NEK-efter-krisen-inlägget

John Kay om NEK

"The past two years have not enhanced the reputation of economists. Mostly they failed to point out fundamental weaknesses of financial markets and did not foresee the crisis, and now they disagree on appropriate policies and on the likely future course of events. Although more economic research has been done in the past 25 years than ever before, the economists whose names are most frequently referenced today, such as Hyman Minsky and John Maynard Keynes, are from earlier generations.

Since the 1970s economists have been engaged in a grand project. The project’s objective is that macroeconomics should have microeconomic foundations. In everyday language, that means that what we say about big policy issues – growth and inflation, boom and bust – should be grounded in the study of individual behaviour. Put like that, the project sounds obviously desirable, even essential. I confess I was long seduced by it.

Most economists would claim that the project has been a success. But the criteria are the self-referential criteria of modern academic life. The greatest compliment you can now pay an economic argument is to say it is rigorous. Today’s macroeconomic models are certainly that.

But policymakers and the public at large are, rightly, not interested in whether models are rigorous. They are interested in whether the models are useful and illuminating – and these rigorous models do not score well here.

Indeed, at an early stage of the project Robert Lucas, one of its principal architects, who received the Nobel prize for his contributions, developed what is known as the Lucas critique. He argued that ordinary standards of statistical validity should not be applied to the project’s predictions. According to his colleague Thomas Sargent, Lucas was concerned that such tests rejected 'too many really good models'."

John Kay, "How economics lost sight of the real world", Financial Times 21 april

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Lionel Barber om ekonomijournalisters ovilja att förstå finanskapitalismens risker

"The financial media are accused of mis­sing the global financial crisis. Asleep at the wheel. Head in the clouds. No cliché has been left unturned as reporters, commentators – yes, even editors – have been castigated for failing to warn an unsuspecting public of impending disaster. Do these charges add up? To paraphrase the killer question from the Watergate hearings: what did the press know and when did it know it?

First, by way of mitigation, journalists were not the only ones to fall down on the job. Political leaders were happy to break open the champagne at the credit party; many lingered long after the fizz had gone. Regulators in the US, UK and continental Europe all failed to identify and contain the risks building within the system. Many economists, too, fell short. Only a few – such as Nouriel Roubini, now celebrated as the thinking man’s prophet of doom – identified pieces of the puzzle, even if they failed to piece them together.

Why did financial journalists not pay more attention to these warnings? First, the financial crisis started as a highly technical story that took months to go mainstream. Its origins lie in the credit markets, coverage of which in most news organisations counted as a backwater. Most reporters working in this so-called “shadow banking system” found it hard to interest their superiors who controlled space and who were more interested in broadcasting the “good news” story of rising property prices and economic growth.

A second related problem with the credit derivatives story was that it took place in an over-the-counter market with little disclosure and very little day-to-day news. Inevitably, the temptation was – and still is – to run with the stories that are much less opaque such as public company earnings. Yet the big innovations and the big money came in the credit markets.

The second criticism is that the media were too interested in building up a good news story. The comedian Jon Stewart’s on-air demolition of the booster-turned-doomster Jim Cramer shows there is a case to answer. Mr Stewart went so far as to suggest that CNBC, which hosts Mr Cramer’s Mad Money show, overlooked market shenanigans as it was too close to its core community: Wall Street traders and investment bankers. Danny Schechter, writing in the British Journalism Review, is equally critical alleging that newspapers had no interest in pursuing scandals in mortgage lending for fear of alienating property advertisers.

Journalists routinely face tensions between relying on their sources and burning them with critical coverage. Think of the White House press corps, the British “lobby” press that covers parliament or sports journalists assigned to a team. The incentive to “go along” to “get along” is always present, in competition with a journalist’s instinct to speak truth to power.

In the final resort, there can be little debate that the financial media could have done a better job. In this spirit of self-criticism, I identify four weaknesses in the coverage.

First, financial journalists failed to grasp the significance of the failure to regulate over-the-counter derivatives that formed the bulk of counterparty risk in the explosion of credit following the dotcom bubble. Alan Greenspan was opposed to such regulation, but how many commentators took the former Fed chairman to task and warned of the risks? For the most part, journalists were too enamoured with the prevailing tide of deregulation.

Second, journalists, with a few notable exceptions, failed to understand the risks posed by the implicit state guarantees enjoyed by Fannie Mae and Freddie Mac, the mortgage finance giants. Here, we should tip our hats to the now much-maligned Mr Greenspan. He raised alarms early about the risks. Of course, it was hard for journalists to attack the ideal of broader home ownership in America, but that is no excuse.

Third, journalists failed to grasp the significance of the growth in off-balance sheet financing by the banks, its relationship with the pro-cyclical Basle II rules on capital ratios, and the overall concept of leverage. How many news organisations reported on the crucial Securities and Exchange Commission decision in 2004 to loosen its regulations on leverage? The explosive growth of structured investment vehicles at the height of the credit boom was also woefully under-reported.

Fourth, financial journalists were too slow to grasp that a crash in the banking system would have a profoundly damaging impact on the real economy. The same applies to regulators and economists. For too long, too many experts treated the financial sector and the wider economy as parallel universes. This was fundamentally wrong."

Lionel Barber, "A flawed first draft of history", Financial Times 21 april

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Economist om hur krisen förändrar läroböcker i nationalekonomi
Det har pratats mycket i den nuvarande krisen om hur nationalekonomin måste förändras och hur den misslyckats att analysera finanskapitalismens instabilitet osv (för en parodi på kraven på förutseende, se Mats Persson här.). Även om det såklart ligger mycket i kritiken så kan jag störa mig på hur yrvaken och konjunkturbunden den är (vilket ju antyder att den kommer vara bortblåst om två år när ekonomin tuffar på "som vanligt").

(Jfr 18 augusti 2008 "Ett annat perspektiv på och från nobelpristagare i ekonomi", 12 mars 2009 "Walrasiansk och post-walrasiansk NEK enligt Bowles", 16 maj 09 "Kontinuitetens estetik i NEK", 22 maj 09 "Så skulle man kunna undervisa NEK", 20 juli 09 "Stiglitz om realism och NEK", 26 nov 09 "Callinicos: läs FT".)

(Jfr Lars Calmfors i Ekonomisk Debatt nr 3 2010, "Vi [nationalekonomer] har visserligen inte varit så kassa som många ekonomhatare - och det finns ganska många - vill ha det till. Men enligt min mening finns det ändå skäl till viss självprövning.")

I alla fall, så hade Economist för några veckor sen om hur undergraduate-undervisning i makroekonomi förändras just nu av krisen.

"the crisis has also highlighted flaws in the existing macroeconomics curriculum. Greg Mankiw, a Harvard economist and the author of a bestselling textbook, points out that students can hardly be expected to make sense of the crisis if they know virtually nothing about things like the role of financial institutions. Yet if there is a 'financial system' in most introductory texts, Mr Blinder observes, it usually focuses on the demand and supply functions for money. 'The current curriculum fails to give students even imperfect answers' to their legitimate questions about recent economic events, he says.

Changes are coming. Mr Blinder is one of the authors of another popular undergraduate textbook, which he is now revising. In the process, he is having to think long and hard about how to balance the need for more detail about things like finance with the constraints under which introductory macroeconomic courses are taught. The new edition is likely to have a prominent place for the idea of leverage and how it contributed to the crisis. That is fairly simply explained. But some additional complexity will be unavoidable.

For instance, the convenient fiction of a model of the economy with a single interest rate was defensible as long as different rates moved in concert. This, Mr Blinder says, is no longer something that students can be told 'with a straight face'. Some discussion of the role of securitisation and systemic risk is essential, even if it feels like a lot of detail for beginners to grasp. Mr Blinder, with a nod to Albert Einstein, says that economists need to remember that things should be made as simple as possible, but no simpler.

Revised textbooks will soon find their way into bookshops. Charles Jones of Stanford University has put out an update of his textbook with two new chapters designed to help students think through the crisis, and is now working on incorporating these ideas into the body of the book. A new edition of Mr Mankiw’s book should be out in about a year. And Mr Blinder’s publishers aim to have his revised text on sale by June.

Courses in many leading universities are already being amended. Mr Laibson says he has chosen to teach his course without leaning on any standard texts. Francesco Giavazzi of the Massachusetts Institute of Technology is now devoting about two-fifths of the semester’s classes to talking about how things are different during a crisis, and how the effects of policy differ when the economy hits boundaries like zero interest rates. Discussion of the 'liquidity trap', in which standard easing of monetary policy may cease to have any effect, had fallen out of vogue in undergraduate courses but seems to be back with a vengeance. Asset-price bubbles are also gaining more prominence.

Will these changes in the way macroeconomics is taught really stick? The rewriting of widely used texts should ensure that some of the ideas that have helped explain the crisis become part of the future curriculum. Mr Jones says it will be instructive to compare the bestselling textbook in ten years’ time with the pre-crisis version of Mr Mankiw’s book. He thinks they will differ substantially.

Economist, "Revise and resubmit", 31 mars

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NEK-bashing i Guardian

"As a profession, economics not only has nothing to say about what caused the world to come to the brink of financial collapse last autumn, but also a supreme lack of interest in it. If, for example, you scroll down the list of papers scheduled for publication by the Review of Economic Studies, one of the prestigious UK journals, there is not the slightest sense that the world of general equilibrium and real business cycle models has been turned upside down in the past two years. There is, on the other hand a paper on "Generalised non-parametric deconvolution with an application to earnings dynamics", which includes the insight that "Monte Carlo simulations show good finite-sample performance, less so if distributions are skewed or ­leptokurtic". Got that? And that's just the abstract. The full article is even more fun – if you get your kicks from fantasy economics divorced from reality."

Larry Elliot, "It's a funny old game: where is the dream team of economists to tackle the slump?", Guardian 1 juni

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"Last year the former head of the Federal Reserve, Alan Greenspan, made a quite astonishing admission. Asked if his beliefs that free markets were an "unrivalled way to organise economies" had clouded his judgement and ability to prevent the financial crisis that tipped the global economy into recession, Greenspan responded that it might have, but it was now obvious that there was a "flaw in the model that I perceived is the critical functioning structure that defines how the world works". Finding this flaw had made him "distressed".

Greenspan's confession was seen by many for precisely what it was: a crisis of faith, the faith that unrestricted free markets would always act benevolently. It revealed what a few had been arguing for some time, that the character of neoliberal economics is essentially religious."

Alan Andrews, "Praying for a revolution in economics", Guardian 11 juli

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Nationalekonomisk självkritik och krisdiskussion

"Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro etc, and the New Keynesian theorizing of Michael Woodford and many others) have turned out to be self-referential, inward-looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and aesthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works - let alone how the economy works during times of stress and financial instability. So the economics profession was caught unprepared when the crisis struck."

Willem Buiter, "The unfortunate uselessness of most ’state of the art’ academic monetary economics", VoxEU, 6 mars 2009
- kritiken av antagandet om kompletta marknader gjorde Joseph Stiglitz utförligt och intressant i sin postsocialismbok 1994

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"Why, for example, did China's decision to accumulate foreign reserves result in a mortgage lender in Ohio taking excessive risks? If your answer does not use elements from behavioral economics, agency theory, information economics, and international economics, among others, it is likely to remain seriously incomplete.

The fault lies not with economics, but with economists. The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.

They forgot that there were many other models that led in radically different directions. Hubris creates blind spots. If anything needs fixing, it is the sociology of the profession. The textbooks at least those used in advanced courses - are fine.

Non-economists tend to think of economics as a discipline that idolizes markets and a narrow concept of (allocative) efficiency. If the only economics course you take is the typical introductory survey, or if you are a journalist asking an economist for a quick opinion on a policy issue, that is indeed what you will encounter. But take a few more economics courses, or spend some time in advanced seminar rooms, and you will get a different picture.

Labor economists focus not only on how trade unions can distort markets, but also how, under certain conditions, they can enhance productivity. Trade economists study the implications of globalization on inequality within and across countries. Finance theorists have written reams on the consequences of the failure of the "efficient markets" hypothesis. Open-economy macroeconomists examine the instabilities of international finance. Advanced training in economics requires learning about market failures in detail, and about the myriad ways in which governments can help markets work better.

Macroeconomics may be the only applied field within economics in which more training puts greater distance between the specialist and the real world, owing to its reliance on highly unrealistic models that sacrifice relevance to technical rigor. Sadly, in view of today's needs, macroeconomists have made little progress on policy since John Maynard Keynes explained how economies could get stuck in unemployment due to deficient aggregate demand. Some, like Brad DeLong and Paul Krugman, would say that the field has actually regressed."

Dani Rodrik, "Blame the economists, not the economics", Guatemala Times 11 mars

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Akademiska papers om nationalekonomi efter krisen

Ricardo Caballero (MIT), "Macroeconomics after the Crisis: Time to Deal With the Pretense-to-Knowledge-Syndrome", september 2010

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UPPDATERING

Paul Krugman, "How Did Economists Get It So Wrong?", NYT Magazine 1 september
John Cochrane, "How Did Paul Krugman Get It So Wrong?"

temanummer av Journal of Economic Perspectives, #4 2010: Macroeconomics after the Crisis.

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Uppdatering 17 april 2012
Den business school-baserade statsvetaren Jonathan Schleifers nya bok The Assumptions Economists Make (Harvard UP, 2012) verkar väldigt intressant.

"Q. You are sharply critical of the scientific pretensions of the economics field. You note, for example, that economists are fond of dressing up observations as “laws.” And you note that this kind of make-believe can have dangerous consequences. You write, “Economists have misappropriated the very word ‘equilibrium’ to describe a situation that is not an equilibrium, either in plain English or in engineering…. Continuing to speak of ‘equilibrium’ allowed them to fool themselves – and others – into thinking they had shown that perfect-market economies were stable.” But I am curious to know whether you see benefits to mimicking a scientific approach, particularly as you work in a field that calls itself political science.

A. Political science is not a science like physics. Whether it deserves to be called a science at all is a question I’ll evade here. But it is a systematic way of understanding events and maybe gaining some insight into the possible future. To argue a point in political science, you start by laying out competing theories about a situation, each in its most persuasive form. Then you ask what results each theory would be expected to produce and how they compare with actual events. The theory that does the best job is the strongest. I think economics might proceed along these lines, admitting competing models to explain situations and seriously asking which seems to do the better job.

Q. Economics textbooks are frequent targets of your critique. You describe them as full of misleading simplifications and barren of cautions, caveats and context. What books would you recommend to people seeking an introduction to economics?

A. Aside from self-promotion — “Assumptions” is the book I would have liked to read when I was trying to understand economics better, or anyway as close to that book as I could manage to write — I would recommend a few books and journals that do better at avoiding the problems you mention. “Maynard’s Revenge: The Collapse of Free Market Macroeconomics,” by Lance Taylor, with whom I studied, has a strong viewpoint but explains many competing orthodox and unorthodox models. It requires high school algebra, not more math than that, but some concepts will demand careful pondering.
“A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know,” by David A. Moss, a professor at Harvard Business School with whom I have occasionally co-authored cases, has hardly a model in it. It’s mainly a pragmatic guide to concepts like the balance of payments, the national accounts and the money supply, leaving the question of how to fit those concepts into models up to the reader. But it’s very useful as that kind of pragmatic guide.
For a more orthodox macro textbook, I liked Rudiger Dornbusch and Stanley Fischer, “Macroeconomics.” (I read an old edition, which would be fine — the latest costs a small fortune.) Just remember, everything they present is a model, not God’s truth! Sometimes they even admit it." 

Binyamin Appelbaum, "In Economics, You Are What You Model", NYT Economix 16 april

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Uppdatering 25 januari 2013
Economist om hur DSGE-modellerna förändras, och ett alternativ till dem:

"Their first task is to put banks into the models. Today’s mainstream macro models contain a small number of “representative agents”, such as a household, a non-financial business and the government, but no banks. They were omitted because macroeconomists thought of them as a simple “veil” between savers and borrowers, rather than profit-seeking firms that make loans opportunistically and may themselves affect the economy.
This perspective has changed, to put it mildly. Hyun Song Shin of Princeton University has shown that banks’ internal risk models make them take more and more risk as asset prices rise, for instance. Yale’s John Geanakoplos has long argued that small changes in the willingness of creditors to lend against a given asset can have large effects on that asset’s price. Easy lending terms allow speculators with little cash to bid up prices far above their fundamental value. If lenders become more conservative, these marginal buyers are forced out of the market, causing prices to tumble.
Realistically representing the financial sector would help solve the other big problem with mainstream macro models: that they are inherently stable unless disturbed from the outside. /.../"
Improving DSGE models is the obvious way to take the lessons of the crisis on board. But others exist too. “Agent-based modelling” tries to depict the transactions that might occur in an actual economy. These models are populated by millions of agents that gradually alter the economy as they interact with each other. The idea was developed in the 1990s when biologists wanted to study the behaviour of ant colonies and the flocking of birds. But modelling an entire economy did not become practical until recently because of the sheer number of calculations needed.
The evolutionary structure of agent-based models allows economists to study how bubbles and crises occur over time. For example, an increase in bank lending means more spending and therefore higher returns on existing investment, which in turn encourages further lending. But too much lending can prompt the central bank to raise rates if inflation starts to accelerate. Higher borrowing costs could lead to a wave of defaults and even to a crisis if too much debt was taken on during the boom.
The EURACE project, an initiative by a consortium of European research bodies, has produced a sophisticated agent-based model of the EU’s economy that scholars have used to model everything from labour-market liberalisation to the effects of quantitative easing. In Australia Steve Keen, an economist, and Russell Standish, a computational scientist, are developing a software package that would allow anyone to create and play with models of the economy that incorporate some of these new ideas. Called “Minsky”—after Hyman Minsky, an American economist celebrated for his work on boom-and-bust financial cycles—it places the banking system at the centre of the economy.
A long road lies ahead, however. “Nobody has got something so convincing that the mainstream has to put up its hands and surrender,” says Paul Ormerod, a British economist.

Economist, "Economics after the crisis: New model army", 17 januari
M.C.K., "A brief history of macro: how we got here", Economist Free Exchange 21 januari

Simon Wren-Lewis har ett bra inlägg där han argumenterar mot idén att makroekonomin utvecklas i "revolutioner" som orsakas av yttre faktorer/ekonomiska kriser. Han menar att debatten mellan monetarister och keynesianer hade hållt på ett bra tag innan 70-talet och att metodologi och ideologi är lika viktiga faktorer som ekonomiska kriser. Han skriver om den nyklassiska revolutionen:

"In methodological terms it was a counter revolution, trying to take macroeconomics away from the econometricians, and bring it back to something microeconomists could understand. Of course it could point to policy in the 1970s as justification, but I doubt that was the driving force. I also think it is difficult to fully understand the New Classical revolution, and the development of RBC models, without adding in some ideology.

Does this have anything to tell us about how macroeconomics will respond to the Great Recession? I think it does. If you bought the ‘responding to the last crisis’ narrative, you would expect to see some sea change, akin to Keynesian economics or the New Classical revolution. I suspect you would be disappointed. While I see plenty of financial frictions being added to DSGE models, I do not see any significant body of macroeconomists wanting to ply their trade in a radically different way. " 

Simon Wren-Lewis, "Misinterpreting the history of macroeconomic thought", 24 januari 2013

The Economists artikel från 2011 om heterodoxa teoriers uppsving är intressant. Den lyfter fram tre skolor: österrikarna, MMT, och "market monetarism".

"The neo-chartalists are not the only people telling governments mired in the aftermath of the global financial crisis that they could make things better if they would shed old inhibitions. “Market monetarists” favour more audacity in the monetary realm. Tight money caused America's Great Recession, they argue, and easy money can end it. They do not think the federal government can or should rescue the economy, because they believe the Federal Reserve can.

The “Austrian” school of economics, which traces its roots to 19th-century Vienna, is more sternly pre-Freudian: more inhibition, not less, is its prescription. Its adherents believe that part of the economy's suffering is necessary, an inevitable consequence of past excesses. They do not think the Federal Reserve can rescue the economy. They seek instead to rescue the economy from the Fed. /.../

Mr Sumner's blog not only revealed his market monetarism to the world at large (“I cannot go anywhere in the world of economics…without hearing his name,” says Mr Cowen). It also drew together like-minded economists, many of them at small schools some distance from the centre of the economic universe, who did not realise there were other people thinking the same way they did. They had no institutional home, no critical mass. The blogs provided one. Lars Christensen, an economist at a Danish bank who came up with the name “market monetarism”, says it is the first economic school of thought to be born in the blogosphere, with post, counter-post and comment threads replacing the intramural exchanges of more established venues.

This invisible college of bloggers focuses first on the level of spending on American products: America's domestic output, valued at the prices people pay for it. This is what economists call “nominal” GDP (NGDP), as opposed to “real” GDP, which strips out the effects of inflation. They think the central bank should promise to keep NGDP on a steady upward path, rising at, say, 5% a year. Such growth might come about because more stuff is bought (“real” growth) or because prices are higher (inflation). Mr Sumner's disinhibition is to encourage the Fed not to care which of the two is doing more of the work. "

The Economist, "Marginal revolutionaries", 31 december 2011