Category: Economics – General
The poverty of rationality
Steve Williamson has written a much longer critique of Zombie Economics. It’s a lot more temperate in tone than the blog post I criticised here, and there are some valid points. Nevertheless, the new version exhibits the same fundamental confusion I pointed out last time, trying to claim that rationality assumptions are both important and unfalsifiable.
I’m criticising it again because, in making this mistake, Williamson is not exactly Robinson Crusoe[1]. The same confusion is evident among a great many economists, and even more among proponents of rational choice models in political science and other social sciences. This, despite the fact that the key error was skewered by William Hazlitt nearly two centuries ago, writing on self-love and benevolence.
Living in the 70s* (repost from CT)
A bunch of standard measures of US economic wellbeing (median household income, real wages for workers with high school education, educational attainment by age 25 and so on) show strong improvement from 1945 to the early 1970s, followed by stagnation or very slow growth thereafter. A variety of arguments, have been put forward to suggest that the standard statistical measures understate improvements in wages, incomes and so on since the 1970s. Some of these arguments are valid (for example household size has fallen), some not (for example, the fact that we now have more of goods that have become relatively cheaper). Regardless of validity, the main reason people believe these arguments is that, for anyone who was around at the time, it seems implausible that our parents’ living standards in the 1970s were comparable to our own today (assuming roughly similar class positions)
This reasoning is invalid for a reason that should be familiar to those on the conservative side of debates over inequality. The measures mentioned above compare snapshots of incomes at different times. But (as conservatives regularly point out) standards of living are determined mainly by lifetime incomes, not by income in any particular year. Given the pattern described above, lifetime income for someone who worked, say, from 1940 to 1985 was well below that for someone in a similar class position who started work in 1970, just when the long increase in real wages was slowing for most and stopping for some. For every year of their working life, the 1970 starter gets a wage (adjusted for age, education and so on) that’s as high as the maximum attained by the 1940 starter after 30 years of steady growth. Unsurprisingly, that translates into a bigger house, and more of most items that require savings, whether or not their price has risen relative to the CPI.
Soaking the rich
Matt Yglesias says
Many on the right and center indicate that in order to restore the economy, President Obama needs to do more to cater to the whims of rich businessmen. Many on the left feel that this is exactly wrong and that in order to restore the economy, President Obama needs to do more to stick it to the rich and dispossess them. History suggests that both are wrong.
He goes on to give plenty of evidence for the wrongness of the first proposition, and none at all for the second.
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No hard and fast rule for workers
That cute subeditorial pun is the headline for my most recent Fin column (over the fold).
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Core Economics plug
I’ve been very gratified by the number of my fellow economists who’ve come to my defence[1] following the attack on me in the Oz. Among the first was Joshua Gans at Core Economics. I wrote to thank him, but haven’t got around to a public mention. Now that I am around to it, it’s a good opportunity to mention that Core Economics is a great blog, where quite a few of Australia’s leading economists (aka my mates) hang out. Go and read some of the posts.
fn1.* With notably rare exceptions * (I’m (ab)using this blogmeme ironically), any members of the profession who agreed with the hit have kept pretty quiet about it
Peak oil point falls flat
That’s the title of my piece in the Fin yesterday, reproduced over the fold. Feel free to discuss, but please take anything related to nuclear power straight to the sandpit, and even there, try to avoid repeating the same old points.
New sandpit
Here’s a new sandpit for lengthy side discussion (general and nuclear-power related), rants on idees fixes and so on.
Monday Message Board
It’s time again for the Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.
Zombies
Got this in my email this morning inviting contributions to a special issue of a journal (I won’t name it)
Dynamic stochastic general equilibrium (DSGE) models have become an established framework of reference in empirical macroeconomics. Because DSGE models combine micro- and macroeconomic theory with formal econometric modeling and inference, they are now widely used in policy analysis and academic discourse to address questions in monetary economics and business cycle research, and to inform policy interventions. The continued success of DSGE models will rest on a sustained ability to meet key challenges and improve upon the main modeling paradigm both in terms of its theoretical foundations and its econometric implementation.
And of course, we can thank DGSE models for predicting that nasty crisis in 2008 and prescribing the policy responses that fixed it so completely. Good think we didn’t have to rely on that old-fashioned Keynesian stuff.
John Quiggin 