Wednesday, 22 October 2008


A Guide for Determining Which Teaching Methodology to Utilize in Economic Education: Trying to Improve How Economic Information Is Communicated to Students
Journal article by Daniel Wentland; Education, Vol. 124, 2004

Chetty to Harvard - BLOG MANKIW [saída classe]
Good news for Harvard: Raj Chetty, the star public finance economist now at UC Berkeley, has accepted an offer to join the faculty of our economics department.
permanent link links to this post

Lectures on Unemployment and the State of the Economy
Monday November 10, 200
I do not have much to add to these, other to say that I am really, really enjoying them. Arnold Kling gives a series of written lectures on macroeconomics that, to this microeconomist make far more sense than what is printed in freshman macro textbooks. See:

Lectures in Macroeconomics I
Lectures in Macroeconomics II
Lectures in Macroeconomics III


Why So Little Self-Recrimination Among Economists?
Why is it that economics is a Teflon discipline, seemingly unable to admit or recognize its errors? Economic policies in the US and most advanced economies are to a significant degree devised by economists. They also serve as policy advocates, and are regularly quoted in the business and political media and contribute regularly to op-ed pages. We have just witnessed them make a massive failure in diagnosis. Despite the fact that there was rampant evidence of trouble on various fronts – a housing bubble in many countries (the Economist had a major story on it in June 2005 and as readers well know, prices rose at an accelerating pace), rising levels of consumer debt, stagnant average worker wages, lack of corporate investment, a gaping US trade deficit, insanely low spreads for risky credits – the authorities took the "everything is for the best in this best of all possible worlds" posture until the wheels started coming off. And even when they did, the vast majority were constitutionally unable to call its trajectory. Now of course, a lonely few did sound alarms. Nouriel Roubini and Robert Shiller both saw the danger of the housing/asset bubble; Jim Hamilton at the 2007 Jackson Hole conference said that the markets would test the implicit government guarantee of Fannie and Freddie; Henry Kaufman warned how consumer and companies were confusing access to credit (which could be cut off) with liquidity, and about how technology would amplify a financial crisis. Other names no doubt belong on this list, but the bigger point is that these warnings were often ignored. Shiller has offered a not-very-convincing defense, claiming that economists were subject to "groupthink" and no one wanted to stick his neck out. That seems peculiar given that many prominent policy influencers are tenured. They would seem to have greater freedom than people in any other field to speak their mind. And one would imagine that being early to identify new developments or structural shifts would enhance one's professional standing. But if a doctor repeatedly deemed patients to be healthy that were soon found to have Stage Four cancer that was at least six years in the making, the doctor would be a likely candidate for a malpractice suit. Yet we have heard nary a peep about the almost willful blindiness of economists to the crisis-in-its-making, with the result that their central role in policy development remains beyond question. Perhaps the conundrum results from the very fact that they are too close to the seat of power. Messengers that bear unpleasant news are generally not well received. And a government that wanted to engage in wishful, risky policies would want a document trail that said these moves were reasonable. "Whocouldanode" becomes a defense.But how economists may be compromised by their policy role is way beyond the scope of a post. To return to the matter at hand: there appears to be an extraordinary lack of introspection within the discipline despite having presided over a Katrina-like failure. Jeff Madrik tells us:
At the annual meeting of American Economists, most everyone refused to admit their failures to prepare or warn about the second worst crisis of the century.I could find no shame in the halls of the San Francisco Hilton, the location at the annual meeting of American economists that just finished. Mainstream economists from major universities dominate the meetings, and some of them are the anointed cream of the crop, including former Clinton, Bush and even Reagan advisers.There was no session on the schedule about how the vast majority of economists should deal with their failure to anticipate or even seriously warn about the possibility that the second worst economic crisis of the last hundred years was imminent.I heard no calls to reform educational curricula because of a crisis so threatening and surprising that it undermines, at least if the academicians were honest, the key assumptions of the economic theory currently being taught.There were no sessions about why the profession was not up in arms about the deregulation of so sensitive a sector as finance. They are quick to oppose anything that undermines free trade, by contrast, and have had substantial influence doing just that.The sessions dedicated to what caused the crisis were filled, even those few sessions led by radical economists, who never saw turnouts for their events like the ones they just got. But no one was accepting any responsibility.I found no one fundamentally changing his or her mind about the value of economics, economists, or their own work. No one questioned their contribution to the current frightening state of affairs, no one humbled by events.Maybe I missed it all. There were hundreds of sessions. I asked others. They hadn’t heard any mea culpas, either.Madrik goes on in the balance of his piece to offer a list of things economists got wrong. Unfortunately, it's off the mark in that he contends that economists (in effect) had unified beliefs on a lot of fronts. It's a bit more accurate to say that there was a policy consensus, and anyone who deviated from the major elements had a bloody hard time getting a hearing (Dean Baker regularly points out that the New York Times and Washington Post still keep quoting economists who got the crisis wrong). The particulars on his list need some work too, but at least it's a start (reader comments and improvements on it would be very much appreciated).But Madrik does seem spot on about the lack of needed navel-gazing. I looked at the AEA schedule and did not see anything that questioned existing paradigms. And one paper that did was released recently, "The Crisis of 2008: Structural Lessons for and from Economics," fell so far short of asking tough questions that it proves Madrik's point. The analysis is shallow and profession serving. And that is not to say the author, Daron Acemoglu, is writing in bad faith, but to indicate how deeply inculcated economists are. For instance, one of the three (only three?) ways in which he says economists took too much comfort in the Great Moderation;
The seeds of the crisis were sown in the Great Moderation... Everyone who patted themselves or others on the back during that time was really missing the point... The same interconnections that reduced the effects of small shocks created vulnerability to massive system-wide domino effects. No one saw this clearly.Huh? The problems with the Great Moderation were far more deeply rooted than this depiction suggests. Acemoglu's take is that the economy became more susceptible to shocks (that is, absent the bad luck of a shock, things could have continued merrily along). Thomas Palley argues, persuasively, that it was destined to come a cropper:
The raised standing of central bankers rests on a phenomenon that economists have termed the “Great Moderation.” This phenomenon refers to the smoothing of the business cycle over the last two decades, during which expansions have become longer, recessions shorter, and inflation has fallen.Many economists attribute this smoothing to improved monetary policy by central banks, and hence the boom in central banker reputations. This explanation is popular with economists since it implicitly applauds the economics profession by attributing improved policy to advances in economics and increased influence of economists within central banks. For instance, the Fed’s Chairman is a former academic economist, as are many of the Fed’s board of governors and many Presidents of the regional Federal Reserve banks.That said, there are other less celebratory accounts of the Great Moderation that view it as a transitional phenomenon, and one that has also come at a high cost. One reason for the changed business cycle is retreat from policy commitment to full employment. The great Polish economist Michal Kalecki observed that full employment would likely cause inflation because job security would prompt workers to demand higher wages. That is what happened in the 1960s and 1970s. However, rather than solving this political problem, economic policy retreated from full employment and assisted in the evisceration of unions. That lowered inflation, but it came at the high cost of two decades of wage stagnation and a rupturing of the link between wage and productivity growth.Disinflation also lowered interest rates, particularly during downturns. This contributed to successive waves of mortgage refinancing and also reduced cash outflows on new mortgages. That improved household finances and supported consumer spending, thereby keeping recessions short and shallow.With regard to lengthened economic expansions, the great moderation has been driven by asset price inflation and financial innovation, which have financed consumer spending. Higher asset prices have provided collateral to borrow against, while financial innovation has increased the volume and ease of access to credit. Together, that created a dynamic in which rising asset prices have supported increased debt-financed spending, thereby making for longer expansions. This dynamic is exemplified by the housing bubble of the last eight years.The important implication is that the Great Moderation is the result of a retreat from full employment combined with the transitional factors of disinflation, asset price inflation, and increased consumer borrowing. Those factors now appear exhausted. Further disinflation will produce disruptive deflation.Palley wrote this in April 2008, although he had touched on some of these issues earlier. Did this view reach a wide audience? No. Understanding why might help us understand better why the economics profession went astray.Acemoglu's paper had a couple of other eye-popping items: Even though he gives lip service to the idea that the economics was unduly infused with ideas from Ayn Rand, he then backtracks:
On the contrary, the recognition that markets live on foundations laid by institutions— that free markets are not the same as unregulated markets— enriches both theory and its practice."Free markets" is Newspeak, and the sooner we collectively start to object to the use of that phrase, the better. Because it is imprecise and undefined, advocates can use it to mean different things in different contexts. I cannot take any economist seriously who uses "free markets" in anything more rigorous than a newspaper column (and even there it would annoy me). It has NO place in an academic paper (save perhaps on the evolution of the concept).We also have this:
A deep and important contribution of the discipline of economics is the insight that greed is neither good nor bad in the abstract.This reveals that Acemoglu has been corrupted by Rand more than he seems willing to recognize. No one would have dared write anything like that even as recently as ten years ago. Let us consider the definition of greed, from Merriam Webster:
a selfish and excessive desire for more of something (as money) than is neededGreed is different than, say, ambition. "Greed is good" was famously attributed to criminal Ivan Boesky, and later film felon Gordon Gekko. Put more bluntly, greed is the id without restraint. Psychiatrists, social workers, policemen, and parents all know that unchecked, conscienceless desire is not a good thing. Acemoglu calls for external checks ('the right incentive and reward structures"), when the record of the last 20 years is that a neutral to positive view of greed allows for ambitious actors to increasingly bend the rules and amass power. The benefits are concentrated, and the costs often sufficiently diffuse as to provide for insufficient incentives (or even means) for checking such behavior. Like it or not, there is a role for social values, as nineteenth century that may sound. The costs of providing a sufficiently elaborate superstructure of rules and restrictions is far more costly than having a solid baseline of social norms. But our collective standards have fallen so far I am not sure we can reach a better equilibrium there.

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Posted by Yves Smith at 3:26 AM

Leading economist fears decade of weakness in US Times Online

January 14, 2009
Modern Liberalism and Libertarianism: An Economist's View
Let me give you what I take to be an American card-carrying modern liberal economist’s take on classical liberalism--which I think is broadly an updated version of Adam Smith's take. It is, in short, that modern liberal economists are wanderers who have been expelled from the garden of classical liberalism by the angel of history and reality with his flaming sword...
It starts with an observation that we are all somewhat more interdependent than classical liberalism allows. It is not completely true that it is from the self-interest and not the benevolence of the butcher that we expect our meat. Self-interest, yes, but benevolence too: a truly self-interested butcher would not trade you his meat for your money but instead slaughter you and sell you as long pig. So this opens up a gap between the libertarian view and the world.
That said, and modulus this basic human--well, call it "sympathy" as Adam Smith did--modern liberal economists were very happy for a long time with classical liberalism. Yes, there were externalities, and increasing returns over a range, and market power--but the presumption was that market failures were tolerable and in a sense optimal because of the magnitudes of government failures that would attend any attempt to compensate for them. The near-consensus of economists was at least crypto-classical liberalism, along the lines of Colbert's exchange with Legendre in the reign of Louis XIV:
"What do you need to help you?" asked Colbert. "Leave us alone" answered Legendre. ("Que faut-il faire pour vous aider?" asked Colbert. "Nous laisser faire" answered Legendre).
Then starting in the late nineteenth century liberal economists were mugged by reality:
on issues of income distribution--the Gilded Age--and how laissez-faire did not appear to be producing the reasonable distribution of the fruits of the social division of labor that economists had all expected...
on issues of macroeconomic stability--the Great Depression was a big shock--and the argument that the Great Depression arose because markets were not free enough never acquired legs or force outside the theological...
on issues of the persistence of "unfree" labor--Adam Smith expected the imminent collapse of slavery, but ending slavery took a war, and the market economy in America did not appear to be doing very much at all to undermine Jim Crow...
last and most recently, the fear of the increasing importance of "market failure"--the coming of the "information economy"--caused economists to worry that we were moving from a Smithian to a Schumpeterian world, and even if the presumption of laissez faire works for a Smithian world it is not at all clear that it works for a Schumpeterian world...
The upshot is what Keynes said eighty-four years ago:
It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. There is no ‘compact’ conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately. We cannot therefore settle on abstract grounds, but must handle on its merits in detail what Burke termed “one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion”...
One way to understand Keynes's General Theory is that Say's Law is false in theory but that we can build the running code for limited, strategic interventions that will make Say's Law roughly true in practice. The modern Ametican liberal economist's view of libertarianism is much the same: libertarianism is false in theory, but it is very much worth figuring out a set of limited, strategic interventions that will make the libertarian promises roughly true in practice.
And let me stop there.
For Stanford January 13 Panel: "Liberals and Libertarians: BFFs or Not?"
Posted at 01:03 PM in Economics, Philosophy: Moral, Political Economy, Sorting: Front Page, Sorting: Pieces of the Occasion Comments (5)

January 16, 2009
"Can Economists Be Trusted?" "Are There Ever Any Wrong Answers in Economics?"
Uwe Reinhardt:
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January 19, 2009, 10:24 am — Updated: 10:24 am --> KRUGMAN
Economists, ideology, and stimulus
Mark Thoma and Brad DeLong are both, in slightly different ways, perturbed by the state of debate over fiscal stimulus. So am I. This has not been one of the profession’s finest hours.
There are certainly legitimate arguments against spending-based fiscal stimulus. You can worry about the burden of debt; you can argue that the government will spend money so badly that the jobs created are not worth having; and I’m sure there are other arguments worth taking seriously.
What’s been disturbing, however, is the parade of first-rate economists making totally non-serious arguments against fiscal expansion. You’ve got John Taylor arguing for permanent tax cuts as a response to temporary shocks, apparently oblivious to the logical problems. You’ve got John Cochrane going all Andrew-Mellon-liquidationist on us. You’ve got Eugene Fama reinventing the long-discredited Treasury View. You’ve got Gary Becker apparently unaware that monetary policy has hit the zero lower bound. And you’ve got Greg Mankiw — well, I don’t know what Greg actually believes, he just seems to be approvingly linking to anyone opposed to stimulus, regardless of the quality of their argument.
Needless to say, everyone I’ve mentioned is politically conservative. That’s their right: economists are citizens too. But it’s hard to avoid the conclusion that all of them have decided on political grounds that they don’t want a spending-based fiscal stimulus — and that these political considerations have led them to drop their usual quality-control standards when it comes to economic analysis.
Has there been any comparable outbreak of mass bad economics from good liberal economists? I can’t think of one, although maybe that’s my own politics showing. In any case, what’s happening now is pretty disturbing.

January 19, 2009
A Response to Comments on Samuelson on Hayek
The response is from Barkley Rosser:
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January 20, 2009
"Models of Bounded Rationality and the Credit Environment"
When I talk about the need for government intervention in the marketplace, the justification for the intervention usually relies upon the presence of substantial market failures of one sort or another. However, as Robert Waldmann often points out in comments to those posts, government intervention can be justified in other ways besides the traditional list of market failures, e.g. the presence of dynamically inconsistent preferences can be used to justify forced saving for retirement. The discussion below looks at how governments ought to respond to the current problems in the economy if a key assumption of economic models, rationality, is dropped and replaced with an assumption that agents have bounded rationality:
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Inside the Economist''s Mind
Ed. P. Samuelson e W. Barnett

"What Computer Science Can Teach Economics"
Can real world agents actually find the Nash equilibrium that is used to describe their behavior in economic models?:
What computer science can teach economics, by Larry Hardesty, MIT News Office:

Economics and Evolution as Different Paradigms
Via email, "a series of blog entries by David Sloan Wilson, an evolutionary biologist":
Economics and Evolution as Different Paradigms I: How Wide is the Gap?, by David Sloan Wilson: Meet the Evolution Institute, the world's first evolutionary think tank. The mission of the EI is to connect the world of evolutionary science to the world of public policy formulation. Only three years old, we have already made progress...
Our conference on "The Nature of Regulation" was held only a few weeks ago... The participants were an intoxicating mix of economists, political scientists, sociologists, anthropologists, historians, psychologists, neurobiologists, ecologists, theoretical biologists, social insect biologists and animal behaviorists. Communication was possible because everyone spoke the common language of evolutionary theory. An even larger "Community of Interest (COI)" provided input from a distance through the EI website, making the conference a comprehensive referendum on the nature of human regulatory systems.
One important theme that emerged was the yawning gap between economic theory and evolutionary theory. Economists are very smart people, but when smart people take off in the wrong direction, they go a very long way. As Eric Beinhocker (one of the participants) recounts in his book The Origin of Wealth, neoclassical economics was originally inspired by physics and led to an enormous body of formal theory based on assumptions that are required for mathematical tractability but that make no sense from an evolutionary perspective.
How great is the gap between economic and evolutionary theory? How well do some of the newest branches of economics, such as behavioral economics, bridge the gap?
» Continue reading "Economics and Evolution as Different Paradigms"
Posted by Mark Thoma on Monday, February 1, 2010 at 12:50 AM in Economics, Methodology Permalink Comments (9)

Por que os ortodoxos erram tanto?
Porque adotam método de ciências como a matemática para justificar o "laissez-faire", origem de crises e mais crises
A GRANDE crise de 2008 foi também a crise da teoria econômica ortodoxa ou neoclássica, dominante desde os anos 1980; foi a crise da teoria do equilíbrio geral e da macroeconomia neoclássica baseada nas expectativas racionais. Esse fracasso não foi surpreendente. Essas duas teorias ensinadas nos cursos de pós-graduação das grandes universidades têm aparência científica, porque o método hipotético-dedutivo empregado para desenvolvê-las permite o uso abusivo da matemática.
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A assinatura do vazio
A ciência da natureza cala o universo, a ciência da grana devasta as relações humanas
UM SINTOMA típico da modernidade é o sentimento de orfandade: o universo não é um útero, mas um deserto. Depois de Newton e sua mecânica, o universo deixou de ser o espaço da "assinatura de Deus" para se transformar numa espécie de lego vazio de sentido. Pedras e inércia.
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Dicas para manter a atenção dos alunos
1) Inicie a aula com a leitura de um trecho literário, como um conto de fada, uma aventura, um romance ou uma poesia. Para selecionar melhor o texto, é preciso conhecer os alunos e procurar saber qual é o assunto de interesse deles
2) Durante a aula, utilize recursos variados, como trechos de filmes de circuito comercial ou não, documentários ou imagens de arte das mais variadas. Assim os alunos estarão sendo convidados a tratar do tema da aula por meio de diferentes linguagens
3) Modificar a organização das cadeiras e mesas,em círculos, duplas, trios ou outros formatos, ajuda a manter a atenção à medida que o professor poderá andar pela sala e dirigir a palavra e as perguntas aos alunos
4) Trabalhe os conteúdos procurando aproximá-los das experiências dos alunos, ou seja, buscando situações cotidianas nas quais os conteúdos possam ser aplicados
Fonte: ELOISA PONZIO, professora de cursos de formação continuada no Cevec (Centro de Estudos Educacionais Vera Cruz

Feb 16, 2010
Do We Need to Rethink Macroeconomic Policy?
David Altig, research director at the Atlanta Fed and someone I've found to be very much worth listening to (even if I don't always agree), has a dissenting view on adopting a 4% inflation target in order to give central banks more room to maneuver in times of crisis:
Do we need to rethink macroeconomic policy?, by David Altig: The aftermath of a crisis is always fertile ground for big thoughts. Big thinking is exactly what we get from Olivier Blanchard (the International Monetary Fund's director of research) and his colleagues Giovanni Dell'Aricca and Paolo Mauro, in their new overview of the financial crisis and what it means for how we think about and, more importantly, practice macroeconomic policy. Titled, appropriately enough, "Rethinking Macroeconomic Policy," one of the more provocative parts of their analysis was highlighted in the Wall Street Journal:
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Sunday, February 28, 2010
Rawls and decision theory
John Rawls's A Theory of Justice was a strikingly original contribution to political philosophy upon its appearance in 1971. Against the prevailing preference for "meta-ethics" in the field of philosophical ethics, Rawls made an effort to arrive at substantive, non-tautological principles that could be justified as a sort of "moral constitution" for a just society. The theory involves two fundamental principles of justice: the liberty principle, guaranteeing maximal equal liberties for all citizens, and the difference principle, requiring that social and economic inequalities should be the least possible, subject to the constraint of maximizing the position of the least-well-off. (The principle also requires equality of opportunity for all positions.)
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