Public choice

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So a long side discussion I had with Scott after class wound up being interesting enough to merit posting. Only tangentially related to econ so you can stop reading if that your only concern.

The question posed was how I could possibly believe that governments could be efficient economic actors. The assumptions went like this. There are outcomes in the world that are inefficient from a perspective of maximizing utility. There is also theoretical government action that could make those markets more efficient. From there we have two problems with government actually implementing a more efficient policy, (I’m also assuming that government action is legitimate, ie it can tax and spend for public welfare w/o causing moral harms) first, that government agents have a knowledge problems and secondly that they have an incentive problem.

The issue of knowledge problems is divided into two parts. First is the concept that government agents aren’t able to frame legislation because they lack the capacity to conceptualize the complex workings of the economy and that the only agents that have a vested interest in displaying potential legislation are special interests, ex only a tobacco company has (enough) interest in helping craft tobacco legislation. I find this reasoning inconclusive. On a wide variety of issues, not the least of which would be monetary policy, you find numerous interest groups pushing a variety of policy prescriptions more or less for (their own perception of) the public good. Assuming that any of these agents are right, it does not seem too farfetched for me to assume that government is capable of picking between policy alternatives.  The second and thornier knowledge problem is that government and indeed any actor can only guess at the utility curves of other individuals and thus any action by government is not maximally efficient compared to people seeking their own remedies. My first response to this is dogma. I think that most goals government pursues, ex. increased education, health care, support for the elderly, infirm, or disabled are inherently good goals and that most people believe these are good goals. My second response is that, given that dogma, government reduces transaction/coordination costs among actors. Keep in mind that for things that I think government should be involved in there’s an inherent difference between alot and a little. For instance giving 50% of my income to know that there are no children starving in America is me buying a totally different good then if I were to spend the half of my income supporting some number of starving children. In short the first knowledge problem is in practice surmounted and the second is an article of faith that certain goals are inherently worthwhile.

The second issue is that of incentives. The argument goes that politicians first and foremost goal is to win reelection, secondary to ideology because if they allow themselves to act as an ideologue in scenarios where it is toxic to their political career they find themselves unable to implement their ideology. Related to their goal of winning elections they have the goals of fund raising and mobilizing the base. Thus come the pernicious scenario that advocates of smaller government fear. There is a bill on the table. The bill started as an attempt to provide free lunch to all school age children. Lunch for all kids is commonly believe by society at large to be socially efficient. But there’s a problem. Me and you and other individual constituents gain a little bit if the bill passes. But if the bill were to include language that says, for example, that each lunch must have 2 servings of dairy, then a certain group might benefit disproportionally from writing the bill in such a way. And in order to insure it was so written they might be willing to make a large donation to a certain politicians campaign coffers. Now the extra dairy probably won’t be very helpful to the children but it probably won’t do anything to harm them. So the politician writing/voting on the bill goes ahead with it and gets the campaign contribution.

The above scenario is bad. Its not what I want. But I don’t think of it as a crippling indictment of government. Say there are  types of legislation:Perfect, Imperfect and None. Perfect legislation is that maximally efficient solution that we assumed exists, that government enacts and everyone is happy. I don’t think this actually occurs but its nice to think about. Imperfect legislation is the legislation that we actually get. Its warped by the differing incentives politicians face as individuals versus the preference their constituents feel as a whole as well as knowledge issues in properly accounting how people want things to be. Finally we have no legislation which is the status quo. Most people believe that perfect legislation is better then the status quo, the question is whether the imperfect legislation we actually get is better then none.

One fact that I think is important to remember about imperfect legislation is that the options available to the politician are filtered through what the people want. The politician (or rather the lobbyist) can only exploit the delta between how much people care about an issue and how much the lobby cares about the issue, filling the gap in public perception with money.  If I’m providing meals to children, which the public wants, I can write in a boon to the milk industry because the public doesn’t care about it and the fraction that does the politician can replace with those they sway with increased campaign advertising due to the donation. On the other hand the tobacco lobby can’t convince me to write a rider including a cigarette with every meal because they can’t  pay me enough to bribe the public to better my goal of being reelected. I would also like to add that I don’t think, by and large, that political agents are solely moved by Machiavellian self interest. They, to a greater or lesser degree, internalize the values and wants of their constituents and society at large.

So given these 2 problems in crafting public policy, in order to believe that public policy can in fact be good, I have to believe a number of things. To solve the knowledge problem I have to believe that there are sufficient relevant institutions, organizations or individuals that are willing to propose policy solutions, in additions to the governments own bureaucrats. Once I assume the knowledge or solution exists I have to justify for why a politician would pick the “ideal” or societal beneficial solution, solving the principal agent problem. To do this I have to believe that the public cares about benefiting society, for its own sake, and the politician does likewise. This is obviously not perfectly true but the closer it is to absolute truth, the closer the proposed policy will come towards being ideal.

I don’t have any problem believing those claims. It might be that I’m wrong and as I became older and bitter about the human condition I’ll drift towards libertarianism because it minimizes harms. But I think its important to note that the question of government interaction in markets and the degree to which its efficient is an entirely empirical one.  If we’re operating from a utilitarian standpoint then I can see reasonable people disagreeing about the level government intervention, mishaps the level of corruption and indifference to politics is higher then I want to think it is. But if that’s the sphere from which we’re starting then it seems ludicrous to hold it as an inherent tenant that government intervention is always and everywhere evil. At some level of public involvement, at some level of people trying to better the world, there has to be a point at which the benefits from government intervention outweigh the costs. Libertarians might think that point is never reached in real world situations. If they happen to be right, I still refuse to believe them.

Rational expections

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To the best of my understanding rational expectations assumes that people use the best information available to them to make their decisions. A key features of this is that people in this mode will also “rationally” realize the limits of their expertise and when the cost of acquiring more knowledge exceeds the benefits they will instead rely on experts in the field or vague heuristics for decision making. The model assumes that people are generally really good at making this decision making (both when they make professional prognostications based on expertise and when they rely on the expertise of others) with all errors being random.

I have two problems with accepting this. First their seems to be an assumption that the random nature and distribution of errors (presumably following a normal distribution) means that all errors will cancel out. I don’t think most markets work this way. Say the price of lunch at the local store varies day by day in response to local conditions. I’m worried about buying cookies if I have extra money so I want to minimize the amount of money I bring. If I guess right, all is well. But if I guess wrong and bring too little or too much money, my whole afternoon is ruined. Random errors don’t cancel each other out, rather the degree of deviation from the correct answer diminishes my overall utility.

This critique is of course begging the question of whether we can really predict very well at all, even given some kind of error term. In simple scenarios I can see we could be fairly decent at this. I buy myself lunch, I know that lunch was worth it, you buy me a present and reason using your expert knowledge of me that I’ll like it. But if we look at more complicated financial devices we soon are faced with a lot more hidden information. I buy a stock. The value of the stock is, in general, based off what someone else is willing to pay for it.  Now the stock might be for a plumbing company. As I am a master of all things related to plumbing I can look at the company and figure, based on the secret plumbing techniques that I know, about how much the plumbing company should be able to earn and thus how much I can expect it to be worth in the future. But most people are not me. They don’t have the secret knowledge of all thing related to plumbing graven deeply into their hearts. So when they try and discern the worth of the plumbing stock the only thing they can look to is the past prices and people past willingness to pay. But there’s a problem. My informed decision has a measure of error in it. I might be over valuing it or undervaluing it but surely I have not perfectly priced it. So when the uninitiated looks for the value of a plumbing company and makes his judgment as to its worth he’s going to be wrong, because the information he was basing his decision on was wrong, and then he’s going to be wrong again, because everyone has some small amount of error in their judgments.

Now this won’t always lead to tragedy.  The concept I dismissed in my first example, where random variations and errors cancel each other out, could indeed fix problems a fair percentage of the times. But as long as a large percentage of the market is making their own decisions on market actions, solely on the perceptions of others, you have a system that is in fact not rational because errors within the system will systematically become larger, like waves. I buy many shares of the plumbing company do to my plumber-iness. Sometimes this will reflect a true new discovery of real value. But often I will merely be mistaken. Nevertheless outsiders won’t know I’m mistaken. They’ll see an uptick in the price of stocks and, as their only way of knowing the worth of something is assuming that “the market” will set the prices at the appropriate level,  buy more stock. This causes a further uptick in the stock, and so on and so forth. As long as other peoples perceptions, invariably flawed, are included with the model, error terms will occasionally multiply, making the market, made up of rational individuals, occasionally act in an irrational manner.

I’m curious how close the explanation of booms and bust fits, both with established econ explanations and with the data we have on booms and bust. Suffice to say that it defies rational expectations, that a theory called rational expectations, would seem to posit that we behave in ways that don’t coordinate towards maximum efficiency. As always interested in logical flaws in my argument.

Rational expectations and rational agents

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I’m having a conceptual problem with the idea of rationality we’re using in class. First I’d like to separate the two terms, rational expectations and rational agents.

Rational expectations as I defined it in class “having a model or conceptualization of reality that you update with regards to to new information received” As Dr. Greenlaw pointed out this description is vague enough to be useless and not really amenable to modeling. Any action can be rationalized as rational, even more so once you take into account the transactional costs of forming a model so even non-model based action is of itself in fact a calculated decision (the vending machine example). This conceptualization, which I think is more or less status quo of economic thought, means that even the rambling crazy guy is in fact “rational” because he obviously has an implicit model that tells him he will gain more utility by raving about aliens then he would by holding down a job. Now this might be true but I don’t really think it gets us anywhere closer to being able to model society as a conglomerate. We might be able make post hoc claims explicating peoples impetus for action but because most peoples model is implicit unto itself (not formally defined or articulable even to the people themselves) and only becomes (partially) apparent when revealed by action I don’t see how we can

The second issue I take with the idea of rationality is the fixedness of the agent. Say an individuals model is made up of preferences and costs. The individual is me. I really want a cheeseburger. I go to McDonald’s,  make a considered decision about whether the cost of the hamburger is worth it to me and decide to buy the hamburger. In that instant my tastes and preferences are revealed and I make the exchange for the cheeseburger and happiness subsumes me. But in the next instant, that just revealed preference is eliminated ,”I” no longer want another cheeseburger, my stomach is full and the cost of buying and consuming another one exceed the benefit. This phenomenon is normally just labeled diminishing marginal utility but I think that explanation understates the magnitude of what is changing. If I, as an agent and as a human being, am made up of a series of cost benefit models and an action that I takes changes those models, then it seems quite clear to me that the post transaction I is a different person then the pre-transaction “I”.

Now the cheeseburger example is intentionally trite, but I think the idea has farther reaching implications. Say every individual is perfectly economically rational, a pretty easy standard under the loose rules I talked about above. Not to harp on an old example but said individual would be totally justified in consuming large quantities of crack. If you’re going to completely discount the tastes and preferences of your future self then engaging in “self destructive” preferences at the present time isn’t really a cost. The future you isn’t you, its someone else that bears the consequences of your action. This mode of thinking clearly does not lead to a sustainable society. Thus society and institutions within society develop that force us to value the tastes and preferences of our future self, even if that means changing our “natural” preferences. For example education is clearly future weighted. On one level its designed to make our future selves more employable. Generally by high school most of us (especially the ones likely to be reading this) recognizing that it can be valuable for its on sake. But we didn’t start that way. At some point or another during elementary school , most of you decided that you didn’t want to be at school, that you’d rather stay home and play with toys. Forcing us to go to school, overriding the default preference of our younger selves to discount the future and in effect teaching us to value the preferences of our future selves changes lives. And as a socialized agent of society I’d say that our “lives” are better because of it, if we define life as the collection of different agents sharing the same physical shell. The total consumed utility of the individual is higher.

The take away point of that philosophical rambling is that rational agents utility models are A) impossible to determine in advance of revealed preference and B) that fully rational agents can and will make choices that negatively impact the value of their future selves lives in absence of societal or legal restrictions on those choices. I’m curious if anyone has an alternative interpretation or if anyone thinks you can still create a meaning model of the conglomerate choice given these caveats.

Mental vomit

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This is a post about the hangup I had in class today. This is not an authoritative post, nor necessarily an explanation of how I think government should run but instead a brief musing on a way the real world and economics COULD interact- please point out flaws in my reasoning.

We were talking about money. At this point i’m not sure where my interpretation divorce from the “official story” so bear with me.  What happens when you expand the money supply. The basic idea was that  money supply goes up, the created money temporarily having an artificial high “value” until the effects of its creation filter down, raising the price level. I don’t think that’s the end of the story however. The specific mental example I was working with was the fed try to stimulate the economy. In the model above as the fed pumps money into the economy the the effects balance out in the long run and cause no real growth in GDP. But I don’t think that’s what actually happens and I don’t think its just a long/short run dichotomy issue.  You might consider the primary actor in this situation the fed, but in reality it isn’t. Far more important then the fed are the banks, the actors that are extracting rents from being the feds money balloons. So the fed cuts interest rates and tries to get more and more money to the banks. There’s a problem for the banks here however. There’s no guarantee the increased quantity of money they’re getting from the fed is going to offset the loss from decreasing interest rates. Sure they have to play ball, if they don’t some other bank will instead. But as an institution they more keenly feel the loss caused by lower then expected interest rates then any other single actor.  So whats a profit maximizing agent to do?

My idea is that, despite what we pretend in econ class, investment is not magically laid out in some gentle spectrum of profitability, with new investments being undertaken as the interest rates fall low enough to make their ROI worthwhile. Instead its more or less laid out as a scatter graph that models the spread between risk and potential profitability. And the axis containing risk fails to have any labels. So when a change in macro economic policy causes the bank to seek new investment its going to want to seek new investment at its old rate of return, not whatever new interest rate that the market will end up balancing to at some point in the future. This incentive to maintain profits forces or at least encourages the bank to make more risky investments, at least insofar as the bank can properly evaluate risk. That’s as far as I’ve really taken the story, i’m not sure how you’d use this as a predictive test because it assumes as a tenant that banks/people are bad at evaluating risk, it works as a means of justifying state policy because if the wise people over at the fed are correct in their ascertainment that the economy is being under invested, ie not performing to potential, capital infusions to risky ventures like, say startups, should help jump start the economy because those start ups will be more able to suck up “wasted productivity” like unemployed workers then ossified companies. Capisce?

A secondary unrelated musing. We were talking about money as both a “real” and “financial” item. Real in the sense that it performs an inherently useful function, as a medium of exchange, and financial in the sense that it can earn income.  State manipulation of the money supply doesn’t affect the “real” value of money as a medium of exchange. Me being able to buy a cup of coffee for 2 bucks instead of 3 chicken eggs, lowers the costs of trade for everyone in society and the same is true if it instead costs 10 bucks.  This only breaks down during hyperinflation at which point money uses all “real” value because its no longer serves as an effective medium of exchange because I no longer trust in my ability to exchange it for something of value. Money as a vector for earning income can fluctuate in completely separation for its first value. I’m curious about money as a financial tool because frankly its not used much as such. If we hold money to be strictly bills its is seldom if ever worth it to hold onto as an “investment” or creator of income, meaning that we seldom experience deflation and so you can never buy more coffee or eggs with the same amount of paper money. So we come the long way around to the fairly obvious conclusion that the higher the liquidity of a financial implement the lower the roi, or in the terms of the discussion we’ve just been having money’s “real” value as a medium of exchange is detrimentally correlated with its viability as a “financial” asset. I feel like there should be something more to that story but I can’t quite pin it down.

P.S.- In my copious free time, I study Japanese. I find this site but both fascinating and incredibly intimidating, I wonder why there are no English equivalents that I know of.

Janky post is janky

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I think I might have written more about non economic topics then econ at this point. I’m not particularly worried about this but I do have a reason slightly disconcerting. Basically despite few/no one reading this I don’t want to put out a half finished incoherent post. I’d like anything I put up to have at least a somewhat recognizable flow and preferably a salient point or ending. This is problematic cause there’s a lot of half formed ideas in my mind that represent the totality of my thoughts on econ issues. The issues themselves, definitely interesting, my muttered ramblings, not so much.

Take the recent debate over explications of current unemployment. Fascinating stuff. But I can’t add or critique anything any of these guys are saying because I don’t trust my understanding of it enough.

Another example would be today’s discussion of basic Keynesian economics. On a good day I have it all straight. At the very least I have all the pieces of the major economic theories memorized. But occasionally slide around and get garbled up within each other. So while I at least recognized everything we were talking about in class my thoughts, such as they were, devolved into trails of inconclusive reasoning.

“What about doubt….. hmm how would a species currency change things over a fiat currency… holding MS constant would mean… i’m not sure anymore… money is constant so if money demand falls the roi on investment falls and investment falls? Which means gdp falls? How does money demand fall exogenously of the model anyway?? More interestingly how does the credibility of the commitment to a constant MS change market actors decisions? Would a change to a gold standard be different then the fed merely saying they intend to hold MS constant?”

Is a relatively accurate partial transcript of my thoughts during class. I like to think I can reach solid conclusions giving time to think about things but who knows how long that will take. But reaching that point takes a lot of running around like a chicken with its head cut off. Does everyone else think only in perfectly formed economic constructs?

Economics is BS

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BS standing for Bachelors of Science of course. As you may or may not be aware an Econ major at UMW confers a Bachelor’s of Science upon its bearer. Interestingly enough this is not the case at all or even most university. At their discretion some universities instead award a bachelor’s of arts for econ related study. This begs some questions, at least to me: What’s the difference between a BA and a BS, which is better, and is what UMW does really a BS.

I suppose I should mention that this entire discussion is framed by the conversation I had in class yesterday. Specifically what good does a college education do a person? The answer as cited in class was not terribly much overall, at least for most of its students. I think ideally, in the best of all possible worlds education gives an individual the tools they need to best handle life. Now obviously that’s a goal open to a wide gamut of interpretation, but bearing with me for the moment, here’s a possible dichotomy.

A Bachelor’s of Science teaches you how to do things and to know things. A chemistry student knows a lot about titration and the periodic table of elements, an engineering student a lot about gravity and fluid mechanics, A mathematicians a lot about….. err mathy stuff. But for these career paths the knowing of that specialized knowledge is the end goal, with it they are fully employable in their chosen field because they have knowledge that is difficult and onerous to acquire and thus in limited supply. Education, when it “succeeds”, succeeds because its grants the individual a comparative advantage that they can use to find employment.

Compare this to a Bachelor’s of Art. You know, fine, prestigious, and of course lucrative fields like say, I dunno, actor or philosopher. Your college education here is not necessarily helping you get hired. It’s not likely to directly contribute to your annual income. But that doesn’t make it worthless. The “arts” or humanities, whatever you wish to call them, aren’t focused on what you know or do but rather how you know or do. Having an English degree is valuable, not because you can quote Shakespeare but because reading Shakespeare in such depth has giving you a greater understanding and appreciation for the value of words. To put it economic terms your prospective life utility has increased both because the ancillary benefits of studying Shakespeare are a marketable skill but more importantly because you’ve increased the amount of utility you get from a low cost activity (reading.)

Now I’m arbitrarily labeling these two takes on education as representing BA’s and BS’s though I don’t think its an unfair comparison. But I think the dichotomy is useful for framing the issue. You can teach any field of inquiry around either of the axioms. If you really really wanted you could make a philosophy course about memorizing dates of famous philosophers and being able to list off their arguments. I think this would be sad. But in a better world I think you would more often find engineering being taught as an adventure, an inquiry into the world of material science where the goal is not to memorize the formula’s but to understand the system.

To bring the circle around to economics, an economics program could be formulated in two ways. You could start it by requiring students to take enough math so they could really understand the high level theories. They would take their course learn the cutting edge theories and be able to apply their statistic jutsu at any number of lucrative jobs. Education would be succeeding. But that’s not how they teach Econ at UMW. Instead the students are asked to explicate a simple question “how does the world work?” The answers and the scary maths follow after. By teaching it in a way that forces students to keep asking questions, to see the answers to the questions as an ends into themselves makes the UMW econ program very different from the other and I think better.

Writers and meglomania

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One thing I’ve noticed in my writing is that I like to use a lot of qualifiers. In my last post “probably” “I think” and “might” all show up with far greater frequency then is probably aesthetically permissible and that’s after I combed through and edited .  I just did it again. “Probably aesthetically permissable.”  As a reader and from having it yelled at me countless times I know (probably) that its more correct to drop the qualifier. It makes the sentence shorter, makes me sound more authoritative, and doesn’t really change the meaning of the sentence much. Nevertheless I continue to use qualifiers liberally.

Is it because I’m not confident enough in my fact/opinions? It seems to me that “serious” bloggers seldom if ever use these hedges. They state their opinions as if they were fact and move on. Are that that self confident? Is it merely a quirk of writing style?  I’d like to note at this point that qualifiers make a poor argument and since most people blogging these days are trying to make an argument (“my view of interpreting the world is the correct one”) maybe that has something to with their disappearance.

Insight and reading

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So I’ve been looking around at what blogs I read and what they do, for inspirational purposes.  Here are two good examples: Marginalrevolution.com and Ezra Klein.

These sites serve two purposes for me as a reader. First they aggregate interesting links so I don’t have to read every site on the internet. However since I’m already taking advantage of services provided by people like these I don’t think I can, or  for that matter, have a large desire to replicate this type of service.

These two specific blogs, while certainly not alone, do something else that’s important. They tell me how to think. Or to put it less bombastically they shape the way I think about  a topic. Its not that I don’t try to think critically about issues or engage in them on my own time. But reading other peoples opinions on things, other peoples paths of reasoning to get to their conclusion, is if nothing else interesting and I think insightful.

It’s a little hard to explain without an example so lets discuss the recent shooting in Tuscon. I read the initial reports, felt bad about humanity for a day but it never really occurs to me to put it in a larger context. By contrast here’s Ezra Klein’s initial take on the tragedy. He quickly places the slaying as part of a larger story or rather, showing how it emblematic trends in the world at large. In the example linked he’s talking about how truly valuable our remarkably violence free politically system is. I was aware of both events. I even agree mostly with his conclusion. And I think that its the ability to string together events and conclusions into a coherent narritive with a point that make blogs like his easy, interesting and informative to read.

I’m calling the above linking of events and motives insight. It makes me think of those events in a different more interconnected way and that’s valuable to a degree. But I’m also wary of it. I like to think I could write like that. “insightfully” describing the days news from the ideological standpoint of a college student or “insightfully” criticizing someone else’s article (e.g Krugman’s) because I put different valuations on various events or interactions between events that make the story they’re trying to tell  seem incomplete, silly, or just plain wrong. I can do that. I have done that. I’ll probably do that more.

But I don’t think that kind of style is really ideal for the intellectual development of both myself and the general community. I can read a great analysis and keep it locked in my head in limbo, a kind of meta-data about whatever issue that I can pull out to make judgments about the related event. But the nature of writing that kind of analysis means I’m telling a story, an argument if you will. By doing so I feel like I lock myself into one viewpoint, one way of understanding the issue. And I’d be poorer for it.

I’ll probably just dance around this problem. I can do it, I have years of practice as a sophist. But its important, I think, to realize the effect this kind of blogging system can have on our writing and thinking. When I read the papers we have assigned for class, I read them looking for things to criticize, so I can write about them. I’m forcing myself to have thoughts and opinions. Maybe this is a good thing. Its makes me more “engaged” in the reading then I otherwise would be. But I think it also has some pernicious tendencies. I look for negative or sometimes overly positive things to say about the work. After all I’m trying to fit the pieces of the paper into my narrative, e.g. “Krugman’s piece on the state of Macro is bunk because…..” I might not think that’s actually true but I’m still going to write as if its so because that what makes the post (or paper or essay) “easy, interesting, and informative to read.” Its much harder, I think, to write a good paper that full of qualifiers and half measures then it is to write a polemic, even if the wishy washy paper happens to me more accurate. When we’re encouraged to write in a manner that fosters strong, clashing opinions, we’re encouraged to think in the same manner and that, I think, is bad.

Long article is long.

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So my first impression of the Krugman article is its long. and detailed. and hits so many points that I don’t want to try and cover them because I’ll miss some and there all worth talking about.  So my plan is to focus on one and then if I read someone else have an interesting take on another I’ll come back and muse on it some more.

The idea I’m talking about is the idea that beautiful math is one of the root causes behind economists missing the boat about the whole “giant bubble” thing. I have two takes on this. First who can blame them? As economist and as humans we really, really want to understand things about how are world works. We had a model. It was complicated. Difficult. Unwieldy. We worked hard to understand it. We had a lot vested in this thing, firstly because we really wanted to understand things and secondly because we worked really hard to do so. The world wouldn’t be so unfair as to have it be wrong. I’m not sure if that makes sense to anyone but me, but suffice to say I can totally empathize with Krugman’s point about us being led astray by the model and its sexy maths.

That being said I do think Krugman’s (and my) explanation of math instead of vice being the reason economist got it wrong might be wrong. I don’t have objective evidence of this, I haven’t taken a poll of all the economist in the US. But it seems to me that the explanation “economist got it wrong because they were led astray by the beauty and intellectual rigour of the model” is itself a beautiful lie economists want to believe. At least in the circle’s of economist majors being totally concerned with only intellectual pursuits is high status behavior. Being an intellectual that ignores the world is at least on some level a positive thing to believe about yourself. It ignores other more tawdry explanations, like, not wanting to exert effort to learn and entertain a new theory, punitive backlash in the economics culture for proposing a theory that goes against the accepted view, gaining rents from the current situation and not wishing to change that.

I do think that there is/was a certain level of entrancement with the idea of being able to explain everything through models but that very concept seems flattering to the individuals involves which makes me skeptical of whether its true or not.

I guess I didn’t realize what economics was

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Read the article from the Economist.  A lot of seemed like common sense or general knowledge, for instance the bit about economist having caveats about the free market being efficient. Despite being fairly certain I read it before its hard to tell if this feeling is shaped by the fact that around two years have passed since “recession” started and we’ve re-internalized alot of the truism or if it was a little simplistic when it was first published.

What I liked: “Economics is less a slavish creed than a prism through which to understand the world.”

What I didn’t like and probably didn’t understand: “Economists need to reach out from their specialised silos: macroeconomists must understand finance, and finance professors need to think harder about the context within which markets work.” It has never really occurred to me to consider these two fields as distinct entities. Or rather finance professors are the ones that deal with boring, pedestrian questions like how to get enough money where as macro-economist are the ones that get to look at everything including the finance professors purview.  The idea that an econ professor wouldn’t or shouldn’t have to know about financial markets seems laughable to me which is I guess part of the point the article is making, I’m just not sure if that point is legitimately banal or if the passage of time just makes it seem so.


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