How bad are things when economists are writing the Queen of Britain first to explain why they were wrong, and now to say that the economists who admitted they were wrong, were also wrong… The queen herself asked questions of the profession and its failure to see the crisis coming as far back as July 2008, and what did ‘we’ have to offer as an answer?
So where was the problem? Everyone seemed to be doing their own job properly on its own
merit. And according to standard measures of success, they were often doing it well. The failure
was to see how collectively this added up to a series of interconnected imbalances over which
no single authority had jurisdiction. This, combined with the psychology of herding and the
mantra of financial and policy gurus, lead to a dangerous recipe. Individual risks may rightly
have been viewed as small, but the risk to the system as a whole was vast.
Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well. The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction. This, combined with the psychology of herding and the mantra of financial and policy gurus, lead to a dangerous recipe. Individual risks may rightly have been viewed as small, but the risk to the system as a whole was vast.
For anyone whose even opened one of the Minsky books or even a bit of Taleb this will be familiar territory – even the description of the market. But lets leave that aside. The retort from a new group of economist is that the education of economists, on all educational levels, is insufficient, as it lacks institutional, historical and sociological context. So far so good. What can we do to help the situation:
Models and techniques are important. But given the complexity of the global economy, what is needed is a broader range of models and techniques governed by a far greater respect for substance, and much more attention to historical, institutional, psychological and other highly relevant factors.
Skidelsky himself wrote something similar, and very interesting in the FT a couple of days ago [cached by google here], but here’s an obvious question… What action is taken beyond talk??? The latest instalment of the American Economic Review seems to almost not have noticed any change, and frankly why should it? There’s a year long back-log and it doesn’t look like a revolution is about to happen wit hthe foundations of the discipline. Especially when the ‘official’ reply from the discipline seems unable to step aside from models which cannot include a crisis in its analysis (cf. Robert Lucas’s reply) and the ‘dissenters’ who want do not want to change the discipline but would like a ‘broader range’ of models… It’s a long road ahead I fear.
Where the financial world was six months ago, university finances seem to lie every day of the year: On the brink of bancrupcy. Universities appear to be relying more and more on adjunct teaching, avoiding tenure contracts and cutting back on costs to maximize profits. But are staff-student ratios really so bad? Are the finances of the NY private universities in free-fall. And are the two related? I’ve done a quick survey of 30 private NY universities which suggest the schools can’t rely on just the interest payments from their endowments, but few, if any of them, are as poor as they’d like us to think – and that might not matter too much for the staff to graduate student ratios anyway…
Cornell: Lots of money but poor staff to student ratio... All Quill and Daggers?
A good 7 universities in the state have more than a Billion dollars in their endowment (topped by Columbia at $5.7bn), and another 6 have more than half a billion. Of course the endowment is only as good as its return, and while many a cunning money manager can get 10% and more from a university fund, lets make the crude assumption that the universities withdraw an average 5% per year (5.4% in 1999 apparently). While the top 4 (Rockefeller U., NYU, Cornel & Columbia) withdraw more than $100m each, the bottom 4 (Nazareth C., Manhattan C., St. Bonaventure & Marist C.) cannot even make $10m together, while the New School collects $12.5m, placing 19 out of 30.
New School of little money and good staff ratios...
What really matters is how much money the school can withdraw per student thougg: Lets assume that we are only interested in graduate students, as undergrads tend to pay their way: Then the picture takes a serious twist. Hamilton College (10th in endowments) come out top with an average return of $212,842 per staff and graduate student ! Colgate is second with $96,000 followed by Union C., Skidmore C., and Rockefeller U. all earning more than $50,000 per year per staff & graduate student. Rockefeller is the only top endowment school to remain in the top, with Columbia is pushed into 14th ($14,450), Cornell is sitting pretty at 8th ($25,856) and NYU is relegated to the bottom half of the table, in 17th place with only $4,855 per student and graduate student. The New School finds itself languishing around 22nd with just above $2,000.
Does money and average earnings translate into more staff members per graduate student then? For the top three ratios: Yes. The highest Academic-Staff-to-Graduate-Student ratio are found at Skidmore C. with 4.22 staff members for every graduate student, and Skidmore is 5th on the withdrawals per staff & graduate student. 2nd and 3rd are Rockefeller U. (2.45) and St. Lawrence U. (1.42) who were 4th and 6th in withdrawing money per staff-student, but then the picture gets a bit weird (possibly because the 1-3 in the withdrawal category had incomplete data on staff-student ratios). Cornell, with all its money and pay-outs is third from the bottom of the list, with a paltry 0.22 staff members per graduate student. Columbia is 19th (0.23), and NYU is found on 10th (0.36) just one spot below The New School with 0.51 staff per graduate student… So the extreme earners - I’d say $100,000 per annum per staff & student is extreme - have the highest staff-student ratio’s. But Cornell, Columbia and Renselar Poly Tech, earning between $14k-$25k thus ranking high in money have plummeted to the bottom six of the staff-student ratio table? In return, the bottom earners, and lowest endowment holders, Marist C. have joined Long Island U., The New School, St. Bonaventure and Yeshiva in climbing right up the ranking to high staff-student ratios… Money isn’t everything in the New York University system it seems – But I’m sure it helps.
Summary tables of my survey outcomes and a link to the full data-set is below if you click and Continue Reading…
Posted 6 months, 4 weeks ago at 07:43. Add a comment
Isn’t it nice when you’ve been asking for better presentations in conferences and lectures and then suddenly you realise that you are wholly unoriginal and people have been thinking the same thing for 20+ years?
Yes we have PresentationZen and Edward Tufte today, not to mention Hans Rosling and TED, but having just attended two international conferences these last two weeks, there is still a long way to go before we can catch up with Jay H. Lehr’s article “Let there be stoning!” – what an excellent 4 page read.
Lehr, Jay H. 1985. “Let there be Stoning!” Ground Water23(2): 163-5
Conor Clark has been interviewing Paul Samuelson for The Atlantic and the good professor, who at 94 is still very productive, had a new piece of advice for economics Graduate students:
Well, I’d say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come.
Once that is accomplished, the recommendation is to go empirical on the past, but not necesserily in the context of a formal model.
History doesn’t tell its own story. You’ve got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.
So that’s the new wisdom from the man who brought us the Foundations of Economic Analysis, who had this to say about that classic:
With the Foundations, I looked around for the best bicycle in town. It wasn’t perfect, but it was better than what had been assigned previously.
The interview is in two parts covering everything from Larry Summers through Mankiw, the crisis and much much more, here and here, while a tip of the hat goes to Stephen Kinsella for reading and commenting on the interviews in the first place.
Well, I’d say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come
Posted 8 months, 2 weeks ago at 16:26. Add a comment
To be fair, it took me several decades before I learned to appreciate Keynes in the original. Maybe a reread will make me see the depths of Minsky’s insight across the board. Or maybe not.
I guess the point is that you can be a bad writer and a great economist. And I really am gravitating toward a Keynes-Fisher-Minsky view of macro, although of the three I’d much rather read Keynes.
That would be Paul Krugman in his NYT blog as he is reading Minsky’s Stabilizing and Unstable Economy. I am not suggesting the whole world has changed, but as ever, in the afterglow of a crisis, the books of Minsky and Keynes are cracked open for another look.
Posted 9 months, 2 weeks ago at 04:18. Add a comment
The Post Autistic Economic Review – now known under the uninspiring sobriquet Real World Economic Review – is pushing a new movement against the problems of traditional textbooks in economics – Toxic Textbooks – saying they are to blame for the recent problems amongst other things.
The current economic meltdown is not the result of natural causes or human conspiracy, but because society at all levels became infected with false beliefs regarding the nature of economic reality. And the primary sources of this infection are the “neoclassical” or “mainstream” textbooks long used in introductory economics courses in universities throughout the world.
This is not a new complaint, in fact it’s been around a while, but the language has certainly gotten a lot stronger in this call for student action. Textbooks are however here to stay so this also requires academics to write ‘good’ textbooks, which is a challenge, which would avoid the problems outlined in the Toxic Textbook Manifesto.
Every year these “mainstream” books serve to indoctrinate millions of students in a quaint ideology (perfect rationality of economic agents, market efficiency, the invisible hand, etc.) cunningly disguised as science.This mass miseducation deprives society of the moral and intellectual capacities it needs in order to design and maintain the support systems required by market economies.
A topic close to my heart is the quality of teaching in universities, or sometimes the lack of it. A good lecturer inspires us while a bad lecturer can truly kill the wish to study any subject. In this sense it baffles me that we do not teach ‘presentations & teaching’ to graduate students, or at least to Ph.D. Students. Even the undergraduates could benefit from such a subject.
Creating interesting and good presentations is a skill which people retain for life. The ability to pitch a project to investors, present a technical subject or convince 100 undergrads of a theoretical idea all fall under the same heading of ‘presentation’. So why don’t we focus on doing more about it in higher education?
I suspect part of the answer lies with the fact that the academics who actually put on a really good lecture, don’t know how to teach that skill to others. When I say “Really Good” I am talking about the stuff that Al Gore does in his environmental talks, I am talking about Steve Jobs MacWorld Keynote Speeches, I am thinking of documentaries like Planet Earth and adverts which resonate and stay with us, like this 2006 Argentinian election ad. They are all memorable, interesting and informs the audience, much like the “Lost Generation” clip below, inspired by the Election Advert:
As lecturers and Teachers we should be inspirational. So I think that we in academia can learn a lot from people who give good presentations, and we can use it to our benefit in lectures. I am not suggesting that technical subjects should become cartoonish or silly entertainment, what I am suggesting is that lectures can be delivered (regardless of the topic) in interesting ways which motivates students, and not as repetitions of the text-book, (which students will read without you anyway). Not every talk needs slides, and not every talk needs problem solving, the issue is to know when each tool is appropriate as an interested audience is always key.
Some of my best lectures were on Gerrard Debreu’s Theory of Value (free here), a book I would recommend to no-one, but which was taught in a manner that made the topic and its author come alive. For those in the know, Debreu’s book is anything but fun, so if there is hope for that, imagine what can be done with exciting subjects like the development of whole nations or the political intrigue of growth policies?
So what can be done? Can we teach people to do good presentations, not meaning 1 slide, 7 bullet points, 7 words, but something you could get on a stage with (a lecture hall is a stage) and interest your students – or friends? – with for two hours. (I invited a friend of mine to a lecture I gave after having harped on about teaching at home, and must admit I was a lot more nervous about her [educated] reaction to my presentation than my undergrads’ – I recommend it, it’s a good experiment in self-improvement / flagelation). I think teaching ‘presentation skills’ can be done, but I do not think that we are properly equipped to address the issue as academics yet. Simply because we haven’t been taught anything about doing good presentations or good lectures ourselves. For us it was assumed that we would catch on to good practice (or more likely, avoid the worst practice) as we sat through conferences, lectures and seminar talks. Osmosis, however, can only do so much, and there’s a lot to do learn before we can teach the next generation how to take to the stage in the world around us. Personally I am reading much more, and have been contributing to the British Economics Networksseries on their ‘New Lecturers Workshop’ where I’ve just finished a quick 2k article on undergrad teaching [yup, shameless self-promotion, you spotted it], with some videos and references to things which I feel have impacted my own teaching in the last six months, It’s a long road ahead, but hey, it’s been a lot of fun so far.
Noted by Stephen Kinsella, Barry Eichengreen just published a long list of points arguing that the economy came undone through the action of bankers, bad theory, institutional biases, business schools, misunderstanding the markets and so forth… But one group of people are not to blame: the economists… no no, says Eichengreen, blame the users of economic theory:
the problem was a partial and blinkered reading of that literature. The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions.
Don't point the finger at economists... We pointed it at you first
The economists were good people who tried to model behaviour, risk, incentives and agent behaviour, all of which was useful. “What got us into this mess, in other words, were not the limits of scholarly imagination” it was those fools who used our work. If any complaint should be laid at the door of economists, we might say that
Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object.
We built it in good faith, and failed to protest how it was later implemented… You know, Guns don’t kill people, apes with guns kill people – so don’t blame the good and honest gun maker. This all echoes today’s BBC coverage and British Parliament blaming bankers (and users of economic theory) for making an “Astonishing mess” of the economy…
Can we be honest and say that standard economic theory has not really tried to deal with the economy over the last many years, and that is where the problem started? (If we were paying attention to the economy, we might have noticed some of those policies…) The problem is not with the user, who can only use what is given to them, but with the producers of thousands upon thousands of pages re-affirming the veracity of Value at Risk models, stable monetary regimes with long run equilibria and econometric sophistry showing the emergence of the Great Moderation, a new ‘plateu of economic stability’ (as Fischer infamously called the U.S. economy two weeks before the great 1929 crash…)
Eichengreen himself is more diplomatic about it. Even though he doesn’t want to lay the problem at the feet of the economics profession, his final paragraphs which aim to look forward, inevitably needs to discard the economics professions approach in the late 20th century. What we have been doing was too unrealistic and too ‘malleable’ – meaning always returning to a stable fictional equilibrium – and it needs to make space for empirically grounded models which use history and institutions, while economics begins to weed out the purely abstract thinking.
The late twentieth century was the heyday of deductive economics. Talented and facile theorists set the intellectual agenda. Their very facility enabled them to build models with virtually any implication, which meant that policy makers could pick and choose at their convenience. Theory turned out to be too malleable, in other words, to provide reliable guidance for policy.
In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time.
About time indeed, and maybe in ten years he will write it in unequivocal terms.
New School Economic Review
Welcome to the NSER, an economics journal which is free to access and download. This is also the home of our open blog which discusses topics in the news related to journal's focus on political economy, development, trade, philosophy of economics, and macroeconomics. Welcome.
Past journal issues: NSER 03: Doing Great Research NSER 02: The Development Issue NSER 01: Heterodox Economics
.
