Morning Must-Read: Marion Fourcade et al.: The Superiority of Economists
Comments on Stephanie Aaronson: Labor Force Participations: Recent Developments and Future Prospects

Noted for Your Lunchtime Procrastination for November 30, 2014

Screenshot 10 3 14 6 17 PMOver at Equitable Growth--The Equitablog


Must- and Shall-Reads:

And Over Here:

  1. Justin Fox: Andy Haldane: The Regulator Who Explained the World: "The Haldane trademarks: a framework in economic theory, references to the latest in empirical research, grand historical sweep, and crystal-clear explanation... [plus] the subversive element found in the best of Haldane's work.... His Sept. 2, 2010 speech "Patience and Finance"... bowled over by how good it was.... 'Under one equilibrium, patience wins the day. When long-term investors start in the ascendency, prices tend to correct towards fundamentals. The performance of untested investors pursuing momentum strategies falters, while those pursuing longterm strategies flourish. The fraction of long-term investors rises. The self-correcting tendencies of market prices are thus reinforced, further supporting long-term investors. The patience gene thrives, the impatience gene dies. Natural selection results in a self-improving cycle, as with dieting, happiness and exercise. But there is a second equilibrium where this cycle operates in reverse gear.... Natural selection results in a self-destructive cycle.'.. Haldane then goes on to meticulously document the ways that, over the past decade, financial markets--especially in the U.S. and UK--succumbed to the impatience cycle.... Another Haldane speech 'The Short Long'... 'Control Rights (and Wrongs)'.... As somebody who has long trafficked in explanatory financial journalism, I stand somewhat in awe..."

  2. Marion Fourcade et al.:: The Superiority of Economists: "The dominant position of economics within... the social sciences in the United States... the relative insularity of economics... the tight management of the field from the top down, which gives economics its characteristic hierarchical structure. Economists also distinguish themselves from other social scientists through their much better material situation (many teach in business schools, have external consulting activities), their more individualist worldviews, and in the confidence they have in their discipline’s ability to fix the world’s problems. Taken together, these traits constitute what we call the superiority of economists, where economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. While this superiority has certainly fueled economists’ practical involvement and their considerable influence over the economy, it has also exposed them more to conflicts of interests, political critique, even derision."

  3. Simon Wren-Lewis: Understanding Anti-Keynesians: "I have always thought it important to try and understand where the other side is coming from.... Let me single out three Keynesian propositions. 1. Aggregate demand matters, at least in the short term and in some circumstances (see 2) maybe longer. 2. There is such a thing as a liquidity trap, or equivalently the fact that there is a zero lower bound to nominal interest rates matters. 3. At least some forms of fiscal policy changes will impact on aggregate demand, and therefore (given 1), on output and employment. Because the liquidity trap matters, when interest rates are at their zero lower bound we should use fiscal policy as a stimulus tool, and we should not embark on fiscal austerity unless we have no other choice. If propositions (1) and (2) strike you as self evidently correct... I would... note that there are large numbers of academic macroeconomists... who dispute one or both.... Tyler Cowen... talks about a ‘so-called’ liquidity trap.... Many macroeconomists... did think as recently as ten years ago that there was a broad academic consensus behind both (1) and (2). I was one of them.... This suggests (3) is at the heart of the dispute. However my reason for including (1) and (2) is that if you accept these two points, point (3) follows.... The two sides are not symmetrical.... Keynesians are happy for central banks to undertake various forms of unconventional monetary policy, the aversion on the other side to using fiscal policy seems more absolute.... An easy answer is that it is all political or ideological.... That in my view would be a sad conclusion to draw, but it may be naive to pretend otherwise. As Mark Thoma often says, the problem is with macroeconomists rather than macroeconomics. I can think of two alternative explanations.... The first comes from thinking... [that] money is very important, and... to therefore feel that monetary policy has to be the right way to stabilise.... The second is... I suspect we would not even think of questioning the central role of Keynesian ideas for macroeconomics today if it had not been for the New Classical revolution.... For some, the association of fiscal policy with old-fashioned Keynesian ideas set down deep roots. It certainly seems that some notable academics were surprised that New Keynesian models actually provided strong support for the use of countercyclical fiscal policy in a liquidity trap. I should really stop there, but having started with Tyler Cowen’s post, I really should say something about his comments on the UK.... Why the obvious fact that other things besides fiscal policy are important in explaining growth in any year is thought to be an anti-Keynesian point I cannot see. And if the case against Keynesian ideas rests on the incorrect forecast once made by a prominent Keynesian then this is really scraping the barrel..."

  4. Paul Krugman: In Front Of Your Macroeconomic Nose: "[Tyler] Cowen seems to have missed my point; I wasn’t talking about the merits of the Keynesian case, which I believe have always been overwhelming, but about the way macroeconomics is discussed in the media and among VSPs in general. My sense is that this is shifting in a Keynesian direction, while Cowen is arguing (wrongly, I’d say) that it shouldn’t shift because of Osborne or something. Wrong answer to the wrong question.... I’d like to hone in on something else Simon notices: [Cowen's] reference to the ‘so-called liquidity trap.’ This is something I still find... assertions that there is something odd or suspect about claims that the rules of economics change when policy interest rates hit the zero lower bound. I can see how someone could have had that attitude in 2008 or even 2009, although not if he or she had paid any attention to Japan. But at this point we’ve been at the zero lower bound for six years; we’ve seen a 400 percent rise in the monetary base without a takeoff in inflation; we’ve seen record peacetime deficits go along with record low long-term interest rates. Liquidity trap economics aren’t a speculative hypothesis at this point, they’re the world we’ve been living in for years. How can that go unnoticed? But there’s a lot of denial out there. Recently David Glasner deconstructed a WSJ op-ed... what got me was the approving citation of Robert Mundell from 1971 (!) declaring that the Keynesian model was irrelevant... because it assumed pessimistic expectations and rigid wages. Right: no pessimism out there these days. And no sticky wages; oh, wait.... Oh, and treating the monetary approach to the balance of payments as the epitome of modern macroeconomics is just hilarious. That was the new thing when I was an undergraduate econ major; to the extent that it was any use at all, its usefulness was restricted to countries with independent currencies but fixed exchange rates. It has been pretty much irrelevant since the collapse of Bretton Woods.... The resistance of much economic discussion to the facts of the world around us — the facts in front of our noses — is quite extraordinary..."

Should Be Aware of:


  1. PGL: Macroeconomics at George Mason University: "I realize that Tyler Cowen is not the only economist who teaches macroeconomics at GWU but I don’t know the other professors. I am worried about what the students are learning at GWU after reading two of Tyler’s recent blog posts. His comments about Keynesian economics struck me as almost asserting that we Keynesians believe that only fiscal policy matters--which of course no one has ever asserted.... But it is this post that has me worried: '"Ghost cities"... the outcome of government stimulus measures and hyperactive construction that have generated $6.8tn in wasted investment since 2009...' Tyler is referring to a report from Xu Ce... [who] has assuredly overestimated [waste] for reasons ably noted by Paul Krugman: 'What the paper does is look at the ratio of capital added to economic growth--the so-called incremental capital output ratio. It finds that the ICOR has been lower in recent years than it was in the past, and attributes all of the shortfall to waste. But what if there were no waste at all? What if China were simply engaged in capital deepening? What would we expect to see in that case? The answer is, exactly what we do see. The ICOR data say nothing at all about waste.' Paul walks us through a standard presentation of the production function used in the typical Solow growth theory model. This is all very basic stuff. I would hope the graduate students at GWU are learning this when they take growth theory."

  2. Paul Krugman: Pollution and Politics: "When and why did the Republican Party become the party of pollution?... The Clean Air Act of 1970... passed the Senate on a bipartisan vote of 73 to 0.... But that was then. Today’s Republican Party is putting a conspiracy theorist who views climate science as a ‘gigantic hoax’ in charge of the Senate’s environment committee.... Pollution has become a deeply divisive partisan issue. And the reason pollution... is that Republicans have moved right.... You might be tempted simply to blame money in politics, and there’s no question that gushers of cash from polluters fuel the anti-environmental movement at all levels.... One answer could be ideology.... My guess, however, is that ideology is only part of the story--or, more accurately, it’s a symptom of the underlying cause of the divide: rising inequality...."

  3. Chris Dillow: Stumbling and Mumbling: Immigration & spontaneous order: "Let's leave aside the fact that [David] Cameron himself has added to this frustration by not delivering upon his promise to reduce immigration.... We economists are pretty sure that, except perhaps for a small adverse effect upon the least skilled, immigration has been a net benefit (pdf) for the economy. But this doesn't convince most people. Instead, as Ben says, many have an inchoate and inarticulate feeling that immigration might disrupt their sense of home: the fact that people are (generally) most worried about immigration in areas where there is least immigration is entirely consistent with with feeling: uncertainty is often greatest where hard knowledge is lowest. They want 'control' because this would reduce the uncertainty they feel. And herein, perhaps, lies the reason for the difference between economists and the public. We economists are aware that uncontrolled processes--what Hayek called spontaneous order--often have benign effects.... Non-economists, however, are less aware of this.... The question of whether spontaneous emergent processes are benign or not depends upon context. I suspect... that this is the unspoken issue that underlies much of the immigration debate..."