Monday, September 17, 2012

Economics 102 (bis)

(That is -- a step beyond Economics 101.)

Note:   Economics has the reputation of being dry-as-dust (“the dismal science”, thus dubbed by its own practitioners).   And in the  public arena (free-coinage-of-silver, Reaganomics) America has a long history of “voodoo economics” (in the famous phrase of Reagan’s OMB director David Stockman, characterizing the economic fantasies of his boss).   Yet some very distinguished work has been done, some of it of interest not only to specialists, but touching over into contiguous fields. 

In solidarity with our son, now a math major taking freshman economics, we offer links to insightful commentary in the economic field.  The list should grow with time, so check back occasionally.

(1) iPhones and liquidity traps
A somewhat subtle argument, from a Nobelist; still mulling it over myself.
In any event, it is good to find economic arguments in the MSM  that stimulate thought, rather than the podex.


(2) “Falsifiability”

From economist and former Treasury secretary Larry Summers:

It is the mark of science, and perhaps rational thought more generally, to operate with a falsifiable understanding of how the world operates. So it is fair to ask economists what could cause them to substantially revise their views of how the economy operates and to acknowledge that the model they had been using was substantially flawed. As a vigorous advocate of fiscal expansion as an appropriate response to a major slump in an economy with interest rates near zero, I have long said that if the British economy were to enjoy a rapid recovery, it would force me to substantially revise my views about fiscal policy and the workings of the macroeconomy more generally.
Unfortunately for the British economy, nothing in the past several years compels me to revise my views.

This term falsifiable could easily be misunderstood.  It is a term of art in the Philosophy of Science, and denotes a good thing.  In one homely formulation, “a theory needs to stick its neck out”:  meaning, we need to be clear on what would count as counterevidence to our thesis.
Strictly, this concept of “falsifiability” can apply to any would-be-empirical statement at all, not merely statements that are theoretical or scientific.   But scarcely anything we say can actually meet this exacting standard.

Note:  Professor Summers is given to statements that, while impeccably correct, can be misunderstood -- in particular, wilfully misunderstood.  While President of Harvard, he made a statement based upon the statistical facts of leptokurtosis;  this was met with enraged howls, and he was hounded from his job.


(3)  Word of the Day:  “liquidationism”

I know, I know; it’s lazy of me to keep linking to Krugman articles, but the man really does write both acutely and enertainingly.   And we owe him a debt of gratitude for continuing to wage the good fight, year after year, rather than simply tossing his pen aside in boredom and disgust (as a lesser man, such as myself, would have done, when Dubya won re-election).

Romney’s language echoed that of the “liquidationists” of the 1930s, who argued against doing anything to mitigate the Great Depression.

(4)  David Stockman on “too big to fail” vs. “too big to exist


(5)  An economics thriller


A remarkably gripping movie-documentary, which feels more like a business thriller such as “Duplicity” than a 60 Minutes exposé, is “Inside Job”  (2010).


Cannily, the film begins, not with the hot wet empirical messiness of America, but with the cool and virtually in-vitro example of Iceland,  which suffered a spectacular economic meltdown after its banks were deregulated and privatized.  Capital is global, and the vices and greeds of speculators are akin  all over the world.
One of the villains of the piece  is Larry Summers, the same whom we treated more kindly above.   His economic prescriptions certainly enjoyed the philosophy-of-science virtue of being “falsifiable”;  and they have been falsified.  Does he, or anyone else who once held them, admit this?

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