Wednesday, 30 January 2008

Sort out your own stables first

A few people around the traps have been talking these last few days about 'pop econ' books like Steven Leavitt's 'Freakonomics' and Tim Harford's 'Underground Economist' that purport to take economic reasoning from the arid realms of economic analysis and apply it to everything from the use of toilet paper to the impact of abortion on inner city crime.

For all the pleasure to be had in reading them, and the huge sales of these books show how much fun there is in them, wouldn't it be better if instead of applying economic reasoning to other people's fields, these economists first sort out their own

While revealing what their economics has to say about your nail clippings and the 'hidden' effect of what your mother calls you when you're born -- in other words, things of almost total irrelevance --  these so-called economists seem to have been blithely unaware as the meddling of the world's great central bankers brought about the world's great credit crunch.

When most economists miss such an obvious blunder, when they struggle to understand the very basics of their own profession -- including where money comes from and what causes recessions and inflation and even how to properly define them -- it's clear the economists' own stables still need seriously mucking out. Until that's done, (if I may mix a metaphor) perhaps they'd better stick to their knitting instead of advising on it.

Freakonomics [Revised and Expanded]: A Rogue Economist Explores the Hidden Side of Everything
by Steven D. Levitt, Stephen J. Dubner

Read more about this book...

UPDATE: Here's an example: while 'mainstream' economists write 'pop econ' books and promote the need to for 'fiscal stimulus' -- in other words, more easy credit to mop up the problems caused the earlier wads of easy credit -- the more sensible chaps have asked themselves a few serious questions, and formed a Coalition against Fiscal Stimulus [hat tip Paul Walker].


  1. I'd be a bit surprised if either Levitt or Harford support the fiscal stimulus package. I've not noticed them coming out in favour of such machinations on their blogs (Freakonomics blog and The Undercover Economist). And, it doesn't seem to be the kind of thing they'd support.

    In fairness to them with respect to what they do as compared to what you think they should have been doing, they're both microeconomists. Study of business cycles and monetary policy usually comes from macroeconomists. It's kinda like critiquing astronomers whose speciality is looking for near-earth asteroids for missing a supernova a few stars over. Division of labour, eh?

  2. Most macroeconomics is fatuous nonsense. Micro is a bit less dismal.

    And most of what these authors describe is hardly economics. They* use some of the same tools as economists (i.e. statistics) but that's about it.

    The Freakonomics phenomenon bears more resemblence to epidemiology than to economics. You may regard that as a good thing or a bad thing. :-)

    *Tim Harford (The Undercover Economist, The Logic of Life) is slightly more like an economist. He at least talks about incentives and even accidentally mentions the economy at the end of his latest book.

  3. Arnold Kling nails it:

    "Macroeconomics is the evil twin of classical economics. Classically, we say that work is bad and leisure is good. Resources are limited and wants are unlimited. Macro says that we need to "create jobs." The entire edifice of macro is a monument to what Bryan Caplan scorns as "make-work bias." Classically, we say that saving is good, or at least an acceptable option for consumers. Macro says that if consumers don't spend like drunken sailors, terrible things will happen. Classically, we have nothing good to say about government deficits. Macro says that government deficits provide "stimulus.""

    As for whether Freakonomics and Logic of Life count as economics, it depends how you want to define the discipline. If microeconomics is the study of how folks respond to incentives, then we've got pretty broad scope. Harford's new book looks great -- I'm scoping out now which chapters to use in my Econ of Current Policy Issues course. Some of Freakonomics is more epidemiology, but not all. Theory drives a lot of the empirical work. So, for example, first figure out which sumo wrestlers have the strongest incentive to throw which games given the institutional structure, then take the theory to the data.

  4. Crampton

    You are wasting your time studying those guys. If you are really serious aboput learning economics try Prof Reisman (Capitalism) or the works of Von Mises (Human action, Socialist Economy, etc).


  5. lgm...I attended a week-long colloquium on Human Action at the Mises Institute...

  6. Crampton

    Now that would have been interesting. Pls elaborate some and tell more about it.


  7. Why is it always von Mises, an academic, how is run out on these occasions?
    Why does noone ever mention Allan Greenspan??

    Arguably the most powerful unelected technocrat in the world from 87 to 06 was an objectivist. Were his economics "Austrian"??

    After Rand herself Greenspan is the most famous of objectivists so why is it I never read a meditation on Greenspan's failures?

    Instead I read about yet more Austrian theory, which I happen to agree with, however I would also like reflection on how an "objectivist" of the first rank contributed to two consecutive capital destroying bubbles?? (late 90s stocks and the currently collapsing housing/stock bubble)

    All that aside though and more importantly, as "sovereign individuals" I hope you are doing more than blog/blather about economics and are reviewing your personal asset allocations with regards to the debt burden of the USA, its' devaluing $, and soon-to-arrive boomer retirement wave.

  8. Crampton said...
    Theory drives a lot of the empirical work.

    That's absolutely correct. Modern economics have sprung up from being just a descriptive field into deep analytical theoretical modeling, (this transformation started since Harry Markowitz, an Economics Nobel Laureate in 1990, formulated the market optimization theory in the 1950s).

    Some people are quite dismissive about economics theoretical modeling saying that economic dynamical systems just can't be modeled. This is the opinions of the uninformed. Such dismissive people would probably prefer to see psychics run our financial institutions, since they see that economic modeling is no different from guess work. But hey, whingers about economic modeling would be the first one to jump up and down if they find out that their banks have hired psychics to predict market price movements. They would protest very hard to their bank managers, saying that they would cease to do business with them, because betting price movements using the forecast of a psychic is more risky.

    Capitalism systems or no capitalism, it wouldn't change the fact that an economic system is made up of agents, and agents interact with each other, therefore leading to dynamical system, and this falls right on the doorstep of modeling.

  9. greg b

    You are a liar.

    Your post displays dishonesty of the worst order.

    You cite Greenspan as an Objectivist? You bullshit artist you! How about you read what he wrote about gold in his youth and contrast it with his behaviour when he ran the Fed. What he wrote was certainly different from what he DID. He may have had Objectivist sympathies as a young man. He didn't later on. He certainly had the knowledge to understand that when he was head of the Fed what he did was completely and utterly opposed by Objectivist Philosophy (as well as the Austrian School of Economics). He was no Objectivist. Saying Greenspan when head of the Fed acted as an Objectivist is like saying the Pope runs an abortion clinic.

    If you had the slightest clue about the Austrian School of Economics, you would know that what Greenspan did was and is completely opposed by Von Mises just as surely as it was opposed by Objectivism. Shit-oh-dear, maybe you should learn to read and comprehend. Please, stop with the fibbing already.

    What a dishonet dope you are. Tell you boyfriend Green he can do better without you.


  10. Gee whiz Fisi, seems that Mises, who knew a thing or two about economics, disagrees with you. Regarding mathematical and statistical models, he reckoned they were of limited use in UNDERSTANDING what really occurs in real political economy. Reckon I'll stick with him. After all according to various models my house has been under 10 feet of water since 2002, (except it aint).

    Too much bullshit going on. Models are only as good as their firm young tits anyway and, as is well said, appearances can be deceiving...


  11. LGM,
    thanks for the quasi-fanatical outburst.
    You know what gnosticism is? Are you an objectivist gnostic? Or a puritan?LGM,
    thanks for the zealous outburst.
    To all you points I say, "well, duh! Obviously!"

    I now wonder if Greenspan was insufficiently "pure"? Has he been drummed out of the clan and deleted from the official club history or something?

    It's obvious that an unelected civil-servant like Greenspan isn't allowed to follow personal convictions. (duh)
    So if you misunderstood that tacit fact then I must endeavour to be clearer.
    I didn't mean to imply that he was insulting the corpses of Rand and Mises with his bubble management.

    Likewise, I don't think I said he "acted like an Objectivist" (duh). I said he could be personally identified as an Objectivist and that he "contributed" to bubbles, I didn't nail his actions down to "objectivism" (duh).

    I was asking for a reflection on the irony of one of the most famous Objectivists caught in a prolonged situation contrary to their desired position.

    The second irony is that Greenspan, A PRACTIONEER, is ignored in these discussions led by self-described realists, indeed to the point of drawing lexical scimitars, and von Mises et al., AN IVORY TOWER THEORIST, is hallowed.
    Why? Because theory is sterile, safe and provides cliche discussions for cliqued bloggers. Pondering the works of Greenspan is not as "pure". His portrait isn't on the clubhouse wall.
    I also said I agreed with Mises. (DUH!!!)

    Just in case you lack it here's a definition:
    "All the different senses of irony revolve around the perceived notion of an incongruity, or a gap between an understanding of reality, or expectation of a reality, and what actually happens."

    Also, you missed the most important part of my post:
    a reminder to review your personal asset allocation,
    i.e. when did you get out of US equities and what level did you buy gold at?
    Or are you too busy blogging?

  12. greg b

    You are a cheap fibber and your elaborate excuses and rationalisations do little to disguise that. Fact is, you were caught in a lie and now you need to spin and spin and spin to try and get out of it. You're not a good writer of excuses and not much good at fiction either; you should get your hands out of your pockets, wipe the spit off your chin and stop with the furfies now.

    Greenspan denied being an Objecivist in several interviews, two of them recently. He went on the record to state that he regarded the founder of Objectivism, Ayn Rand, with great respect and considered her ideas motivating and reliable but confirmed he was not an Objectivist. Get that? He said he is not an Objectivist. The man said he isn't. Yet you say he is an Objectivist of the first order? Fibs.

    That's strike one against greg b the liar.

    If you bothered to check out the record of your great PRACTIONER you'd quickly discover he failed in private business and quickly turned to a state funded sinecure (welfarist that he is) for a bail out career. Had he been a practitioner of the philosophy of Objectivism he would not have done that. That action would not even have been considered. Instead Greenspan became the leading practioner of the fraud of debasing the money supply. He joined the organisation that does it and he accelerated the fraud.

    That's strike two against greg b the liar.

    Interesting how you attept to smear von Mises as an academioc theortician (as if such pursuits are without value or truth). You appear to consider that being an academic researcher somehow makes a man's discoveries and teaching worth less. You regurgitate the old mind-body dichotomy falsehood. It's an invalid approach. Nevertheless, you also choose to misrepresent the facts, probably deliberately (which is no surprise). Von Mises worked as a practising economist consulting to business and government long before his escape to the USA, where he published some of his important works (which summarised what he had learned and proved in practice).

    That's strike three against greg b the liar.

    You're out, fool!

    BTW why would anyone take investment advice from the likes of you? You're a proven liar and likely too incompetant to invest your own money (should you actually have any), let alone advise others about investing theirs. Odds are your "advice" is a cut and paste from someone else- which would explain why it's been seen before...

    Go away.



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