Posted on 07/03/2010 6:43:19 AM PDT by 1rudeboy
In this essay, I argue that neither non-economist bloggers, nor economists who portray economics —especially macroeconomic policy— as a simple enterprise with clear conclusions, are likely to contibute any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public.The following is a letter to open-minded consumers of the economics blogosphere. In the wake of the recent financial crisis, bloggers seem unable to resist commentating routinely about economic events. It may always have been thus, but in recent times, the manifold dimensions of the financial crisis and associated recession have given fillip to something bigger than a cottage industry. Examples include Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich. In what follows I will argue that it is exceedingly unlikely that these authors have anything interesting to say about economic policy. This sounds mean-spirited, but it’s not meant to be, and I’ll explain why.
Before I continue, here’s who I am: The relevant fact is that I work as a rank-and-file PhD economist operating within a central banking system. I have contributed no earth-shaking ideas to Economics and work fundamentally as a worker bee chipping away with known tools at portions of larger problems. It is precisely from this low-level vantage point that I am totally puzzled by the willingness of many who fearlessly and breathlessly opine about economics, especially macroeconomic policy. Deficits, short-term interest rate targets, sovereign debt are all chewed over with a level of self-assuredness that only someone who doesn’t know more could. The list of those exhibiting this zest also includes, in addition to those mentioned above, some who might know better. They are the patron saints of the “Macroeconomic Policy is Easy: Only Idiots Don’t Think So” movement: Paul Krugman and Brad Delong. Either of these men will assure their readers that it’s all really very simple (and may even be found in Keynes’ writings). Lastly, before you dismiss me as a right- or left-winger, I am not. I’m simply less comfortable with ex cathedra pronouncements and speculations than the people I have named. [footnote omitted]
The main problem is that economics, and certainly macroeconomics is not, by any reasonable measure, simple. Macroeconomics is most narrowly concerned with the tracing of individual actions into aggregate outcomes, and most fatally attractive to bloggers: vice versa. What makes macroeconomics very complicated is that economic actors... act. Firms think about how to make profits, households think about how to budget their resources. And both sets of actors forecast. They must. One has to take a view on one’s future income, health, and familial obligations to think about what to set aside for retirement, how much life insurance to buy, and so on. Of course, all parties may be terrible at forecasting, that’s certainly a possibility, but that’s not the issue. Even if one wanted to think of all economic actors as foolish and purposeless organisms making utterly random choices, one must accept that their decisions will still affect, and be affected by what others do. The finitude of resources ensures this “accounting” reality.
[excerpted]
Good one.
What did he say, or do prior to to that remarkable event that indicated he was aware of the underlying causes for it, or that he forsaw the event. Note that the word forsaw is equivalent to prediction based on one's knowledge and understanding of what they profess and write about. It's not crystal ball stuff.
I’ve never done that, and this is my job.So you think this is not "crystal ball stuff," yet you expect him to look into a crystal ball.
To paraphrase the argument:
This is a multivariable and dynamic system, depending on and affected by factors too numerous to mention.
To paraphrase the response[s] to the argument:
Elitist! Derivatives! Black magic! Witch!
(Ok, so I made up the last one.)
99% of the people with PhDs in economics never write anything meant for the general public. Those that do write for the public almost always have axes to grind and those axes are what drive their writing rather than the raw economic data. That is true for cranks like Krugman and brilliant authors like Sowell [no bias in my choices :) ].The main problem is that economics, and certainly macroeconomics is not, by any reasonable measure, simple.
Imagine if Dr. Sowell analyzed the data and found that government control of the economy actually was better in the long term... I think he would still rank personal freedom over a few percentage points of GDP.
Sowell has stated that he was a Marxist during "the decade of my 20s." His experience working as a federal government intern during the summer of 1960 caused him to reject Marxism in favor of free market economic theory. - Wikipedia
In light of which, your counterfactual "imagination" looks a lot like arrogant moral posturing.Similarly, Krugman will never admit that individual freedom is better than government economic control no matter how many times the Fed and the Treasury screw up . . .
The main problem is that economics, and certainly macroeconomics is not, by any reasonable measure, simple.
LOLOL! Talk about "speed-reading..."
Macroeconomics is Microeconomics + socialism.
It attempts to by-pass consumer price signals (Demand shifts), to “stabilize” employment in obsolete sectors.
Macro is basically apologetics for labor unions that refuse to let wages adjust up & DOWN, when Demand shifts up or down, over time.
The author is obviously on some type of quixotic quest to achieve ‘macro stability.’ That is impossible. He just hasn’t learned that.
When govt officials like this low level bureaucrat at the Fed attempt to “stabilize” employment with government intervention - meaning, Keynesian or inflationary fiscal policies - it only serves to DESTABILIZE the Price Level — Inflation.
So the author isn’t even a very good economist.
He/She hasn’t figured out that we can’t “eliminate” instability, overall; we can only “shift it” to some other aspect of the economy, i.e. the price level (inflation), which harms the stability of purchasing power for savers & retirees in order to “help” unions keep stable, over-paid jobs.
Consumers get to spend and “vote” in markets. That outcome is called freedom. It is not stable, but it means maximum value (efficient resource allocation) to consumers - the ones how have to CONSUME all that junk (output), out there.
I like instability, it points direction to efficient changes, and it means . . . freedom.
Central planners like Krugman and maybe the author of this piece, too, never learned to appreciate instability, meaning Change, evolution, progress in markets.
Yes, I teach Econ; Yes, I have a PhD; NO Econ is not “hard.”
You're gonna have to explain how my Macro 402 professor introduced me to supply-side economics in the early 1980's, as Reagan was getting into gear.
It should be required reading before you’re allowed to vote.
Thank you for posting that.
Econ is hard not like differential equations with years of prep classes and tons of homework, it's hard like giving up an addiction. Anyone can understand econ but many choose not to because they prefer believing easy lies like:
--a 'trade deficit means less money in American banks,
--rising interest rates mean bonds are a good buy,
\--the Fed prints money and causes inflation,
--higher import taxes mean more people working,
--minimum wage laws increase earnings,
--a strong dollar makes a trade surplus,
and on and on. Every one of the above is false and easily disproved, and most people think they're true and won't see the facts.
Microeconomics is a science. Macroeconomics is voodoo. The systems we call an economy are the manifestation of billions of competing urges, pressures, and actions. The day we can control the weather i’ll believe we can someday learn to control a portion of the economy.
Arthur Laffer did not presume to put numbers on his curve. Socialists assume they can as a basis for their control decisions; but not to worry, in the Soviet they are still fed and clothed...as long as they live.
I do not disagree but I take exception to prognosticators with a lousy track record that investors etc depend on.
The Fed prints money is an expression. However, the Fed DOES cause inflation with loose monetary policies that are designed to stimulate lending. Since credit and money are fungible, if you inject excess liquidity into the system via credit expansion then you have too many dollars chasing too few goods and services.
Real economics, or the path to true prosperity, is easily understood and summed up in one word:
Freedom.
Bump! :)
Thanks for the incisive response. Interesting how he snuck that one in there. Makes me suspicious of his motives.
Economics is the study of supply and demand. Period. Everything can be broken down to that. EVERYTHING.
What economists think is "hard" is trying to write a coherent commentary -- and these days -- trying to tweak or game the system.
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