Economic Methodology: Thinking Math Can Substitute for Economics Turns Economists Into Real Morons Department


The highly estimable Tim Taylor wrote:

Tim Taylor: Some Thoughts About Economic Exposition in Math and Words: “[Paul Romer’s] notion that math is ‘both more precise and more opaque’ than words is an insight worth keeping…”

And he recommends Alfred Marshall’s workflow checklist:

  1. Use mathematics as a shorthand language; rather than as an engine of inquiry.
  2. Keep to them till you have done.
  3. Translate into English.
  4. Then illustrate by examples that are important in real life.
  5. Burn the mathematics.
  6. If you can’t succeed in 4, burn 3.

This is sage advice.

And to underscore the importance of this advice, I think it is time to hoist the best example I have seen in a while of people with no knowledge of the economics and no control over their models using—simple—math to be idiots: Per Krusell and Tony Smith trying and failing to criticize Thomas Piketty.

(2015) The Theory of Growth and Inequality: Piketty, Zucman, Krusell, Smith, and “Mathiness”: It is Krusell and Smith (2014) that suffers from “mathiness”–people not in control of their models deploying algebra untethered to the real world in a manner that approaches gibberish.

I wrote about this last summer, several times:

  • Department of “Huh?!”–I Don’t Understand More and More of Piketty’s Critics: Per Krusell and Tony Smith
  • The Daily Piketty: Ryan Avent on Housing in the Twenty-First Century: Wednesday Focus for June 18, 2014
  • In Which I Continue to Fail to Understand Why Critics of Piketty Say What They Say: (Late) Friday Focus for June 6, 2014
  • Depreciation Rates on Wealth in Thomas Piketty’s Database

This time, [it was a] reply… to Paul Romer… with a Tweetstorm. Here it is, collected, with paragraphs added and redundancy deleted:

My objection to Krusell and Smith (2014) was that it seemed to me to suffer much more from what you call “mathiness” than does Piketty or Piketty and Zucman. Recall that Krusell and Smith began by saying that they:

do not quite recognize… k/y=s/g…

But k/y=s/g is Harrod (1939) and Domar (1946). How can they fail to recognize it? And then their calibration–n+g=.02, δ=.10–not only fails to acknowledge Piketty’s estimates of economy-wide depreciation rate as between .01 and .02, but leads to absolutely absurd results:

  • For a country with a K/Y=4, δ=.10 -> depreciation is 40% of gross output.
  • For a country like Belle Époque France with a K/Y=7, δ=.10 -> depreciation is 70% of gross output….

Krusell and Smith had no control whatsoever over the calibration of their model at all. Note that I am working from notes here, because no longer points to Krusell and Smith (2014). It points, instead, to Krusell and Smith (2015), a revised version. In the revised version, the calibration differs. It differs in:

  • raising (n+g) from .02 to .03,
  • lowering δ from .10 or .05 (still more than twice Piketty’s historical estimates), and
  • changing the claim that as n+g->0 K/Y increases “only very marginally” to the claim that it increases “only modestly”. The right thing to do, of course, would be to take economy-wide δ=.02 and say that k/y increases “substantially”.)

If Krusell and Smith (2015) offer any reference to Piketty’s historical depreciation estimates, I missed it. If it offers any explanation of why they decided to raise their calibration of n+g when they lowered their δ, I missed that too.

Piketty has flaws, but it does not seem to me that working in a net rather than a gross production function framework is one of them.

And Krusell and Smith’s continued attempts to demonstrate otherwise seem to me to suffer from “mathiness” to a high degree.

Here are the earlier pieces:

DEPARTMENT OF “HUH?!”–I DON’T UNDERSTAND MORE AND MORE OF PIKETTY’S CRITICS: PER KRUSELL AND TONY SMITH: As time passes, it seems to me that a larger and larger fraction of Piketty’s critics are making arguments that really make no sense at all–that I really do not understand how people can believe them, or why anybody would think that anybody else would believe them. Today we have Per Krusell and Tony Smith assuming that the economy-wide capital depreciation rate δ is not 0.03 or 0.05 but 0.1–and it does make a huge difference…

Per Krusell and Tony Smith: Piketty’s ‘Second Law of Capitalism’ vs. standard macro theory: “Piketty’s forecast does not rest primarily on an extrapolation of recent trends…

…[which] is what one might have expected, given that so much of the book is devoted to digging up and displaying reliable time series…. Piketty’s forecast rests primarily on economic theory. We take issue…. Two ‘fundamental laws’, as Piketty dubs them… asserts that K/Y will, in the long run, equal s[net]/g…. Piketty… argues… s[net]/g… will rise rapidly in the future…. Neither the textbook Solow model nor a ‘microfounded’ model of growth predicts anything like the drama implied by Piketty’s theory…. Theory suggests that the wealth–income ratio would increase only modestly as growth falls…

And if we go looking for why they believe that “theory suggests that the wealth–income ratio would increase only modestly as growth falls”, we find:

Per Krusell and Tony Smith: Is Piketty’s “Second Law of Capitalism” Fundamental? : “In the textbook model…

…the capital- to-income ratio is not s[net]/g but rather s[gross]/(g+δ), where δ is the rate at which capital depreciates. With the textbook formula, growth approaching zero would increase the capital-output ratio but only very marginally; when growth falls all the way to zero, the denominator would not go to zero but instead would go from, say 0.12–with g around 0.02 and δ=0.1 as reasonable estimates–to 0.1.

But with an economy-wide capital output ratio of 4-6 and a depreciation rate of 0.1, total depreciation–the gap between NDP and GDP–is not its actual 15% of GDP, but rather 40%-60% of GDP. If the actual depreciation rate were what Krussall and Smith say it is, fully half of our economy would be focused on replacing worn-out capital.

It isn’t:


That makes no sense at all.

For the entire economy, one picks a depreciation rate of 0.02 or 0.03 or 0.05, rather than 0.10.

I cannot understand how anybody who has ever looked at the NIPA, or thought about what our capital stock is made of, would ever get the idea that the economy-wide depreciation rate δ=0.1.

And if you did think that for an instant, you would then recognize that you have just committed yourself to the belief that NDP is only half of GDP, and nobody thinks that–except Krusall and Smith. Why do they think that? Where did their δ=0.1 estimate come from? Why didn’t they immediately recognize that that deprecation estimate was in error, and correct it?

Why would anyone imagine that any growth model should ever be calibrated to such an extraordinarily high depreciation rate?

And why, when Krusell and Smith snark:

we do not quite recognize [Piketty’s] second law K/Y = s/g. Did we miss something quite fundamental[?]… The capital-income ratio is not s/g but rather s/(g+δ) no reference to Piketty’s own explication of s/(n+δ), where δ is the rate at which capital depreciates…

do they imply that this is a point that Piketty has missed, rather than a point that Piketty explicitly discusses at Kindle location 10674?

?One can also write the law β=s/g with s standing for the total [gross] rather than the net rate of saving. In that case the law becomes β=s/(g+δ) (where δ now stands for the rate of depreciation of capital expressed as a percentage of the capital stock)…

I mean, when the thing you are snarking at Piketty for missing is in the book, shouldn’t you tell your readers that it is explicitly in the book rather than allowing them to believe that it is not?

I really do not understand what is going on here at all…

In Which I Continue to Fail to Understand Why Critics of Piketty Say What They Say: “Per Krusell II: So I wrote this on Friday, and put it aside because I feared that it might be intemperate, and I do not want to post intemperate things in this space.

Today, Sunday, I cannot see a thing I want to change–save that I am, once again, disappointed by the quality of critics of Piketty: please step up your game, people!

In response to my Department of “Huh?!”–I Don’t Understand More and More of Piketty’s Critics: Per Krusell and Tony Smith, Per Krusell unfortunately writes:

Brad DeLong has written an aggressive answer to our short note…. Worry about increasing inequality… is no excuse for [Thomas Piketty’s] using inadequate methodology or misleading arguments…. We provided an example calculation where we assigned values to parameters—among them the rate of depreciation. DeLong’s main point is that the [10%] rate we are using is too high…. Our main quantitative points are robust to rates that are considerably lower…. DeLong’s main point is a detail in an example aimed mainly, it seems, at discrediting us by making us look like incompetent macroeconomists. He does not even comment on our main point; maybe he hopes that his point about the depreciation rate will draw attention away from the main point. Too bad if that happens, but what can we do…

Let me assure one and all that I focused–and focus–on the depreciation assumption because it is an important and central assumption. It plays a very large role in whether reductions in trend real GDP growth rates (and shifts in the incentive to save driven by shifts in tax regimes, revolutionary confiscation probabilities, and war) can plausibly drive large shifts in wealth-to-annual-income ratios. The intention is not to distract with inessentials. The attention is to focus attention on what is a key factor, as is well-understood by anyone who has control over their use of the Solow growth model.

Consider the Solow growth model Krusell and Smith deploy, calibrated to what Piketty thinks of as typical values for the 1914-80 Social Democratic Era: a population trend growth rate n=1%/yr, a labor-productivity trend growth rate g=2%/yr, W/Y=3.

Adding in the totally ludicrous Krusell-Smith depreciation assumption of 10%/yr means (always assuming I have not made any arithmetic errors) that a fall in n+g from 3%/yr to 1%/yr, holding the gross savings rate constant, generates a rise in the steady-state wealth-to-annual-net-income ratio from 3 to 3.75–not a very big jump for a very large shift in economic growth: the total rate of growth n+g has fallen by 2/3, but W/Y has only jumped by a quarter.

Adopting a less ludicrously-awry “Piketty” depreciation assumption of 3%/yr generates quantitatively (and qualitatively!) different results: a rise in the steady-state wealth-to-annual-net-income ratio from 3 to 4.708–the channel is more than twice has powerful.


We have a very large drop in Piketty’s calculations of northwest European economy-wide wealth-to-annual-net-income ratios from the Belle Époque Era that ended in 1914 to the Social Democratic Era of 1914-1980 to account for. How would we account for this other than by (a) reduced incentives for wealthholders to save and reinvest and (b) shifts in trend rates of population and labor-productivity growth? We are now in a new era, with rising wealth-to-annual-net-income ratios. We would like to be able to forecast how far W/Y will rise given the expected evolution of demography and technology and given expectations about incentives for wealthholders to save and reinvest.

How do Krusell and Smith aid us in our quest to do that?

Depreciation Rates on Wealth in Thomas Piketty’s Database:: Thomas Piketty emails:

We do provide long run series on capital depreciation in the “Capital Is Back” paper with Gabriel [Zucman] (see, appendix country tables US.8, JP.8, etc.). The series are imperfect and incomplete, but they show that in pretty much every country capital depreciation has risen from 5-8% of GDP in the 19th century and early 20th century to 10-13% of GDP in the late 20th and early 21st centuries, i.e. from about 1%[/year] of capital stock to about 2%[/year].

Of course there are huge variations across industries and across assets, and depreciation rates could be a lot higher in some sectors. Same thing for capital intensity.

The problem with taking away the housing sector (a particularly capital-intensive sector) from the aggregate capital stock is that once you start to do that it’s not clear where to stop (e.g., energy is another capital intensive sector). So we prefer to start from an aggregate macro perspective (including housing). Here it is clear that 10% or 5% depreciation rates do not make sense.

No, James Hamilton, it is not the case that the fact that “rates of 10-20%[/year] are quite common for most forms of producers’ machinery and equipment” means that 10%/year is a reasonable depreciation rate for the economy as a whole–and especially not for Piketty’s concept of wealth, which is much broader than simply produced means of production.

No, Pers Krusell and Anthony Smith, the fact that:

[you] conducted a quick survey among macroeconomists at the London School of Economics, where Tony and I happen to be right now, and the average answer was 7%[/year…

for “the” depreciation rate does not mean that you have any business using a 10%/year economy-wide depreciation rate in trying to assess how the net savings share would respond to increases in Piketty’s wealth-to-annual-net-income ratio.

Who are these London School of Economics economists who think that 7%/year is a reasonable depreciation rate for a wealth concept that attains a pre-World War I level of 7 times a year’s net national income? I cannot imagine any of the LSE economists signing on to the claim that back before WWI capital consumption in northwest European economies was equal to 50% of net income–that depreciation was a third of gross economic product.

One more remark: if more than half LSE macroeconomists really do believe that net domestic product is 28% lower than gross domestic product—for that is what a depreciation rate of 7% per year gets you with an aggregate capital-output ratio of 4—then more than half of LSE macroeconomists need to be in a different profession. I don’t believe Krusell and Smith’s survey. I don’t believe their LSE colleagues told them what they claimed they had…

Three Books for 2017: Economics for the Common Good, Janesville, Economism

3 books

Ken Murphy asked me for three books for 2017. Mine are: Amy Goldstein: Janesville: An American Story, Jean Tirole: Economics for the Common Good, and James Kwak: Economism: Bad Economics and the Rise of Inequality:

  • Amy Goldstein: Janesville: An American Story (9781501102233): The best of the very large and very uneven crop of ground-level books attempting to explain why those parts of America that are treading water or losing ground have been unable to adapt to changing technology and organization in the global economy…

  • Jean Tirole: Economics for the Common Good (9780691175164): A very wise book on what high-quality economics is and is not, from the guy who was truly the smartest guy in the room back when I spent a year as a young lecturer in the MIT economics department…

  • James Kwak: Economism: Bad Economics and the Rise of Inequality (9781101871195): How a very large part of the economics profession has failed to get the true message of economics through its own biases and the political and ideological filters…

Amy Goldstein: Janesville: An American Story (9781501102233): This is the best of the very large and very uneven crop of ground-level books attempting to explain why those parts of America that are treading water or losing ground have been unable to adapt to changing technology and organization in the global economy. General Motors closed its Janesville plant in 2008 as it teetered on the edge of bankruptcy. Students began showing up at the local high school hungry and dirty. Teachers and others started social service organizations to supply them with supplies and food. Contributions to local charities fell off just when the need spiked. The closing of the GM plant triggered the closing of its nearby supplier plants as well.

The GM assembly-line workers had earned \$30 an hour at the plant. Some—a few—maintain their paychecks by becoming “birds of passage” working at still-open GM plants in other states. Others see their paychecks collapse: settle at jobs paying half as much, and with minimal benefits. For nobody was willing to pay anywhere near \$30 an hour for the skills and the energy of ex-GM workers. And the ex-workers could not use their skills and energy themselves to find a retraining path to anywhere near the pay levels that GM had offered them.

The big flaw, of course, is Amy Goldstein’s ignorance of and unwillingness to learn about the macro picture that makes the closing of the GM plant so devastating for Janesville. Plants, after all, close all the time because the money being spent on the products they had made is diverted to purchase other commodities made more efficiently that promote greater prosperity. Why weren’t the Janesville ex-workers able to benefit from spillovers from that greater efficiency and greater prosperity? Goldstein has no clue.

Jean Tirole: Economics for the Common Good (9780691175164): This is a very wise book on what high-quality economics is and is not, from the guy who was truly the smartest guy in the room back when I spent a year as a young lecturer in the MIT economics department. “The distinctive characteristic of academics”, Tirole writes, “their DNA, is doubt”. This creates a substantial tension: economists need to teach what they know not just to their peers and their students but to the public sphere; but the public sphere today—did it ever?—does not want nuanced arguments from two-handed economists. Cable TV and Twitter do not like to be told: “It is difficult to tell”. Yet, often, that is what Tirole has to say. Nevertheless, Tirole thinks—and I agree—that we have no alternative but to try: we must imagine Sisyphus happy.

In its thoughtful discussions of market-state interactions, boundaries, and synergies; in its focus on the government’s role not in prescribing actions but remedying information and other externalities; in its pleas for a diversified portfolio of institutional forms; in its speculations about the long-run impact of information and communications technology revolutions; in its use of the economics of information as an organizing principle; in its rich institutional detail; in its application of theory to real-world examples; and in its (much appreciated) boosterism for behavioral economics—this is the best book I read in 2017.

James Kwak: Economism: Bad Economics and the Rise of Inequality (9781101871195): This is a very good book about how a very large part of the economics profession has failed to get the true message of economics through its own biases and the political and ideological filters.

First of all, I think the book is mistitled. It is not economics that becomes a misleading and destructive ideological “-ism”. Rather, it is, as my friend Noah Smith puts it, it is Econ 101—supply and demand, and where the curves cross is always the bet place to be—that became a misleading and destructive ideological “-ism”.

Second, as James Kwak writes, Econ 101 became a misleading and destructive ideological “-ism” because it suited the interest of powerful groups with megaphones that it become so: neoclassical economics badly done via those who learned little economics simplistically applying the most basic supply-and-demand models. Our large upward leap in inequality, the financial crash, and the large holes in our safety net are some of the current flaws in America that Kwak traces to 101-ism. And he is in large part correct do so. 101-ism makes people think that whatever inequality there is in the current market is natural and just, and that government policies will always reduce wealth by generating Harberger triangles. And these are very convenient beliefs for plutocrats—not for plutocrats to hold them, but for those who pay rents to plutocrats to hold in order to make plutocrats richer.

Noah Smith hopes that empirical evidence will disrupt and dismantle 101-ism:

The economics discipline itself has been shifting from theory to data for years now, and the world is taking notice. Every time studies show that tax cuts don’t do much to encourage investment, or that the impact of minimum wage hikes is modest, the public loses a little faith in the power of traditional Econ 101. The cure… is more and better economics…. Americans are now starting to question economism because of declining median income, spiraling inequality and a huge financial and economic crisis…

I think Noah is wrong here: 101-ism provides a simple and powerful intellectual framework easily grasped that makes sense of a complicated world and also works to the advantage of people with a great deal of money who benefit from its spread. Thought is vulnerable to simplistic theories which then gain an unshakeable hold. Simplistic theories are easily propagated because they are, well, simplistic. When it is in the interest of someone with resources that others believe a doctrine, they will devote their resources to spreading it. And it is very difficult to convince somebody of anything when their pocketbook or their sense of self-worth depends on their thinking otherwise. 101-ism thus has powerful material and cognitive advantages over alternatives. And the only thing that the alternatives have going for them is that they are the truth.

I think that James Kwak is showing us here both how much and how little arguments based on the truth can do in the modern public sphere.

But, as I said in talking about Jean Tirole’s Economics for the Common Good: we must imagine Sisyphus happy…

Republican Politicians, Non-Technocrats, and Technocrats on Tax “Reform” Edition…

How did we get here?

The Republicans Are Huge Liars

First, where are we?

Matthew Yglesias: If the GOP tax plan is so good, why do they lie so much about it?: “Democratic programs may or may not be… good idea[s], [but] the bills they write that they say will expand the provision of social services in the United States really do expand the provision of social services…

…Not so… with the Republican plan…. Trump ran on promising a middle-class tax cut…. At the beginning of the month, Trump was on the same page, saying…. Treasury Secretary Steve Mnuchin made an unambiguous promise that there would be “no absolute tax cut for the upper class”…. Trump went so far as to phone up a group of Senate Democrats to tell them, “My accountant called me and said, ‘You’re going to get killed in this bill.’” This is all a bunch of lies…. Rather than own up to the reversal and defend it on the merits, Trump’s team is now engaging in bizarre deflections….

A telling thing about the cavalcade of lies Republicans are telling about taxes is the party can’t quite get its story straight as to what the policy agenda even is here. They are telling deficit hawks that the bill is fiscally responsible… revenue-neutral in the long term. They’re telling others that… PAYGO… will be suspended, and the bill won’t really lead to the automatic cuts in Medicare and other programs that, by law, will result from its passage. They’re telling some people the middle-class tax hikes written into the Senate bill will never be enacted… the opposite of what they’re telling deficit hawks. So then some Republicans are telling some deficit hawks that the follow-up to the tax bill will be a return to entitlement reform….

The good news—if you’re inclined to see it as good news—is that Trump is a huge liar, so you can always hope it’s someone other than you who’s going to get betrayed…

I guess we are allowed to use the “lie” word now, are we not?

As to how we got here, let me turn the microphone over to Fritz Hollings:

Senator Howard Baker, the majority leader, sat right down there at that first desk and he shrugged his shoulders and said: “This is a riverboat gamble…”

The thing about a “riverboat gamble”, is that if it goes wrong, you tell your counterparty that you need to get the money from your room, and then you jump overboard in the dark and swim to shore.

The time was 1981. Howard Baker was then characterizing the 1981 Reagan tax cut that he was shepherding through the Senate.

It worked—in a “riverboat gamble” sense. As a policy, it was a disaster: no acceleration of economic growth, a significant increase in wealth inequality and degradation of opportunity, and the first of the dollar cycles that devastated America’s manufacturing market share. But the Republican Party was able to swim to shore, collect campaign donations and win seats, and leave the Democrats to pilot the riverboat through the snags.

Ever since, that has been the strategy of the Republican Party: make riverboat gambles. Tell bigger and bigger whoppers about them until they get called to account by the media and by the electorate—and then, with the post-2010 gerrymander and rise of Fox News, by that not general election but primary electorate.

If America is going to remain great, they will have to be called to account. And the only bright future for America is one in which the Republican Party is now on the same slow-motion track to long-term electoral defeat that then-governor Pete Wilson set the California state Republican Party on back two decades ago.

But, in the meantime, here we are, in the cycle of bigger and bigger whoppers. This serves as a good example:

Scott Lemieux: “I Am Sick And Tired Of People Saying That Utah Does Not Share A Border With Belgium”: “At the Senate Finance Committee…

…Sherrod Brown said some indisputably true things about the Republican plan to increase taxes on many non-affluent people to massively cut taxes for the extremely affluent:

I think it would be nice just tonight to just acknowledge that this tax cut is really not for the middle class; it’s for the rich. And that whole thing about higher wages, well, it’s a good selling point, but we know companies don’t just give higher wages—they don’t just give away higher wages just because they have more money. Corporations are sitting on a lot of money. They are sitting on a lot of profits now—I don’t see wages going up…

In response, Orrin Hatch said something indisputably irrelevant:

I come from the poor people, and I have been here working my whole stinking career for people who don’t have a chance, and I really resent anybody who says I’m just doing this for the rich—give me a break. Listen I have honored you by allowing you to spout off here, and what you’ve said is not right…. I come from the lower middle class originally. We didn’t have anything, so don’t spew that stuff on me. I get a little tired of crap…

It’s worth watching the video at the link; the pitch of furious indignation Hatch works himself into because someone pointed out that a tax cut for the rich is a tax cut for the rich is striking. And note that he does not say anything substantive about the bill, because he can’t—he talks about his background. I believe this is what we call a tell. No matter how much spittle Hatch emits, it doesn’t change the fact that he’s trying to ram a massive tax cut for the rich paid for on the backs of the poor through Congress…

Are there any economists out there saying that this is, policywise, a good idea? If there are economists of note and reputation who are taking the plunge, the natural place to find them is among the former Republican CEA chairs. So let’s take a look:

  • On the side of reality, we have Alan Greenspan and Greg Mankiw:
    • Alan Greenspan: “Economically, it’s a mistake to deal with sharp reductions in taxes now. We are premature on fiscal expansion, whether it’s tax cuts or expenditure increases. We’ve got to get the debt stabilized before we can even think in those terms…” (Nov 10)

    • Greg Mankiw: “The business tax plan being promoted by President Trump, and its close cousin released by House leadership this week, start with a good idea but then descend into an unworkable mess. Fortunately, the flaws can be fixed, if policymakers are willing to be bold…. O.K., O.K., I know that I have now come a long way from the Trump plan. And I know that, given the dysfunction in Washington, what I am proposing is a political nonstarter right now…” (Nov 3)

  • On the side of silence, we have Ben Bernanke, Harvey Rosen, and Michael Boskin…

  • On Team Riverboat Gambler, we have Eddie Lazear, Glenn Hubbard, and Martin Feldstein:

    • Eddie Lazear: “Will it boost the economy enough to cover most of the revenue cost? And will it help the middle class? The answer to both questions is yes, although some key changes can make achieving these goals likelier…” (Oct 16)

    • Glenn Hubbard: “Economists’ technical fouls of each other on the tax basketball court make good copy. But a hole-in-one of the wage increase the CEA report describes is what should grab the attention of congressional tax writers…” (Nov 6)

    • Martin Feldstein: “I have long been a deficit hawk…. An extra 1.5 trillion dollars of debt…. But I believe the advantages of corporate tax reform outweigh the adverse effects of the relatively small debt increase… raise the capital stock by 5 trillion dollars within a decade, causing annual national income to rise by 500 billion dollars…” (Nov 5)

There are, I believe, three important errors in Feldstein.

First, he says “causing annual national income to rise…” But that is wrong. The right phrase, in his analytical framework, is “causing annual domestic product to rise…” The difference is that a lot of the increase in domestic product he counts on from increased investment is not an increase in the income of Americans, is not an increase in national income. My first reaction was that half of it is an increase in the incomes of foreigners. Paul Krugman’s second reaction was that two thirds of it is an increase in the incomes of foreigners. Long experience has taught me that, whenever I disagree with Paul, he is probably right.

If Paul is wrong, the effect of this first error is to lower the assessment of the boost to Americans’ annual incomes from 500 billion to 170 billion dollars.

The second error is that Feldstein assumes that the tax cut on already built and installed capital is 100% a cut that flows out of the Treasury and into Americans’ pockets. It doesn’t. Steve Rosenthal estimates that 70 billion dollars of it flows into foreigners’ pockets each year. The effect of this second error is to further lower the assessment of the boost from 170 down to 100 billion dollars a year.

The third error is that Feldstein’s calculation assumes that the bill is deficit neutral, and thus that the 200 billion dollars a year in extra corporate retained earnings it produces is free to be devoted to increased corporate investment without countervailing factors. But, later on, he notes that the proposal involves “an extra 1.5 trillion dollars of debt” over the next decade. That is a subtraction from the funds available for investment. Remove that 10% return on the investment displaced from national income, and so we are down not to 170 billion dollars but to -50 billion dollars as the annual change in national income.

And, of course, not all of extra retained earnings will go to boosting investment. If we trust the CEO Council event that led to White House advisor Gary Cohn “ask[ing] sheepishly, ‘Why aren’t the other hands up?’”, A bunch will go to stock buybacks. A bunch will go to cash hoards and acquisitions. Some will not flow into retained earnings at all but go to dividends. Those wealth flows will boost elite consumption, rather than investment.

We are definitely in minus territory for economic growth here. And we are definitely in minus territory even without noting that Feldstein’s framework is already pretty far on the optimistic side as far as the economic benefits of low capital taxation are concerned. As Matthew Yglesias noted, you might get such a boost from:

a tax plan that was specifically designed to reduce taxation of new investments…. But most corporate profits are… the result of activities undertaken in the past…. A broad cut… is a windfall for what in tax policy jargon is called “old capital,” as well as for monopoly and quasi-monopoly rents and various other things that have nothing to do with incentivizing new investment…

And if we do note that a corporate tax cut is badly targeted—and a passive passthrough even worse targeted—as an investment incentive, we are in very negative territory as far as likely effects on economic growth are concerned.

And Feldstein’s arguments are the only game in town for supporters of the Trumpublican plans. Lazear, Hubbard, the Tax Foundation where Greg Leiserson has been correcting their modeling are all basically Feldstein with or without various bells and whistles.

Two of eight calling it a “mistake” and an “unworkable mess” is great. Three being quiet is OK—but, Harvey and Mike, ex-CEA chairs do not have the privilege of being silent on important policy questions and, Ben, although perhaps it would be better if ex-Fed chairs were to restrict their comments to monetary and financial policy, there is no such rule in operation.

But three offering support, even qualified support, is disappointing. I realize it is asking a lot to ask people who have spent their lives playing for Team Republican to cross the aisle—especially since they (rightly) believe that their principal societal value as is moderating technocratic voices within the Republican Party’s internal discussions, and they fear (rightly) that they put that at risk by failing to support the Republican Party’s legislative priorities. Marty gets a pass for having been very brave in stressing the dangers of the riverboat gambles in the early 1980s.

But may I please ask Glenn and Eddie to come over to the side of technocracy here?

Some Notes on Eric Miller’s Review of “Public Intellectuals in the Global Arena”…

Eric Miller: The Unnamed Behemoth: Review of “Public Intellectuals in the Global Arena” “Deep learning eloquently brought to bear on the contemporary moment has, quite evidently, not been enough to shore up the aging foundations of our republic…

…And a live-from-the-West-Wing Twitter feed is not likely to advance our fortunes, either…. Is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself? On such crucial questions this volume sounds an uncertain note—and a rather quiet uncertain note at that…. No thoroughgoing leftists (seemingly) number among the contributors—none, that is, disposed to warn of enlarging catastrophic conflict between democracy and capital…

(1) But I thought I had done so! Was I too elliptical? “Wealth imbalances alone produce a situation in which… market systems go horribly, dreadfully, diabolically wrong. Consider the Bengal famine…. And what of the British state that ruled India, and was responsible for checking to see whether the incentives the market system was providing really were the incentives that we wanted people to responding to? Prime Minister Winston Churchill sent a telegram, asking: if it were really true that there was famine in India, why was Mohandas Gandhi still alive?…”

(2) The problem, of course, is that the old leftist shibboleth is no longer something anybody can believe in:

The proletariat will use its political supremacy to wrest… centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible…. When… class distinctions have disappeared, and… production has been concentrated in the hands of a vast association of the whole nation… public power will lose its political character… [as] merely the organised power of one class for oppressing another…. In place of… society with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all…

(3) And as Keynes wrote about Trotsky back in 1926:

Granted his assumptions, much of Trotsky’s argument is, I think, unanswerable…. But what are his assumptions?… That a plan exists… that… [that] the proletariat… are converted to the plan… the rest who for purely selfish reasons oppose it…. If we pressed him, I suppose he would mention Marx. And there we will leave him with an echo of his own words–“together with theological literature, perhaps the most useless, and in any case the most boring form of verbal creation.”

Trotsky’s book must confirm us in our conviction of the uselessness, the empty-headedness of Force at the present stage…. All the political parties alike have their origins in past ideas and not in new ideas–and none more conspicuously so than the Marxists. It is not necessary to debate the subtleties of what justifies a man in promoting his gospel by force; for no one has a gospel. The next move is with the head, and fists must wait…

(4) So what is the new gospel—or, rather, what is the public-sphere intellectual-sociological process that we ought to have to discern the new gospel? And do we have that process? And since we do not, how should we go about trying to build it? Those are, I think, the big questions that our book was trying to address, fitfully and unsatisfactorily as we did so.

Back to Eric:

Willy Lam… on… China… places his hope in… “universal norms,” “universal-style democratic institutions,” and “the values enshrined in the charters of the United Nations.”… [Michael] Zuckert too finds the “liberal-democratic tradition” to be “the indispensable ground for our common moral and political life.” But is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself?…

(5) The answer was supposed to be “social democracy”—or, if you preferred, “liberal democratic socialism”, although the S-ism word has, in my view, been too deeply poisoned by the really existing socialisms that existed behind the Iron Curtain for it to be of any positive discursive use. In Polanyian terms, social democracy was supposed to ensure that people had the rights they thought they deserved and expected to see instantiated even though they were not property rights properly—their rights to stable communities, anticipated income levels, and stability of life and economic organization that Polanyi argued a market society undermined by its “fictitious” transformation of land, labor, and finance into “commodities”. Yet somehow there is now not a Polanyian revolt of “society” against the market economy, but rather of some elements of “society” against social democracy—it is not the market economy, but rather social democracy that is seen as illegitimately taxing and regulating the “productive” and giving to the “unproductive”. The question of the breakdown of the social democratic order in the face of first a hard neoliberalist and now a neo-fascist challenge remains poorly understood.

Back to Eric:

Tellingly, many of the book’s authors find themselves preoccupied with structural-functionalist questions regarding the evolving place of public intellectuals… taking for granted… integrity and stability (or… the impossibility of an alternative)… [and] musings on the “role” of intellectuals in it…. Lilla… contends that “the era of liberal idealism that began in the 1980s and spread in the 1990s is over,” and that we now find ourselves illiberally bound to a global behemoth that is yet unnamed—or not named properly: “We have no idea how this system really works, or even what to call it”…

(6) I see those two currents not in opposition but as instead in mutual support: we do not understand the social and societal world in which we are embedded, and yet we must understand—and fulfill—our role in order to even have a chance of creating a society that can make its important choices. “Tradition” is not an alternative—and it never was. There never were societies based on the “traditional” in the sense that what is old is what is good, and the older the better. There were societies in which change came only slowly, so that what had worked for some people in the relatively recent past was likely to work (of only for today’s analogues of those same people) today. There were societies that turned antiquity and habit into an advantageous Burkean judo move: instead buying all new furniture, find a creative, clever, and beneficial way to utilize the furniture you have inherited, no matter how differently you are using it from what its original purchasers used it for. There were societies that pretended that what was convenient to the powerful—even if a rank innovation—was “tradition” because they could not or dared not enunciate any other reason for it.

Well, in our world change does not come slowly. In our world, the Burkean judo move move is of limited use—especially as it tends to slide into the mendacious and destructive third use of “traditional “. Thus when Eric Miller and Michael Zuckert counterpose “tradition” to “public intellectuals” as ways of collectively thinking about who we shall be, he poses a choice that must be false for us. And, to tell the truth, the choice was overwhelmingly false for all of our predecessors as well, back to the Toba volcanic supereruption and the coming of language to the East African Plains Ape. Time scales and mendacity in the context of limited access to documents and history may have masked that for long periods of time. But it was so.

It is public intellectualism or nothing.

Moreover, I think Eric misdiagnoses the current problem:

Today, thanks to the internet, we may have enlarging “public intellectual” presence, but only—and not coincidentally—in the face of an absent public, a public that, having been educated in a fragmented disciplinary and social order, has given itself over to “jobs and private affairs”: Economics 101. We citizens need a new core curriculum… the active presence of that ancient Augustinian city, portending… a civil society founded upon the bedrock of institutions that store up treasure capital cannot see. And we need teachers—intellectuals, if you will—who can help us to see and seize that treasure. Now.

(7) It is not an absent public that is the problem, but a #fakenews and a Fox News public. Most importantly right now, Mike Pence and Teresa May do not seem to have had their conversations with James and Lachlan Murdoch—and with Rupert—on the importance of preparing the way for the #Amendment25 remedies that are now necessary. I mean, making money by terrifying your elderly viewers and so keeping their eyeballs glued so you can sell them overpriced gold and weapons is all fun and games. But somebody is going to lose an eye—indeed, Mossad has in all likelihood already lost assets.

(8) Not, note well, that I understand the public sphere of the early twenty-first century, or how to improve it…

Must-Read: Eric Miller: The Unnamed Behemoth: “In his 2011 book Reading Obama, the historian James Kloppenberg called the president ‘a man of ideas’…

…an “intellectual” who had long “showed the capacity and inclination to mobilize America’s intellectual traditions to bolster democratic political action.” Indeed, in a recent New York Times interview Obama revealed that even during his years in the White House he dedicated himself to reading—in an effort, as he put it, to “slow down and get perspective,” to “get in somebody else’s shoes,” to “maintain my balance.” Unlike many high-profile politicians, he wrote many of his own speeches, trying, as he says future political leaders must, “to tell a better story about what binds us together as a people.”

If Barack Obama embodies the promise of public intellectualism, his own record also reveals its shaky prospects. Deep learning eloquently brought to bear on the contemporary moment has, quite evidently, not been enough to shore up the aging foundations of our republic—much less bind us together as a people. And a live-from-the-West-Wing Twitter feed is not likely to advance our fortunes, either. “The evolving edifice of public intellectualism,” to use the term of Public Intellectuals in the Global Arena’s editor Michael C. Desch, rests on a foundation whose cement seems to be returning to sand. We have it on good information what comes next.

“Once human societies stop being essentially grounded in tradition, something like public intellectualism becomes constitutive,” observes the political scientist Michael Zuckert in his chapter of this volume. And herein lies the challenge these authors—fifteen in all, from a range of disciplines and nationalities—glimpse and name in diverging ways. If our grounding in tradition is gone, and if the enlightened replacement yet continues its deconstructing course, what have the intellectual avatars of the contemporary order to offer?

Economics, apparently. Desch names the discipline “the preeminent home of public intellectuals” in today’s academy; Mark Lilla drily notes that “Economics 101” is now “the world’s de facto core curriculum.”

The economist J. Bradford DeLong agrees, announcing that “Economists are here to tell you what’s what and how to do it”—teachers in the authoritarian mold, it seems. He follows this pronouncement with the observation that, given the triumph of global capital and subsequent failure of any other organizing principle, mere citizens have no choice but to “listen” to economists. “But you have nearly no ability to evaluate what you hear,” he warns. “When we don’t reach a near consensus, then heaven help you.” As DeLong goes to lengths to show, the country—the world—is in the hands of a field that is nowhere close to such consensus. Such news does not reassure the democratic soul.

DeLong baldly states that “a market economy’s underlying calculus is a calculus of doing what wealth wants rather than what people need.” Several contributors are intent on finding a way to thwart that desire and explore alternatives. Willy Lam, writing on the fate of public intellectuals in China—where, he says, their “toughest challenge” is mere “survival”—places his hope in the triumph of what he calls, variously, “universal norms,” “universal-style democratic institutions,” and “the values enshrined in the charters of the United Nations.” Writing from the United States, Zuckert too finds the “liberal-democratic tradition” to be “the indispensable ground for our common moral and political life.”

But is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself?

On such crucial questions this volume sounds an uncertain note—and a rather quiet uncertain note at that. This may have something to do with the fact that on the whole its contributors lean right; indeed, Desch dedicates the book to Allan Bloom and Samuel Huntington. Remarkably, given their incontestably central place in the history of public intellectuals, no thoroughgoing leftists (seemingly) number among the contributors—none, that is, disposed to warn of enlarging catastrophic conflict between democracy and capital.

Tellingly, many of the book’s authors find themselves preoccupied with structural-functionalist questions regarding the evolving place of public intellectuals in contemporary society, taking for granted that society’s integrity and stability (or, just as concerning, the impossibility of an alternative to the current order). The actual “global arena” of the book’s title is often (again, tellingly) lost from view, replaced by musings on the “role” of intellectuals in it. These portions of the book read like a tired update of mid-twentieth-century sociological theory.

But at key moments urgency breaks through. Lilla in fact goes so far as to conjure the ghost of Marx. “Returning to the baroque edifice Marx’s Capital would be a step backward,” he writes. “But acquiring some of Marx’s ambition simply to describe the reality of contemporary capitalism and its political repercussions would be a genuine advance.” He contends that “the era of liberal idealism that began in the 1980s and spread in the 1990s is over,” and that we now find ourselves illiberally bound to a global behemoth that is yet unnamed—or not named properly: “We have no idea how this system really works, or even what to call it.”

Andrew Bacevich—not one to take stability of any kind for granted—writes in a similar register. In his examination of Cold War American intellectuals Bacevich discovers an earlier version of the same analytic deficit Lilla points up, warning that these influential intellectuals, when “faced with a dire threat defined in oversimplified ideological terms,” broadcast “a faux ideological response.” Their tendency to miss the actual historical circumstances for the Big Idea proved costly: they helped leverage “a state-centered militarized version of liberalism.” The result? “Gaping inequality and a culture that has made gods of choice, consumption, and an absence of self-restraint”— a “shallow and insipid definition of freedom,” he none too delicately calls it.

Definitions of freedom may be hammered out in the intellectual sphere, but they begin as social practices in the realm of civil society—that pricey terrain that Lam, for instance, has his eyes on when he thinks hopefully about the prospect of serious, independent intellectuals in China. Even the Communist Party, in its own malign way, grasps this: it has “been reviving Confucianism with gusto,” writes Lam, “so as to fill the spiritual vacuum within citizens who have lost faith in socialism.”

Ahmad S. Moussalli (from the American University of Beirut) senses the same spiritual need in the Middle East. He criticizes “Arab renaissance intellectuals” whose embrace of a liberal, secular vision choked out “an intellectual Muslim modernist and reformist trend,” paving the way for “the authoritarian nationalist state.” Moussalli understands that public order—whether in liberal or authoritarian societies—is bound up in religious vision, ideals, and practices. Political wisdom requires an embrace of this inalienable human reality, however socially complicated such an embrace may be.

But the West has tried, of course, to lead the way in the other direction, a trajectory assessed with acuity by the political theorist Patrick Deneen, who turns our attention to the secularizing currents in the history of higher education. Earlier in our past, he writes, the task of the college teacher was to achieve “the integration of various forms of knowledge,” guided by a “theory of human flourishing” that imagined education’s end to be the cultivation of the “free citizen.” “The structure of the college,” he notes, “reflected the deeper commitment to a universum.”

Today, thanks to the internet, we may have enlarging “public intellectual” presence, but only—and not coincidentally—in the face of an absent public, a public that, having been educated in a fragmented disciplinary and social order, has given itself over to “jobs and private affairs”: Economics 101.

We citizens need a new core curriculum: that much this volume makes clear (even when it’s not trying to). And we need the active presence of that ancient Augustinian city, portending a new one. We need a civil society founded upon the bedrock of institutions that store up treasure capital cannot see. And we need teachers—intellectuals, if you will—who can help us to see and seize that treasure. Now.

What Can Be Done to Improve the Episteme of Economics?

I think this is needed:

INET: Education Initiative: “We are thrilled that you are joining us at the Berkeley Spring 2017 Education Convening, Friday, April 28th 9am-5pm Blum Hall, B100 #5570, Berkeley, CA 94720-5570…

…Sign up here: or email…

I strongly share INET’s view that things have gone horribly wrong, and that it is important to listen, learn, and brainstorm about how to improve economics education.

Let me just not six straws in the wind:

  1. The macro-modeling discussion is wrong: The brilliant Olivier Blanchard “The current core… RBC (real business cycle) structure [model] with one main distortion, nominal rigidities, seems too much at odds with reality…. Both the Euler equation for consumers and the pricing equation for price-setters seem to imply, in combination with rational expectations, much too forward-lookingness…. The core model must have nominal rigidities, bounded rationality and limited horizons, incomplete markets and the role of debt…”

  2. The macro-finance discussion is wrong: The efficient market hypothesis (EMH) claimed that movements in stock indexes were driven either by (a) changing rational expectations of future cash flows or by (b) changing rational expectations of interest rates on investment-grade bonds, so that expected returns were either (a) unchanged or (b) moved roughly one-for-one with returns on investment grade bonds. That claim lies in total shreds. Movements in stock indexes have either no utility-theoretic rationale at all or must be ascribed to huge and rapid changes in the curvature of investors’ utility functions. Yet Robert Lucas claims that the EMH is perfect, perfect he tells us “Fama tested the predictions of the EMH…. These tests could have come out either way, but they came out very favourably…. A flood of criticism which has served mainly to confirm the accuracy of the hypothesis…. Exceptions and ‘anomalies’ [are]… for the purposes of macroeconomic analysis and forecasting… too small to matter…”

  3. The challenge posed by the 2007-9 financial crisis is too-often ignored: Tom Sargent “I was at Princeton then…. There were interesting discussions of many aspects of the financial crisis. But the sense was surely not that modern macro needed to be reconstructed…. Seminar participants were in the business of using the tools of modern macro, especially rational expectations theorizing, to shed light on the financial crisis…”

  4. What smart economists have to say about policy is too-oftendismissed: Then-Treasury Secretary Tim Geithner, according to Zach Goldfarb “The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as [Christina] Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was ‘sugar’, and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt…. In the end, Obama signed into law only a relatively modest $13 billion jobs program, much less than what was favored by Romer and many other economists in the administration…”

  5. The competitive model has too great a hold: “Brad, you’re the only person I’ve ever heard say that Card-Krueger changed their mind on how much market power there is in the labor market…”

  6. The problem is of very long standing indeed: John Maynard Keynes (1926) “Some of the most important work of Alfred Marshall-to take one instance-was directed to the elucidation of the leading cases in which private interest and social interest are not harmonious. Nevertheless, the guarded and undogmatic attitude of the best economists has not prevailed against the general opinion that an individualistic laissez-faire is both what they ought to teach and what in fact they do teach…”


INET: Education Initiative: “We are thrilled that you are joining us at the Berkeley Spring 2017 Education Convening, Friday, April 28th 9am-5pm Blum Hall, B100 #5570, Berkeley, CA 94720-5570…

…Sign up here: or email…

We are convening students and professors who are interested in broadening economics education…. Our goals are to learn more about prevailing needs, pool and share existing pluralist curriculums, and brainstorm the architecture and direction of concrete future endeavors in post-secondary economics education. The economics discipline is in disrepair: publicly discredited, theoretically narrow, and academically constrained. Economics education reflects these flaws…. INET is gathering people in the academic economics community in convenings across the U.S. to better understand the challenges and resources faced by those working to reinvigorate the economics discipline.

Invitations are extended to: pre- and non-tenure faculty, including adjuncts; undergraduate and graduate students; experienced faculty actively engaged in pluralist education…. The convenings will be group-led, facilitated, full-day workshops…. These convenings are an exploratory process for INET. We have not made any funding commitments in this field beyond this series of convenings…. We do not view these meetings primarily as places to present funding proposals, but… to share experiences and ideas.

Next steps for INET in education will be announced following these convenings in May 2017….

As the day is long and the goal is ambitious, we will devote part of our morning to building a community agreement together. In anticipation of this, we invite you all to consider what makes a conversation comfortable and supportive for you (bonus points if you can frame it affirmatively…. This is not a suitable gathering for funding proposals. Chatham House Rules….

  • 9–10am: Breakfast & Coming Together
  • 10–11am: Constraints: Barriers to Economic Education
  • 11am–12pm: Resources: Existing Tools for Economics Education
  • 12–1pm: Lunch
  • 1–2pm: Matching: Fitting Resources to Constraints
  • 2–3pm: Gaps: Identifying Remaining Needs
  • 3-3:30pm: Coffee Break
  • 3:30–5pm: Future: Identifying Avenues of Change
  • 5-6pm: Dinner

What Is the Excellence of an Economist?

I have been thinking about John Maynard Keynes’s observations on the mysterious difficulty of being a first-class economist that I quoted a while ago:

John Maynard Keynes (1924): Alfred Marshall: “The study of economics does not seem to require…

…any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician…

I have been thinking about it because a couple of weeks ago I ran across a comment I once made:

The model says that attempting a 4%-point increase in government revenue as a share of GDP in Greece may well push you over the top of the Laffer Curve. It follows immediately that the excess burdens of a 1%-point increase are overwhelmingly large. It then follows immediately that any tax increases at all are inadvisable. Thus the only deficit-reducing policies that might possibly be advisable are those that cut spending. It would, therefore, seem to me that the paper ought to consist of one paragraph–that Greece is near the top of the Laffer Curve, hence what it urgently does not need is any tax increases–followed by fifteen pages documenting this claim on which all else depends: that Greece is near the top of the Laffer Curve. Yet those fifteen pages are missing…

It seemed to me very clear what was going on the moment I read: “We do not push the model to generate the full 4 percent increase in the [Greek] primary balance as a share of 2014 GDP… [because it] could push capital and labor taxes into the downward sloping portions of the Laffer curve…” And yet the well-regarded authors then spent fifteen pages calculating benefit-cost ratios–which were, of course, much less than one–rather than documenting their belief that Greece is near the top of the Laffer Curve.

I have been thinking about this Keynes passage in the context of Dani Rodrik’s “don’t blame economics–blame economists!”

It strikes me that a first-class economist needs to have a firm grasp of:

  1. The economic models that might be used to analyze the situation.
  2. The benefits and drawbacks of each possible model, and the reasons to on balance prefer one particular model and one particular analysis.
  3. What dangers the assumptions needed to make one’s chosen model tractable expose one to.
  4. How one’s model actually works.

N. Emrah Aydınonat: Using and Abusing Models in Economics: A Review of Rodrik’s Economics Rules: “Rodrik… argues that both unrealistic assumptions and mathematics are useful in economic modelling…

…Rodrik argues that economics is not the problem, economists are… idealization, abstraction, utilization of unrealistic assumptions, methodological individualism are not problems as long as one appreciates the diversity of economic models and accepts the fact that each economic model is an attempt to understand some real world relationships in isolation. Market favoritism is not a problem of economics… [but] rather a problem created by some overconfident economists…. Economics is more pluralist than it appears…

DeLong Smackdown Watch: Simon Wren-Lewis and Ann Pettifor Take Their Whacks

Simon Wren-Lewis: Ann Pettifor on mainstream economics: “Ann has a article that talks about the underlying factor behind the Brexit vote…

…Her thesis, that it represents the discontent of those left behind by globalisation, has been put forward by others. Unlike Brad DeLong, I have few problems with seeing this as a contributing factor to Brexit, because it is backed up by evidence, but like Brad DeLong I doubt it generalises to other countries…

Simon Wren-Lewis: A divided nation: “There is no reason why we need to choose between the economic and the social types of explanation…

…Kaufmann and Johnston et al can both be right. As Max Wind-Cowie says (quoted by Rick here):

Bringing together the dissatisfied of Tunbridge Wells and the downtrodden of Merseyside is a remarkable feat, and it stems from UKIP’s empathy for those who have been left behind by the relentless march of globalisation and glib liberalism.

Both these explanations see antagonism to the idea (rather than the actuality) of migration as the way an underlying grievance got translated into a dislike of the EU. But was immigration really so crucial? A widely quoted poll by Lord Ashcroft says a wish for sovereignty was more important. The problem here, of course, is that sovereignty – and a phrase like taking back control – is an all embracing term which might well be seen as more encompassing than just a concern about immigration. It really needs a follow-up asking what aspects of sovereignty are important. If we look at what Leavers thought was important, the “ability to control our own laws” seemed to have little to do with the final vote compared to more standard concerns, including immigration.

However there are other aspects of the Ashcroft poll that I think are revealing. First, economic arguments were important for Remain voters. The economic message did get through to many voters. Second, the NHS was important to Leave voters, so the point economists also made that ending free movement would harm the NHS was either not believed or did not get through to this group. Indeed “more than two thirds (69%) of leavers, by contrast, thought the decision “might make us a bit better or worse off as a country, but there probably isn’t much in it either way””. Whether they did not know about the overwhelming consensus among economists who thought otherwise, or chose to ignore it, we cannot tell.

Third, Leave voters are far more pessimistic about the future, and also tend to believe that life today is much worse than life 30 years ago. Finally, those who thought the following were a source of ill rather than good – multiculturalism, social liberalism, feminism, globalisation, the internet, the green movement and immigration – tended by large majorities to vote Leave. Only in the case of capitalism did as many Remain and Leave voters cite it as a source of ill. These results suggest that Leave voters were those left behind in modern society in either an economic or social way (or perhaps both).

Taking all this evidence into account it seems that the Brexit vote was a protest vote against both the impact of globalisation and social liberalism. The two are connected by immigration, and of course the one certainty of the Brexit debate was that free movement prevented controls on EU migration. But that does not mean defeat was inevitable, as Chris makes clear. Kevin O’Rourke points out that the state can play an active role in compensating the losers from globalisation, and of course in recent years there has been an attempt to roll back the state. Furthermore, as Johnston et al suggest, the connection between economic decline and immigration is more manufactured than real. Tomorrow I’ll discuss both the campaign and what implications this all might have.

Must-Watch: Robert Skidelsky et al.: Too Much Maths, Too Little History: The Problem of Economics

Must-Watch: Robert Skidelsky et al.: Too Much Maths, Too Little History: The Problem of Economics: “The debate hosted by the LSE Economic History Department…

…in collaboration with the LSESU Economic History Society and the LSESU Economics Society. . Speakers: Lord Robert Skidelsky & Dr. Ha-Joon Chang; Prof. Steve Pisckhe & Prof. Francesco Caselli. Chair – Professor James Foreman-Peck:

The LSE is currently the only institution to have a separate EH department. We want to encourage students and academics alike to rethink the methodologies used to explain how our world works.

Do we use the theoretical and econometrical method to create models with assumptions to distil the complexities of human nature and produce measurable results? Or do we use the historical process of considering all factors to provide a more holistic explanation? More importantly, which method should be adopted to better understand increasingly complex economic phenomena in the future?

We are striving to provide our students breadth that exceeds their current theoretical studies. Hence, whilst we recognise the importance of economic history in allowing us to become closer to the truth and produce more intricate portrayal of events, the significance of models and mathematics remains to be emphasised.

Indeed, we wish to have this controversially named debate in order to both highlight the tension between the two disciplines and to produce a more nuanced overview in defence of the future of Economics.

Must-Watch: Barry Ritholtz: Ha-Joon Chang: Economics Is For Everyone!

Must-Watch: Barry Ritholtz: Ha-Joon Chang: Economics Is For Everyone!: “Really interesting stuff…

…legendary economist Ha-Joon Chang in a mind-blowing RSA Animate…. explains why every single person can and SHOULD get their head around basic economics. He pulls back the curtain on the often mystifying language of derivatives and quantitive easing, and explains how easily economic myths and assumptions become gospel. Arm yourself with some facts, and get involved in discussions about the fundamentals that underpin our day-to-day lives:

Must-Read: Paul Taylor: “We Skipped Elasticity Completely…”

Must-Read: Very flattering…

I must say: I don’t know how one would teach Econ 1 other than organizing it around the principles of (a) market success and (b) types of market failure…

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