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Bruce Wilder
Los Angeles
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I guess I'm missing the "mystery" part. The root problem is clear enough, even if the bush has many leaves and many branches above ground, and you seem to know that root problem is a Malthusian one. A technologically advanced society needs its agricultural workers to produce a large, marketable surplus, which can feed an urban civilization of sufficient scale and specialization. At base, everything follows from that surplus; this was the essential insight of the physiocrats, as I recall it, but you may correct me. Even the god of technology must be fed; artisans and technologists must eat, even if, or even though, their work contributes to increasing the available surplus. Wet-rice drove China to a civilizational apogee, by producing a huge surplus per agricultural worker, but unconstrained population growth, in turn, put more and more hands into agriculture, relative to arable land, and resulting congestion and depletion costs reduced the available surplus. An oppressive structure of domination swung into action, to extract the needed surplus, despite declining productivity -- the result was dire poverty. Europe has witnessed similar dynamics. The Roman latifundia extracted the agricultural surplus from slaves to feed an urban civilization, but declining productivity and the extreme oppression to extract a surplus produced epidemic disease and de-population, and trade declined and civilization collapsed into a dark age. Merovingian kings had to perambulate, as no region could produce enough of a surplus to feed even their modest courts for more than a brief sojurn. The Medieval Warming that gave an impetus to the Viking expansion and the quickening of the High Middle Ages ended in overpopulation, famine and the Black Death; it was the sudden boost to productivity, from reduced congestion costs from the die-off of the 14th century that produced the agricultural surplus that kickstarted modern Western European civilization. The British Industrial Revolution was preceded by a very modest, but crucial British Agricultural Revolution -- Jethro Tull, Turnip Townsend and all that, of course, but even more critically important: enclosure, which sought to impose limits on the congestion costs extinguishing the surplus, by limiting the population on the farm. And, I think the Industrial Revolution could keep going as it did in the 19th century, because of the ability to bring vast, virgin lands under cultivation. The U.S. experience of industrial growth owes a great deal to the agricultural reforms of the 1930s, which allowed migration off the farm, and the application of technologies to agriculture, which increased productivity and the surplus. Everything else flows from the ability to reduce congestion on the farm. If, as was the case in China, the population on the farm swells, productivity per head will decline, squeezing the surplus, and a vicious circle can start in, as agricultural technology is starved and frustrated by the effects of overpopulation, and the structure of domination has to become ever more oppressive to extract a surplus.
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I would never say, "market economy". I expect Professor Delong was denoting the money economy, an economy in which money (and finance) is the critical driver of effort and coordination. But, there are very, very few actual institutional markets in the economy, and even those are girded about with hierarchies. When the overwhelmingly vast majority of prices are products of administrative processes -- and they are -- I think it might be time to toss the "market" metaphor as misleading.
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It seems to me that Bernanke was trying to provide prophylactic liquidity beginning in 2007, when his efforts started to fuel the speculation, which drove the commodity price spike of 2008 to dizzying heights. Gas prices rose high enough to puncture American consumer spending; rice riots in Asia; food shortages in Egypt, copper, wheat, rare earths -- every commodity was climbing for a while, and inflation was taking off. The aftermath of the spike was price declines, aka deflation. The spike outlined the limits of the Fed's ability to harmlessly flood the markets with liquidity, and the downslope made a brief deflation inevitable, as a simple matter of arithmetic. I don't think Bernanke was foolishly failing to target nGDP so much as finding the practical limits on such a strategy the hard way.
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Bernanke is no dummy. He was not very subtly flooding the market with liquidity in anticipation of stress in late 2007, and what it got him, as I recall, was a huge spike in commodity prices: gas prices at record levels, skyrocketing prices of wheat; rice riots in Asia, etc. And, when that spike headed into its inevitable downside, that's when deflation became unavoidable, with a recession already underway due to the gas-price shock to America's consumer spending and auto spending compounding the housing market collapse. That's the trouble with telling tales about nGDP -- nominal ain't nearly as well-behaved in real life as it can be made to seem on graph paper. Resource ceilings limiting Aggregate Supply still exist, and too much liquidity at the wrong moment can finance runaway commodity speculation and price spikes, which arithmetic dictates a deflationary slope away from. I do not Bernanke was stupid; I think he found out the hard way that there can be serious constraints on a simple policy of using liquidity to drive nominal GDP.
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Winslow, I'm afraid I'm not conversant with "horizontal" and "vertical". Could you point to a succinct explanation? I don't think leverage/de-leverage means much outside a context of financial intermediation. It is not a single interest rate matching a market of would-be creditors with would-be debtors; it is a yield curve, along which intermediaries attempt, through arbitrage (the carry trade), maturity transformation and portfolio diversification, to manage risk. Money as a medium of exchange gives way to money as a store of value, and medium of insurance and calculation. IF you think in terms of financial intermediaries as the primary manufacturers of private debt, it is easier to imagine how debt can expand and contract, and carry effective aggregate demand with it. Also, central bank policy becomes less a matter of a single policy rate, than about managing inversions of the yield curve to induce recession.
Toggle Commented Aug 19, 2011 on I=S at Worthwhile Canadian Initiative
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If economists had gotten this stuff straightened out 50 years ago, we would not be having this lovely discussion, but alas and alack. (And, it has been lovely. Thanks to all.) I would like to do away with I = S, as an accounting identity. Contra Sergei, I find Sd = Id comparatively harmless; a necessity, prehaps of derivation. The double-entry bookkeeping of the National Accounts is based on the idea that every observable transaction gives rise to at least one pair of entries. So, when some product is sold, that product is also bought; the sale can be recorded and the purchase can be recorded. If the statistician has access to a record of sale, she's fully justified in inferring a purchase; in this way, somewhat spotty observation and records can be reconciled into a coherent picture of the whole. Two problems with "saving": first, in its common-sense meaning saving does not necessarily involve a transaction; saving is not-spending, which is not a transaction. Of course, some forms of "saving" do involve a transaction; transactional saving is also lending. So, if the national accounts were consistent, they could define saving = lending, and that would be true as a matter of accounting identity in a straightforward way. (And, actually, that's what they do, mostly.) It seems to me that both the understanding of the national accounts and economic theory get twisted out of shape by this silly business of S = I. If the economist wants to posit an equilibrium in analysis, I'm fine with that, but the national accounts do not describe a system in equilibrium, so why should S = I? (I understand why; I'm arguing that the national accounts would be clearer, if this were not the convention. And, it is a convention, not an accounting identity, strictly speaking; since transactional saving/lending has no necessary, definitional relation to investment in inventories and capital equipment; it is just a matter of conventional presentation to make it so, to make Y equal to final product and estimate S with a big fudge.) The system described by the National Accounts is out of equilibrium; describe it as out of equilibrium. You may need equilibrium for derivation; you don't need equilibrium to make the books balance.
Toggle Commented Aug 19, 2011 on I=S at Worthwhile Canadian Initiative
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If there was any doubt, Martin Wolf, in his restatement of Yves Smith's question, put executive compensation limits front and center.
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The Civil War was, above all else, a constitutional crisis and, well, a "civil war" between two rival federal governments, claiming sovereign authority over the 13 States of the Confederacy. The Southern States Rights ideology was a theory of constitutional interpretation, that supported an extremely aggressive conception of Southern "rights", particularly the "right" of secession, which was conceived of, by advocates, as a unilateral right. As a practical matter, a secession can not be accomplished in law or fact, unilaterally, as Jefferson Davis discovered, to his ever-lasting damnation. The whole must consent and concede to give effect to the part's desire for separation. The secessions did not disestablish the government of the United States, which did not yield in its claims to sovereign authority over its territory, including the "seceded" states. Jefferson Davis judged that the new Confederacy would have to vindicate its claims in a contest of arms, and, consequently, war came. Davis could have waited for Fort Sumter to quietly surrender for lack of food and supply, but he chose a bombardment. Davis's choice followed from his ideology, and partly from his calculation that the drama of at least a brief war would be a necessary catalyst for a crystalization of Confederate nationalism. The inability to think through the practical politics of how to induce others to cooperate would fatally hobble the Confederate strategy in many domains, but it began in the decision to compel northern consent to secession and Confederate independence with the force of arms. In retrospect, one might wonder why the Confederates did not try to cooperate more effectively with those factions in the North, which might have been interested in alienating the South. Yglesias is certainly right that the interests of many in the north, including many represented by the Republican Party, were arguably furthered by having the Southern slaveowners decamp. So, why didn't the Southern secessionist attempt to make those arguments? Why didn't they form a tacit alliance with northern factions sympathetic with their cause, as the leadership of the American Revolution did with powerful Whig Opposition in Parliament? Of course, the Confederates did conspire with the peace faction of the Democratic Party, much later in the War, but it was always on the curious basis of encouraging not peace, but insurrectionary violence. Somehow, in southern eyes, the peace faction was a fertile ground for expanding rebellion. They didn't get it. Similar strategic blindspots showed up in other attempts to curry favor and cooperation. The first Confederate diplomat sent to proudly antislavery Britain was a fiery advocate of re-opening the slave trade. Rather than rush to sell their cotton in late 1861, and bank the funds to finance a long war, the planters spontaneously chose to boycott European cotton markets, withholding their cotton to compel European intervention. That their behavior enforced the blockade that the Union had declared, but lacked the ships and manpower to make effective, was an irony they failed to appreciate.
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I don't think Brad comes at all close to "the right model" of the Great Recession, and the most prominent red flag is the one raised by jbmoore61 in the first comment. Friedman's triumph was not his economics, particularly not his monetarism, which was simplistic, faulty and rapidly discarded, but his economic methodology. His methods celebrate and justify simple, superficially plausible models, whose main methodlogical feature is rationalized ignorance. The carefully calibrated and meticulously managed institutional economy of the 1960s, Friedman re-interpreted as the product of a laissez-faire. The economy was a thing of natural beauty, which was marred and distorted by all that regulation and high taxes. Friedman, following in the footsteps of Pareto, argued for a positive economics, where choice was the moral core. It sounded good. And, it confirmed Keynesians in their aversion to acknowledging the role of political disputes over income distribution in the course of economic development and the business cycle. Pre-tax income distribution just happens, a natural outcome, and if there's a problem, it is that deus-ex-machine, "skills-biased technical change" or globalization or some other impersonal trend, over which no one has any control. Macroeconomics was about "aggregates", "aggregate demand" and the like. Not about money and banking and finance and insurance and . . . income distribution. And, fraud. And, financial predation. Following in Friedman's tradition, financial economics proposed as a doctrine the efficient markets hypothesis. Financial markets were efficient and no one could say otherwise. And, no one needed to know anything about them, beyond the theory. No facts. No institutional details of exactly how efficient. While the macroeconomists abstracted away from money and finance altogether, in RBC and New Keynesian models. Looked at from the outside, it is beyond absurd. That the business cycle is a consequence of having a money economy and an abundance of durable capital goods would seem like a proposition for an introductory course. But, alas, no. Instead, we are treated to distraction and euphemisms, like "overleverage". You'd think Professor DeLong would be pained and embarassed to use a term like "overleverage", while ignoring fraud. One of the fundamental results of financial economics, Miller-Modigliani, would appear on its face to practically define "overleverage" as necessarily fraudulent. And, an admirer of Stiglitz would recognize how central leverage is to incentive structures, in ways that make "overleverage" almost synonymous with fraud. But, economics is not a science. It was designed, methodologically, by men like Friedman, to do without factual or institutional knowledge, and to substitute pious moralisms, which nevertheless manage to skirt any criticism of the rich and powerful.
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I don't know if a full model of control would help explicate your point or not. Control by feedback requires communication, a model to interpret the communiction and a response mechanism. In elections, we presumably have a response mechanism, but as an incentive it can be seriously undermined by the corporate revolving door and wingnut welfare and lobbying opportunities. Lose an election, take a far more remunerative job. Economists, presumably, are among those, who provide the model by which communication about outcomes of policy are interpreted. And, journalists, ideally, use those models in devising communications that combine interpretative selection of facts (what's important, what is a consequence of policy, and so on.) I don't know if "incentives" adequately captures those elements for readers. Employing a cybernetic model of control to analyze the situation, I would say that the problem could be that politicians (think: Congress critters) have lost their independence. I can imagine a situation in which sufficient conflict exists over policy, among politically active groups, that a Congress critter can play one off against the other, and make a judgment about judicious compromise, without fearing effective retribution from any one party. Without conflict about the lobbyists, the Congress critter is trapped, captured. He cannot be the strategic variable in the system. Matthew Yglesias on Corporate Solidarity is on point. My point, however, is that I question whether the conventions of academic economics, vis a vis the public understanding, allow sufficiently for conflict. Does the model that economics offers the public for interpreting politics expose the conflicts over income distribution inherent in politics? I think there's a tendency to obscure rather than reveal such conflicts, to talk a centrist talk of the general good and to advocate for a technocratic solution in ways that protect the privilege of the would-be technocrat, at the expense of the informed understanding of the electorate. That conventional technocratic view, and its simple pieties, is corrupted by plutocratically-funded "think tanks", which adds to the confusion of the electorate. (See for example the Peterson-funded effort to destroy Social Security and its "Fiscal Times" and CNN seminars.)
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I've left a few comments on this blog, in my usual curmudgeonly critic-of-economics shtick, and on occasion, she responded, to her great good credit, with playful consideration. It was always easy to see, in her graceful prose and thoughtfulness, clear thinking and a caring heart.
What I would be inclined to say, first, to the fatuous David Brooks, is that Economics is not, properly, a study of human nature, or even human society, but, rather, a study of a human, social problem: the economic problem of reconciling individual, material needs, wants and desires, with the organization of production to satisfy those material needs, wants and desires. Because it is about a material, instrumental problem, it is perfectly appropriate for Economics to emphasize and, indeed, prescribe rationality in trying to solve that problem, or judge proposed solutions to that problem, by a rational, material, and even objectively measurable standard. As to the math, I'm sorry to say that I have known many Economists, who knew much more of the math, than of the economics. If you had honestly explained the Economic theory of production to the bio-ethicists, I suspect that they would have laughed at you. You would have been like the economist in the joke about the physicist, engineer and economist shipwrecked on a desert island with only a crate of canned goods and no way to open the cans. The physicist proposed building a fire, and heating the cans till they exploded; the engineer proposed rigging ropes and pulleys in a high palm tree, and lifting the cans to the top, and then dropping them from there to a rock below, in the hope they would break open upon impact. The economist considering their proposals, thoughtfully interjected: "no, no, you've got it all wrong. The way to think about this problem is this: First, we assume a can opener . . ." That's the essence of the economic theory of production, the theory that output is a (mathematical) function of inputs. When you reason about re-allocating resources to improve health outcomes, that's the analysis you are using. Of course, a minute or two of critical thought would lead to the insight that output is NOT a function of inputs. Economic theory gets past that little logical difficulty by assuming a can opener, that is by positing that "maximum" output is a function of inputs. By simply assuming that output is maximized, Economics sweeps aside as already solved all the problems of management, organization, engineering, technology. By doing so, Economics allows itself to ignore the technical and managerial challenges of organizing production, to focus itself exclusively on the problem of *allocative* efficiency. If those other sticky problems have been solved, and output is maximized, than the economic problem resolves itself to a problem of allocating inputs. Which is, of course, exactly the terms in which you addressed the problem of "maximizing societal health" -- you talked about re-allocating resources (inputs) among those already producing health, to change output. [As an aside, what Peter T said] If you had clarified that your frame required assuming that all the technical and managerial problems of medicine and public health were solved, so that existing productive structures were "maximizing" output in a technical sense, in order to reduce the problem to one of allocative efficiency, I dare speculate that your bio-ethicists might have been less than impressed. Contra David Brooks, I think Economists, in focusing on the economic problem, have good reasons to avoid the deeper muck of human nature. I am more skeptical of the neoclassical decision to parse the economic problem further, to arrive at only a consideration of allocative efficiency. You don't recover from the entailed disabilities, by later allowing that things are complex. The truth is that business men and engineers and medical doctors do not spend much of their days considering how to "allocate resources" in isolation from the daily struggle to solve the managerial and technical problems of production. Their common sense idea of efficiency is mostly a matter of administrative or technical efficiency, not the allocative efficiency of the Economist. In the abstract, it is a matter of bringing a production process under control, in the cybernetic sense, and reducing waste and error from there. If they are "allocating resources" at all, it is likely to be whether to make a specific sunk cost investment in reducing (future unit) costs of output. The businessman isn't going to be worried about Pareto optimality in making such an investment (or allocation); he's going to be worried about finding a business model that allows him to recover that sunk cost investment -- something the alert Economist probably knows cannot be done "in perfect competition", and therefore judges should not be done. Much of the real functioning of the economic world is hidden by this neoclassical parsing down to allocative efficiency. If output is already maximized, in a technical and managerial sense -- that's all settled business -- then marginal product is fully and uniquely determined. But, if we live in a world of genuine uncertainty, where technical and managerial problems are only partially and imperfectly solved, we might argue that each factor will still be paid its "marginal product", but that "marginal product" will not be uniquely determined. Rather than the marginal product determining the wage, the wage may well determine the marginal product -- and, we're in the somewhat topsy-turvy world of the efficiency wage! If the neoclassical delusions of, say, Clark, that marginal product is just, get blown up, it will be none too soon, imho. The fault is in the math, in the unsustainable (and under assumptions of genuine uncertainty, practically undefinable) assumption that technical efficiency is "maximized". What should have been a handy way to analytically distinguish allocative efficiency from managerial or technical efficiency was adopted as a crutch, and, then, became a handicap.
I'm with you on the politics. Power to the people! Go, team! But, I am really disappointed in your treatment of the economics. Does no one know how to do this? The model of so-called "perfect competition" is a model in which no one acts strategically. That's not possible, and making an impossible ideal into a standard to measure the performance of actual economic arrangements is really not very helpful. You might want to follow your own link to Wikipedia on "economic rent". Economic rents can exist, even in perfect competition, if producer surplus exists: it's the same inframarginal excess of income over cost, just expressed in terms of factor (input) incomes. (The doctrine that rents can be competed away is just wrong; while the related "rent-seeking" parable of government as the source of all evil is just right-wing claptrap.) Increasing returns to scale are not uncommon, and marginal cost can be falling in the range of market price/output. An actual "monopolist" of a durable good using a production process exhibiting increasing returns to scale or networks or whatever, like Microsoft, will not restrict unit output, at all, relying on price discrimination to profit. The monopolist may, in fact, flood the marketplace with its product. There are real problems with winner-take-all contestable markets competition in the information age. But, the ideal of perfect competition is more misleading than enlightening, and the stylized "monopoly" of limited strategic awareness is just silly. Here's a link to something I ran across today, that seems relevant: (And, I think it is a girl economist, too!)
Outstanding comment. I wonder, sometimes, why the logic of the zero-sum game does not impress itself upon the public mind more, when the increasing proportion of national income and wealth flowing to the very, very few, comes up. There seems to be a very common inability, across much of the political spectrum, to connect the dots that lead from income distribution issues, to the increasingly predatory conduct of banks and health insurance companies and other corporations, and back to the increasingly authoritarian state, being built in our politics, as you say, by fear. The Left could really use a demagogue right now: someone, who could say to parents with teenage children wondering how anyone could afford $15,000 for health insurance and $20,000 for a year of college, while staying current on credit cards charging 18+% and an underwater mortgage, while working, if lucky, a job, where wages are stagnant or declining, that Social Security is "going broke" only in the sense that Rich people and powerful corporations do not want to pay taxes. Your insight about "fear" seems especially apropos during the enactment of the Hostage Tax Cut Extension. Our politics do seem to be driven by an unreasoning fear of crashing The System, as if the The System is not oppressing us. There really is a sense in which the the Economy of the post-WWII era is completely played out. The remaining foundation of economic rents is little more than rapidly eroding beach sand, and the tide is coming in. The U.S. is perched on top of a high dune, and anywhere it goes from here will carry it down from those heights; we will lose our privileged positions as hegemon or technological leader or whatever, but we will lose those advantages very soon, no matter what. But, instead of using the remaining advantage of height, to see where we could go, and to go, we wait, paralyzed, for the tide.
"surely dollars that go back to investors are then distributed as investment in new, more highly productive capital that generates new jobs" A lot of what passes for economic thinking takes place in just the kind of moralizing cliches, which you attempt to parody, in the quoted passage. When the deployment of authoritarian power has such excellent "returns" in arrangements akin to "the company store", we shouldn't be surprised to see what might be called "negative-sum" games crowd out positive-sum games in economic cooperation. Even if total output is depressed, if the gal in charge gets more and more, what the heck! Haiti is lovely in Winter, eh? We really should be thinking about whether low marginal tax-rates on high-incomes -- especially high-incomes derived from the exercise of executive authority -- are a good idea. Do we want a manager, whose stock-in-trade is power, to be working overtime? Taking risks with other people's jobs and other people's money?
Toggle Commented Dec 14, 2010 on Company Store Redux at Maxine Udall (girl economist)
Great post, though I'm not convinced that the technocratic understanding is not just as corrupted and defective as the bumpersticker moral narrative. I, personally, think that the economic analysis of incentive and risk in the face of uncertainty, for example, supports the idea that efficiency requires a lot of cheap insurance. That's how I would read the fundamental results of Arrow-DeBreu-McKenzie (and I think it is how Arrow, at least, read his own work). But, I'm not sure most economists see it that way. I could spin out a macroeconomics and financial economics, where the national debt was a public utility, creating the means for stabilizing the value of a fiat currency and creating a financial basis for capitalist investment. I could argue for a Federal Reserve managing the yield curve, and regulating banks and financial markets, in a coordinated fashion, but it's clear that the technocrats in charge have seen their duty in other terms. And, they've been supported by an economics of extraordinarily narrow vision and scope: a macro without money and a financial economics, which "assumes" efficiency -- neither respecting pervasive uncertainty. I'm sorry to be so cynical. It does seem to me that the mainstream of economics, even while claiming the technocratic mantle, aims squarely at NOT identifying mechanisms of the economy, qua mechanism. The financial economists do not want to be evaluating how efficient are actual financial markets; they dispute only how efficient they should assume them to be. The macroeconomists assume away money altogether, before discussing monetary policy. These technocrats are not earthy mechanics with a wrench and a theory of latent heat; these are priests at the temple, discussing augury and omens. The religious nature of the "techno" in technocrat gives support to the unworldly nature of the common moral narrative.
round and round, swirling the drain
Sadly, I don't find the thesis that Obama is deceived as plausible as the thesis that he intends to deceive. And, manipulate. Elizabeth Warren sets a standard and shines a light that exposes corruption in many forms. That Obama cannot and will not shine that light on his partisan political opponents shines a light on his own debased motives. Gazing on Warren's example of intelligent decency, and the light it sheds on the alternative, my admiration for her tends to be overwhelmed by my sorrow for my country.
Toggle Commented Nov 29, 2010 on Bipartisan? at Maxine Udall (girl economist)
Andy: "so how does 'concentrated, unfettered wealth and power' come into being? Was it the market or government that saved Goldman Sachs . . .? There's an economics parable for you, and it wouldn't be hard to find similar from John Cochrane or Robert Barro. Krugman would say, in reply, "what's your model?", not "what's my narrative?" How's that working out?
Krugman:"When you’re doing micro, you assume rational individuals and rapidly clearing markets; when you’re doing macro, frictions and ad hoc behavioral assumptions are essential." I've done micro, and assumed nothing of the sort. Actual markets are dominated by individuals behaving strategically and lots of markets do not clear. Economists, who study them, know this. Didn't the macro people get the memo? (Phelps had something to say about this, a long time ago. Alan Blinder wrote a book asking about prices and price formation. what happens to this stuff?) I know what Krugman says is true about how NK macro is done, because I've skimmed Michael Woodford, but why isn't Woodford embarassed? Is it only because he can feel superior to the unreality of RBC and NC? Krugman praises the Fed "monasteries" in a back-handed way, but I don't see why. Minneapolis, Atlanta, St. Louis -- their research departments look like hobbyshops run by right-wing crackpots to me, and they fund and burnish the reputation of academics all the time. Income distribution and (social) insurance might have something to do with economic performance. One might suspect that full-employment and shared growth is incompatible with a sufficient degree of concentration of wealth and income, but this is a topic macro-economics never wants to touch. Krugman and DeLong pass for the Left in the Economics, and they won't touch it. Krugman admitted he was shocked to discover that Presidents and policy mattered to income distribution. DeLong, when confronted with Piketty and Saez data said he couldn't "find" the mechanisms responsible, and, of course, was shocked and surprised by a trend of more than 20 years duration. I don't think economists on the right are all that reluctant to express their normative views. On the contrary. But, economists, left and center, are unaccountably reluctant to admit that the economy is a political struggle over income and wealth. With that kind of wilful ignorance in place, it shouldn't be surprising that, instead of a parable on on-going class warfare, understandable by the oppressed masses, Brad DeLong gives the world an impenetrable phrase, such as, "nominal income determination" and wonderment that, with banksters robbing us blind, that we are not more aware that we are all in this leaky macroeconomic lifeboat together. I like Brad DeLong, but how the heck did a guy with the ideology of an Eisenhower Republican get to represent the Economics Left?
Kevin "Dow 36000" Hassett thinks these "were not people qualified to make a serious technocratic critique"? Well, that sure seals the deal for me.
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reason: ". . . Galbraith was a Sophist and Friedman a Platonist. We need much more empiricism . . ." Yes, yes, and yes. The better angel of Galbraith's nature wanted, but failed, to be an effective heir to institutionalism. It was the loss of institutionalist approaches, (including their laborious search for facts and appreciation for complexity), in the wake of Keynes' technical insight, and Samuelson's elegant Euclidean theorems, which left Economics so vulnerable to Friedman's neo-platonic approach. Friedman succeeded, not because a majority of economists adopted his right-wing ideological viewpoint -- they didn't -- but because Economics largely accepted his* viewpoint on methodological questions, including but not limited to the jagged boundary separating normative from positive economics. [*I'm using him as a representative agent for a whole movement; I don't mean just *his* personal viewpoint or methodological contributions.] Far from making economics a "hard science", the tendency has been to legitimate a macroeconomic empiricism of "stylized facts" and inconclusive pseudo-experiments married to a theoretical scholasticism. I really don't see how the enthusiasm for the rational expectations revolution or DSGE models can otherwise be explained. Arrow-Debreu-McKenzie was a brilliant, capstone accomplishment, but any sensible person could see that it was a dead-end, instructive mainly for the constrasts between the model and the observable economy: the dialectic of economics had to move into antithesis. Which it did, despite heavy resistance, in some microeconomic fields; but macro after 1980 went wholehog into the Platonic Cave, never to see the light of day again, herded there by methodological critiques that celebrated "full rationality" and the like, while attacking the "loose ends" and kludges of a Keynesian macro-economics, which needed more mechanism and conflict, not the fairy princess of representative agent microfoundations.
Coises asks, "Are there . . . questions to which the economics profession — not one or another individual economist, but the consensus of the profession as a whole — can give a coherent answer? Even a consistent qualitative, let alone quantitative, answer?" I think there are actually many important questions for which the body of knowledge, which is economics, could supply coherent answers. Confiscatory inheritance taxes on very large estates is a pretty easy public policy choice, precisely because the economics "favors" it so strongly and unambiguously. Not that you would know that, looking for a public consensus among economists on the issue. Glaeser's elemental error isn't about the economics -- though he's wrong about that, too; Glaeser's big mistake is about the politics. The big value questions are not decided by the voters and their representatives; that's become a theatrical appendage, in our era of spokes-model politicians. Economics cannot be about tactics; it must be about strategy. We are all practical economists, (more or less) trained soldiers in the daily marketplace battles. It is the strategic choices that must be made at a higher level. We need economists as architects, structural engineers and urban planners, to design the system of systems within which the rest of us make our tactical choices. Unfortunately, Larry Summers and Ben Bernanke work for the banksters and plutocrats, in doing that job, and Edward Glaeser, no doubt, hopes for a similar, if less exalted, job. Meanwhile, those, who play economists on teevee do what people on teevee are paid to do: they disagree. Teevee doesn't educate; it entertains in the cheapest way possible: by portraying "reality" and "politics" in the cheap, cliched drama of staged conflict. A lot of very bad economists and very bad economics is kept alive for its political entertainment value in legitimating policy favorable to the corporate plutocrats, who either run the show, or pay it for through advertising. The political problem for a democracy is: how are the People to find and hire competent Economists as Architects of a fairer, more productive, less destructive political economy for a Democracy?
When I was a young pup, Milton Friedman and John Kenneth Galbraith, both acting as public intellectuals, argued at length over the place of normative assessments in economics. Galbraith argued the Economics should encompasss what he tried to do in his books, such as the New Industrial State, in the tradition of Veblen; that is, Galbraith argued that Economists should use judgement to critique results and the overall institutional system and outcome. Friedman and the Chicago boys (including my old teacher, Demsetz) argued that Galbraith had no methodological justification to distinguish his critique from an arbitrary expression of his personal tastes. Friedman's "positive economics" won the day. From Pareto to the Lucas Critique, the right-wing in Economics has enjoyed its greatest triumphs fighting on the methodological flank. But, this intellectual history has neither freed economists to be value-neutral, nor done much to enhance the quality of the technical project. Brad DeLong wrote, in the last piece you linked to: "What is wrong with American macroeconomics? In a nutshell, when 2007-9 came along every single macro textbook (including mine) and every single macro course . . . was of little or no use in helping people who had read or taken them to read publications like the FT as they chronicled the downturn or understand the policy debates hosted by the FT." That's pretty damning, coming from an economist, who has spent most of his blogging history, asking why we cannot have a better press corps. Far from protecting the technical project, these methodological committments to a value-neutrality, as advocated by the Right, have impoverished and undermined Economics. And, it is the Right, reactionaries and authoritarians-disguised-as-libertarians, who press hardest for Pareto-optimality, the efficient-market-hypothesis, rational-expectations, and the rest, and it is all hypocrisy and rot, in the end. Economics, as a science, must seek to understand function and mechanism. As such, it must reject doctrines of meaning and ritual symbolism, just as chemistry rejected alchemy and astronomy shed astrology. Yet, those, who campaign hardest out-of-doors for an ideology of "free markets", and legitimate a mad macroeconomics of "business confidence" in the op-ed pages, come within the walls of the academy to parse hard and fast against values?
Just one small sidenote on the economics of this stuff: For the most part, the gains to the individual from sunk cost investments in education are dissipated in market competition, and flow to landlords and to the possessors of corporate power. Maybe, professional trade unions manage to use a credential to capture a small portion for a few. If we make kids borrow vast sums to finance their university educations, and refuse to tax the landlords or the business corporations, we are just transferring the big bucks upward, while waiting for the golden goose to die.