The Importance of Being Earnest: How Superfreakonomics killed contrarianism

John Quiggin90 Comments

I missed out on the Crooked Timber book title contest (combine a classic title with a “How C did Y” subtitle in the modern manner) a while back, so here’s my entry. As regards earnestness, i’m riffing off Andrew Gelman, via Kieran Healy at CT, who observes “”pissing off conservatives” is boring and earnest?”

The main point, though, is that the fuss over the global cooling chapter in Levitt and Dubner’s new book is the first occasion, I think, where the refutation of specific errors has taken a back seat (partly because, in this case, it’s so easy) to an attack on contrarianism, as such. The general point is that contrarianism is a cheap way of allowing ideological hacks to think of themselves as fearless, independent thinkers, while never challenging (in fact reinforcing) the status quo. Here’s Krugman and Joe Romm, for example

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The Goldman put

John Quiggin10 Comments

From the NYT on the remarkable profitability of Goldman Sachs

A big reason for Goldman Sachs’s blowout profits this year has been the willingness of its traders to take big risks — they have put more money on the line while other banks that suffered last year have reined in such moves. Executives say there are big strategic gaps opening up between banks on Wall Street that are taking on more risks, and those that are treading a safer path.

Hmm. I’d be willing to take big risks if I knew the Fed and the US Treasury were standing by, ready to pick up all my losing bets. In the circumstances, the guys at GS doubtless stand amazed at their own moderation in creaming off a mere $20 billion for the year.

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Buying out brown coal

John Quiggin95 Comments

Today’s Fin (paywalled) leads with a story that the foreign owners of brown coal power plants are demanding that, instead of receiving compensation over time for the effects of the ETS, they should be paid a lump sum, in the billions of dollars, to shut down the plants. Given that compensation is to be paid, it is impossible for me to disagree with this. The whole point of the ETS is to reduce pollution, and that can’t be done effectively if major polluters receive payments that are conditional on continuing polluting activities.

But should they receive compensation. These plants were all in public ownership in 1992, when the Australian government first committed to reducing CO2 emissions (subject to the findings of the then-new IPCC). When Jeff Kennett sold them, the original buyers ought to have known they were taking a commercial risk regarding possible limits on emissions. Most of the current owners bought even later, after Australia had participated in the negotiation of the Kyoto Protocol.

The people who should be getting compensation are not investors who made bad bets, but the workers and communities who pay the price for their bad decisions. More on this in this paper with Flavio Menezes and Liam Wagner.

The right in LaLaRouche land

John Quiggin136 Comments

I just spoke at an event organized by the UQ Greens to discuss emissions trading. There was lively debate over the relative merits, and prospects for success of emissions trading, carbon taxes, and direct regulation (my views here).

Things were made even livelier by the attendance of some LaRouche supporters who explained, as usual, that emissions trading was a genocidal plot by the British Royal Family. On an issue like climate change, LaRouchites represent the extreme fringe of rightwing opinion, taking the usual conspiracy theories about grantgrubbing scientists and environmentalist plans for world government into utterly paranoid territory.

But the traffic isn’t all one-way. On the issue of DDT, a lot of people buy a watered-down version of the LaRouche theory presented in LaRouche’s 21st Century Science by Gordon Edwards back in the early 1990s, according to which the US ban on agricultural use of DDT in 1972 produced a global ban on the use of DDT to fight malaria, costing millions of lives as part of a genocidal eco-imperialist plot.

Tobacco lobbyist Steven Milloy, looking for a stick with which to beat the environmental movement, used his junkscience site (then affiliated with the Cato Institute) to push Edwards’ LaRouchite fantasies, including the claims of genocide, but (doubtless in deference to conservative sensibilities) without the usual LaRouche link to the Royal Family (Milloy’s genocide clock is here). Roger Bate of AEI later took up the same line with great success, though he has backed away from it more recently.

But who would be stupid enough to fall for the second-hand propaganda of a nut group, recycled by the tobacco industry ?

(Answer over the fold)

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What went wrong with New Keynesian macro ?

John Quiggin17 Comments

More bookblogging! It’s all economics here at CT these days, but normal programming will doubtless resume soon.

Most of what I’ve written in the book so far has been pretty easy. I’ve never believed the Efficient Markets Hypothesis or New Classical Macro and it’s easy enough to point out how the occurrence of a massive financial crisis leading to a prolonged macroeconomic crisis discredits them both.

I’m coming now to one of the most challenging section of my book, where I look at why the New Keynesian program (with which I have a lot of sympathy) and ask why New Keynesians (most obviously Ben Bernanke) didn’t, for the most part, see the crisis coming or offer much in response that would have been new to Keynes himself. Within the broad Keynesian camp, the people who foresaw some sort of crisis were the old-fashioned types, most notably Nouriel Roubini (and much less notably, me) who were concerned about trade imbalances, inadequate savings, and hypertrophic growth of the financial sector. Even this group didn’t foresee the way the crisis would actually develop, but that, I think is asking too much – every crisis is different.

My answer, broadly speaking is that the New Keynesians had plenty of useful insights but that the conventions of micro-based macroeconomics prevented them from forming the basis of a progressive research program.

Comments will be appreciated even more than usual. I really want to get this right, or as close as possible
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Ostrom and Williamson win Nobel

John Quiggin18 Comments

The award of the Economics Nobel (yes, yes, I know) to Elinor Ostrom and Oliver Williamson came as a big surprise, but is certainly welcome. I’ve always been keen on Ostrom’s careful and empirically-based analysis of common property systems (I did my Master’s thesis on this topic, and wrote a bunch of papers about it back in the 1980s), in contrast to the factually false Tragedy of the Commons story pitched by Garret Hardin. And Williamson’s work on transactions costs transformed the way economists think about these things, though we have yet to offer a fully satisfactory account of them.

Update Over the fold, an extended version I wrote for Crikey

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Praising with faint damns

John Quiggin9 Comments

The Australian’s Online Poll today is “Do you think the federal government deserves all the credit for averting a recession? ”

Obviously they judged that even the readers of the Oz weren’t going to reject the idea that the government deserves some credit for its successful management of the crisis. Even the obviously rigged version only got 62 per cent in favour at last count.

Bookblogging Micro-based macro

John Quiggin4 Comments

Over the fold, yet more from my book-in-progress, Zombie Economics: Undead ideas that threaten the world economy. This is from the Beginnings section of the Chapter on Micro-based Macro, and covers the breakdown of the Phillips curve and the rise of New Classical and Rational Expectations macro. This (along with the bits to come on DGSE models) is probably the section on which my own background is weakest, so feel free to point out my errors.

I’ve now posted drafts of the first three chapters (+Intro) at my wikidot site, so you can get some context. In particular, before commenting on omissions, take a quick look to see that the point hasn’t been covered elsewhere.

Micro-based macro is here

I’ve got a lot out of comments and discussion so far, and I hope some of this is reflected in what you are reading.

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Weekend reflections

John Quiggin123 Comments

It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language. I’ve cut off a thread-derailing discussion of the Pinochet dictatorship on another post, but those so inclined can go at it here, bearing in mind the comments policy and the requirement for civility.