New School Economic Review

Dr. Krugman & Mr. Paul… and Ms. McCloskey

by Benjamin on September 12, 2009

Dr. Krugman & Mr. Paul?

Beatrice Cherrier, wrote a great piece on Krugman’s recent article and his relationship with mathematics today (“let’s have math in economics — but as our servant, not our master” ) and in the past (p. 1213) (“In the food sector we suppose that there are constant returns to scale…”). By coincidence, I was downloading a recent draft of McCloskey’s next book – which she kindly provides free drafts of – when I came across her 2002 article/booklet “The Secret Sins of Economics“.

Herein she makes the argument – which she has been making for years – that economics has become, and continues to be a discipline dominated by two failed approaches to doing scientific work: Qualitative Theorising – i.e. solving equilibria in constructed fantasies – and the use of statistical significance as a test for significance – we focus on the t-test, when you should care about the coefficient.

Both McCloskey and Krugman like the maths, and they want to see its use prosper in economics: But Paul Krugman is seemingly caught between his post-nobel public calls for reform (the Dr. Paul, Beatrice describes) and his academic (past?) self who is knee-deep in axiomatic models (Mr. Krugman). Deirdre McCloskey seems to be whole-heartedly in the game to change the discipline. Maybe it’t time for Mr. Krugman to retire, if he hasn’t already?

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.

The Wall Street Journal falls foul of Freakonomics style analysis and errors

by Benjamin on September 2, 2009

The Wall Street Journal yesterday explained why football coaches vote Republican by revealing that college and NFL football coaches contributed a ‘massive’ $13,000 to the Republican presidential campaign, whereas they only contributed $4,600 to the Democrats.

For the WSJ this is grounds for some serious soul-searching as Obama appearantly “outraised Mr. McCain by more than a 5-to-1 margin”… Never mind that the figures (via Wikipedia even) were Obama $103m : McCain $42m or Democrat $321m : Republican $261m. Anywho, the WSJ proceeds to make the argument that football coaches have a winning mentality, discipline, down-to-earthness “and [are] just conservative, I think. It fits with the Republicans”. Right… Lets just check that bit about small samples, ‘un-contextual’ data and spurious results – which caused such trouble for the Freakonomics guys. 23 coaches donated money, 20 of which gave (an average $650) to the GOP, and 3 for the democrats. There are some 32 NFL teams and 64 ‘top flight’ College teams, so the sampling of individuals is far from representative – or more correctly, 76% of football coaches didn’t care enough for either party to donate – and when they did, democrats gave more on average than the republicans.

But lets forget all that – lets say the WSJ is on to something. Why might football coaches be more keen to vote republican than democrat? Maybe… Just maybe, they fit the republican voter base? Here I am not talking about the idea that according to the WSJ ‘many’ coaches are from the Southern States – is that true? – nor that “Republicans tend to revere strong, singular executive leaders—a pretty good description of a coach” – whatever that is supposed to say about the republicans and democrats… Maybe it’s just that the people who make more money vote for those who wish to keep the top bracket tax low? But are the coaches in the top brackets?

Yep, college football coaches make an average 11 times more than the average professor, clocking up $1m each on average well illustrated here or written about here, and the NFL coaches averaged some $2.5m in 2003, and by now it’s surely more, with Seattle’s Mike Holmgren leading the pack on an average $5.1m every year. So let me get this straight, of the 24% of football coaches who bothered to contribute to the presidential election, the 20 guys who gave to the republican party each parted with a hefty 0.026% of their annual income… That is equivalent to me buying a lottery ticket. Somehow I am not sure me buying the lottery ticket re-affirms my utter and complete belief in me winning the big prize… No, I’m sorry, the WSJ piece is a cute little piece of pop-economics, which one should probably not read very much into – oh, and for those curious about the relation between income and voter decisions, here’s a nice graph from one post 2008 election analyst:

Low income people on the left... Pun intended :)

Data running back to 1980 is available, and shows the same trend. The lowest income brackets 0-$15k and $15k-$30k, have consistently voted democrat, by almost 2:1 under Clinton and Bush. The highest income brackets $100k+ and $200k+ when available voted republican by almost the same proportion…

Chicago, Chicago that toddling town… cry or laugh?

by Benjamin on July 21, 2009

A comment on Paul Krugman’s blog faithfully re-produced in the Heterodox Newsletter makes one really wonder what the …. is going on in what is left of ‘modern macroeconomics’. Enjoy:

I went to the University of Chicago several years ago. I studied in their illustrious economics department as an undergraduate. There are nearly 400 graduates per annum.

After I graduated I felt I was missing something in my economics education. I went back and read the General Theory. Had I not done this, I would have never heard of Keynesian economics, except in passing about how it is “wrong”. (Sadly this is not an exaggeration.)

I can safely say that, at a minimum, 80% of those UofC graduates were in the same position of ignorance as me. And they were fine with it because there were Nobel winners giving them A’s and applauding their work of regurgitated free market drivel.

For example, the entirety of our required macro education consisted of two quarters’ hashing and rehashing the GE models from Robert Barro. The most ironic thing, as I see it in hindsight, is that so much of this book was built around refuting Keynesian ideas: But these were ideas we had never actually learned in the first place!

I fell in love with that Gothic campus but I do see how we were living in the Dark Ages. I think about the leaders who came from the same position as me and I shudder to think of how many mistakes we are making as a result of this ideology.

— UChicago, Class of 2005

I went to the University of Chicago several years ago. I studied in their illustrious economics department as an undergraduate. There are nearly 400 graduates per annum.

After I graduated I felt I was missing something in my economics education. I went back and read the General Theory. Had I not done this, I would have never heard of Keynesian economics, except in passing about how it is “wrong”. (Sadly this is not an exaggeration.)

I can safely say that, at a minimum, 80% of those UofC graduates were in the same position of ignorance as me. And they were fine with it because there were Nobel winners giving them A’s and applauding their work of regurgitated free market drivel.

For example, the entirety of our required macro education consisted of two quarters’ hashing and rehashing the GE models from Robert Barro. The most ironic thing, as I see it in hindsight, is that so much of this book was built around refuting Keynesian ideas: But these were ideas we had never actually learned in the first place!

I fell in love with that Gothic campus but I do see how we were living in the Dark Ages. I think about the leaders who came from the same position as me and I shudder to think of how many mistakes we are making as a result of this ideology.

— UChicago, Class of 2005

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…

Continue Reading…

And the economics profession shifts a bit more

by Benjamin on May 26, 2009

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.