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Alexander Douglas
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I love your final heuristic! I don't love Romer's assertion that Solow was doing "science" while Robinson was doing "politics". I don't see why somebody entirely sympathetic to free market capitalism couldn't have been just as interested in the conceptual difficulties surrounding capital and the aggregate production function as Robinson. Arguably somebody with the opposite political alignments to Robinson ought to be *more* interested in those issues, since they stand in the way of one straightforward justification of a certain sort of market capitalism.
Toggle Commented Apr 13, 2016 on On Mathiness in Economics at Digressions&Impressions
People who propose more equity financing as a magic bullet solution have an unearthly faith in the wisdom of markets. What bothers me about that proposal is that it distracts us from asking whether there are certain things that banks just *shouldn't do*, since nobody - not even the equity investors, to whom neoclassicals ascribe powers of private revelation - can appropriately manage the risks. I have yet to hear a convincing explanation of why banks should do any more than administer the payments system and lend to creditworthy borrowers, keeping the loans on their own balance sheets. It remains a mystery to me why they should be able to sell loans on to third parties, to engage in financial speculation (taking financial assets as collateral for loans), to do forex speculation, to sell credit default insurance, etc. People say all this gets much-needed liquidity into the markets, by which they mean hot money going into speculative bubbles. I don't see the social need for any of that. I have nothing against speculation in principle, as an activity free economic agents can engage in on their own behalf. But nobody has yet explained to me why *banks* should do it. Rather than getting banks to fund off more equity, why not let equity investors engage in such activities on their own if they choose, while keeping banks to their original, narrow purpose? This is what Minsky proposed (cf http://www.levyinstitute.org/pubs/wp_612.pdf). Am I missing something important?
I noticed something about an example Friedman gives in the Methodology of Positive Economics paper. It's meant to illustrate how many policy debates are over positive rather than normative questions. What I noticed is that it doesn't show what he wants it to show. His example (as you know) is the debate about legal minimum wages. The contention is over whether imposing them will ‘diminish poverty … without any counterbalancing increase in the number of people entirely unemployed’ or whether it will increase ‘the number of people who are unemployed’, which ‘more than offsets any favorable effect on the wages of those who remain employed’. Friedman says that's a positive not a normative issue. But 'counterbalancing' and 'offsets' are normatively-laden terms. It's possible for people to disagree on the points Friedman presents while *agreeing* on the likely results of the policy. The question would be whether, in that single scenario, the unemployment effects really 'offset' or 'counterbalance' the wage effects, and that could readily boil down to a question of how much you value people's right to employment vs. their right to be paid a wage when they are working, or some other normative commitment of that sort.
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Jul 12, 2014