In this email, I respond specifically to Chris Auld's claim that I was
misleading in my presentation of the humbug production function and
Solow's response. The issues involved are actually of considerable
social importance since Solow's technique is a key element in
computational economic models used to inform policy discussions about
dealing with green house gas emissions, their effects on climate and
such measures as carbon taxes to limit humanity's effects on the
climate. The same technique is the basis of standard economic
contributions to policy analysis relating to education. I think it is
important to realise that these issues -- and my polemic -- are not just
of academic interest.
The relevant passage from Auld's message is:
> The central issue revolves around a critique of Solow published in
> 1974 by
> Shaikh. Moss tells his readers that Shaikh's critique demolishes
> Solow's
> technique, a result Solow himself "accepted in substance" and which
> has
> "never been successfully refuted." Moss proceeds to provide citation
> counts
> showing that Solow is still oft cited whereas Shaikh is largely
> ignored,
> allegedly demonstrating economists ignore criticism which undermines
> accepted
> methods. In reality, Solow provided an absolutely devastating reply
> to
> Shaikh
What I actually wrote was:
The conclusion is inescapable: Solow’s technique for
distinguishing between the effects of technical change and the
effects of capital investment does no such thing. At best, it
provides a complicated measure for the constancy of income
distribution.... It is safe to say that the critique, accepted
in substance by Solow and never successfully refuted, has not
prevented the paper and the technique from remaining hugely
influential.
What Solow wrote was:
Mr. Shaikh's article is based on misconception pure and
simple. The factor-share device of my 1957 article is in no
sense at _test_ of aggregate production functions of marginal
productivity or anything else. It merely shows how one goes
about interpreting given time series if one starts by
_assuming_ that they were generated from a production function
and the competitive marginal-productivity relations apply.
Therefore, it is not only not surprising but it is exactly the
point that if the observed factor shares were exactly
constant, the method would yield an exact Cobb-Douglas and
tuck everything else into the shift factor. That is what one
would _want_ such a method to do.
For those not trained in economics, factor shares are the shares of
income paid as wages and as profits.
I take it that the substance of Shaikh's article was that the goodness
of fit of the Cobb-Douglas production function using Solow's technique
depends entirely on the constancy of these factor shares. My reading of
the quoted paragraph above and the rest of Solow's reply to Shaikh is
that he accepts that point (how could he not?) but denies that it should
influence what economists do. Why should anyone care "how one goes
about interpreting given time series if one starts by assuming ..."?
Why should "one start by assuming" that the data was "generated from a
production function and competitive marginal-productivity relations"?
Suppose, indeed, that we ask whether any data can ever be generated by
"a production function and marginal producitivy relations".
The answer can be found in a literature that Solow knew well and was
surveyed by Geoff Harcourt in the June, 1969 issue of the Journal of
Economic Literature. The answer is that data is consistent with "a
production function and competitive marginal-productivity relations" in
two and only two cases:
Case 1: The economy has been in a steady growth equilibrium
since before the oldest capital equipment was produced and the
steady growth rate is exactly equal to the prevailing, common
rate of profits on the value of all existing capital
equipment. That steady rate of growth and that common rate of
profits must also be expected with complete confidence to
continue to prevail for the lifetime of all existing capital
equipment.
Case 2: The economy produces one good. That good and labour
are used to produce the good. The good can be costlessly
changed to equip any larger or smaller number of workers. Any
excess of the good can be scrapped costlessly. This good is
also the only good consumed by households.
That Chris Auld finds Solow's reply to Shaikh "absolutely devastating"
tells us a great deal about the social structures of the economics
community. Even if he did not know about the production function
literature surveyed by Harcourt, what reasonable scientist would
consider it good science to make an arbitrary and patently false set of
assumptions to devise a technique for the specification of policies
intended to protect the planet and appropriately to educate our
children?
I repeat my charge: economics (if science it be) is both bad science and
intellectually dishonest.
--
Professor Scott Moss
Director
Centre for Policy Modelling
Manchester Metropolitan University
Aytoun Building
Manchester M1 3GH
UNITED KINGDOM
telephone: +44 (0)161 247 3886
fax: +44 (0)161 247 6802
http://www.cpm.mmu.ac.uk/~scott
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