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Things Economists Agree On

gregmankiw.blogspot.com

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Re: Things Economists Agree On

#71

Post by sandGorgon »

HilbertSpace wrote: post #53

Here's one broad way Mankiw and company are going wrong. I start with three preliminary points and then point to the going wrong: (1) They have physics envy . In particular, they want to sit in a small, dark, closed room and with just pure thought , with little to no contact with any real economy, come up with some economics version of Newton's second law F = ma or Einstein's result in special relativity E = mc^2. No…

do you have a blog ?

seriously, this was a superbly informative rant.

Re: Things Economists Agree On

#72

Post by notahacker »

HilbertSpace wrote: post #63
pak wrote: post #55

Earlier quoted context omitted.

I read your comment with great interest as it reflects a lot of my reactions when I took economics, particularly from the way Mankiw teaches it; much like this blog post, he starts with roughly 10 "assumptions" that the course will make comprising general consensus opinions that most economists use to make their theories. These are such broad assumptions like "people always make rational decisions", "people always th…

What I said about supply and demand curves is well within common presentations by econ profs. What you did was patch up such presentations. There are many ways to do that, and with enough such patches the theory can have fewer counterexamples but, then, look so narrow it looks useless. One way to patch up the theory is to say that transistors in 1955 are NOT THE SAME good or product as transistors in 2010. Then my da…

I enjoyed your original rant against economists and the damage some of their bold but ultimately baseless claims can do, but many of your examples seem ill-chosen. It's really no more complex to incoporate bundling vs budget constraints and the time value of money into neoclassical economic models than it is to incorporate friction into a physical model. Appending "given no corresponding increase in supply" to a claim that the price of a commodity will rise given an increase in demand is really no more of a "patch up" than appending "given the absence of air resistance and other frictional forces" to a statement that the earth's gravitational field will cause a falling object to accelerate at approx 9.81ms^2. "Demand" being the level of quantity which would be purchased at a given price at a given point in time is as fundamental to microeconomics as the concept of net force to Newtonian classical mechanics.

Sure, a number of economists attach undue weight to some underlying assumptions which are only partly true, such as economic actors to some degree exhibiting "economically rational" (perhaps akin to a disciple Newton fan asserting the wave nature of matter has no meaningful implications for their bodies, this kind of abstraction is harmless when applied to sufficiently large numbers). But whilst this economic model appears to break down at levels as simple as individuals being ineffective at computing stochastic optimisations in their heads, it works rather well when analysing the behaviour of crowds. It's not so good at identifying when bubbles will burst, but then meteorologists can't predict the weather next year with any reasonable degree of accuracy either, and that's arguably a simpler system to model.

Where economists overstep the mark is not so much the tendency to oversimplify as the fusion of normative arguments with their models, such as the sleight of hand that dresses Pareto "efficiency" as a static optimisation problem rather than a rights claim made on behalf of the status quo.

Re: Things Economists Agree On

#73

Post by count »

HilbertSpace wrote: post #53

Here's one broad way Mankiw and company are going wrong. I start with three preliminary points and then point to the going wrong: (1) They have physics envy . In particular, they want to sit in a small, dark, closed room and with just pure thought , with little to no contact with any real economy, come up with some economics version of Newton's second law F = ma or Einstein's result in special relativity E = mc^2. No…

I have a bachelors 'of science' degree in Economics, with a minor in Finance. The only thing I really took away from that program is that there is virtually nothing scientific about economics. It hasn't moved beyond high-school physics ("imagine a frictionless surface with no gravity").

With that said, there is no real way to do economic 'science' - you cannot stage experiments with controls, or test the vast majority of hypothesis, aside from back-fitting against existing data.

Re: Things Economists Agree On

#74

Post by wazoox »

kiba wrote: post #64
HilbertSpace wrote: post #53

Here's one broad way Mankiw and company are going wrong. I start with three preliminary points and then point to the going wrong: (1) They have physics envy . In particular, they want to sit in a small, dark, closed room and with just pure thought , with little to no contact with any real economy, come up with some economics version of Newton's second law F = ma or Einstein's result in special relativity E = mc^2. No…

Samuelson have thought that the Soviet economy would keep growing and surpass the US's GDP. Boy, he was wrong. Then the Soviet collapses in the 1990 or so. Others, like the Austrian economist Ludwig von Mises predicted the death of the Soviet Union and he has dealt with Red Vienna. He also thought that soviet style economy wouldn't work.

One random good prediction proves nothing, unfortunately. I tend to believe that Ricardo's comparative advantage and similar economic principles established for more than 150 years are solid enough to be relied upon when dealing with a relatively large markets; I'd go with HilbertSpace about the global macroeconomic BS, however. I'm pretty sure that global markets are too complex to be described by any current model.

One point that particularly saddens me is the utter misunderstanding of growth by economists, because they go with the easy assumption first (GDP growth is a representative value), then with the oversimplification about the sources of growth, particularly the salient dependency of available cheap energy to sustain growth (see for instance http://netenergy.theoildrum.com/node/7069#more ).

Then they generally proceed by forgetting that Adam Smith wrote his books in a time of immemorial non existent or extremely slow growth, which change radically the view. Market efficiency is to be considered in a radically different manner when the general environment is economically quite stable, which naturally should prevent concentration, for instance.

This is just to mention a couple of things that struck me, I generally don't pretend to know much about economy, though.

Re: Things Economists Agree On

#75

Post by cma »

sdurkin wrote: post #12
sliverstorm wrote: post #4

I'm curious about the "Eliminate Agriculture Subsidies" one. I don't know enough to give a good opinion, but it seems to me like that could wind up pricing basic, quality food out of the hands of the poorest people, and they'd either have problems with starvation or be forced to eat junk. I mean, maybe I'm wrong, but I could have sworn it was The Man that is keeping eggs down at around $3/dozen and milk around $4/gal…

Actually, you'd like federally unsubsided foods. It would mean more locally grown produce and meats. Most of the big agricultural subsidies are for corn and sugar, the really bad stuff. Agricultural subsidies are making the nutrition crisis worse, not better.

Don't corn subsidies make food-corn more expensive (the majority of corn subsidies are for ethanol production, which diverts supply from food/feed)?

Re: Things Economists Agree On

#76

Post by gaius »

ippisl wrote: post #57
dstorrs wrote: post #30

Earlier quoted context omitted.

Yep, many economists do work for those institutions. And yep, all of them have /some/ particular axe to grind (everyone does -- I do, you do, etc). That doesn't mean that what they're saying isn't correct. - Businesses are, in fact, what generates most of the wealth and innovation in a country - Taxes, whether personal or corporate, are not economically efficient. Government can be compared to an electrical grid -- t…

- Businesses are, in fact, what generates most of the wealth and innovation in a country wealth and innovation are not the only things worth optimizing , nor are they the most important.

Money, not necessarily. But wealth means "stuff people want".

Re: Things Economists Agree On

#77

Post by yc_peter »

I would argue that the questions asked are largely wrong. A ceiling on rents does reduce the amount and quality of housing. The question, then, is: how much does it reduce amount and quality of housing, and how much does it lower prices? If we have minimum wages, unemployment will be higher, but how much higher? On the other hand, how much higher will average wage be?

Economics is a cost/benefit trade-off. If minimum wage doesn't reduce unemployment that much (and all evidence is that it doesn't -- the US is at about a natural level of unemployment in the long term, moving up and down with business cycles), we're better off with it in place. If it kills employment, we're better off without it.

Re: Things Economists Agree On

#78

Post by tsiki »

HilbertSpace wrote: post #53

Here's one broad way Mankiw and company are going wrong. I start with three preliminary points and then point to the going wrong: (1) They have physics envy . In particular, they want to sit in a small, dark, closed room and with just pure thought , with little to no contact with any real economy, come up with some economics version of Newton's second law F = ma or Einstein's result in special relativity E = mc^2. No…

>E.g., if we buy more transistors, then the price of each transistor has to go up. Right: Transistors used to cost several dollars each, and now, after buying many billions, maybe trillions, of transistors, we can buy a few hundred million for less than $100, retail

He's making the common ceteris paribus assumption, taking only into account supply at demand (common in elementary economics), ie. the point is to demonstrate how mainly the price elasticity of materials and capable labor force affect the price. Obviously the model will break down if you selectively add variables to it, that's like going to an elementary school physics class and complaining about how they're not taking wind resistance into account in their calculations. There are models that give you the price of transistors as a function of time, with the improving production efficiency taken into accout. You won't find any sufficiently complex one in an elementary economics textbook, though.

>Still, the econonuts want to conclude that China is more efficient at sewing buttons. No they aren't: Instead, the Chinese government understands what the econ profs don't: China takes their young women and makes each of them "an offer they can't refuse", work for pennies a hour under whatever conditions, or else, period. It's not a matter of being efficient.

You won't find a single econ prof that will say Chinese have some inherent, more efficient way of sewing. What they're saying, is that the Chinese have comparative advantage.

How much do you think people living in South Carolina would get paid for sewing buttons? People in South Caroline have better education, health care, infastructure, communications sytems etc. Would you want to have someone like that sewing buttons, when they'd be perfectly capable of doing many jobs that deliver higher added value to the economy?

I don't agree on much of the other points either, but sorry to say, I'm pretty limited on time.

Re: Things Economists Agree On

#79

Post by john_horton »

HilbertSpace wrote: post #53

Here's one broad way Mankiw and company are going wrong. I start with three preliminary points and then point to the going wrong: (1) They have physics envy . In particular, they want to sit in a small, dark, closed room and with just pure thought , with little to no contact with any real economy, come up with some economics version of Newton's second law F = ma or Einstein's result in special relativity E = mc^2. No…

A few points:

(1) Many if not most economists are empirical. Recent John Bates Clark medals---a good reflection of what academic economists think is the best work being done right now---have gone to economists doing empirical work. Recent examples include what works for development (evaluated with large randomized controlled trials), what are the causes of growing income inequality, how should we structure auctions etc. http://en.wikipedia.org/wiki/John_Bates_Clark_Medal . To say that most economists have no contact or interest in empiricism is incorrect.

(2) The point about simple models is not that economists fully believe them---it's that they force everyone to be explicit about assumptions. They also try to identify what are the key features of admittedly very complex phenomena. This is what models do in most scientific endeavor. That the models often perform poorly is a sign of an immature science---not fraud or dishonesty. You'd get eternal fame and become fantastically rich if you came up with a financial model with great predictive powers---do economists not create such models because they are stupid and corrupt? That seems unlikely.

(3) The transistor example completely misses the key distinction that every presentation of the simple supply and demand model always makes - i.e., there is a difference between the short term and long term. If demand doubled for transistors tomorrow, the price wouldn't rise?

(4) You confuse absolute and comparative advantage.

(5) "In the 1950s the US had a great economy. Except for some points of information, biomedical, and materials technology, it's not clear that our standard of living is as high now."

This is where I stopped reading - this is so obviously wrong http://www.wolframalpha.com/input/?i=GDP/capita+real+US that it's hard to take seriously any conclusions on the relative merits of different industrial policies the follow from this "fact."

Re: Things Economists Agree On

#80

Post by tsiki »

HilbertSpace wrote: post #65
syllogism wrote: post #61

Earlier quoted context omitted.

I agree with your post but there's a detail you have wrong. > Then, sew buttons in China? Sure, if the Chinese women had 20 fingers on each hand. But they don't. You're talking about _advantage_. The economists are talking about _comparative advantage_. China doesn't have to actually be better at sewing buttons. They don't have to be better at anything. They just have to suck less at sewing buttons than they do at ot…

What I said about efficiency in China is a faithful description of what academic econ commonly says. You patched up their argument. Still, my explanation for why China is sewing the buttons and South Carolina is not is correct: The government in China makes their young women offers they can't refuse. The young women in South Carolina can do just as well and, with better nutrition, medical care, information systems, t…

>What I said about efficiency in China is a faithful description of what academic econ commonly says.

No, you won't get a single econ prof to say that the Chinese are more efficient at sewing buttons. But then again:

>More generally, there's next to nothing that China can actually do more efficiently than the US can. So, they sell us stuff just because they are cheaper, not because they are more efficient.

This is exactly what comparative advantage is about. It's clear that you've simply misunderstood the material.

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