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March 19, 2010

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Economics Bloggers Forum

Posted: 19 Mar 2010 04:32 AM PDT

I am here today. The conference will be webcast, and you can submit questions here.

Paul Krugman: Why We Reform

Posted: 19 Mar 2010 01:08 AM PDT

Revisiting the arguments for health care reform:

Why We Reform, by Paul Krugman, Commentary, NY Times: One way or another, the fate of health care reform is going to be decided in the next few days. ... So this seems like a good time to revisit the reasons we need this reform, imperfect as it is.
As it happens, Reuters published an investigative report this week that powerfully illustrates the vileness of our current system. The report concerns the insurer Fortis, now part of Assurant Health... In particular, according to the Reuters report, it targeted every single policyholder who contracted H.I.V., looking for any excuse, no matter how flimsy, for cancellation. In the case that brought all this to light, Assurant Health used an obviously misdated handwritten note by a nurse, who wrote "2001" instead of "2002," to claim that the infection was a pre-existing condition that the client had failed to declare, and revoked his policy.
This was illegal, and the company must have known it: the South Carolina Supreme Court ... concluded that the company had been systematically concealing its actions when withdrawing coverage, not just in this case, but across the board.
But this is much more than a law enforcement issue. ... The truth ... is that behavior like Assurant Health's is widespread for a simple reason: it pays. A House committee estimated that Assurant made $150 million in profits between 2003 and 2007 by canceling coverage of people who thought they had insurance, a sum that dwarfs the fine the court imposed...
Beyond that, this is a story that could happen only in America. In every other advanced nation, insurance coverage is available to everyone regardless of medical history. Our system is unique in its cruelty.
And one more thing: employment-based health insurance, which is already regulated in a way that mostly prevents this kind of abuse, is unraveling. ... This means that in the absence of reform, an ever-growing number of Americans will be at the mercy of the likes of Assurant Health.
So what's the answer? Americans overwhelmingly favor guaranteeing coverage to those with pre-existing conditions — but you can't do that without pursuing broad-based reform. To make insurance affordable, you have to keep currently healthy people in the risk pool, which means requiring that everyone or almost everyone buy coverage. You can't do that without financial aid to lower-income Americans so that they can pay the premiums. So you end up with a tripartite policy: elimination of medical discrimination, mandated coverage, and premium subsidies.
Or to put it another way, you end up with something like the health care plan Mitt Romney introduced in Massachusetts in 2006, and the very similar plan the House either will or won't pass in the next few days. Comprehensive reform is the only way forward.
Can we afford this? Yes, says the Congressional Budget Office, which on Thursday concluded that the proposed legislation would reduce the deficit by $138 billion in its first decade and half of 1 percent of G.D.P., amounting to around $1.2 trillion, in its second decade.
But shouldn't we be focused on controlling costs rather than extending coverage? Actually, the proposed reform does more to control health care costs than any previous legislation...
Can you imagine a better reform? Sure. ... But an ideal plan isn't on the table. And what is on the table, ready to go, is legislation that is fiscally responsible, takes major steps toward dealing with rising health care costs, and would make us a better, fairer, more decent nation.
All it will take to make this happen is for a handful of on-the-fence House members to do the right thing. Here's hoping.

"Ban Naked CDS"

Posted: 19 Mar 2010 12:42 AM PDT

Richard Portes of the London Business School argues we should ban naked credit default swaps:

Ban Naked CDS, by Richard Portes, Eurointelligence: In a credit default swap (CDS), the buyer contracts to pay the seller a regular premium in return for a commitment that the seller will pay out in the event of a default on a specified financial instrument, typically a bond. The market began in the late 1990s as a pure insurance market that permitted bondholders to hedge their credit exposure – an excellent innovation.
But then market participants realized that they could buy and sell 'protection' even if the buyer did not hold the underlying bond. This is a 'naked' CDS, which offers a way to speculate on the financial health of an issuing corporate or sovereign without risking capital, as short-selling would do. That was so attractive that soon the market was dominated by naked CDS, with a volume an order of magnitude greater than the stock of underlying bonds.
A good side effect of Greece's troubles is that politicians, regulators and central bankers are finally paying serious attention to this market. For two years, I have been pointing out the destabilizing effects of naked CDS in the financial crisis and the dangers in the use of these instruments as a speculative device. Only now is this taken seriously. ...
Let's look at naked CDS seriously, ignoring Greece. We start with the justifications. [goes through and argues against the standard justifications for CDs] ...
The most obvious argument against naked CDS is the moral hazard arising when it is possible to insure without an 'insurable interest' – as in taking out life insurance on someone else's life...
The most important argument is related to this moral hazard. Naked CDS, as a speculative instrument, may be a key link in a vicious chain. Buy CDS low, push down the underlying (e.g., short it), and take a profit from both. Meanwhile, the rise in CDS prices will raise the cost of funding of the reference entity – it normally cannot issue at a rate that won't cover the cost of insuring the exposure. That will harm its fiscal or cash flow position. Then there will be more bets on default, or at least on a further rise in the CDS price. If market participants believe that others will bet similarly, then we have the equivalent of a 'run'. And the downward spiral is amplified by the credit rating agencies, which follow rather than lead. There is clearly an incentive for coordinated manipulation, and anyone familiar with the markets can cite examples which look very much like this. ...
The mechanism of CDS is like that of reinsurance. The fees are received up front, the risks are long-term, with fat tails. There are chains of risk transfer – a CDS seller will then hedge its position by buying CDS. So the net is much less than the gross, but the chain is based on the view that each party can and will make good on its contract. If there is a failure, the rest of the chain is exposed, and fears of counterparty risk can cause a drying up of liquidity. The long chains may create large and obscure concentration risks as well as volatility, since uncertainty about any firm echoes through the system.
Naked CDS increase leverage to the default of the reference entity. They can thereby substantially increase the losses that come from defaults. And the leverage comes at low cost – nothing equivalent to capital requirements, no reserve requirement of the kind insurers must satisfy,
Banning naked CDS will require common action in the US and the EU, but the political environment is right. We should not lose this opportunity

Dog Bites Man

Posted: 19 Mar 2010 12:42 AM PDT

Bankers are lobbing against financial regulation:

Bankers lobby against financial regulatory overhaul, by Brady Dennis and Steven Mufson, Washington Post: If not for the sea of navy business suits and the hotel ballroom's chandeliers, the gathering Wednesday morning might have seemed more like a pep rally than a meeting of the American Bankers Association. But the 900 bankers were preparing to storm Capitol Hill, and they were getting revved up.
"We have a lot of work cut out for us," David Bochnowski, an Indiana bank executive, said to the troops... "Our job is to have an impact on the Hill. Are we going to have that impact?"
"Yeah!" the bankers shouted, as applause broke out. ...
Michigan banker Art Johnson told his peers... "All of us know what's at stake. It's really about our industry's future . . . We're not going to sit silently while we are blamed for problems that were caused by others."
And then came the blessing of a leading lawmaker. "You're all going to be lobbyists today," House Minority Leader John A. Boehner (R-Ohio), told the crowd. "I know that's a dirty word, but that's what you're doing." He told the bankers not to be afraid to stand up to members of Congress or "these little punk staffers," as he called them. ...
The bankers soon headed to Capitol Hill, talking points in hand -- white folder for House visits, blue folder for Senate visits. ...
Lawrence Summers, a top economic adviser to President Obama, said Thursday in response to Boehner, that at "a time when industry has spent $1 million on lobbyists per member of Congress, at a moment when there are four lobbyists per member of the House and Senate working this issue, we at the administration do not believe that the prominent issue is allowing bankers to stand up for themselves." ...
Dodd said Thursday that "there's nothing evil" about people expressing their concerns about the bill... Still, Dodd acknowledged he would have to change the current bill. "You hold on as much as you can to what you believe in," Dodd said. "I'm a chairman, and I'm one vote. But I want to get as strong a bill as I can."

Punk staffers?

We shouldn't worry when firms are against regulation of their industry, the time to worry is when industry does not oppose or even supports new regulation. Why? One reason is that this can be a sign of regulatory capture. For example, a firm could quietly lobby for (or not oppose) legislation that requires new firms to have their labs certified, where the standards for certification are relatively strict. If the incumbent firm already satisfies this standard, the regulation costs them nothing, but it imposes additional certification costs on start-ups and makes it harder for them to enter the industry.

When firms oppose legislation, they sometimes have good reasons so we should at least listen, but the mere fact that firms in an industry oppose legislation doesn't say much about the merits of the proposal.

Greenspan in 2001 on the Debt and Taxes

Posted: 19 Mar 2010 12:03 AM PDT

Listening to this now is almost surreal. Budget surpluses as far as the eye can see? Greenspan starts at the 2:40 mark:

[CSPAN is now offering all their archived video.]

*****

Moving forward to today, Greenspan attempts to defend the Fed under his leadership:

Greenspan reiterated his view that Fed policy under his chairmanship did not lead to the housing bubble and the financial crisis by keeping interest rates too low for too long. Instead, a global savings glut led to low mortgage rates and a housing boom, he said.

He also "Concedes That the Fed Failed to Gauge the Bubble":

Mr. Greenspan, once celebrated as the "maestro" of economic policy, has seen his reputation dim after failing to avert the credit bubble that nearly brought down the financial system. Now, in a 48-page paper that is by turns analytical and apologetic, he is calling for a degree of greater banking regulation in several areas.
The report, which he is to present Friday to the Brookings Institution, is by no means a mea culpa. But ,,, Mr. Greenspan, who has long argued that the market is often a more effective regulator than the government, has now adopted a more expansive view of the proper role of the state.
He argues that regulators should enforce collateral and capital requirements, limit or ban certain kinds of concentrated bank lending, and even compel financial companies to develop "living wills" that specify how they are to be liquidated in an orderly way.
And he acknowledged shortcomings in regulation...
"For years the Federal Reserve had been concerned about the ever-larger size of our financial institutions," Mr. Greenspan wrote. Fed research has not been able to find economies of scale as banks grow beyond a modest size, he said, and in a 1999 speech, Mr. Greenspan warned that "megabanks" formed through mergers created the potential for "unusually large systemic risks" should they fail.
Mr. Greenspan added: "Regrettably, we did little to address the problem."
The former Fed chairman also acknowledged that the central bank failed to grasp the magnitude of the housing bubble but argued, as he has before, that its policy of low interest rates was not to blame.

Here is the paper:

Alan Greenspan is presenting a paper at the BPEA conference today - his draft is here.

I don't think Greenspan can prevent the conclusion that "The Maestro" played a few bad (and ultimately harmful) tunes.

links for 2010-03-18

Posted: 18 Mar 2010 11:09 PM PDT

"What Took the 'Con' Out of 'Econometrics'?"

Posted: 18 Mar 2010 07:29 PM PDT

Austin Frakt on "some fairly technical aspects of applied economics":

What Took the "Con" out of "Econometrics"?, by Austin Frakt: This is an uncharacteristically but justifiably long post on some fairly technical aspects of applied economics. ...

A March 2010 NBER paper by Joshua Angrist and Jörn-Steffen Pischke may be the best economics paper I've ever read. The Credibility Revolution in Empirical Economics reviews the extent to which greater emphasis on research design in microeconomics studies have dramatically increased the credibility of empirical work. That credibility was called into question by Edward Leamer in a 1983 American Economic Review paper titled Let's Take the Con Out of Econometrics. In it Leamer lamented, "[H]ardly anyone takes anyone else's data analysis seriously." (Leamer's paper is itself a fun and worthwhile read.)

Leamer and others in the early 1980s were distressed by the lack of testing of implications of assumptions in specification and functional form of econometric models. His proposed solution was to analyze the changes in results based on model variations (sensitivity analysis). Angrist and Pischke make a strong case that Leamer was correct in his diagnosis but not necessarily in his prescription. They argue that the "credibility revolution" experienced in empirical microeconomics since Leamer's critique is due principally to a greater focus on research design not on sensitivity analysis.

A "research design" is a characterization of the logic that connects the data to the causal inferences the researcher asserts they support. It is essentially an argument as to why someone ought to believe the results. It addresses all reasonable concerns pertaining to such issues as selection bias, reverse causation, and omitted variables bias. In the case of a randomized controlled trial with no significant contamination of or attrition from treatment or control group there is little room for doubt about the causal effects of treatment so there's hardly any argument necessary. But in the case of a natural experiment or an observational study causal inferences must be supported with substantial justification of how they are identified. Essentially one must explain how a random experiment effectively exists where no one explicitly created one.

I view their paper in three parts, one on improvements in research design in microeconomics  (which I understand well), one on the degree to which industrial organization (IO) has harnessed those improvements (an area about which I'm learning), and one on macroeconomics (which I am not qualified to judge). Taking them in reverse order, let's begin with macro. Angrist and Pischke essentially characterize it as too little data and design chasing far too much theory. Whether that is fair or not I will leave to others to evaluate (paging macro bloggers). Nevertheless, they point to "[s]ome rays of sunlight pok[ing] through the grey clouds" of macro and continue by summarizing a few design-based macro studies (quotations © 2010 by Joshua Angrist and Jörn-Steffen Pischke).

If their critique of macro is strong, their attack on IO is withering.

The dominant paradigm for merger analysis in modern academic studies, sometimes called the "new empirical industrial organization," is an elaborate exercise consisting of three steps: The first estimates a demand system for the product in question … Next, researchers postulate a model of market conduct …  Finally, industry behavior is simulated with and without the merger of interest….

[T]his elaborate superstructure should be of concern. The postulated demand system implicitly imposes restrictions on substitution patterns and other aspects of consumer behavior about which we have little reason to feel strongly. The validity of the instrumental variables used to identify demand equations—prices in other markets—turns on independence assumptions across markets that seem arbitrary. The simulation step typically focuses on a single channel by which mergers affect prices—the reduction in the number of competitors—when at least in theory a merger can lead to other effects like cost reductions that make competition tougher between remaining producers. In this framework, it's hard to see precisely which features of the data drive the ultimate results.

Angrist and Pischke ask whether characteristics of simulated mergers based on this new empirical IO framework match those from other credible design-based merger studies. Their answer based on a survey of comparisons to date is that the evidence is mixed, which in their view diminishes the credibility of the new empirical IO approach.

Finally, turning to domains of empirical microeconomics in which a focus on design has been most prominent, Angrist and Pischke make some superb points. Among them is the notion that the gold standard of the randomized experiment is not without deficiencies. Such experiments are "time consuming, expensive, and may not always be practical." To this I would add that they are also not always decisive. Even the RAND health insurance experiment (HIE) has been critiqued (and defended). That is not to suggest that it is certainly flawed (or certainly perfect), it is merely to say that variations in interpretation exist for results of randomized experiments just as they do for non-experimental studies.

Indeed, Angrist and Pischke (and I) agree with Leamer that "randomized experiments differ only in degree from nonexperimental evaluations of causal effects." The authors add that "a well-done observational study can be more credible and persuasive than a poorly executed randomized trial." It is for this and the other foregoing features of randomized experiments that I believe the half-billion dollars or so that some advocate spending on another RAND HIE would arguably be better spent funding well-conceived observational or natural experiment-based studies. (A half-billion dollars could found on the order of 1,000 observational studies.)

In perhaps the clearest possible example of why Leamer's suggested remedy for empirical economics–sensitivity analysis–was not how it regained its credibility, Angrist and Pischke summarize a 1997 American Economic Review paper by Sala-i-Martin that reported results of two million variations of regression analysis. (The paper is titled I Just Ran Two Million Regressions.) The author chose three fixed control variables and selected three others at random from a set of nearly 60. He obtains some "wonderfully robust" predictors but Angrist and Pischke are not impressed.

Are these the right controls? Are six controls enough? How are we to understand sources of variation in one variable when the effects of three others, arbitrarily chosen, are partialed out? Wide-net searches of this kind offer little basis for a causal interpretation.

For all that, sensitivity analysis does have a place in the canon of empirical technique. Angrist and Pischke may be correct that it is a focus on design and not more sensitivity analysis that deserves the lion's share of credit for distinguishing econometrics from whimsical alchemy. However, once one is working within a framework of sound design sensitivity analysis is an important check on the robustness of results. Therefore, Leamer's advice is valid as an enhancement to, not instead of, good design. And that may, in fact, be the sense in which he meant it. That is certainly the sense in which it ought to be interpreted today.

In conclusion, Angrist's and Pischke's paper is an excellent review of issues pertaining to causal inference. It cites and summarizes a substantial number of high-quality work in numerous applied economics domains. And it makes a compelling case for how attention to elements of research design have taken the "con" out of "econometrics." If you're a student or practitioner of applied economics, consider reading the whole thing. As long as this post is, it hardly does it justice.

[Traveling today -- this was scheduled to post automatically.]

"Marx's influence on Rawls"

Posted: 18 Mar 2010 11:07 AM PDT

Daniel Little:

Marx's influence on Rawls, by Daniel Little: John Rawls and Karl Marx shared a number of core intellectual concerns. Both were interested in the question of what features a good and just society should have; both had theories about the good human life; and both understood that the benefits of modern life depend upon social cooperation. So it is interesting to ask whether Marx's thought had an influence on Rawls. In brief, the answer seems to be largely "no." In particular, Marx's economic writings and his theory of exploitation seem to have been of no special interest to Rawls during the period leading up to the publication of A Theory of Justice in 1971.

I didn't have the opportunity to study with Marx; but I did have that opportunity with Rawls. I attended both of his lecture series on the history of moral philosophy and the history of social and political thought in 1972 and 1973, and I served as a graduate assistant in the latter course. And eventually Rawls agreed to serve as primary advisor on my dissertation, "Marx's Capital: A Philosophical Study" (1977). (This eventually became the germ of my first book, The Scientific Marx.) Rawls's two primary lecture series have now been compiled by former students of Rawls's: Samuel Freeman's edition of Lectures on the History of Political Philosophy and Barbara Herman's edition of Lectures on the History of Moral Philosophy. The lectures continued into the 1990s, and they certainly evolved significantly during that time. In particular, the lectures on Marx are substantially more extensive by the time of the 1990s than they were in the 1970s. (An earlier posting provides the notes I took on a lecture that Rawls gave in 1973 on Marx's critique of justice.)

Rawls's teachings about Marx in his courses on ethics and social and political philosophy focused primarily on the early Marx -- the "philosophical Marx". He taught and reflected upon the theory of alienation and species being, and the main texts he focused on were the Economic and Philosophical Manuscripts, On the Jewish Question, and Contribution to a Critique of Hegel's Philosophy of Right. He gave little serious attention to Capital or Marx's own economic theories. It was Marx's theory of the human person, Marx's philosophical anthropology, that he seems to have found of the greatest philosophical interest and value. (Robert Tucker's The Marx-Engels Reader (Second Edition) remains a good source on Marx's writings. and Rawls used it as the primary source of Marx's writings in his course. Rawls also used Tom Bottomore's collection, Karl Marx: Early Writings.)

There is only one substantive comment about Marx in the lectures on moral philosophy:

A difference between Hegel and Marx in this respect is that Hegel thinks that the citizens of a modern state are objectively free now, and their freedom is guaranteed by its political and social institutions. However, they are subjectively alienated. They tend not to understand that the social world before their eyes is a home. .... By contrast, Marx thinks that they are both objectively and subjectively alienated. For him, overcoming alienation, both subjective and objective, awaits the communist society of the future after the revolution. (Herman, 336)

(Shlomo Avineri's Hegel's Theory of the Modern State, which appeared in 1972, provides a similar treatment of Hegel view of the modern state and the citizen's freedom.)

Rawls gave his primary attention to Marx in his lectures on the history of social and political philosophy. (This occupied roughly two weeks of the 12-week course.) Here are the selections of Marx's writings that Rawls assigned in this course: On the Jewish Question, Contribution to the Critique of Hegel's Philosophy of Right, selections from the German Ideology, selections from Capital, the Economic and Philosophic Manuscripts, Capital, Vol. I, chs I: sec. 4; VI-VII; IX, sec. 1; X, sec.1; XIII-XIV; and Critique of the Gotha Program. (These are the assignments listed in the syllabus for Philosophy 171, fall 1973-74.)

The materials assigned from the early Marx in this syllabus provide a fairly complete exposure to Marx's theories of species being, true human emancipation, and alienation. On the Jewish Question and the Economic and Philosophic Manuscripts contain rich bodies of argument in which Marx lays out his conception of human activity and freedom. Sections from the German Ideology provide some exposure to the theory of historical materialism. And the Critique of the Gotha Program is a vehicle for discussing Marx's ideas of a socialist society. So this batch of materials offer a reasonably thorough exposure to Marx's thought prior to his political economy and his formulation of an economic theory of capitalism.

By contrast, the imprint of Marx's political economy in this set of lectures is very limited. The readings from Capital break out this way:

  • Vol I, ch I, sec. 4: The Fetishism of Commodities and the Secret Thereof
  • VI: The Buying and Selling of Labour-Power
  • VII, sec. 1: The Labour-Process or the Production of Use-Values
  • X, sec.1: The Limits of the Working-Day
  • XIII: Co-Operation
  • XIV: Division of Labour and Manufacturing

This amounts to about 55 pages of reading from Capital, out of the 774 pages of volume 1. These readings introduce a few fundamental ideas such as the fundamentals of the labor theory of value, the idea of commodity fetishism, and some of the basics of Marx's sociological description of capitalist society and the economic process within capitalism. But it is a very sketchy introduction to Marx's thinking in Capital. And the most extensive discussion that Rawls provided of any ideas from Capital in his 1973 course -- the discussion of Marx's conception of justice in the 1973 lectures -- is largely a paraphrase of Allen Wood's analysis in "The Marxian Critique of Justice" (Philosophy & Public Affairs, 1972, link). This is true all the way down to the two passages that Rawls mentions from Capital in the course of this lecture; both were previously discussed in Wood's article. So there is nothing original in the 1973 lecture; Rawls has pretty much adopted Wood's frame of analysis in treating the question of Marx's conception of justice. This isn't surprising, in that Wood's article was highly original and rigorous, and opened up a largely new line of interpretation of Marx's theories. But Rawls didn't have much to add to the debate in this lecture.

In other words: As of 1973, two years after the publication of A Theory of Justice, Rawls's references to the economic theories and sociological descriptions contained in Capital were very slender indeed. It is hard to avoid the conclusion that Rawls had not been significantly immersed in a reading of Marx's economic and sociological writings during the formative period of his development of the theory of justice.

This breakdown of topics and readings gives a clue to what Rawls found appealing about Marx. The conception of individuals forging themselves through labor is central; it reflects a line of thought extending from Aristotle to Hegel to Marx, and it seems to be foundational for Rawls himself when he describes his theory of the good.

But there are other core ideas in Marx's thought that plainly did not appeal to Rawls. Central are the ideas of critique and exploitation. Both ideas are absolutely core to Marx; but they play no role in Rawls's theories.

The idea of critique involves the notion that there are hidden presuppositions underlying a given theory, and critical philosophy can uncover them. Ludwig Feuerbach represents on ideal along these lines; Feuerbachian criticism of religion "lays bare" the hidden agendas represented by official religion. Marx's own arguments in the German Ideology reflect this method. And in fact, many of Marx's titles have the subtitle "towards a critique of political economy". Does Rawls ever give attention to this intellectual style? In a word, no. Rawls pays no attention to Marx's philosophical method when it comes to "critique" as a tool of intellectual discovery.

The other unspoken Marxian concept in Rawls's writings and teachings is exploitation. Marx believed, as a matter of objective economic analysis, that capitalism is a system of exploitation in a specific technical sense: the capitalist is enabled to expropriate the unpaid surplus labor of the worker. This perspective on modern economic relations as representing a set of fundamentally unfair economic relations between the powerful and the weak is not one that Rawls found compelling, apparently. And the fundamental "ontological" framework of Marx's thinking -- the idea of capitalism as a system of relations of production through which economic activity transpires -- never comes in for detailed description or discussion in Rawls.

This aspect of Marx's theory of capitalism became central in the debate in the 1970s and 1980s over "Marx's theory of justice" (for example, Allen Buchanan, Marx and Justice: The Radical Critique of Liberalism and Allen Wood, Karl Marx). If capitalism is exploitative in its most fundamental institutions, then presumably Marx would judge that capitalism is unjust. Debate raged.

The topic of justice comes up directly in Rawls's 1973 lectures. But significantly, Rawls's analysis here is taken almost point-by-point from Wood; Rawls doesn't seem to have given the question much thought himself. So the theory of exploitation, in spite of its relevance to Rawls's central topic, is not an area of influence on the development of Rawls's thought.

And why is this? Apparently because both ideas are fundamentally anti-liberal. As Rawls writes in his lectures on political philosophy, "I will consider Marx solely as a critic of liberalism" (Freeman, 320). The two ideas mentioned here both fall in the category of fundamental critique of liberalism. The first discredits the philosophical foundations of Smithian political economy, promising to lay bare the underlying and contradictory assumptions it rests upon. The second lays out an explicit theory purporting to demonstrate the explicit inequality and unfairness of market institutions at their core. Perhaps it was cognitive dissonance that kept Rawls from giving more attention to the later Marx.

It is interesting to note that the explosion of interest in Marx by analytic philosophers took place in the early 1970s -- about the time of publication of A Theory of Justice. Philosophers such as Allen Wood, George Brenkert, Allan Buchanan, John McMurtry, Gerald Cohen, Jon Elster, Adam Przeworksi (a political scientist), and John Roemer (an economist) began taking Marx's writings seriously and offering extensive analysis and criticism of his theories. This resurgence began in discussions of "Marx's theory of justice," but extended quickly into many other areas of Marx's thought -- the theory of exploitation, the labor theory of value, the theory of historical materialism, and his theory of capitalism as a distinctive mode of production. (I myself argued for a "rational choice" interpretation of Marx's theory of capitalism in The Scientific Marx.) Early arguments discrediting the labor theory of value falls in this category as well. Examples of some of this work are included in John Roemer, ed., Analytical Marxism: Studies in Marxism and Social Theory. This work was referred to as "rational choice Marxism" or "analytical Marxism," and it represented an intellectual agenda that took Marx seriously as a thinker but often came to conclusions that offended orthodox Marxist theorists.

[Traveling today -- this was scheduled to post automatically.]

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