New School Economic Review

Brad DeLong’s reform for macro, will he follow it?

by Benjamin on November 13, 2010

Berkeley’s Brad DeLong has added more fire to the debate about what should be taught in economics courses. He did so last week in a webcast presentation, and now on his blog; I think he justifiably complains that:

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 (save possibly Perry Mehrling’s) was of little or no use in helping people who had read or taken them to read publications like the FT… (Read more here)

What follows is a proposal to make the teaching of macro more pluralistic. Yes pluralistic. He argues that macro should include five theories on the cause of unemployment and crisis: The classical (1. real wages too high),  (2. past over-investment), the monetarist (3. money shortage), Keynesian/Hicksian (4. shortage of bonds – and I might add 4b. lack of aggregate demand) and Minsky (5. where stability is unstable).

Yes I agree, we need a more pluralist approach, and then I stepped off for a bit. I was not sure we really needed all these theories. Can’t we make due with a four or three perhaps? Couldn’t we get rid of some of the classical ideas?

On further reflection, I don’t think so. I think the most important thing is to present the set of theories that successfully explain past crises, and if that is the criteria for inclusion, all five theories should all be included. But this allows us to exclude more esoteric ideas which have no empirical and historical backing. And I think DeLong is spot on when he says “All five of these theories are best taught sympathetically by being taught historically.” I wonder if his next textbook will take this approach…

The Masked Geek Avenger

by Jeanne aka JStor on September 9, 2009

He can crunch numbers faster than WolframAlpha. He lectures to our future corporate/political leaders by day, writes scathing NYT pieces about our current ones by night, and in between he won a Nobel Prize. Did I mention he knows what TARDIS is? Who is this masked geek avenger?

If you haven’t seen this yet, How Did Economists Get It So Wrong?, you should. And you should read his follow up.

This is published in Sept 7 Sunday New York Times Magazine. BUT it has been online since Thursday Sept 3. Probably because the editors knew that everyone will be away for the long weekend and they wanted to make sure it was well talked about before the weekend was actually here. And it will most likely remain as the “most read/emailed/blogged NYT article” until there is some real news.

My cohort and don’t think he’s really adding anything new to the topic. It’s been talked about here and here and here. Here are my brief thoughts:

• I am curious to see if you have thoughts about New Keynesian Economics. I guess you can’t win a Nobel unless you coin a new school of thought?
• I wish he devoted more thoughts about Keynesians. Past and current. And when I mean current Keynesians, I don’t mean just Paul Krugman.
• I’m not sure if I liked the fresh/saltwater example. It left me swimming in circles. If you follow his example, then Greg Mankiw and Brad Delong are both salt water. Really? Maybe Brad is like the middle of the ocean and Mankiw is an estuary.

Oh Mr. Lucas, you silly goose

by Benjamin on August 7, 2009

The Economist is pitching in on the debate about whether economics, and macro in particular, has gone to the dogs. This week Robert Lucas himself contributed a “Defense of the Dismal Science“, in response to an article a few weeks back, arguing that the macro-models were fine, and the simulations we run are still useful even if they failed to predict the crisis, as

the simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring.

Let’s have that again, from the Nobel receipient: The economic models which failed to predict the crisis are fine, not because they came close, but because they don’t even consider crisis as a possible outcome… Tell me that isn’t beautiful!?

A whole roundtable discussion of Lucas’s article and the state of economics is on-going at The Economists website. Thus far written by Mark Thoma (U. of Oregon), Tyler Cowen (GMU), Marcus Brunnermeier (Princeton) and Brad DeLong (Berkeley) with more contributors to be added this week. Bard DeLong’s piece even emphasised that “Mr Lucas said he ‘didn’t really get it’ ” when the bank bail-out was being discussed back in March. It makes for interesting reading, if a bit ‘Wonky’ as Steve Kinsella noted… I’m still chuckling quietly at Mr. Lucas’s ‘defense’ though.

Chicago and Macro goes the way of the Dodo

by Benjamin on June 18, 2009

Alright then, has everyone now heard the argument that more debt funded government spending will crowd out an equal and opposite private investment or consumption? I’m sure it sounds familiar, because there is something about that story, especially as it is sold by Chicago’s Eugene Fama and John Cochrane very recently.

The story excludes the current circumstance of the economy (recession), it assumes – in its classic form – that the economy is not credit driven, and as Paul Krugman complains: “What’s so mind-boggling about this is that it commits one of the most basic fallacies in economics — interpreting an accounting identity as a behavioral relationship”. In fairness Krugman is only responding to Brad DeLong who goes a little further in lambasting the Chicago guys:

Milton Friedman knew this. Irving Fisher knew this. Simon Newcomb knew this. David Hume knew this. John Cochrane does not know this: does not know that the velocity of circulation is an economic variable rather than a technological constant. I do want to pound my head against the wall. I do not know what else to do…

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