Equivalent of Bees to Ecosystem are Taxi Drivers to...?

Taxi drivers have become more fractious as fines for bad driving or declining to pick up passengers have eaten into pay packets that have also been eroded by the weakness of the United Arab Emirates dollar-pegged dirham against currencies in their home countries.

Blog of the Day

Habermasian Reflections

Quote of the Day

“How the discipline of economics fares in revealing previously unrecognized social relations depends on the competition of disciplines in terms of both subject matter and techniques, as Coase has noted. I expect economics to fare well in this competition, but in the end to reveal, describe, and explain no more than an island in man’s behavior.”

-G. Warren Nutter 1979, p. 268.

cited in How to Buy, Sell, Make, Manage, Invent, Produce, Transact, Consume, Marry with Words by Deirdre McCloskey

Random Economist- M. Ali Khan

M. Ali Khan from John Hopkins;

I continue to pursue interests in economic interaction, as formalized in general equilibrium theory: models with a representative agent, as well as those with a finite number and a continuum. In particular, those situations in which an individual agent is "numerically negligible" but is nevertheless influenced by actions, or summary statistics of actions, of all other agents in the game, and where individual and social outcomes are uncertain.

Questions of risk and uncertainty have led me to models of asset-pricing, again with an arbitrary index set of assets. In collaboration with Professor Yeneng Sun, I am exploring questions having to do with arbitrage and with the distinction between systematic and idiosyncratic risk. We hope that this work in financial economics will also lead to applications in other applied fields such as cost-benefit analysis for economic development.

I see issues in development economics alongside those in methodology and the history of ideas. Interests in population, education and the environment have led me to consider the robustness of disciplinary boundaries, and more broadly, to the relationship between economic development and cultural change. Which subsumes the question of how markets handle, or fail to handle, basic issues of resource allocation; and has also led me to the Scottish Enlightenment, and to the "economics of the eighteenth century."

My interests in theory and epistemology are complemented by those in mathematics, where I am working with methods of nonstandard analysis (Loeb spaces), nonsmooth analysis and optimization (Mordukhovich-Ioffe cones), and stochastic processes (law of large numbers with a continuum of random variables).

The Cult of Statistical Significance

Skimming over the recent book by McCloskey's latest book, The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives, came across the following, p.169;

On the Truck and Barter blog Kevin Brancato of the Rand Corporation looked into the matter with some care, starting from a position sympathetic with Hoover and Siegler. But of their blast he concluded, “I must say that I'm disappointed … I don't think Hoover and Siegler have much new to say other than [that] the problem is not as bad as Ziliak and McCloskey claim. However, this is an empirical question, that in my mind, Hoover and Siegler fail to address thoroughly -- in fact, not even in a cursory fashion… In sum: A majority of papers in the AER in the 1980's and 1990's did not distinguish economic and statistical significance, although trends in the share are not yet determinable.” And a bit later the distinguished economist Thomas Mayer, who has for a long time been making the same point about econometric practice as we make here, remarked: “I don't understand the relevance of the table with the additional papers. Isn't the main issue whether authors pay attention to the size of the coefficients? And that is not in the table. What am I missing?” Professor Mayer is not missing anything: the main issues is, as Mayer suggests, not whether the Ziliak and McCloskey survey as originally published contained “the entire population” but whether, on the evidence of any reasonable sample of statistical practice in the American Economic Review (100 percent or an as-it-happens random sample of less than 100 percent), the authors pay attention to the size of the coeffiecients. A large majority- over 80 percent- do not. About this error, our critics Hoover and Stigler, and it appears the rest of the econometric profession, have nothing to say. “Not even,” as Brancato points out, “in a cursory fashion."

It is heartening to see that discussions on economics blogs are going mainstream in to books.

GMU and Chicago- the believers, the rest atheists

David Friedman has an interesting comment about the role and belief of economists;

I think it's still an important difference among economists and economics departments, and one that young academics ought to care about. I remember a long time ago commenting to a graduate student at Chicago that it seemed to me that there were a lot of economists who didn't really believe in economics. It was what they did in working hours, not how they thought about the world. His response was that some of his fellow graduate students had noticed that–when visiting other schools.

I was reminded of that incident when visiting one of the colleges my daughter is considering for next year. Wandering around the economics department to get a feel for the place, I spoke with three faculty members–none of whom struck me as an economist in my sense of the term. My daughter, having audited an econ class, commented to me on the fact that a student had made a comment which any economist should have responded to with some version of "that sounds plausible but is wrong because"–a point that would seem obviously right to a non-economist, obviously wrong to an economist. The professor simply let the comment go.

I don't know enough about economics department to say which ones currently are in what category, with two exceptions. Chicago, so far as I can tell, is still a place where economists believe in economics. So, less obviously, is George Mason. One simple test, I suspect, would be to have lunch with members of the department, perhaps also with graduate students, and see what they talk about.

I should add that my point is not that economics is true, although I think it largely is. I am not inclined to take theology very seriously. But if I did take a course in it, I would expect to learn more, and have a more interesting time, if the professor was a believer than if he were an atheist.

The Downside of Freakonomics

Glenn Loury and Heather MacDonald at Blogging Heads

Related;
Toward a Unified Theory of Black America

The Burden of Bad Ideas: How Modern Intellectuals Misshape Our Society

10 Questions for Heather Mac Donald

Could it turn out like those times?

Depression, You Say? Check Those Safety Nets;

“I used to give a lecture explaining that the Great Depression could never happen now because of the regulations that emerged from that crisis,” said Barry Eichengreen, an economist at the University of California at Berkeley. “But we’re learning that there is a shadow banking system, of hedge funds and investment banks, that are outside of those safety nets. What happened to Bear Stearns last week looked a lot like a 19th-century run on the bank. And that’s why the Fed reacted so quickly.”...

“To understand the Great Depression is the Holy Grail of macroeconomics,” Mr. Bernanke wrote in a 1994 paper, when he was a professor at Princeton focused on analyzing the financial cataclysm that began in 1929. While economists have made great progress, he continued, “we do not yet have our hands on the Grail by any means.”

World Bank on Cocaine

Researchers at World Bank are doing some serious research?

Evo, Pablo, Tony, Diego, and Sonny - general equilibrium analysis of the illegal drugs market

Can production and trafficking of illicit drugs be reduced or merely shifted ?

The historical foundations of the narcotic drug control regime

Most economic theory is like mathematical masturbation?

Chris Blattman on What to read in development?

Does most economic theory serve status alone? Too much does feel like mathematical masturbation. Even so, a great deal is extremely useful and insightful. The trick is to learn to separate the two. I still struggle to do so.

Keep in mind, some undergraduate economic theory is simpler, but also simply wrong. Take the notion that trade is driven by comparative advantage, for instance. Comparative advantage is a sensible argument regularly trotted out by think tankers and The Economist, and yet it has little empirical support in reality. The more sophisticated models of trade--by Helpman, Grossman, and Krugman, for instance (yes, that Krugman)--appear to be much better at describing actual trade flows and policy. But this theory is less commonly seen at the undergraduate level.

What about the development economics literature? Unfortunately much of the good economics is poorly written, and the well-written economics is seldom good.

Desperate Central Bankers

Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment
Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack

Abstract: The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "no-arbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.

Related;

What Explains the Stock Market's Reaction to Federal Reserve Policy?

Teaching Inflation Targeting: An Analysis for Intermediate Macro

Is New Zealand's Reserve Bank Act of 1989 an Optimal Central Bank Contract?

Conducting Monetary Policy at Very Low Short-Term Interest Rates

When Should Central Bankers Be Fired?

Modern Central Banking: An Academic's Perspective

Inflation Targeting and the Role of Real Objective.

A Primer on International Trade

A course on International Trade from WTO

Related;
A perspective on the multilateral trading system's six decades: Julio Lacarte Muró

Challenges in Macro-Finance Modeling

Challenges in Macro-Finance Modeling

Abstract: This paper discusses various challenges in the specification and implementation of 'macro-finance' models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. I classify macro-finance models into pure latent-factor models ('internal basis models') and models which have observed macroeconomic variables as state variables ('external basis models'), and examine the underlying assumptions behind these models. Particular attention is paid to the issue of unspanned short-run fluctuations in macro variables and their potentially adverse effect on the specification of external basis models. I also discuss the challenge of addressing features like structural breaks and time-varying inflation uncertainty. Empirical difficulties in the estimation and evaluation of macro-finance models are also discussed in detail.

Debating Economics

Will Wilkinson vs Stephen Marglin
on The Dismal Science: How ­Thinking Like An Economist Undermines Community

Watch it on Blogging Heads

Related;
Mankiw’s Principles of Economics, ‘dumped down’

The End of Great Moderation- Econ Talk of the Week

Alex Leijonhufvud on great moderation, inflation targeting, cybernetics and economic theory.

Related;
Axel Leijonhufvud and a Bit of Autobiography

Some further search uncovered a book in distinguished blue binding, and an intriguing title in golden letters, On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory by an author with a familiar Scandinavian name, Axel Leijonhufvud. I was completely captivated by this book, and it became my economics bible until I graduated from the University of Copenhagen.

Leijonhufvud presented macro economics in way that made sense (of course, my professors considered him a "minor verbalist" although some admitted, when pressed, that he had a "fine intuition"). He had — with Robert Clower — been one of the first economists to make a reasoned call for micro-foundations in macro-economics, stressing that micro-foundations should be built on rationality assumptions but with great attention to information assumptions. He argued that aggregation was something highly problematic. Implied in this was a break with the general equilibrium model. Modelling should be done, not by postulating ad hoc rigidities, but by examining adjustment processes, "false prices", "rationing," etc.

Leijonhufvud claimed in the book to be able to re-construct Keynes as following exactly such a program. This "economics of Keynes" was a far cry indeed from the "Keynesian economics" that I hated. Leijonhufvud had a great style and he made a provocative argument. Naturally, I became a diehard Leijonhufvudian. Leijonhufvud's book also led me to discover the work of Hayek, and later Kirzner and Mises, as well as Shackle and Loasby. I think it also led me in the direction of Herbert Simon, and therefore ultimately towards the muzzy management stuff that I currently do.

Axel Leijonhufvud: Life Among the Econ

The uses of the past

How much praise is enough?

An interesting exchange between Buchanan and Shackle (via The Filter);

Dear Professor Buchanan,

I have just this morning received and read your paper on "The domain of subjective economics." I think it equal in its clarifying power to the greatest insights of theory of the last fifty years. I am thinking of such ideas as ex ante ex post and liquidity preference. Like these, your idea by a brilliant union of subtlety and simplicity strikes fetters from our thought. Your paper will be a classic once-for-all dissolver of confusion. It is a masterly incision of intellectual surgery. You have shown invincibly that the two domains, the subjective and the predictive, are mutually exclusive and must be kept wholly distinct from one another. Your argument proceeds in a manner deserving to be called majestic. Step by step the notions and methods essentially belonging to one domain but found occupying the other are removed to their proper place. What scientific economics, of its essential, inherent nature cannot do and must not attempt is shown inexorably. It cannot and must not be used to predict and therefore cannot be used to advise. I have never volunteered economic advice, but I have not attained or expressed the logic of total distinction and difference of nature of the two domains with any approach to your absolute clarity. I have felt an ever more compelling conviction that the world of thought contains everything that gives significance to choice, value and action. Economic theory has been transformed, or bodily shifted, from being about things to being about thoughts. …

I come to the end of my letter. How can I give you any conception of the feeling wrought in me by the last section of your paper? It is said that we live our span of life for the sake of a few glinting, gleaming golden threads in a homespun fabric, brief glimpses of entire felicity. You have given me one such.

I send you my utmost gratitude, my very best thoughts and wishes,

Yours sincerely,

G.L.S.Shackle

What's the litmus test for an economic theory?

Very interesting comment by Mankiw reacting to Peter Diamond's criticism of his paper on 'height tax';

The Times also quotes a critic:

Peter Diamond, an economist at M.I.T., says the paper’s basic mistake is the notion “that if you can draw a silly inference from an approach, then that discredits a model.” He comments: “I think there is probably no model that passes that test."

I wonder what Peter's alternative approach is. If economic theorists are allowed to embrace inferences from a model that they like and cavalierly reject those that they consider "silly," what is the point of theory? That discretion gives the theorist the freedom to always confirm his priors. The economist ends up using theory like a drunk uses a light post--for support rather than illumination.

It seems to me that if you are going to reject a logical inference from a model, you have to explain why. That is not so easy for a height tax, which is precisely the point of the paper.

Economic Theory for an Innovative World

We must replace neoclassical theory, including Schumpeter's model, with models applicable to the modern world where many entrepreneurs conceive and develop successful new ideas born from their private knowledge, so economists can capture the range of jobs created by innovation, investment booms and slumps, the opening and closing of lags behind the lead countries, the workplace as the main locus of problem solving, the presence of as much disorder as order, and the joy from the creativity realized.

An upcoming Edmund Phelps lecture at Columbia (on 27th of November).

I hope they put the video online- I don't know why they prefer to put Iranian President's speech online rather than lectures like this.