The world of US economists post Trump can be summed in two words – reality check.
Justin Fox has a nice piece summarising the key thoughts and sessions at the annual American Economic Association meeting:
An interesting comment by Dr Manmohan Singh. More so they coming at launch of a book on history of economic ideas by Vinay Bharat Ram:
Economics should be studied not to find settled answers to unsettled questions but to warn on how not to be deceived by clever economists, former Prime Minister Manmohan Singh said quoting economist Joan Robinson. “When we study economics, what is the purpose of the study of the economics? It is not to find settled answers to unsettled questions but to warn us how not to be deceived by clever economists,” Singh said at launch of the book ‘Evolution of Economic Ideas – Smith to Sen and beyond’ by DCM Limited’s Chairman Vinay Bharat Ram.
“When we study economics, our impulse is not the philosopher’s impulse, knowledge for the sake of knowledge, but for the healing that knowledge may have to bring. It is for the heart to suggest our problems, it is for the intellect to solve them. The only purpose of intellect is to be a servant of social sympathies. That gives you one idea of what economics is all about,” Singh said.
This is superb bit of quoting by Dr Singh from history of economic thought.
As students of economics, these ideas/statements should be really well known to us. But it is a pity (or a shame?) that as none of this is taught, we get to read about them so randomly and then ponder/wonder over the words of wisdom….
Some interesting links on the topic (HT:Economist’s View Blog)
Then there is another article by Prof Paola Subacchi of University of Bologna. She hits the nail on its head:
Where do we go from here? While we should appreciate Haldane’s candid admission, apologizing for past mistakes is not enough. Economists, especially those involved in policy debates, need to be held explicitly accountable for their professional behavior. Toward that end, they should bind themselves with a voluntary code of conduct.
Above all, this code should recognize that economics is too complex to be reduced to sound bites and rushed conclusions. Economists should pay closer attention to when and where they offer their views, and to the possible implications of doing so. And they should always disclose their interests, so that proprietary analysis is not mistaken for an independent perspective.
Moreover, economic debates would benefit from more voices. Economics is a vast discipline that comprises researchers and practitioners whose work spans macro and micro perspectives and theoretical and applied approaches. Like any other intellectual discipline, it produces excellent, good, and mediocre output.
But the bulk of this research does not filter into policymaking and decision-making circles, such as finance ministries, central banks, or international institutions. At the commanding heights, economic-policy debates remain dominated by a relatively small group of white men from American universities and think tanks, nearly all of them well-versed devotees of mainstream economics.
The views held by this coterie are disproportionately represented in the mass media, through commentaries and interviews. But fishing for ideas in such a small and shallow pond leads to a circular and complacent debate, and it may encourage lesser-known economists to tailor their research to fit in.
The public deserves – and needs – a marketplace of ideas in which mainstream and heterodox views are afforded equal attention and balanced discussion. To be sure, this will take courage, imagination, and dynamism – particularly on the part of journalists. But a fairer, more pluralistic discussion of economic ideas may be just what economists need as well.
Amen to that.
I mean the whole thing is such a close circuit (or a circus?) that all this crisis talk reads like a joke. As the author says the coterie of world economic policy comes from selected certain schools (read Ivy leagures in North East USA). The majority of coterie first rejects a mega event coming (amidst some opposition), then they decide the crisis is on applauding the minority dissenters and then they together look for the solutions! It is that simple. They are least impacted by any crisis as they are always deciding the big world game.
Unless we see more broad basing of economics and look at economists minus the usual tags we are not going anywhere. It will just keep going in circles. It is funny how a local economics person is never seen as an expert despite spending so much time in the region and sector. Whereas anyone from the coterie is seen as an expert on all the issues across the world.
Economists have gone terribly wrong in recent years. From not figuring the fallout of 2008 crisis to European troubles to Brexit to Trump victory and so on. Name it and most likely the outcome has been opposite of what economists had suggested before or at the time of the event.
In India, things are no different. We keep getting things on GDP, inflation wrong most of the times.
However, another emerging aspect is the huge politicisation and polarisation in debates over Indian economy. Earlier, debates on economic issue were whether you are for or against the policy/decision and so on. Now any such economic discussion has become whether you are for or against the government.
There is so much to learn and figure about economics.
Steven Horowitz points to lectures of Prof Israel Kirzner on Austrian economics.
When people ask me to describe what kind of economist I want to be when I am in my 70s or 80s, I tell them a story about Israel Kirzner. For a number of years, I watched Professor Kirzner give the opening lecture at the Advanced Austrian Economics summer seminar for graduate students at the Foundation for Economic Education. The basic content of the lecture was the same each year, but each one was different in important details. You could tell that Kirzner was, to some degree, unsatisfied with his own presentation the previous year and had tinkered with it to try to make it clearer and more persuasive this time around. The fact that such a brilliant scholar was perpetually self-critical in this way, and that it mattered to him to make it better and get it right, makes him a role model for scholars of all backgrounds.
Just as important, however, was the passion he brought to that talk each year. I knew watching those lectures that he had given a version of this talk hundreds of times over the years to both his own students and audiences across the world. Yet every year, I felt like he was giving it for the first time, mostly because he spoke with such passion and urgency, as if understanding the basics of economics was a task that bore the weight of civilization on its shoulders. And, as he has argued, it in fact does. We should all aspire to the level of intellectual humility and passion that he demonstrated in those lectures.
This should be interesting stuff…
Larry White and Shruti Rajagopalan have a superb piece highlighting the Cantillon effects of demonetisation.
The Cantillon effects are named after 18th Century economist Richard Cantillon. But then who reads history or cares for it. Under this, monetary policy transfers the purchasing power from those having old notes to those who get the new notes. This will lead to disproportionate rise in prices among different goods in an economy:
Milton Friedman’s one of the most famous and widely read papers is – The Role of Monetray Policy , American Economic Review, March 1967. Each time you read it, you learn something new.
In the paper, he quotes John Stuart Mill (page 12):
My own studies of monetary history have made me extremely sympathetic to the oft-quoted, much reviled, and as widely misunderstood, comment by John Stuart Mill.
“There cannot . .. ,” he wrote, “be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order” [7, p. 488].
True, money is only a machine, but it is an extraordinarily efficient machine. Without it, we could not have begun to attain the astounding growth in output and level of living we have experienced in the past two centuries-any more than we could have done so without those other marvelous machines that dot our countryside and enable us, for the most part, simply to do more efficiently what could be done without them at much greater cost in labor.
But money has one feature that these other machines do not share. Because it is so pervasive, when it gets out of order, it throws a monkey wrench into the operation of all the other machines. The Great Contraction is the most dramatic example but not the only one. Every other major contraction in this country has been either produced by monetary disorder or greatly exacerbated by monetary disorder. Every major inflation has been produced by monetary expansion-mostly to meet the overriding demands of war which have forced the creation of money to supplement explicit taxation.
The first and most important lesson that history teaches about what monetary policy can do-and it is a lesson of the most profound importance-is that monetary policy can prevent money itself from being a major source of economic disturbance……
The words are just so profound. They sum up monetary history and experiments across world and across time in very few words.
There is a reason why history of India’s demonetisation tells us the reluctance of Indian central bank of going ahead with the move. There is a reason very few central banks and countries have gone ahead with the move at the first place.
Infact, why go far in monetary history. Just see today’s world economy. Its major source of instability is the monetary policy conducted by central banks which has made money a major source of economic disturbance.
Joseph Salerno of Mises Institute has been warning us against the rising anti cash movement across the world.
In an earlier talk Salerno tells us how these are just attempts by the State to ensure you are always under their radar.
Governments, at least modern western governments, have always hated cash transactions. Cash is private, and cash is hard to tax. So politicians trump up phony reasons like drug trafficking and money laundering to win support for bad laws like the Bank Secrecy Act of 1970, which makes even small cash transactions potentially reportable to the Feds.
Today cash is under attack like never before. Ultra low interest rates are the norm for commercial bank accounts. In Europe, as the ECB ventures into negative nominal interest rates, certain banks threaten to charge customers for depositing cash. Meanwhile, certain European bonds now pay negative yields, effectively turning them into insurance products rather than financial assets. And some economists now call for the outright abolition of cash, which shows just how far some will go in their crazed belief that economic prosperity can be commanded by forcing us to spend rather than save.
The War on Cash is real, and it will intensify. Here to explain is Dr. Joe Salerno, who spoke on the subject at our recent Mises Circle event in Stamford, Connecticut.
In this piece, Ryan McMaken sums up the talk:
As Joseph Salerno has observed, the elimination of physical cash makes it easier for the state to keep track of private persons, and it assists central banks in efforts to punish saving and expand the money supply by implementing negative interest rate schemes.
A third advantage of the elimination of physical cash would be to more easily control people and potential dissidents through the freezing of their bank accounts.
Joseph Salerno further points that post-India, there is a similar movement in Australia as well:
The global war on cash is remarkably well coordinated. Less than a week after the Indian government announced it was withdrawing its two highest denomination currency notes (equivalent to about $15.00 and $7.50, respectively) from circulation, the Anti-Cash Axis, which comprises a witch’s brew of national governments, establishment media outlets, international bureaucracies and, especially, gigantic multinational banks, has launched a concerted attack on Australia. Two days ago, Citibank announced that it was going cashless at some of its Australian bank branches.
Yesterday, Swiss giant UBS called for the elimination of the Australian $100 and $50 bills because it would be “good for the economy and good for the banks.” The Australian government in cahoots with the media prepared the way for these brazenly self-serving antics by two of the largest banks to have failed and been bailed our during the financial crisis. Back in February a leading Sydney newspaper published a series of articles, some authored by officials from Australia’s Treasury Department, suggesting that abolishing cash would “save billions” and that “a cashless society is the next step for the Australian dollar.”
I have a better proposal for our brothers and sisters Down Under: don’t acquiesce in the elimination of your cash; eliminate the banks by immediately reclaiming all your cash that is “on deposit” at these institutions that cannot exist without government guarantees and bailouts.
What is interesting to see across are huge double standards across the globe. We are hardly seeing a natural evolution towards e-payments.
There is this supposed crony capitalism where these large banks/payment providers are using Governments to push people towards their products. Then these very large corporate/financial players along with these e-payment providers build a story that how these things are about development of markets and making them efficient!
Part of the blame is on economics education as well. Earlier history of money was known to most students. Now we hardly discuss about historic evolution of money and State’s deep interest and manipulation in the matters of money. The way we have moved from commodity money to fiat money and all fiat money declared as legal tender with very little State accountability is a fascinating tale untold. And now this jump towards plastic money which gives State powers to monitor you as well. What better?
It is shocking that earlier most economists would have raised questions on this State involvement in monetary matters. Now most are backing it!
Paul Romer says he really hadn’t planned to trash macroeconomics as a math-obsessed pseudoscience. Or infuriate countless colleagues. It just sort of happened.
His intention actually had been to write a paper that would celebrate advances in the understanding of what drives economic growth. But when he sat down to write it in the months before taking over as the World Bank’s chief economist, Romer quickly found his heart wasn’t in it. The world economy wasn’t growing much anyway; and the math that many colleagues were using to model it seemed unrealistic. He watched a documentary about the Church of Scientology, and was struck by how groupthink can operate.
So, Romer said in an interview at the Bank’s Washington headquarters, “I just thought, OK, I’m going to say what I think. I don’t know if I’m the right person, but no one else is going to say it. So I said it.”
The upshot was “The Trouble With Macroeconomics,” a scathing critique that landed among Romer’s peers like a grenade. In a time of febrile politics, with anti-establishment revolts breaking out everywhere, faith in economists was already ebbing: They got blamed for failing to see the Great Recession coming and, later, to suggest effective remedies. Then, along came one of the leading practitioners of his generation, to say that the skeptics were onto something.
Dani Rodrik who has been warning on the uneven outcomes of trade liberalisation for a while just blasts economists in this piece. Years of hubris and imperialism is finally getting to the den of American economics. First the global financial crisis and now the recent US elections.
He says we always think those who speak for trade are angels and those against are these barbarians at the gate:
Are economists partly responsible for Donald Trump’s shocking victory in the US presidential election? Even if they may not have stopped Trump, economists would have had a greater impact on the public debate had they stuck closer to their discipline’s teaching, instead of siding with globalization’s cheerleaders.
As my book Has Globalization Gone Too Far? went to press nearly two decades ago, I approached a well-known economist to ask him if he would provide an endorsement for the back cover. I claimed in the book that, in the absence of a more concerted government response, too much globalization would deepen societal cleavages, exacerbate distributional problems, and undermine domestic social bargains – arguments that have become conventional wisdom since.
The economist demurred. He said he didn’t really disagree with any of the analysis, but worried that my book would provide “ammunition for the barbarians.” Protectionists would latch on to the book’s arguments about the downsides of globalization to provide cover for their narrow, selfish agenda.
It’s a reaction I still get from my fellow economists. One of them will hesitantly raise his hand following a talk and ask: Don’t you worry that your arguments will be abused and serve the demagogues and populists you are decrying?
There is always a risk that our arguments will be hijacked in the public debate by those with whom we disagree. But I have never understood why many economists believe this implies we should skew our argument about trade in one particular direction. The implicit premise seems to be that there are barbarians on only one side of the trade debate. Apparently, those who complain about World Trade Organization rules or trade agreements are awful protectionists, while those who support them are always on the side of the angels.
In truth, many trade enthusiasts are no less motivated by their own narrow, selfish agendas. The pharmaceutical firms pursuing tougher patent rules, the banks pushing for unfettered access to foreign markets, or the multinationals seeking special arbitration tribunals have no greater regard for the public interest than the protectionists do. So when economists shade their arguments, they effectively favor one set of barbarians over another.
Well, the problem with economics is removal of history and political thought. Trade supporters often quote Adam Smith to support their ideas but forget how Smith was mindful of politics around the ideas.
The seeds of elitism were sown long ago and now is the time to reap the fruits…
Hans-Hermann Hoppe votes for Mises.
I could go on and on, citing Hayek’s muddled and contradictory definitions of freedom and coercion, but that shall suffice to make my point. I am simply asking: what socialist and what green could have any difficulties with all this? Following Hayek, they can all proudly call themselves liberals.
In distinct contrast, how refreshingly clear — and very different — is Mises! For him, the definition of liberalism can be condensed into a single term: private property. The state, for Mises, is legalized force, and its only function is to defend life and property by beating antisocial elements into submission. As for the rest, government is “the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisonment. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.”
Most of us, can hardly differentiate between the two as history of economic thought has never been taught. Mises would not even be known to most as he was not given the prize. Hayek is far far popular that Mises.
It is not about which school you come from. It is knowing what each school and within each school the key actors have to say. This helps understanding where the key ideas are coming from and where they matter and where they do not.
All this reading (of whichever school) is really fascinating. The kind of debates and arguments help one get so many perspectives. It is a pity that most economics students of today have no idea about any of these issues.
It is all so ironical really. Post-2008, there has been a rise in interest in economic history and economic thought.
This is because of two reasons. One, people are beginning to understand that much of economics today is a result of series of events in the past. So, to understand today or forecast future, you need alteast some understanding of past matters. Two, as economics profession has lost a lot of credibility, it is increasingly looking at past for some credibility, This is especially the case for central bankers who are increasingly trying to justify their decisions bringing some connections with the past.
Ideally, the rise in interest should be based on first but even second is fine as atleast there is some discussion on these issues.
So what is the irony bit? Well, economic historians are not getting their due. Worse is that few remaining departments which encourage historical work are struggling to remain open.
David Warsh of economicprincipals.com laments the issues:
This is a hard hitting post on the economics profession by Bill Bronner. He has written a book recently called Hormegeddon: How Too Much of a Good Thing Leads to Disaster.
The post is based on his book.
EPW has a piece from its archives (06 Aug, 1949) which remains relevant till date. Though, things have moved in terms of availability of data (lack of which leads to failure) etc but still we need a lot more as shocks keep coming from all kinds of sources.