"This analytic structure, formally called 'neoclassical economics,' depends crucially on certain unquestioned axioms and basic assumptions about the behavior of markets and the human decisions that drive them. After years of arduous study to master the paradigm, these axioms and assumptions simply become part of a professional credo. Indeed, a good part of the scholarly work of modern economists reminds one of the medieval scholastics who followed St. Anselm’s dictum 'credo ut intellegam': 'I believe, in order that I may understand.'Uwe Reinhardt, "An economist's mea culpa", NYT blogg Economix, 9 januari 2009
An inference drawn from the profession’s credo is that private markets invariably are self-correcting and are driven by rational human beings whose careful decisions serve to allocate scarce resources efficiently — that is, these decisions maximize a nebulous thing economists call 'social welfare.'"
Uwe Reinhardt, "Can economists be trusted?", NYT blogg Economix, 16 januari 2009
jfr denna intervju med Steven Marglin:
"While reading your new book, my attention was immediately caught by your description of teaching students. In the 1960s, you found that they were good with the formal economics, the techniques, and the arithmetic, but when you asked them to elicit how the economics applied to the world, they didn’t get it.Stephen Marglin, professor i nationalekonomi vid Harvard, intervjuad i Challenge mars-april 2008
The incident took place in India. These were students who were well trained in mathematical statistics. India had been in the forefront of that field for a long time. I was a young mathematical economist, and I had had complaints when I taught the graduate theory course at Harvard that I was too mathematical. My Indian students were very good at math, and I did not need to hold back. At some point in this highly mathematically treatment, something moved me to inquire into their economic understanding behind the math. I had opened a can of worms. It quickly became clear that all they knew was the math. They had no idea what it meant.
Why is this anecdote so important to you? Does it suggest something about students of economics in general or about mainstream
economics today in particular?
It suggests something about both. We are very sophisticated mathematically in the United States now, but we have lost understanding of the economic content. What has happened to economics over the past forty years is a substitution of technique for understanding.
Do you find this true of even well-established economists?
The whole profession has gone excessively in that direction. Do not misunderstand. I started as a mathematical economist, and I believe in the importance of mathematics and formal models. But the balance has gotten way out of whack, and we now have excessive technique, which is marginalizing our understanding of what we are doing."
jfr Brad DeLong läxar upp ekonomer:
"If you asked a modern economic historian like me why the world is currently in the grips of a financial crisis and a deep economic downturn, I would tell you that this is the latest episode in a long history of similar bubbles, crashes, crises, and recessions that date back at least to the canal-building bubble of the early 1820’s, the 1825-1826 failure of Pole, Thornton & Co, and the subsequent first industrial recession in Britain. We have seen this process at work in many other historical episodes as well – in 1870, 1890, 1929, and 2000.Brad DeLong, professor i nationalekonomi vid UC Berkeley, "The Anti-History Boys", 28 september 2009
For some reason, asset prices get way out of whack and rise to unsustainable levels. Sometimes the culprit is lousy internal controls in financial firms that over-reward subordinates for taking risk. Sometimes the cause is government guarantees. And sometimes it is simply a long run of good fortune, which leaves the market dominated by unrealistic optimists.
Then the crash comes. And when it does, risk tolerance collapses: everybody knows that there are immense unrealized losses in financial assets and nobody is sure that they know where they are. The crash is followed by a flight to safety, which is followed by a steep fall in the velocity of money as investors hoard cash. And that fall in monetary velocity brings on a recession.
I will not say that this is the pattern of all recessions; it isn’t. But I will say that this is the pattern of this recession, and that we have been here before.
But if you ask the same question of a modern macroeconomist – for example, the extremely bright Narayana Kocherlakota of the University of Minnesota – you will find that he says that he does not know, and that macroeconomic models attribute economic downturns to various causes. Most, he points out, 'rely on some form of large quarterly movements in the technological frontier. Some have collective shocks to the marginal utility of leisure. Other models have large quarterly shocks to the depreciation rate in the capital stock (in order to generate high asset price volatilities)...'
That is, downturns are either the result of a great forgetting of technological and organizational knowledge, a great vacation as workers suddenly develop a taste for extra leisure, or a great rusting as the speed at which oxygen corrodes accelerates, reducing the value of large things made out of metal.
But modern macroeconomists will also say that all these models strike them as implausible stories that are not to be taken seriously. Indeed, according to Kocherlakota, nobody really believes them.:'Macroeconomists use them only as convenient short-cuts to generate the requisite levels of volatility' in their mathematical models.
This leads me to ask two questions:
First, is it really true that nobody believes these stories? Ed Prescott of Arizona State University really does believe that large-scale recessions are caused by economy-wide episodes of forgetting the technological and organizational knowledge that underpin total factor productivity. One exception is the Great Depression, which Prescott says was caused by real wages far exceeding equilibrium values, owing to President Herbert Hoover’s extraordinary pro-labor, pro-union policies.
Likewise, Casey Mulligan of the University of Chicago really does appear to believe that large falls in the employment-to-population ratio are best seen as 'great vacations' – and as the side-effect of destructive government policies like those in place today, which lead workers to quit their jobs so they can get higher government subsidies to refinance their mortgages. (I know; I find it incredible, too.)
Second, regardless of whether modern macroeconomists attribute our current difficulties to causes that are “patently unrealistic” or simply confess ignorance, why do they have such a different view than we economic historians do? Regardless of whether they have rejected our interpretations and understandings or simply have built or failed to build their own in ignorance of what we have done, why have they not used our work?"
jfr Julie Nelson:
”’Economic man’ is autonomous, self-interested, and rational; the fact that humans are vulnerable (especially when young, sick, or elderly) and are social and emotional beings is deliberately overlooked. The cultural connotations of these dualisms reflect longstanding associations of masculinity with high-status attributes of mind, culture, and detachment, and of femininity with low-status attributes of body, primitive or animal life, and embeddedness.”Julie Nelson, “Economic writing on the pressing problems of the day” (2009)
jfr Joseph Stiglitz:
"When I began the study of economics some forty-one years ago, I was struck by the incongruity between the models that I was taught and the world that I had seen growing up in Gary, Indiana. Founded in 1906 by U.S. Steel, and named after its chairman of the board, Gary has declined to but a shadow of its former self. But even in its heyday, it was marred by poverty, periods of high unemployment, and massive racial discrimination. Yet the economic theories we were taught paid little attention to poverty, said that all markets cleared - including the labor market, so that unemployment must be nothing more than a phantasm - and claimed that the profit motive ensured that there could not be economic discrimination (Becker 1971). As a graduate student, I was determined to try to create models with assumptions - and conclusions - closer to those that accorded with the world I saw, with all its imperfections."
Joseph Stiglitz, "Information and the Change in the Paradigm in Economics", i Richard Arnott, Bruce Greenwald, Ravi Kanbur & Barry Nalebuff (eds) Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz, Cambridge, MA: MIT Press, 2003
"the so-called 'Washington Consensus' policies, which have predominated in the policy advice of the international financial instituions of the past quarter century, have been based on market fundamentalist policies which ignored the information-theoretic concerns; this explains, at least partly, their widespread failures." (s 570)
from the "Competetive Paradigm" to the "Information Paradigm" (s 579-)
"The deficiencies of the neoclassical paradigm - the failed predictions, the phenomena left unexplained - made it inevitable that it would be challenged. One might ask, though, how can we explain the persistence of this paradigm for so long? Despite its deficiencies, the competitive paradigm did provide insights into many economic phenomena." (s 617)
jfr Greg Mankiw:
"A lot of the problem is that as well as the noted New Keynesian economist Greg Mankiw, the Harvard economics department also employs a dreadful Republican Party hack, also called Greg Mankiw. It must be terribly embarrassing when Greg Mankiw writes things that are obvious errors and pointed out as such in Greg Mankiw’s textbook, and they get blamed on Greg Mankiw. There’s a sitcom in it."signaturen dsquared kommenterar på Crooked Timber-bloggen, 19 april 2010
jfr DeLong om nationalekonomin och liberalismen:
14 januari 2009, "Modern liberalism and libertarianism: an economists' view"
Delong förklarar kortfattat och pedagogiskt varför marknadsliberalismen helt enkelt har fel i sin beskrivning av världen, som inte fungerar så som nyliberal teori (i olika varianter - Smithiansk, österrikisk, Nozick, etc) säger att den gör.
jfr (november 2008) Skapinker om Greenspan:
Michael Skapinker hade häromdagen en kul och syrlig kommentar till nyliberalen (han är objektivist) och förre Fedchefen Alan Greenspans förvåning över att fria marknader kunde skapa en kris så som den vi är i idag.
"Alan Greenspan's admission of "shocked disbelief" at banks' failure to protect shareholders was like someone who had always claimed the sun went around the earth saying he had just heard an extraordinary story from a fellow called Copernicus.Michael Skapinker, "Every fool knows it's a job for the government", Financial Times 18 november
There are no panaceas, but governments do need to look to rules that encourage executives to think beyond this year's bonus target.
The cry of "leave it to the market" has lost any credibility. This is the second time in less than a decade that the market has shown its inability to prevent corporate excess. Fool me once, shame on you; fool me twice, shame on me, as they say in America."