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David is always a thoughtful and serious critic, and I say that as one who has been on the receiving end of his criticism as a coauthor of his, :-).
Heck, with nobody commenting further, I shall follow up with another odd item that some of you know, but many of you may not, particularly the younger ones. Various of Marx's writings were banned in the former Soviet Union, only available to specially approved people to read. Among the most famous were his Early Philosophic and Economic Manuscripts, written before he fully formed his socialist ideas and he was taking a more idealistic view of things and also his Precapitalist Economic Formations, in which he posited the idea of the Asiatic mode of production, which Stalin did not like because it came to be used against him by Trotskyists and other critics who said he had made the USSR into such a system. There were others, but it is a reminder also that Marx's views changed somewhat over time, much as did those of Keynes and Hayek, and most others who write prolifically and seriously over a long period of time.
Very well put, Pete. I have one comment that may be important given that decreasingly younger folk do not slog their way through the tortuous Marx but rely instead on secondary sources or word of mouth. This is that it is not fully clear what Marx himself meant by this socialist future. This in turn reflected a methodological and political/historical decision by Marx and Engels not to follow the path of the utopian socialists, whom they applied that label to. Part of the reason for that label was that they considered those folks to spend too much time describing their future socialist utopias and not enough engaging in "scientifically" analyzing capitalism and its historical path. Arguably this led to them saying too lilttle about that socialist future. As it is, Engels wrote more about it than Marx, and did some of that when Marx was either old or outright dead, given that he outlived Marx and some would argue was perhaps more practically minded as an actually successful capitalist compared to his more philosophical coauthor who was constantly living on handouts from him. So, it is in Anti-Duhring by Engels alone that we have full-bore advoccay of central planning, although there are some vague references to it in earlier writings by both of them, notably in The Communist Manifesto. In some sense the "platform" at the end of that work is the most clearly laid out vision of what socialism would be in immediate terms. If one reads that platform one finds a curious mix of items, some of them in effect reformist proposals that have largely been implemented in most current actually existing market capitalist ecnomies, such as progressive income taxation (which some continue to diss precisely because it was advocated in the commie publication). Others are more garden variety sorts of things that we have in fact seen in pretty much all economies that have labeled themselves as socialist, although some of them also to some extent in more socialist-oriented mixed economies, such as nationalizing "the commanding heights" of the economy, such as banking, large-scale manufacturing, major transportation, and so on. Many mixed economy western Europeans did that, with a gradual backing off during the privatization wave since 1980. The one truly utopian goal stated there was the called for ending of the split between the city and the countryside, although some would say that this is what the suburbs are, hah hah hah. So, Marx by himself said not much about all this, and some of the things he said in one place contradict what he said in other places. Was he for "bourgeois democracy"? Well in some places he appears to be so, but in others not, with Lenin emphasizing those places where he was not. The one place where he clearly went fully utopian was in his famous comments in the Critique of the Gotha Program where he speculated on what the "final stage of socialism" would look like, generally thought by most observers to correspond with the goal of "pure" or "true communism." This was the ultimate anarchistic vision of the "withering away of the state when we shall reach the state of 'from each according to his ability to each according to his need.'" Needless to say, no actually existing socialist state ever moved in that anarchistic direction. I would note as an exit to this that most of the actually existing socialist states, particularly in the Soviet bloc after the immediate War Communism phase (an old focus of Pete's), did not claim to have achieved "communism" or "the final stage of socialism." Most of them officially described themselves as being "socialist economies in transition to full communism," which showed that they continued to be aware of this famous dictum of Marx's and fully aware that they were nowhere near it. Only a few states made an effort to leap to that state, such as Russia immediately after 1917, the Great Leap Forward under Mao in China, and Cambodia/Kampuchea during the Pol Pot period, with such efforts ending universally in major disasters with many people dead.
Vaht in Auburn is known as a Koppl-Yeager Big Player in New York is known as a Supercalifragilisticexpialidocious Machluppian Viener.
Toggle Commented Apr 1, 2014 on Machlup and Mises at Coordination Problem
Oh, I can't resist, particularly in light of the possibility that Tyler Cowen was attacked yesterday by a crazed restaurant owner... :-). So, according to Roger Koppl, who knew Machlup personally, he once said something like the following: "Vaht in America is called a hot dog in Frahnkfurt is called a viener, and in Vienna is called a frahnkfurter." What this has to do with Mises, I have no idea...
Toggle Commented Mar 27, 2014 on Machlup and Mises at Coordination Problem
I mostly agree with Brandon and think you overstate the problems involved with soccer-laying robots. I would note that there is still on purely intellectual game that humans can beat computers at. That is Go. But the day will almost surely come when the computers will beat even the best Go masters, just as they pretty much can do now with the top chess players. The problem is not just the locality of tacit information, which is a problem, but the one that Roger Koppl and I have written about that involves deeper levels of computability, putting the limit on what computers can do more seriously. In effect this involves the infinite regress models of non-computability that arise when the agent/[planner attempts to account for the impacts of his/her actions on the system. This runs into Godel/Hayek problems of self-referencing, which are also not unrelated to the Lucas Critique in its higher formulation, trying to take account of how behavioral response functions change in response to policy changes. Lucas cheated in how he got out of that by assuming rational expectations, which is a cheap cheat: just assume that people expect what will happen, although there even with that remains the problem of multiple self-fulfilling prophetic equilibria, something Roger E.A. Farmer has been recently stressing in the econoblogosphere. How does one select which one to coordinate on, the focal point problem that got Tom Schelling his trip to shake hands with the King of Sweden given especially that he played such a role in focusing the nuclear armed part of the world on a point that says "No first use of nuclear weapons." Anyway, these infinite regress problems associated with seriously trying to figure out best responses to a system that is itself trying to formulate best responses to what you do end up in infinite do-loops with halting problems. Oooops! This is a deep problem that real world central planners (and others following them) resolve by at some point simply throwing up their hands and rolling dice or throwing darts at boards.
Have fun with those secrets... :-).
Pete, Unemployment even conventionally measured did briefly top 10%. What is going on with monetary policy is indeed very complicated and clearly things are not operating as they used to for a variety of reasons. Regarding Stiglitz and Krugman, I fully agree that Joe has far more gravitas and credibility than Paul, whatever one thinks of their views.
Heck, Stan Fischer did not do too bad of a job as Israeli central bank head, and I saw Larry White say he preferred Fischer to Yellen for Fed Chair, given that there will be a Fed Chair. As for the stagnation thesis, Tyler Cowen is also pushing it. I am not quite as pessimistic as all those folks myself, however, although could come to pass.
Hey! That looks like my office! :-)
Nick, In Samuelson's model the bubble that is the value of fiat money in an OLG world is a stationary one. This is quite different from the sort of exploding bubble we saw/(see in Canada?) on housing. Makes a big difference.
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Now now, Roger. I certainly did not say that all of these folks went "to the left" of Keynes. I have not heard of any of them calling for "the socialization of investment" for example. I also think this has nothing to do with rules. After all, I pointed out that the widely used 2% inflation target rule that even Milton Friedman approved at the end of his life was basically invented by Janet Yellen back in the mid-90s, although drawing on work of her husband, George Akerlof. Now, if you want to delve into that work I suppose one could say it was behavioral new Keynesian in the sense that the foundation of the whole argument is the stylized fact that nominal wages tend to be very sticky downwards. I am not going to draw the rest of the argument out here, but focusing on stylized facts that seem to have no optimizing foundation is behavioral, and it is often alleged that NK models focus on sticky prices and wages, although those tend to rely on rational expectations arguments, where this does not. If anything, this is behavioral macro, which George gave a presidential lecture on at the AEA some years ago. That is not one of your standard schools of macro, such as Austrian, old classical monetarist, new classical mistake, new classical RBC, supply-side, new Keynesian, old Keynesian, post Keynesian, Marxian, or whatever. I think when Hayek stated intelligence is overrated, he was criticizing such intelligence that becomes disconnected from reality. As I noted, one of the things that suggests that Yellen may be about as good as we can get for this thankless job is her track record of being a better forecaster than anybody else at the Fed. Maybe her forecasting ability will fail in the future, but I was the first person to publicly call for to be appointed (all the way back in 2009), and I shall stick with that. Also, I do not think it is useful to call her approach "cafeteria style." I would prefer eclectic, or better yet, pragmatic. In a world where there are so many competing schools, and so many of them have failed, I certainly understand policymakers being very alert to find pretty much anything that will work, even if in the end that search will be frustrated.
I happen to own the collected scientific paper of Samuelson, 7 volumes, several of them over 1000 pages in length. I have strongly disagreed with him on a number of issues and did so to his face the first time I ever met him over 40 years ago. It could be argued that he is the ultimate whipping boy of much of my complexity economics work, which he took with good humor, more or less. There are many things he did that were either outright wrong, such as his presentation of the Soviet economy growth prospects in a bunch of editions of his Principles text and his characterization of Hayek's "slippery slope" views, along with lots of other stuff. But, I would agree with Pete that whether one thinks he is the most brilliant economist who ever lived or the ultimate demon of economics of the 20th century (or something in between, with being brilliant not necessarily ruling out also being demonic, as it were), he probably was the most influential economist of the 20th century with a massive influence running through many different sub-fields to the point that much of it people forget was originally from him in the field textbooks, to, yes, the foundations as his PhD thesis addressed. Whether you like him or not (and my feelings are and were very mixed), one cannot deny his enormous influence, for better or for worse.
Clearly at end I meant to say that is it "more important" not "less important" to figure out whether she knowledgeable, etc. :-).
Roger, What I am saying that once one gets beyond the basic issue of whether or not one accepts there to be a Fed functioning at least somewhat like it does now or not, then this matter of attempting label economists who work at its highest reaches is a waste of time. Tell me, Roger, just what does it imply in terms of what their policy approach will be if we determine that a particular individual is a "Keynesian" or "new Keynesian" anyway? Part of my answer pointed out that the answer is not much, indeed, near zero. It is a joke, irrelevant. The problem is that since the crash Fed policy has simply gone very far from how it operated in the past. We are not in Kansas anymore, and the old labels mean next to nothing., For example, once upon a time there was classical monetarism a la Milton Friedman. Have some measure of M grow at the rate of real growth. That has been defunct since the mid-80s, with even Uncle Miltie admitting near the end of his life that it had failed, and he came out for inflation targeting. And indeed there is a perception that inflation targeting is more "hawkish" than alternatives. Pretty much around the world the central banks that so inflation target aim for a 2% inflation rate. It turns out that it was Janet Yellen who convinced Greenspan that this was what the Fed should do and from there it spread elsewhere even though the Fed at that time did not adopt it as its official target, and this was based on some research by her husband, George Akerlof. Oh, so is the "new Keynesianism"? Here is a joke. Given that in both US and Europe, it looks like targeting 2% inflation now looks more like "dovishness" because the inflation rates are lower than that, so this suggests "monetary stimulus." If they all woke up tomorrow and decided on a 1% rate target, the Fed would tighten while the ECB would supposedly get more stimulative, although it has not been all that stimulative up to now. Just to note how much more messy this is, let me note that what is being done now indeed does not look what we are used to seeing. So, the QEs look like stimulus, adding securities to the bank balance sheet. But this has not resulted in remotely comparable increases in any measures of the money supply, and certainly has not resulted in outbursts of inflation, much less the hyperinflation forecast by many, including by many claiming to be Austrians. This is a farcical situation. This is part of the reason why we see people who are supposedly hawkish coming from supposedly "Keynesian" background, such as Lacker (although he just announced that he was wrong about forecasting that inflation would result from the policies of the last 5 years), while someone supposedly "hawkish" ends up appearing "dovish," as with Kotcherlakota, with such twistings showing up with other top Fed folk. Yellen has said that we should worry about employnment as well as inflation, so that can be argued that she is "a Keynesian" and not some sort of classical monetarist." But nobody at the Fed is a classical monetarist anymore, nobody, and she is the mother of the famous 2% inflation target, along with having clearly in fact urged tighter policies at times when Greenspan was in power. I think it is less important to figure out whether she is knowledgeable, open-minded, smart, and with good sense, all of which she appears to have in large measure (along with deep knowledge of the Fed itself, which does not hurt), certainly in comparison with pretty much any rival, with a few odd exceptions (no, Stanley Fischer was not ever going to be a candidate). This is what matters, not which silly box one thinks one has succeeded in sticking her into.
Pete, It is one thing to say that there should not be a body run by a small number of people that has great power over the economy, and that therefore we would be better off with free banking, perhaps tied to a gold standard as Larry White now supports I gather, rather than our current Fed or some variation on it. It is quite another to then criticize the current candidate to run that ongoing outfit, which probably will continue to exist for some time in the future by applying a label to her and then saying "She believes this that and the other" because you identify that label with those beliefs as you have done with your labeling of my friend Janet Yellen as a "Keynesian" and your subsequent discussions of her views and possible future policy actions. Certainly she has published and expressed views that can be given that label, but the Fed is a very complicated place where labels have become all but meaningless. One of the biggest "hawks" in the place is Jeffrey Lacker, President of the Richmond Fed, whose major prof is a very prominent Tobin-student Keynesian, Don Hester of Wisconsin (Yellen also being a student of Tobin's as well as of Hester, then still at Yale). One of the leading current "doves" is Narayana Kotcherlakota of the Minneapolis Fed who came out of a hard monetarist RBD background, and similar discombobulations with others there. Labeling these people is just a joke unworthy of you, frankly, Pete. As it is with Janet, she has taken many differnt positions in the past, including a hawkish one in the 90s at one point that Greenspan rejected. The most salient point for the moment is that she has the best forecasting record of anybody at the Fed or nearby (referring to Summers or his sidekick Shleifer). If the place is going to exist and have all this power, you should prefer to have somebody who is more capable and knows what is going on more than others. The bottom line is that you should keep your general criticism of the Fed separate from an inappropriate personal attack on the highly capable Janet Yellen, please. Not one of your better moments, Pete.
Just two notes: 1) I agree that Samuelson missed the large new institutionalist lit focused on how varying tranactions costs (admittedly a fuzzy term including even the kitchen sink) alter how thins turn out, and that Coase was focused on this part of it, not the polar case emphasized by Stigler and textbooks. So, as Cheung noted in his "Fable of the Bees," we see orchard owners paying beekeepers to locate next to their orchards thereby internalizing positive externalities of pollination in that near-zero transactions cost case, whereas we are unable to get feasible global agreements about global warming where transactions costs are enormous. 2) I also agree that Samuelson responded inappropriately to Hayek's letter about Samuelson claiming he made a strong "slippery slope" argument in his Principles book. OTOH, it must be noted that Hayek never went out of his way to discourgage doggerel versions of RtS, such as the Readers' Digest version that essentially made such an argument, which is widely made by many who claim to be "Hayekians" even in current policy discussions (perhaps some of the "amateurs" that have had Pete upset recently).
Enial, Just where did I say "the state should do that," much less "jump in" while doing so? As it is, I have seen one report, but only one and not from a reliable source, that incompetent CGi got its contract in a closed bid by it alone and has some sort of personal connection to Michelle Obama, however, I shall await confirmation from more reliable other sources before I believe that. It is possible, of course, and we know such things go on (see Halliburton Iraq contracts during Bush admin). Oh, I did say that the state exchanges are doing pretty well, which I gather is largely the case with some hiccups in some of them. Do keep in mind that all of the offerings on these state exchanges (and the national one as well) are by private insurance companies, with the idea of offering a competing public option having been ruled out. So, even if one does not like how it is set up, or the bad behavior of the federal exchange, this plan is essentially an extension of private markets with some extra regulations, which is why it is not surprising that it was originally a GOP-backed proposal that came out of the Heritage Foundation and Stuart Butler back in 1989. Socialism it is not.
While there are certainly plenty of examples of private sector doing better than public, when it comes to large scale programs involving large scale IT ops, not so obvious. Most large scale IT ops also have major rollout difficulties, and in the current case of the national level ACA exchanges, the website was outsourced to a private firm. Most of the state exchanges are working pretty well.
Fama is somewhat misleading in the linked paper. Anomalies do happen and can persist for extended periods of time. However, he is right in that generally once they are publicized they disappear, with some odd exceptions, some of which he verified with French such as size of firm and book value effects. Where EMH is most useful, even in a world where anomalies and bubbles exist, is in arguing that average investors have no special ability to know more about the market about such things (with this holding also for the vast majority of financial advisers/investment firms/etc.), so that for most people they should assume a random walk and just buy and hold reasonably well diversified index funds for their retirement savings in financial assets. For this alone, he deserves his trip to Stockholm, quite aside from some silly remarks he has said at times such as his claim that there are no such things as bubbles, which he made in a New Yorker interview back in Jan. 2010.
Marina Rosser and I in a series of papers in various places, starting with the Journal of Comparative Economics in 2000, showed that there is a strong link between inequality and the size of underground economies. This is at least partly mediated by a strong link between corruption and the size of the underground economy.
Anybody wishing to deny the existence of asset bubbles needs to explain how and why we have seen premia as high as 100% on closed-end funds where one can buy and sell the assets in the fund, with those premia suddenly collapsing at certain points in time. I note that normally most closed-end funds where the underlying assets are freely bought and sold have net asset values of a single digit discount, as tax and management fees tend to justify a fund value below the net value of the underlying assets. The only way one can justify a premium for a closed end fund of freely tradeable assets is if one expects the value of the fund to rise in the near future, that is, if one is in the middle of a speculative bubble.
BTW, this meme started over on noahpinion, Noah's last post before blowing the popsicle stand, and was picked up by Krugman and others as well, before Bryan got ahold of it, with the thing going all over the place with different people.
OK, so anybody reading this who knows me at all knows that I am way over at the mathy end of this, even beyond Roger. Heck, even though my CV makes no such claim, my Wikipedia entry outright identifies me as a "mathematical economis," period, so I am not going to pretend that I am not, even if that is an overstatement and not really accurate. So, I do not intend to rehash the basic arguments, which by now I find boring. Yes, math has its limits. Yes, it reguarly gets abused and relied upon to assert things that it either does not prove or are simply tautologically there in the assumptions, the kind of complaint that very-non-Austrian the late Joan Robinson complained about when she said that much of mathematical economic theory amounted to a magician putting a rabbit into a hat in full view of the audience and then expecting them to be all amazed and astounded when the rabbit is pulled back out of the hat. That said, of course I agree with Roger that some less axiomatic/Bourbakian type approaches such as agent-based modeling, and so on may be useful in ways that the axiomatic approach is not. I have also never been impressed with efforts to denigrate all econometric testing, although I am in sympathy with many critiques of various methods used for this. But the alternative seems to be hand waving while throwing around cherry picked numbers, something really not defensible at all. My final commment is to pick on Bryan. It may be true at GMU, not known for having lots of highly mathematically oriented economists in its departments, even among the ones not in the Austrian camp, with a few odd exceptions. However, Bryan is simply wrong that when one gives a mathematical economist a mathy paper they only look at the abstract and conclusions. Sure, pretty much anybody will look at the abstract of any paper they are given before they did deeper, but I can asure that real mathematical economists (not necessarily including myself) will generally at least scan the math and certainly figures or graphs and main theorems, if they get past the abstract. Bryan is just out to lunchy on that one (with Tyler and others?).
For the record, I am someone who views Hayek's worldview as being consistent with serious behavioral economics.