I was recently accused (by co-author Goonix) of becoming more libertarian over the past 2 1/2 years. Now I don’t agree, I think I am where I was in July 2007. However, it is evident that the particular focus of the blog has evolved since then.
So there has been discussion on incentive problems in economics here before (here, here, and here). However, now there seems to be a little bit of hard empirical evidence indicating that there is a problem.
It seems that 51% of graduate students at the top 15 US universities think that knowledge of the actual economy was “unimportant” for doing a degree in economics. These weren’t people saying “a little important” or “I’m not sure”, these are just the ones saying “it does not matter at all”.
Now, if the best graduate students do not believe that the actual economy matters for economics that suggests to me that there is a major incentive problem – the same sort of one that Rauparaha tried to convince me about so long ago
Given the sudden rapid attack on New Zealand monetary policy from various segments I’ve begun to notice a few more things crawling around in political language that confuse me.
For example, the term monetarist. In a discussion with my sister and on this post from the DimPost the term “monetarist” was used to describe a relatively right wing outlook about political issues and policy in general. However, this confuses me. My impression was that monetarists at their most narrow are people that believe money supply growth = inflation completely. While more generally a monetarist is someone that believes money supply growth is in some way related to higher long run inflation.
In this sense, even some of the most left-wing economists have a touch of monetarist in them. Monetarism is a set of beliefs about how changes in the money supply influence inflation – not a set of beliefs regarding the appropriateness of “economic freedom” or “government intervention”.
When replying to my sister I said:
Monetarism is simply people saying, if we print a whole bunch of money it will end up increasing prices. Evidence and logic add some credence to this view, and so even very left wing economists are in some sense monetarists.
However, an early monetarist was Friedman. He also wrote heaps on “economic freedom”, which is viewed as quite right wing a lot of the time. As a result, people have said Friedman=monetarist and have associated that word with political views that have nothing to do with it.
I think what they mean is “capitalism based on the idea that individual freedom almost always leads to the best outcomes for society” instead of “capitalism based on monetarist theory” – as the second statement doesn’t actually make any sense to me.
Update: Paul Walker blogs Milton Friedman’s own views on what monetarism is.
Latest Dom Post article, any discussion will be found here.
Just realised I was sort of implicitly agreeing with Sen’s capability approach. I didn’t write it with that in mind, but it was probably hanging in the back of my head.
Feel free to discuss – I promise to get back to real blogging some time in the next few weeks 😉
Ht Big Picture
To be fair, economics is a wide ranging social science and we can’t criticise some parts of the discipline on the basis of poor forecasts. Furthermore, even in the realm of economic forecasting, the goal is to paint out risks given limited data and an imperfect knowledge of the complex world around us – so judging the discipline on ex-post outcomes makes little sense (we have discussed the range of issues constantly).
However, in so far as sometimes economists come out and discuss their expectations like they are true fortune tellers, this cartoon has some weight 😉
Excellent quote (ht Economist’s View):
Popper’s critique of historicism, then, can be rephrased as a compelling critique of the model of the natural sciences as a meta-theory for the social and historical sciences. History and society are not law-governed systems for which we might eventually hope to find exact and comprehensive theories. Instead, they are the heterogeneous, plastic, and contingent compound of actions, structures, causal mechanisms, and conjunctures that elude systematization and prediction. And this conclusion brings us back to the centrality of agent-centered explanations of historical outcomes.
Agreed with this 100%. Fundamentally, the usefulness associated with the study of economics comes from its framing and discussion of tendencies – not from the precise value of its predictions.
An understanding of individual actions and incentives allows us to describe what has happen and inform policy – but it does not give us a crystal ball with which to see the future, or figure out exactly what will maximise social happiness.
That is why we economists never seem to agree with each other. But when we do agree, it is probably a good idea to listen, as there must be a rare combination of compelling factors driving such an unlikely event 😀
Note: To clarify what I think the quote says that I’m agreeing with. I believe it says that we can’t come up with some holistic model of society that will spit out nice predictions – we can only try to understand society through the behaviour of individuals given observed actions. This sounds like methodological individualism to me …