Archive for the ‘Economist’ Category

How economists are biased and self-selective about monetary history..

June 9, 2015

An insightful post by Prof George Selgin.

He picks a ppt from a Fed official who taught monetary economics to a school class. Prof Selgin says that the official tried to show how Fed is a superior system compared to the alternatives:

One of the chief goals of Cato’s Center for Monetary and Financial Alternatives is to make people aware of alternatives to conventional monetary systems—that is, systems managed by central bankers wielding considerable, if not unlimited, discretionary authority.  The challenge isn’t just one of informing the general public: even professional monetary economists, with relatively few exceptions, are surprisingly ill-informed about such alternatives.

I recently came across a document that perfectly illustrates this last point: a power point presentation by a senior Federal Reserve Bank research economist, given at a conference aimed at school teachers specializing in economics.

I have no desire to single-out the economist in question, who I will therefore refer to simply as “our economist.”  On the contrary: I offer his presentation as an example of the all-too common tendency for otherwise competent monetary economists (and our economist is in fact very accomplished) to misread the historical record regarding potential alternatives to central banking and to otherwise give such alternatives short shrift.

This unfortunate tendency rests in part on the fact that most economics graduate programs stopped teaching any sort of economic history decades ago (our economist earned his PhD in the early 1990s), while burdening their students with enough mathematics and statistics to all but guarantee that they never so much as crack open a book on the subject.  But the trouble isn’t just that many monetary economists don’t know their monetary history: it’s that they know, and teach, monetary history that ain’t so.  That’s what our economist did when he lectured a roomful of teachers on the merits of central banks and “Alternative Monetary Systems.”

Hmm.. Standard way to show how useful you are to the society.

It is frustrating how none of the real monetary history is taught to students. I mean one may disagree with free banking stuff, but atleast it should be taught.

Don’t trust the economic oracles..

June 4, 2015

 of Mises Institute says it nicely:

The positivist ideas dominant among economists led them to agree that, as stated by the motto of the Econometrics Society, “Science is prediction.” We are surrounded by forecasts about numerous economic indicators. “Experts” reveal the rate of growth with .1 percent precision as if they were reading the oracle or seeing the future in chicken entrails.

In the nineteenth century, people used to believe everything which was written in the newspapers. With time, they became more skeptical and began to question what has been considered as a reliable source of information. After that came television. Images have real power over the minds, but after a while, people began to mistrust the news and exercise their critical judgment. Oddly however, government statistics and economic predictions are held as truths since they exist and people only too rarely question the figures.

But if we can’t trust the government to produce safer rail travel or more affordable health care, why should we trust it to produce better economic predictions? Why would things be different for statistics and predictions?

Blame it on human psyche. We always believe that there should be someone taking care of us. Oracles have always amazed and fascinated humankind. Just that the fortune telling oracles have been replaced by economics oralces. Needless to say, both have mostly duped their followers..

Putting Economic Models in Their Place (and economists too?)

June 3, 2015

Prof. Brad Delong has a piece reflecting on the Paul Romer outlash.

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From MDGs to Post 2015 SDGs..

May 28, 2015

Trust all these UN type organisations to keep coming out with one buzzword after the other. I mean buzzwords are fine if some work actually gets done. But this is usually not the case.

Anyways as tenure of MDGs is going to be over in 2015, UN is coming out with a new development buzz – Post 2015 Sustainable Development Goals (SDGs). The question is what should these goals be?

Bjorn Ljomborg of Copenhagen Business School, who has been associated with such projects writes on SDGs.

Over the next 15 years, the international community will spend $2.5 trillion on development, with national budgets contributing countless trillions more. In September, the world’s 193 governments will meet at the United Nations in New York to agree on a set of global targets that will direct these resources. With so much at stake, it is vital that we make the smartest choices.

Because it is only natural for politicians to promise to do everything, the UN is currently poised to consider an impossibly inclusive 169 targets. The proposed targets range from the ambitious (“end the epidemics of AIDS, tuberculosis, and malaria”) to the peripheral (“promote sustainable tourism”) to the impossible (“by 2030 achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities”).

But promising everything to everyone provides no direction. In truth, having 169 priorities is like having none at all.

That is why my think tank, the Copenhagen Consensus, asked 82 of the world’s top economists, 44 sector experts, and UN organizations and NGOs to evaluate which targets would do the most good for every dollar, euro, or peso spent. A team of eminent economists, including several Nobel laureates, then prioritized these targets in value-for-money terms.

It turns out that not all targets are equal. Some generate amazing economic, social, and environmental benefits per dollar spent. Many others generate only slightly more than a dollar per dollar spent. Some even generate a net loss, doing less than a dollar of good per dollar spent.

If the world were to spend money equally across all 169 UN targets, it would do about $7 of social good for each dollar spent. That is respectable, but we could do much better.

The panel of eminent economists has produced a much shorter list of just 19 targets that will do the most good for the world. Every dollar spent on these targets will likely produce $32 of social good – more than four times more effective than spending on all 169. Being smart about development spending could be better than quadrupling the global aid budget. The short list covers a lot of ground; what connects the targets is the amount of good they will do for people, the planet, and prosperity.

…..

 This list of smart targets will not solve all of the world’s problems; no realistic list, however ambitious, can. But the 19 targets identified by the Copenhagen Consensus can help the world’s governments to concentrate on key priorities. These targets will do more than four times as much good per dollar spent as spending across all 169 targets would do. Governments should stop promising everything to everyone and start focusing on delivering the most possible.

MDG had 8 goals with 21 targets. And now we have 19 targets. I don’t think this is a really short target list. Just that these 19 targets are under three Ps – People, Planet and Prosperity. Who said only Business Schools believed in Ps, Ss and so on?

Eric Hanushek and Ludger Woessmann suggest just one taregt – basic human skills:

War over mathiness in economics..

May 27, 2015

It is not always you see likes of Prof. Paul Romer criticise economists and that too likes of Lucas and Prescott. The criticism is for their over the top mathisation of economics.

Noah Smith, Justin Fox and Mark Buchanan chip in.

Buchanan says:

Once upon a time economists made their arguments in long, discursive, often contradictory books about pin factories andnewspaper beauty contests. Verbally oriented people like me tend to extol those days, but to most modern economists they were the dark ages.

In the 1940s Paul Samuelson of the Massachusetts Institute of Technology brought enlightenment, in the form of elegant mathematical treatments of the major concepts in economics. Most of these ideas were inherently mathematical anyway, he argued in the introduction to his “Foundations of Economic Analysis,” first published in 1947, which meant that trying to express them in narrative form involved “mental gymnastics of a peculiarly depraved type.”

Samuelson’s approach gave the discipline a, well, discipline that it had previously lacked, and enabled economics to make great leaps in coherence and rigor. It also made the field incomprehensible to laypeople, but that turned out to be more a feature than a bug. Economists were seen as possessing unique scientific knowledge, and came to play increasingly prominent roles in public life in the U.S. and elsewhere. Samuelson’s economics-professor nephew even became Treasury secretary.

There are some obvious limits to this approach. In his entertaining and enlightening new book, “Misbehaving,” University of Chicago behavioral economist Richard Thaler documents case after case of “theory-induced blindness” in which economists ignored interesting and important real-world phenomena because they didn’t accord with the dominant mathematical models. Since the financial crisis, the conviction that macroeconomics in particular has reached a sort of theoretical dead-end has gained ground even among mainstream economists.

That’s not what Paul Romer is arguing, though. In a provocative paper presented in January at the annual meeting of the American Economic Association and just published in the American Economic Review, plus a series of combative blog posts, the New York University professor and famed economic theorist complains that some of his fellow economists have been resorting to what he calls “mathiness.” This is a variant of comedian Stephen Colbert’s “truthiness,” and means that they are using mathematical models not to elucidate or investigate but basically just to assert. Samuelson and others of his generation believed that mathematical reasoning would clarify economists’ arguments.

Well, nothing is new except for the fact that it is Romer who in an elegant AER paper (has a bit of math) questions the math methods adopted by stalwarts to showcase their supremacy over others. What is worse is that Romer actually points to mistakes in one of their papers which ends up being published in an top econ journal.

The problem is not limited to extensive and intensive use of math. It is just ensuring other areas like history and politics do not matter anymore. Most economics courses around the world are designed as suggested by these priests and are taught unchallenged by their several direct and indirect students across the world. So it is the same neoclassical school which is not even relevant in developed world is taught in schools across Asia and Africa.

I mean how preposterous can things get in economics teaching. We in other countries are part of the blame as we have just accepted whatever is being taught in these schools and taken it to be Bible.

Anyways, this is how things shall remain in economics . When the entire purpose of humankind has shifted from basic humanity to pursuing wealth at all costs nothing much can be done. This is then added to the strong belief that it is economics and economists which can help the society in that pursuit, things only become crazier and are expected to remain..

Ten Takeaways from the ‘Rethinking Macro Policy. Progress or Confusion?’

May 26, 2015

Oliver Blanchard sums up the progress which is mostly confusion:

On 15-16 April 2015, the IMF organised the third conference on ‘Rethinking Macro Policy’. In this column, IMF’s Chief Economist Olivier Blanchard presents his personal takeaways from the conference. Though progress in macro policy is undeniable, confusion is unavoidable given the complex issues that remain to be settled.

:-)

What is amazing to note is that people whose theories broadly failed during the crisis continue to reform the thinking post-crisis as well.  The so called neo-liberal thinkers continue to dominate whatever there is to economic thinking. Which other field allows this kind of progress?

RIP Prof Nash

May 25, 2015

Prof John Nash passed away in a tragic accident along with his wife.

No amount of words can do justice to his contribution to field of economics (above all game theory). Rest in Peace Prof.

Importance of neighborhoods in children’s life outcomes

May 12, 2015

Nice post by Gulzar Natarajan.

He points to studies which show the importance of neighborhoods in shaping children:

An excellent example of data journalism in the Times that highlight the works of Raj Chetty, Lawrence Katz and Nathaniel Hendren on how neighborhoods – schools, community, neighbors, local amenities, economic opportunities, and social norms – influence life outcomes. Briefly their two studies from the US show that not only do neighborhoods attract those who succeed (or fail), they also nurture success (or failure).

The first study tracked the life outcomes of the children in 4600 families in five large US cities in 1994-98 who won the Moving to Opportunity housing experiment (families living in public housing could enter a lottery in which the winners were offered a voucher to mover to better neighborhoods) lottery. The authors used the natural random selection experiment to track the outcomes of the move on younger and older children (the earlier studies clubbed both and found negligible effects). They also compared outcomes of those who won Section 8 subsidized housing vouchers which did not require moving to better parts of the city. 

….The second study uses earnings records to effectively track the careers and neighborhoods of 5 million people over 17 years. It reinforces the MTO experiment. The earlier a family moved to a good neighborhood, the better thee children’s long-run outcomes. The effects are symmetric, too, with each extra year in a worse neighborhood leading to worse long-run outcomes. Most important, they find that ech extra year of childhood exposure yields roughly the same change in longer-run outcomes, but that beyond age 23, further exposure has no effect. That is, what matters is not just the quality of your neighborhood, but also the number of childhood years that you are exposed to it. 

Importance of good company matters in all aspects of life..

Remembering Hayek on his 116th birthday..

May 11, 2015

One need not really remember likes of Hayek whose views either continue to haunt or be celebrated by econs/policymakers.

Nevertheless, Ryan Mcmaken pays a tribute to the Austrian scholar on his 116th birthday (8th May 2015):

Today is the 116th anniversary of Hayek’s birthday. Peter Klein summarizes his contributions in under 4 minutes here. Also, it’s 20% off all Hayek books and memorabilia in the Mises store. 

Many remember Hayek for his non-economic writings, but the core of Hayek’s economics contributions has been related to business cycles, prices, and the use of knowledge in the marketplace. Many of his key economics writings are included in our volume Prices and Production and Other Works, edited by Joseph Salerno. 

The Hayek-Keynes debate continues to be relevant today, of course, since Keynesianism remains broadly popular, even among people who have never heard of Keynes. Back when I taught introductory political economy, I found the short film “Fear the Boom and Bust,” which features a musical debate between Hayek and Keynes, to be a great little introduction to Austrian Business Cycle Theory for someone who knows nothing of the Keyes-Hayek debate.

There is a rap song at the end as well :-)

Why budget and experts should not obsess over fiscal deficit target…

May 11, 2015

Sashi Sivramkrishna of NMIMS (Bengaluru) has written a much needed piece. Slightly late as Budget hype is over but nevertheless.

It says Budget should be about governance and other issues. Fiscal Deficit is an outcome dependent on many factors and is not really in control of the govt. All this obsession only leads to fiscal gimmikry as finance minister only tries to meet the target and ignores the rest.

Nations, unlike households, do not face budget constraints. Fiscal defi cit targets therefore cannot be the objective of macroeconomic policy. Instead, budget discussions must focus on governance, supply-side bottlenecks and on policies to raise aggregate demand.

….It is time that the Indian government recognises the immense policy space available to it as a sovereign nation and does not succumb to unnecessary constraints imposed on it by rating agencies and media hype. So why are myths about the need to balance budgets propagated by the economics community? One possible answer is what Samuelson once mentioned to Mark Blaug:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one  of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and ineffi ciency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in away that the long-run civilised life requires (qtd in Wray 2010).

This obsession over fiscal and inflation targets has all become so stupid really. It seems nothing else matters. Just like the west, we have moved macroeconomics to just these two numbers and two institutions (fin min and central bank) which has made us miss many a things.

Rothbard and Market Economics in China

May 5, 2015

Nice interview of Jing Jin, a Chinese economist on whether Asutrian economics is followed in China  — https://mises.org/library/rothbard-and-market-economics-china.

It seems Hayek and Austrian school is quite well known in China:

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A new buzzword – frontier economies?

April 30, 2015

I was reading this recent post on capital flows from IMF in frontier economies. I assumed frontier economies to be another name for emerging economies. But no, it is a different class as explained here:

There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks. 

Get to know them  

The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.

Some also have been able to tap the international capital markets, such as Bolivia, Ghana, Honduras, Mongolia, Nigeria, Senegal, Tanzania, Vietnam, and Zambia. Their markets are, however, not as deep and liquid as those of the emerging markets, but compared to the latter, they offer higher returns and the benefits of a diversified portfolio.

Really? Another buzzword called frontier economies. IMF is another champion in all these naming gaming and creating buzzwords.

Further:

Many frontier countries are growing at a fast pace, in most cases helped by sustained efforts to achieve macroeconomic stability, and by building business-friendly institutions ( Chart 1). These economies have also made significant efforts to lower inflation through prudent fiscal and monetary policy ( Chart 2).

Most of these countries have made progress in strengthening their policy making apparatus, reducing excessive red tape and lowering trade restrictions. Reforms to change their economic structure have helped them unlock their potential, including  greater weight on the services sector, such as in Tanzania and Kenya.

In many countries, alleviation of their debt burden over the past decade has freed up money for investments in physical and human capital. Several countries received debt relief under the Highly Indebted Poor Country Initiative, but others reduced their debt outside this initiative, such as Kenya, Mongolia, Nigeria, and Vietnam.

These countries have deepened their financial markets at a fast pace—they offer more domestic financial services and products than their peers. Some have attracted international investor interest in their domestic bonds market and several have issued sovereign bonds in the international capital markets ( Chart 3).

Access to international capital markets means these countries can attract financing to address gaps in infrastructure, such as roads and railways, which could provide further impetus to growth. But as described below, market access also poses new financial risks that countries need to carefully manage.

Influences from outside their borders

Low interest rates combined with advanced economies shedding debt have pushed investors to search for higher returns on their investments, which has expanded their interest to invest in frontier economies.

The quest for resources by emerging economies has contributed to improved terms of trade and a surge in both domestic and foreign investment in resource-rich countries, such as Bolivia, Ghana, Nigeria, and Mongolia.

Domestic public investment has increased as the low debt burden, favorable external borrowing rates, and high commodity prices have increased access to private financing sources outside their borders. 

Just another group of countries which have shown some recent promise.  And all these are countries which soon are called lost ones as well..

Commodity prices: Over a hundred years of booms and busts

April 29, 2015

Nice article by Andrew Powell of Inter-American Development Bank.

He looks at this commodity price cycle from a really long historic perspective:

Narrative roots of public policy

April 28, 2015

Ricardo Hausmann has a great piece. Behind any policy the re is some narrative which shapes the policy intent. What is behind the narrative? Ideology and history:

According to President Barack Obama’s narrative, the United States has always been about a steady march toward freedom and equality, from the War of Independence to the abolition of slavery and the empowerment of women, minorities, and other previously marginalized groups, such as gays and those with handicaps. To the extent that this narrative is inaccurate, it is aspirational.

It is the role of politics to create, sustain, and reshape this shared sense of self, of us (and hence of them). It is an illusion, but a socially created illusion. It is how Bavarians and Venetians in the 1860s, for example, became convinced that they were and had always been Germans or Italians. Likewise, only a new narrative – a new Geist – can persuade the British today that they are really Europeans.

Liberals, as the political scientist Drew Westen has explained, often refrain from the narrative of shared identity, perhaps owing to awareness that great crimes are often committed in its name. Hitler redefined the German Volk as the collective victim of an internal enemy that was tainting its blood – a type of narrative that, whether framed in terms of race, religion, or class, underlies genocide wherever it occurs.

But it was also a national “person” that Abraham Lincoln invoked in his Gettysburg Address. In just 272 words, Lincoln synthesized America as an ideal based on the proposition that all men are created equal. In this narrative, the Civil War was fought to ensure “that government of the people, by the people, for the people, shall not perish from the earth.”

As the philosopher Alasdair MacIntyre argued in After Virtue, narratives frame individuals’ moral choices. Likewise, narratives frame the choices that governments make. After his brush with Communists in Spain, George Orwell captured the essence of the narrative’s importance in his novel 1984: “Who controls the past controls the future; who controls the present, controls the past.

Superb. This is what sums policies most of the time- what is the narrative?

Paul Krugman’s Love Affair with France..

April 27, 2015

An article disputing Krugman’s assertion that austerity loving UK grew slowly that stimulus loving France.

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Rethinking macroeconomic policy…

April 23, 2015

Oliver Blanchard sums up the views on macro policy at recently held IMF/WB meetings.

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Why Indian mutual fund industry neglects North East India?

April 15, 2015

Chandan Kishore Kant of BS has a story.

The story is similar to limited banking in NE:

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Should monetary policy take into account risks to financial stability?

April 15, 2015

Blogger Bernanke does not think so. He says financial regulation is the best way to manage financial stability, even if it is limited in scope.

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A number of different institutional arrangements of monetary system..a discussion

April 13, 2015

Lucas M. Engelhardt has a nice discussion on this.

None of our textbooks discuss any of this and we are made to believe that current form of central banking is the best form. 

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Thomas Piketty visits Japan..

April 7, 2015

Nice piece by Yuriko Koike Japan’s former defense minister and national security adviser.

She says unlike US and others, inequality is much lower in Japan:

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