…has to be judged a failure from a scientific perspective. In particular–and I apologize if this relies too much on the jargon of our field–monopolistic competition turns out to be just the tool for understanding…. (It also turns out to be the tool for understanding international trade, economic geography, and macroeconomics.) But there has been a series of models that are associated with the University of Chicago–from what some people call the freshwater camp in macroeconomics–that are continuing a fight that George Stigler started in the 1930s to keep monopolistic competition from being used in economics. It is hard to explain to an outsider why a whole group of economists have ended up on the wrong side of scientific progress, resisting the direction that all of modern economic theory is taking, but they are.

In the economics of ideas, we have to be willing to at least consider the possibility that someone could have some control over an idea, hence some monopoly power associated with ideas. This could come from patent or a copyright. It could also come from secrecy. Then we can ask if it is a good idea or a bad idea to have more intellectual property rights or more protection of ownership of ideas. We know that the answer here is mixed. Sometimes some amount of it can be good, but it can also be harmful if the property rights are too strong or are given to the wrong types of ideas. But if you don’t even allow for the possibility of ex post monopoly rents from the discovery of ideas, you can’t even ask the question.

So it is scientifically unacceptable to have people who say:

We will never, as a matter of principle, consider a model in which there are ever any monopolies. We will dogmatically stick only to models of price-taking competition.

I think this an untenable scientific stance. I don’t think that this critique is going to reignite interest in growth theory. But like I said, when it’s time for interest to come back, somebody have a new take on growth theory, and work in this area will start again. But in the meantime, we have to stop tolerating work that is scientifically unjustifiable.

Olivier Coibion et al: How Do Firms Form Their Expectations? New Survey Evidence: “We implement a new survey of firms’ macroeconomic beliefs in New Zealand…

…and document a number of novel stylized facts from this survey. Despite nearly twenty-five years under an inflation targeting regime, there is widespread dispersion in firms’ beliefs about both past and future macroeconomic conditions, especially inflation, with average beliefs about recent and past inflation being much higher than those of professional forecasters. Much of the dispersion in beliefs can be explained by firms’ incentives to collect and process information, i.e. rational inattention motives. Using experimental methods, we find that firms update their beliefs in a Bayesian manner when presented with new information about the economy. But few firms seem to think that inflation is important to their business decisions and therefore they tend to devote few resources to collecting and processing information about inflation.

…a hearty endorsement in one of his increasingly deranged fireside chats, suggesting that since some ‘powerhouse families’ regularly produce successful members, ‘we should be grateful that in each field of endeavor there are certain families that are breeding grounds for achievement. … I bet you can trace ways your grandparents helped shape your career,’ Brooks advises, proving once again he knows zero people who are not rich….

…which was about the 2010 ‘crisis’. So his ‘third way’ is really 7/8th my way!… [On] the 2010 crisis. Tony agrees that there were no signs of a crisis in the markets…. [Note] there is rather a big difference between “we saved the economy from a firestorm”, and “we took prudent action because bad things might have happened”. So maybe 15/16th my way. As there was no actual crisis, what were the chances of one happening? Eric Lonergan… makes an additional point… I can too easily forget. Because austerity damages the real economy, it increases domestic credit risks… [and] actually increase government default risk…. Austerity as a precautionary policy can actually make the outcome you are trying to prevent more likely….

If markets had suddenly taken fright on the deficit and stopped buying UK debt… the Bank could have just bought the debt…. Could it control inflation at the same time?… [Yes] if you are at the Zero Lower Bound (ZLB)…. Paul Krugman has written a paper on this, but it becomes irrelevant because of our second disagreement…. Tony sees the MPC as… succeeding… in… balance[ing] between inflation being too high and output being too low. If that is the case, the ZLB was not actually a constraint….

You wait until you are well clear of the Zero Lower Bound (ZLB) before embarking on fiscal tightening. You are about to hit the economy hard, so you want to be pretty sure that someone else will be able to make sure it can absorb that blow. In the case of Osborne in June 2010, we do not know if he even understood the risk…. Tony’s argument about inflation is not an excuse for austerity, but an argument about how much in practice it cost…. 2010 austerity was a first order policy mistake, because it took unnecessary and large risks with the economy…

…what should be on her economic agenda?… Here is a list…. Monetary Policy: The composition of the Federal Reserve Board is an extremely important factor…. Obama allowed vacancies on the Board of Governors to persist for far too long…. Fiscal Policy… maintaining and improving economic security… rebuilding our crumbling infrastructure… getting the budget back in shape. If another economic crisis hits, budget pressures will inevitably mount as tax revenues fall and spending on social insurance rises…. Education Policy: Education is not the full answer to the struggles of working class households and increasing inequality, but it is part of the answer…. Financial Regulation: Changes in financial regulation implemented after the financial crisis do not go far enough…. Climate Change: We cannot wait any longer to begin implementing policies that address greenhouse gas emissions…. International Trade… too many trade agreements put the interests of corporations first…. Inequality… this problem won’t fix itself–there is no inherent mechanism within capitalism to offset the trend toward ever increasing inequality…. None of this is likely to happen unless Democrats miraculously win the presidency, the House, and the Senate, but I can dream, can’t I?…

…but for lower class black Americans, this country basically looks like a failed state. Some books and articles I recommend: Vesla Weaver’s book, Arrested Citizenship, or her shorter Boston Review article on the criminal justice system. Alice Goffman’s amazing ethnography of a Philadelphia neighborhood, On The Run. Jill Leovy’s Ghettoside, on murder and policing in Watts LA. Mark Kleiman’s When Brute Force Fails, on the behavioral perversities of criminal justice. The Harper High School episodes of This American life. With one exception, these have all been written by white people. And I would bet all fall in the category of reading The New Yorker and find Starbucks lowbrow. While I am myself in that category (well, I’m actually sick of The New Yorker) I would appreciate pointers to the best of the best books and essays by another race and class.

…which highlights the problem…. In spite of Kristof’s alarmism, it turns out that American eighth graders actually did quite well on the 2011 TIMSS…. Out of 42 countries tested, the US placed 9th. If you look at the scores by country, you’ll see a large gap between the top 5 (Korea, Singapore, Taiwan, Hong Kong, and Japan) and everyone else. After that gap comes Russia, in 6th place, then another gap, then a group of 9 closely bunched countries… [including] the US…. Our performance isn’t mind-blowing, but it’s not terrible either. So what the hell is Kristof talking about?…

In a list of 88 publicly-released questions… the US placed in the top third… on 45… the middle third on 39, and the bottom third on 4…. US kids did particularly well on statistics, data interpretation, and estimation… For example, 80% of US eighth graders answered this question correctly:

Which of these is the best estimate of (7.21 × 3.86) / 10.09?

(A) (7 × 3) / 10   (B) (7 × 4) / 10   (C) (7 × 3) / 11   (D) (7 × 4) / 11

More American kids knew that the correct answer was (B) than Russians, Finns, Japanese, English, or Israelis. Nice job, kids! And let’s give your teachers some credit too!

But Kristof… has a narrative of American underperformance in mind, and if the overall test results don’t fit his story, he’ll just go and find some results that do!… Kristof literally went and picked the two questions out of 88 on which the US did the worst, and highlighted those in the column. (He gives a third example too, a question in which the US was in the middle of the pack, but the pack did poorly, so the US’s absolute score looks bad.) And, presto!–instead of a story about kids learning stuff and doing decently on a test, we have yet another hysterical screed about Americans “struggling to compete with citizens of other countries.”

Kristof gives no suggestions for what we can actually do better, by the way. But he does offer this helpful advice:

Numeracy isn’t a sign of geekiness, but a basic requirement for intelligent discussions of public policy. Without it, politicians routinely get away with using statistics, as Mark Twain supposedly observed, the way a drunk uses a lamppost: for support rather than illumination.

So do op-ed columnists, apparently.