Monday, August 10, 2009

Frustrations over production functions

Tonight eldest asked me to help he on her economic development presentation. It is due tomorrow. I got very frustrated. She was very tired, and I realised that she did not have the background to understand my points. My fault in not explaining simply enough.

The issue dealt with neo-classical economics and the production function. The assignments was to critique an article attacking theories based on the production function in development economics. Before going on, I should explain the production function for non-economists.

To produce things, you need labour and capital. The production expresses the relationship between the two. This can be at firm or national level. A national production function is really the aggregation of individual production functions throughout the economy.

Now things are a little more complicated than this in practice. The relationship between labour and capital changes. Part of this is due to new technology and ideas. So economists add in something to accommodate this.

Okay, for the benefit of economists, I know that all this is a gross over-simplification, but I think that it captures the guts.

My problem is that while the production function can be useful at firm level, it has absolutely no validity at national level other than as a device for explaining some of the variables. So how to explain this to daughter in a way that is actually useful?

This is not an economics post. I must admit That I found production functions as boring as bat shit when I had to study them. I know that bat shit is not boring to some of those who love bats, but in a sense that's my point. It's very much a minority perspective.

You can use the production function to illustrate development problems based just on high savings rates. But its only a limited tool.

I turned off economics as a discipline when it became dominated by, from my perspective, fairly useless simplistic models. I fear eldest is going the same route, but without my exposure to alternative and interesting perspectives. So she won't come back.    


Anonymous said...

Is the article (that your daughter was asked to critique) on the web?

Is she an economics student or a student in another discipline being asked to critique an aspect of economic theory?

Jim Belshaw said...

I don't think so, Anon. More precisely, It may be, but most of the journals are behind pay walls unless you have somthing like a unit library subscription.

I was reading a copy printed two pages to the page, making it hard to read especially through the highlighter.

Eldest switched from business to a joint arts/economics degree, so she has some economics and in that sense should be able to cope fine.She hasn't liked some of the economics she has done, and also came to this course having just completed development studies, a very different course and one that she loved.

So attitudinal things are also involved, although the reaction of her class seems remarkably similar. Most people now do mixed stuff.

There is a broader issue, one to which I do not have an answer.

Students should not be spoon-fed. But when most students combine things such as work, sport and something of a social life you have to change teaching styles to get through in much more limited time.

Again, my thanks for your very precise questions.

Anonymous said...

Thanks for your reply. I'm not an economist but some years ago (about 7) I had to jointly (with a Treasury official) prepare a memorandum for a cabinet committee on the role of research and innovation in economic growth. This sparked my interest in the subject so I read up on the theory of growth (I could follow the mathematics OK and hence the theory even without formal economics training). Also the OECD and others had done a great deal of econometric work examining the causes of economic growth - essentially examining statistically significant correlations between growth and a host of other factors like business research and development, education levels (high school, university completion) in addition to labour and capital inputs.

Jim Belshaw said...

Hi anon. Your answer in some ways reflects part of my underlying feelings, the failure to mix in other things. Just so much has been written.

Have you ever written anything on your innovation/economic development research? I ahve dome somewhat similar stuff. My argument here is that practioners )past as well as prsent) need to present alternative views.

For a number of reasons, the loss of folk memories in agencies is quite dreadful.

Anonymous said...

I didn't do anything that could be called research - what we did was pull salient points on research, innovation and growth out of papers that could be said to have some sort of economic imprimatur on them, mainly OECD growth work prepared for OECD ministerial meetings.

I haven't had any connection with the field for a long time but at that time it was clear that although an enormous amount of academic work was being done, the whole field was in its infancy, in the sense that no one could have written a book setting out a body of agreed knowledge about the mechanisms of economic growth, because such a body of knowledge did not exist.

I don't see how it could be any different now, since we have just seen how monetary instability can unexpectedly occur and have a major impact on growth, something that was not contemplated in the early 2000s, so I imagine economists would now feel that they know even less about economic growth than they did back then.

I wouldn't be critical of economists for this - it is an enormously complex question.

Jim Belshaw said...

I actually think, Anon, that we have come a long way on development economics. I should write about this.

Part of the problem is that we have a range of knowledge across fileds that is not always very well integrated.