporter.

Irrespective of any policy implication, the ideas do help to understand how particular cities or regions develop comparative advantages that may persist over long periods of time, and some of Krugman's explanations have been among the clearest, with his book _Geography and Trade_ being especially well done and clear. In his super-cited 1991 paper in the JPE, he claimed to provide an explanation of how it was that industry became concentrated in the northeasern part of the US rather than spread evenly across the landscape.

Rafael,

Probably this topic should not be discussed here as it is not at all obvious that any of Krugman's ideas have any relevance for Austrian economics. In that case, I suggest you complain to Pete Boettke for even bringing him or his ideas up in any way shape or form.

Greg,

Thanks, but it does help to have tenure... :-).

Bill Stepp,

Actually the aspect of this on which I defended the granting of the Prize to Krugman was that in fact he was the one who saw that these ideas applied equally well to both international and interregional trade (that is, to economic geography). If there was something he did that was new in all this, it was making this link, which put him line with the last recipient of the economics Nobel for international trade, Sweden's own (and definitely deserving) Bertil Ohlin back in 1977, whose most famous work bore the title International and Interregional Trade. At the level of theory, there is no difference between the two.

In that case I wonder what one would make of Krugman and his brother-in-arms Brad Delong's participation in a "Liberal Media Email Cabal"

Apparently Delong has taken to personally insulting political opponents in left-wing email lists in which the object of derision is not present to defend herself. He joins such economic luminaries as Eric Alterman, Jonathan Chait, Chris Hayes etc. with his "prison quality" posts. Politico confirms that Krugman himself is part of this "echo chamber" which hilariously confirms liberal stereotypes and has the atmosphere of a yuppie junior high school.
http://www.slate.com/blogs/blogs/kausfiles/archive/2009/03/26/journolist-revealed-inside-the-liberal-media-email-cabal.aspx

http://www.politico.com/news/stories/0309/20086.html

"Probably this topic should not be discussed here as it is not at all obvious that any of Krugman's ideas have any relevance for Austrian economics."

Well, maybe because this blog is not only about austrian economic theory. I was only asking what is the position of the austrians on these models (if they are considered plain wrong, or if they have some valuable insights, etc).

Rafael,

See my short essay on Krugman's prize at Forbes:

http://www.forbes.com/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html

From the Nobel committee's rationalization of giving $1.4 to Krugman:

Krugman who most clearly and forcefully articulated the revolutionary nature of this new
approach for the theory of international trade. His short paper in the Journal of International
Economics, entitled “Increasing Returns, Monopolistic Competition and International Trade”
(1979a), is twofold. It contains not only a new trade theory that allows us to explain observed
patterns of intra-industry trade, but also the seeds of a new economic geography where the
location of production factors and economic activity can be stringently analyzed within the
framework of a general-equilibrium model. Remarkably, the paper achieves all of this in only
ten pages, and in a very simple and transparent fashion. The model is extremely simple. There
is only one production factor, and returns to scale are represented by a linear cost function
with fixed costs. But due to its simplicity, it illustrates the key mechanisms in a particularly
clear way.
The central feature in Krugman’s approach is economies of scale that are...
----

One factor of production, eh? Capital without land and labor? Or maybe just workers without capital and land. I guess it's a simple theory, not to say too simple.
Sorry, I don't see anything of value in this stuff. Isn't it enough that two people trade because each expects to gain value by doing so?
What do ecoonomies of scale, and "monopolistic competition" have to do with it?
Remind me again what Rothbard said in M,E,&S about the importance of a theory of international trade.

It looks to me like Krugman built on Ricardo's fallacious theory that international trade is conducted because of "comparative advantage."
Portugal had an advantage in producing wine; England had an advantage in producing cloth. Therefore, Portugal and England traded wine for cloth.
According to this paper,

http://myweb.liu.edu/~uroy/eco41/ppt/Ricardian.ppt

the Ricardian theory makes two assumptions,
1. wine and cloth are produced with one input, labor; and
2. consumers all have the same preferences.

But obviously nothing can be produced in the real world with only labor. And, even more importantly (and this kicks the theory in the head and kills it), if everyone has the same preference, no trading ever occurs.

Trades happen because people have different preferences: Mr. Smith, an Englishman, values the Portugese Mr. Munoz's wine more than his own cloth (and vice versa), so they trade.

Ricardo, a classical gasser, fell into the classical gas trap of thinking that costs determine prices. But Menger produced the Austrian revolution and showed that prices determine costs. Therefore when Smith and Munoz trade, they find the prices accomodative (ex ante at least) and reflective of the costs that go into producing the goods they trade, including transactions, (listen up Krugman!) distance, geography, "monopoly," etc., etc., etc.
So what we see is that not only is the Krugman approach all wrong, but so is the Ricardian stuff on which it's founded.
As I recall, Mises believed in the Ricardian stuff, but not Rothbard.
There is a big revisionist paper waiting to be hashed out on this.

Bill,

Ricardo's theory is easily generalized to more than one factor, and you are wrong that the only basis for trade is differences in preferences. The problem in your presentation is precisely that you have no adjective before the word "advantage" in your presentation of the wine-cloth example. In the Ricardian example, Portugal has an absolute advantage in producing both, but only a comparative advantage in producing wine. That is the whole point.

And the theory applies to interactions between individuals as well as cities, regions, and nations. So, even though the best lawyer in town may be the best secretary in town, it will pay her (and everyone else) if she specializes in being a lawyer (if that is her comparative advantage) and hires someone else to be her secretary, even though that person may not be as (absolutely) good at being a secretary.

Barkley,

Yes, and the example Rothbard uses in M,E,& S is a doctor who happens to be a better gardner than the gardner he employs. The crux of his explanation for trade though, has to do simply with their different preferences. This is reason enough for trade; but I guess we can follow the mainstream's penchant for using a more complicated explanation in place of a simpler one to razzle dazzle the masses.
The best lawyer (and secretary) in town employs a secretary because he prefers doing so from the standpoint of efficiency in running his legal practice even though he has an absolute advantage in both endeavors. He values the secretary's services a bit more than the money he pays him/her. The secretary's preferences are reversed.
We needn't even consider comparative vs. absolute advantage.

Bill, think about it more carefully.

Look at what you have written:
"The best lawyer (and secretary) in town employs a secretary because he prefers doing so from the standpoint of efficiency in running his legal practice even though he has an absolute advantage in both endeavors. He values the secretary's services a bit more than the money he pays him/her. The secretary's preferences are reversed.
We needn't even consider comparative vs. absolute advantage."

You have described comparative advantage even when claiming to criticise it.

The decision the lawyer takes on the basis of efficiency is a decision taken on the basis of comparative advantage. This doesn't mean that all decision are taken on that basis, clearly they aren't. The lawyer prefers one thing over the other because of comparative advantage - it drives preferences.

The Ricardian aspects of Ricardos theory of comparative advantage are wrong. The rest is more-or-less right though.

But what about a lawyer who is not a better secretary than the secretary he hires, unlike the lawyer who is, but chooses to hire one anyone in the interest of running a better office?
Maybe I'm mistaken, but I've never thought that a theory of comparative advantage had a useful role in explaining decision making.

And I still think that Krugman and his fellow NIT-wits veered off on a dead end road.
I'd much rather have seen them criticize the bad stuff in Ricardo and stuff like "monopolisitic" competition, etc. then to pile up NITwit brownie points. Of course criticizing the R-man, and "monopolistic" competition would have gotten them read out of the profession (sniff), not to mention barred from certain faculty lounges (sniff).

"But what about a lawyer who is not a better secretary than the secretary he hires, unlike the lawyer who is, but chooses to hire one anyone in the interest of running a better office?
Maybe I'm mistaken, but I've never thought that a theory of comparative advantage had a useful role in explaining decision making."

Ok, there is a population of lawyer and secretaries. Neither can do the others job. In this case the best distribution of tasks is obvious.

The interesting problems occur when it isn't.

While preferences certainly enter into trade, they often do so in a way that cuts against what comparative advantage says in terms of the pattern of trade. Thus, people in wine-growing and exporting regions often like wine better and consume more of it than is the case for the people in the areas they export to, think of the French. Comparative advantage has nothing to do with preferences, and if the lawyer is only a 10% better lawyer than the secretary, and a 200% better secretary, the roles might be reversed.

Here is a good example of comparative advantage that is regionally based, no role for preferences at all. So, the top three crops grown in the US are corn, wheat, and soybeans. If you look at three states, you will find one having an absolute advantage over the other two in all three crops: I am speaking of Illinois compared to Iowa and Kansas. Yields decline as one goes west, but at different rates, which sets up the comparative advantage that drives this. So, in the end, the top soybean producing state in the US is Illinois, the top corn producing state is Iowa, and (in most years) the top wheat producing state is Kanssas.

Comparative advantage all the way, zip about preferences.

I don't understand the first two sentences.
Yes, the French probably have higher preferences for wine and consume more of it than do the people they export wine to in other parts of the world. So?
Some people in Iceland buy wine produced in France. How does the fact that the typical Icelander probably has lower demand for wine than the typical Frenchman cut against France's comparative advantage in wine production?

Consumer preferences are at the heart of the theory of the consumer, which is at the heart of the theory of demand. If consumers had my preference for soy, which I loath, demand for it would collapse to zero and it wouldn't get produced. Land devoted to soy production would be converted to making other agricultural products, or perhaps used for other things.

So to say that there is no role for preferences in a theory of comparative advantage, which I gather has to do with the production of stuff, including the location of where stuff is made, throws economics 101 out the window.
Unless you think that the theory of production is not based on the demand for what is produced, which in turn is based on the theory of the consumer and his preferences.
This, in a nutshell, is a big part of what's wrong with economics. Economists such as Krugman get so caught up in their techniques and mumbo jumbo that they loose sight of the fundatmentals. This also explains more or less why pseudo scientists like PAS rode to the corrupt top of the charts in "economics."
Read Rothbard's "Toward a Reconstruction of Utility and Welfare Economics."

Barkley,

The example of the agricultural production in Illinois, Iowa, and Kansas is interesting; the fact that yields decline as you go west is an empirical finding/datum that can't be deduced from the fact of human action (or the action axiom).
Therefore it doesn't belong in economic theory proper, but rather in applied economics (I suppose that's what it is).

Bill: "Therefore it doesn't belong in economic theory proper, but rather in applied economics (I suppose that's what it is)."

The fact that people have different preferences cannot convincingly be deduced from the fact of human action. The fact that capital goods are inhomogeneous cannot convincingly be deduced from human action.

Most of what Mises wrote require basic empirical facts. Not specific ones like yield declining in a westerly direction, but general ones, like the fact that differences exist.

Also, what Barkley is saying is that preferences don't necessarily have anything to do with comparative advantage. He is nowhere throwing economics 101 out of the window. Once we enter the realm of business the question is how can a demand be furnished. It is that question we are looking at. It is that question that comparative advantage tells us things about.

Rothbard was very explicit about this in M,E,& S. He said that everything in economics is a logical implication of the action axiom except for one thing--the diversity of resources. I suppose this could encompass stuff like the diversity of preferences and the heterogeneity of capital goods, not that that would matter to a psuedo economist like Solow.
But my complaint is about specific empirical datum such as declining yields, etc. This stuff is really economic history, not economic theory.
To repeat what I said earlier, it is incorrect to assume that prefs don't underlie comparative advantage. They certainly do, as they underlie all economics.
Reread what I wrote about soy above. If there is no consumer demand for it, no preferences for it, it doesn't get produced. Where's the comparative advantage in its production in this case?

It would be like saying you don't need arithmetic to do calculus.

Rothbard may have said that he only required diversity of resources. His work though relies on diversity of preferences too. Since resources are capital good that means that capital good are heterogenous (even if ones humans create aren't). I'm not disagreeing with Rothbard significantly.

We also agree that preferences underlie all economics that isn't at question.

However none of this really makes the idea of comparative advantage wrong.

The specific example that Barkley used relied upon a specific fact. That about yields. This fact though is relevant to businessmen not economists. The fact that such differences exist is what is relevant to economists. It is an example used to illustrate a principle. That principle is true regardless of the particular facts, but explaining in terms of particular facts is more clear. Rothbard does this in M.E. & S frequently.

Rothbard would say that diversity of preferences is a priori knowledge. You know that you have diverse preferences because of your own thinking.
The concrete content of your preferences, as expressed in what you actually consume, are obviously empirical data and change daily, even hourly, or in less time.
Economics text books, such as M,E,&S, use stylized examples which could actually occur in the real world, but they are not taken from actual historical events. For example, Rothbard's discussion of Crusoe and Friday trucking and bartering. (I don't think he went to some far away island and observed two guys named Crusoe and Friday trucking and bartering, the way an anthropologist might have done.)
I don't think comparative advantage is wrong, it's just that it's not a Big Kahuna idea.
Neither is so-called New International Trade Theory.

Bill,

I repeat: preference differences certanly impact trade between individuals, cities, regions, and nations. However, they have nothing to do with the theory of comparative advantage. It is entirely a supply-side theory, and if you insist on having everything agree with something that either Rothbard or Mises said, it fits in exactly with the remark by Mises about "diversity of resources" you mention. That is and always has been the foundation of the theory of comparative advantage.

"Rothbard would say that diversity of preferences is a priori knowledge. You know that you have diverse preferences because of your own thinking."

This is a place where I disagree with Rothbard and Mises.

We know a priori our own preferences. Other people exist, we know this only be observation nothing else informs us of it. Nothing else informs us of their preferences or their structure. Rather, we observe they are like ourselves, we then deduce that their preferences follow a similar pattern to our own. We observe that they don't follow exactly the same pattern.

"I don't think comparative advantage is wrong, it's just that it's not a Big Kahuna idea."

I think it is a "Big Kahuna idea". It tells us about trade and business. For example, how could we make argument (for or against) about free trade without it? On the basis of preferences? I don't think so.

Blogs are so informative where we get lots of information on any topic. Nice job keep it up!!

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