Ben Bernanke: The revolving door between Wall Street and U.S. government agencies continues to revolve.
from David Ruccio
Apparently, the door between Wall Street and the U.S. government agencies in charge of regulating Wall Street continues to revolve. Former Federal Reserve chair Ben Bernanke is the latest to walk through the door. Read more…
Bringing economics back into liberal academic life.April 16, 2015.http://www.ft.com/cms/s/0/99799262-e293-11e4-ba33-00144feab7de.html#ixzz3XTazf200
Sir, The moribund orthodoxy that currently exercises such an inflexible grip on university economics departments will, as Wolfgang Münchau comments, inevitably face a challenge, and this “will come from outside the discipline and will be brutal” (“Macroeconomists need new tools to challenge consensus”, April 13). The orthodoxy has brought this dismal prospect on itself through the brutality with which it has purged those departments of any other school of thought than its own.
Indeed, in its extreme version, the orthodoxy’s doctrine holds quite simply that there are “no schools of thought in economics”, a totalitarian assertion all too true in most economics departments today, so ruthless has been the purge of alternatives. As a result, the different approaches to economic issues of Adam Smith, Bentham, Ricardo, Marshall, Keynes, Friedman and so on are all relegated to the fringe subject of the “history of economic thought”.
from Steve Keen
A Twitter follower accused me of being “a little nasty” with my last blog post. He was right, and I don’t apologize.
I’ve spent 40 years trying to highlight just how limited the dominant ideas in economics are. But even I didn’t fully appreciate how tiny the intellectual gene pool behind these ideas was.
Then, as I started to write a post on the economic issues in the Bernanke-Summers debate, I re-read Summers’ original secular stagnation post and realized that, not merely were the ideas coming from a single perspective, most of the major proponents of these ideas came not only from the same University (MIT), and even the same seminar (Class 14462, conducted by Stanley Fisher).
Think of the dominant names in economics and there are a few obvious entries: Ben Bernanke; Larry Summers; Paul Krugman; Olivier Blanchard; Ken Rogoff. Summers acknowledged all of them (bar Krugman) as classmates from Stanley Fisher’s seminar, while Krugman did his PhD at MIT (as did the other dominant macro textbook author—and ex-advisor to George W. Bush and Mitt Romney—Gregory Mankiw). Read more…
from Peter Radford
There are many billions of people in the world. There are tens, if not hundreds, of business firms. There are hundreds, if not thousands, of government and quasi government agencies. And there are a multitude of other organizations scattered about the global economy. All these are actors on the economic stage. They generate an incalculable number of relationships built around their multiplicity of desires, needs, and resource endowments. They barter. They exchange. They self-employ. They employ others. They sell. They buy. They consume. Some produce for their own consumption. Some produce for others. Some make their income as rentiers. Others work. They all change through time as they adapt to and interact with each other. They all learn. Read more…
from Lars Syll
Paul Krugman has often been criticized by people like yours truly for getting things pretty wrong on the economics of John Maynard Keynes.
Surely we don’t want to do economics via textual analysis of the masters. The questions one should ask about any economic approach are whether it helps us understand what’s going on, and whether it provides useful guidance for decisions.
So I don’t care whether Hicksian IS-LM is Keynesian in the sense that Keynes himself would have approved of it, and neither should you.
The reason for this rather debonair attitude seems to be that history of economic thought may be OK, but what really counts is if reading Keynes gives birth to new and interesting insights and ideas.
No serious economist would question that explaining and understanding “what’s going on” in our economies is the most important task economists can set themselves — but it is not the only task. And to compare one’s favourite economic gadget model to what “austerians” and other madmen from Chicago have conjured up, well, that’s like playing tennis with the nets down, and we have to have higher aspirations as scientists. Read more…
from Lars Syll
The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years … Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.
John Maynard Keynes (1929
Norbert Häring‘s presentation for the seminar “Economics and Power” on 23 March 2015, House of Lords, London:
Ladies and Gentlemen, To pay tribute to the Marxist jargon, in which Lord Skidelsky has phrased the title of my subject, I would like to start with a quote from Karl Marx: “The ideas of the ruling class are in every epoch the ruling ideas. … The ruling ideas are nothing more than the ideal expression of the dominant material relationships, … the relationships which make the one class the ruling one, therefore, the ideas of its dominance.” In my own words, that says that not all economic ideas are created equal. Some ideas make it into the leading academic journals, others can hardly be published. Some ideas make those who develop them successful in academics or even famous and influential. Other ideas sentence those who develop them to a life at the margin at best.
Ideally, this would all be a function of how convincing the idea is and how good the academic is at developing the idea, writing it down and marketing it. But we all know, that excellence by itself does not get you very far. Another important ingredient for a successful career is how convenient your subject of study and your results are for powerful interests in society.
“The rich… divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.” Adam Smith, The Theory of Moral Sentiments, Part IV Chapter 1
“For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.” Mark, King James Bible, 1611, 4:25
Adam Smith’s optimism and its vulgar neoliberal reincarnation, the ‘trickle down effect’, are thankfully on the back foot these days, steadily losing ground to a more ‘biblical’ narrative (see Mark 4:25 above). The Crash of 2008, the bailouts that followed, and the ‘secular stagnation’ which is keeping the wage share at historic lows (at a time of conspicuous QE-fuelled, bubble-led, asset-price inflation), have put paid to the touching belief that the ‘invisible hand’, left to its own devices, distributes the fruits of human endeavour more evenly across humanity.
from Lars Syll
In responding to these warranted wonderings, some economists – like theoretical economist David K. Levine in the article Why Economists Are Right: Rational Expectations and the Uncertainty Principle in Economics in the Huffington Post – have maintained that
it is a fundamental principle that there can be no reliable way of predicting a crisis.
To me this is a totally inadequate answer. And even trying to make an honour out of the inability of one’s own science to give answers to just questions, is indeed proof of a rather arrogant and insulting attitude.
Fortunately yours truly is not the only one racting to this guy’s arrogance: Read more…
from Lars Syll
DATE: December 12, 1991
FR: Lawrence H. Summers
1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. Read more…
from Lars Syll
Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging-market counterparts. The current phase of the official policy approach is predicated on the assumption that growth, financial stability, and debt sustainability can be achieved through a mix of austerity and forbearance (and some reform). The claim is that advanced countries do not need to resort to the more eclectic policies of emerging markets, including debt restructurings and conversions, higher inflation, capital controls, and other forms of financial repression. Now entering the sixth or seventh year (depending on the country) of crisis, output remains well below its pre-crisis peak in ten of the twelve crisis countries. The gap with potential output is even greater. Delays in accepting that desperate times call for desperate measures keeps raising the odds that, as documented here, this crisis may in the end surpass in severity the depression of the 1930s in a large number of countries.
This time it seems as though it is — really — different. At last the light at the end of the austerity tunnel seeps through.
from David Ruccio
Andrew Bacevich begins his review of Christian Appy’s new book, American Reckoning: The Vietnam War and Our National Identity, with the following:
Policy intellectuals — eggheads presuming to instruct the mere mortals who actually run for office — are a blight on the republic. Like some invasive species, they infest present-day Washington, where their presence strangles common sense and has brought to the verge of extinction the simple ability to perceive reality. A benign appearance — well-dressed types testifying before Congress, pontificating in print and on TV, or even filling key positions in the executive branch — belies a malign impact. They are like Asian carp let loose in the Great Lakes.
Appy’s examples include, in the area of national security, Cold Warriors McGeorge Bundy, Walt Whitman Rostow, and Samuel P. Huntington. Bacevich then extends the analysis to the new foreign policy intellectual establishment associated with Ashton Carter in his return to the Pentagon as President Obama’s fourth secretary of defense.
I wonder if we might use the same kind of analysis to examine Obama’s economic team, especially the first group of economic advisers. They included Treasury Secretary Timothy Geithner (whose “counselors” included Lewis Alexander, Gene Sperling, and Lael Brainard), National Economic Council Director Lawrence Summers, Deputy Director of the National Economic Council (and now Chairperson of the Council of Economic Advisers) Jason Furman, and others. In Obama’s case, the members of the economics “Brains Trust” weren’t from Yale but had close associations with Robert Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton.
from Dean Baker
Last month, former Clinton Treasury Secretary and top Obama adviser Larry Summers ripped into those arguing that more education is the answer to the country’s inequality problems:
“The core problem is that there aren’t enough jobs. If you help some people, you could help them get the jobs, but then someone else won’t get the jobs. Unless you’re doing things that have things that are affecting the demand for jobs, you’re helping people win a race to get a finite number of jobs.”
He made these comments at a conference put on by the Robert Rubin funded Hamilton Project held at the Brookings Institution.
If the significance of these comments is not clear, the most important economic figure of the mainstream of the Democratic Party was demolishing one of the party’s central themes over the last two decades. He was arguing that the problems of the labor force — weak employment opportunities, stagnant wages, and rising inequality — were not going to be addressed by increasing the education and skills of the workforce. Rather, the problem was the overall state of the economy.
The standard education story puts the blame for stagnant wages on workers. Read more…
from Peter Radford
Ha-Joon Chang nails it.
But I wish he hadn’t.
You see, I agree with his analysis of the inverse nature of status within the economics profession. As a useful general rule the more notable you are within the profession the less you know about the economy. This is a result of the perverse nature of what economists actually do: they are amongst the very few disciplines — perhaps they are unique — who invent the artifacts that they then seek to explain and study. This relieves them, as you can imagine, from having to engage with the mucky real world.
You might wonder how this came about. It is quite a puzzle isn’t it? All those extremely clever people resolutely avoiding contact with the very substance that their chosen topic of study presents them from outside; averting their eyes from the glare of reality; turning inward as they search for clarity and that song sought after simplicity that so beguiles them.
It’s actually quite dispiriting for anyone who dares imagine that economics has relevance to humanity and its ability to chart a course towards a generally more prosperous world.
So how did this disconnect happen? How is it that the very best are the most ignorant? Read more…
from Lars Syll
We are storytellers, operating much of the time in worlds of make believe. We do not find that the realm of imagination and ideas is an alternative to, or retreat from, practical reality. On the contrary, it is the only way we have found to think seriously about reality. In a way, there is nothing more to this method than maintaining the conviction … that imagination and ideas matter … there is no practical alternative”
Robert Lucas (1988) What Economists Do
Sounds great, doesn’t it? And here’s an example of the outcome of that serious think about reality … Read more…
from Lars Syll
By the early 1980s it was already common knowledge among people I hung out with that the only way to get non-crazy macroeconomics published was to wrap sensible assumptions about output and employment in something else, something that involved rational expectations and intertemporal stuff and made the paper respectable. And yes, that was conscious knowledge, which shaped the kinds of papers we wrote.
More or less says it all, doesn’t it?
And for those of us who do not want to play according these sickening hypocritical rules — well, here’s one good alternative.
from Lars Syll
In econometrics one often gets the feeling that many of its practitioners think of it as a kind of automatic inferential machine: input data and out comes casual knowledge. This is like pulling a rabbit from a hat. Great — but first you have to put the rabbit in the hat. And this is where assumptions come in to the picture.
As social scientists — and economists — we have to confront the all-important question of how to handle uncertainty and randomness. Should we define randomness with probability? If we do, we have to accept that to speak of randomness we also have to presuppose the existence of nomological probability machines, since probabilities cannot be spoken of – and actually, to be strict, do not at all exist – without specifying such system-contexts.
Accepting a domain of probability theory and a sample space of “infinite populations” — which is legion in modern econometrics — also implies that judgments are made on the basis of observations that are actually never made! Infinitely repeated trials or samplings never take place in the real world. So that cannot be a sound inductive basis for a science with aspirations of explaining real-world socio-economic processes, structures or events. It’s not tenable. Read more…
from Peter Radford
Beware of the possible snark in the following:
One of the possibilities you face when you commit to writing about something is that you get called names. Sometimes you are called wrong. And sometimes when you are called wrong, you are indeed wrong. Such is life. We learn.
This is not one of those times.
Because I am right.
Anyway, this time I have been called wrong because I asked that we raise a collective voice to ask questions about economics. I made no substantive claim in my call for questions. I just asked for questions and then did claim that the resultant conversation would/could be interesting. I thought this was uncontroversial. Read more…
Where is our economic system going? What about our societies? How did we get here? And what next?
The current situation reveals not only an economic crisis but also a deep crisis of economic thought. There are many causes for this situation, and solutions can only be found through theoretical, practical and political inventiveness with our critical faculties to the fore. But, whilst such voices do exist, they have been silenced as far as orthodox economics is concerned. Simply put, there are profoud institutional barriers to the emergence and presentation of original thinking, but this blocked creativity could be released through a simple and immediate political solution. Establishing in French universities a new section, entitled Economics and Society, would allow a new way of thinking in economics.
Madam Minister, you recently decided to create this new section promoting the study of economic facts with a renewed perspective within rather than apart from social sciences. You did so because you know how much the research in economics and its teaching, but also public debate, are suffocated by the monopoly of ideas imposed by a dominant school of thought that failed to anticipate or even to allow for, let alone understand and respond to this crisis.
The proposal for this new section, and your commendable approval for it, unleashed such a backlash from the established orthodoxy that it seemed to persuade you to withdraw your support.
For these reasons, by reaffirming your support for this petition for pluralism in economics, we demand that you publish the decree that you already signed in order finally to create this new section.
Economics needs pluralism now!
You can sign this petition here http://assoeconomiepolitique.org/petition-pluralism-now/
4,559 people have already signed it, but they need lots more. You can read the names at the petition sight.
Well, heterodox is relative, isn’t it? The Pope is a heterodox if you are a Greek or a Russia. I don’t particularly like it but wouldn’t mind if people use it as an easy way of saying that I am not a neoclassical economist. But, as I have explained in my latest book (Economics: The User’s Guide), I don’t entirely subscribe to one school or another. I have been influenced by many different schools. I believe—not only for political reasons but for intellectual reasons too—we need pluralism in economics. Different schools have different methodological approaches, have different interests (some more interested in production, while others are more interested in exchange, for instance) or make different political and ethical assumptions. We need all of them to understand fully the complexity of the world.