Matt Nolan

Good tweet on narratives and morality

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Make of this what you will.  I think reading it as Smith underplaying morality is unfair – but reading it as economic language/narratives being used to underplay important moral arguments that may be necessary for important coordination games is fair.

When I was recently asked who my favourite economist was I named my partner, but pointed out Tirole was a close second.  I also discovered my third fav, Dixon, is on twitter.  Both Tirole and Dixon use standard economics models to explain things we observe while focusing on the types of assumptions we make and their credibility – they use models for clarity of exposition, and I love it.

Matt Nolan

Heterogeneity matters: Why remembering people are different is important for thinking about outcomes

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When I was a student a lecturer said to us “When analysing trade, does it make sense for us to assume everyone is the same?  If everyone was the same why would they trade with each other?“.  This is simultaneous a bit of a silly question and a useful one.

He answered that they wouldn’t, and went on about something – but in truth it is because of his definition of “same” with regards to the model he was describing.  He was looking at a GE model with people with the “same” endowments and preferences – and yeah sure in that model there is no trade with highest 1:500 leverage.  But this ignores the idea of production entirely – even if we have the same preferences and same “characteristics” (in terms of the hours we are endowed with and our ability to turn those into leisure or output), the existence of a production process with specialisation implies that there is benefit from specialising and then trading.  This division of labour is pretty central to our understanding of trade, so we shouldn’t really look past it.

But it raises something important as well.  We need to describe why people are trading, and what exactly is driving that process, before we can evaluate anything.  Let’s make a quick framework that will help us do that!

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Matt Nolan

The problem with Economists

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I am disappointed with Paul Krugman (ht Economist’s View).

Now don’t get me wrong, I am against almost everything that Trump plans to do.  I am socially liberal, his tax policies (and the sharp cuts and spending that will need to be implemented) will redistribute away from the poor, his tariffs programs will hurt the vast majority of Americans and undermine the rate of reduction in absolute poverty in other low income nations, and his lack of trust in the Federal Reserve is likely to erode independent monetary policy.  Furthermore, his divisive rhetoric and willingness to create “other” groups to blame failures on point to a dark undercurrent within the US and within his administration.

But none of these things suggest:

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

Or:

So we are very probably looking at a global recession, with no end in sight. I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.

When these things don’t happen, it will further undermine the credibility of economists – and implicitly tell Trump supporters and opponents that ALL the costs economists had said would occur from his election do not exist!

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Matt Nolan

Normative vs positive analysis of policy

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“Normative” and “positive” economics are old terms, that get abused constantly, used out of context (largely by me), and make philosophers dislike economists.  This is cool and all – but I think the is-ought distinction still provides a useful perspective on considering policy.  So I thought I’d quickly flesh that out.

A positive economic analysis is about comparing outcomes – describing what occurs and why, given shared definitions of what the key elements are, but not of how they are valued.  A normative economic analysis is about choosing from a set of outcomes – it requires valuing these elements of our analysis. Read more

Matt Nolan

Some beautiful links

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I am not around.  Over the next three weeks, there are a series of really rubbish auto-posts are coming up about “factor shares” – I normally write posts in advance, but it is unlikely I am going to add anything or move posts around to include new ones.  During that time I’ll be reading and reviewing Capital and writing a summary document on income inequality measurement (both things I promise to share) – these are both sizable tasks I want to do, hence why I won’t be around too much.

However, this also means I can’t post on things I find cool.  So I’ll just give you some links 😉

  1. Greg Mankiw mentions the harm principle and economics.  “First do no harm” is a good principle for us to hold when considering policy, I agree.
  2. Details do matter though, via Mark Thoma and also a piece by John Aziz. My view of this in general would be that the “harm” comes from a “change” in policy from an “initial position” – how do we define this initial position such that something counts as change?  If we define it solely as “now” then we are simply conservative, if we define it as some “ideal type” that we believe is “natural for the social system”, we are trading in ideologies.  Applying the harm principle starts to get tricky! [Note:  In the comments to the recent Hand posts (here, here) there has been further discussion of this]
  3. Tim Harford, Chris Dillow, and Noah Smith all discuss behavioural economics – plenty of interesting points in there if people want to think about choice, its relation to trade-offs, and its relation to policy.
  4. From Mark Thoma again, the misuse of theoretical models.  Given my interest in methodology I’m certainly interested in reading this (what they establish as the ‘should’ how they find what ‘is’ in modeling) – I’m sure you all feel the same way 🙂
  5. And because I have to put up something about inequality here is Lane Kenworthy.  The US example is an interesting one, but I would almost think that lower growth in the low and middle parts of the income distribution is itself defined as higher inequality – it is almost tautological to say one caused the other.  The magnitude of the gap over there tells us that it is an issue worth looking into though!
The Hand

Has Greg Mankiw been smoking dak?

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Another short post from an anonymous The Hand poster this week – make sure to comment with your views.

I hope that I didn’t give the impression in my last post that Mankiw actually likes philosophy.  If anything, he sounds rather negative.  Economists drawing on philosophy when making policy advice is apparently a “dirty little secret”.  The point seems to be that making a case for a policy will involve value judgements, often on disputed value judgements about distribution. 

Hey, I get it.  Just about any substantive policy would help some people but harm others.  So how does Mankiw propose to avoid the need to call in some philosophy?  His proposed principle is, …. hang on, I had it a minute ago … “[f]irst do no harm”.  Eh?  Didn’t he just say that government policies pretty much always harm someone?

I guess I must be getting the wrong end of the stick.  Perhaps I am failing to distinguish tasty and sweet-smelling type 1 harms from those nasty type 2 harms.  Or something.  He does give us a couple of hints about what it is all supposed to mean.  But I really think we could ask for some more clarity about the normative foundations of his perspective.  You know, like doing a bit of philosophy.