GRAMM DOESN'T HAVE A BACKGROUND IN MACRO-ECONOMICS

Foreclosure Phil "whiners" Gramm did his dissertation on a micro-economic topic, not supply-side nonsense, and Prof. James K. Galbraith at the Wonk Room offers an analysis & critique.

His topic is an issue in the theory of consumer demand, namely, what is the precise meaning of the idea that consumers have well-formed and unchanging preferences? His method is essentially, a critical review of literature.

Gramm’s basic point is that “the constant utility demand schedule is the only theoretically valid formulation of the demand schedule…” (p. 29). This is not without some interest. The point is quite subversive of modern empirical microeconomics, particularly in view of this statement, which is also possibly the only vivid metaphor in the thesis:

“Movement off the utility level from which the utility surface was projected in a dynamic context, with the specification of a time period of adjustment, alters the form of the utility surface and it flaps like a sheet blowing in the wind.” (p. 30)

What this means in English is that you can’t draw welfare conclusions (that is, inferences about whether people are better or worse off) from an empirical analysis of their changing choices under changing economic conditions (changing prices or technologies) — which is a lot of what applied microeconomics tries to do. The structure of preferences in the course of changes is unlikely to remain stable, Gramm argues, and therefore data cannot be interpreted along the lines that traditional theory requires.

My guess is that the proper moment for that article would have come in the late 1940s, or some twenty years before Gramm actually wrote his dissertation. By the time he did write it, the mathematical character of the field had long since outpaced the very modest display of technique here, and the concerns Gramm writes about would probably have already been considered antique in most quarters.