Matt Nolan

The one thing broken by this crisis …

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Update: Clive Crook has a better discussion of what is going on than I do (original here) – and how irritating it is – than I do. I’m embarrassed to say that I’m a few days behind on my blog reading, so I only saw this after writing my post 🙁

Even if nothing else is broken in the economy, there is one thing that has been irrevocably smashed.

My belief that academic economists in the US would be able to use the economic tools developed over the last 200 years to objectively frame issues during a crisis – and then transparently discuss the different value judgments they hold in order to inform policy.

Compare this belief I held to reality – where we have had ridiculously partisan arguments, where intelligent economists have just told everyone that other intelligent economists are morons (eg), and that their own conception of what is going on IS the truth (something economists don’t have the ability or knowledge to say).

Economists have a framework stemming from methodological individualism – a framework that frames problems. Even though “describing” and “predicting” are too value laden for us, my own view is that good economists will try to build inside this framework first before adding value judgments to get the “description” and “prescription”. Instead all we have seen is random conjecture based on ideological fervour. Saying that this disappoints me would be an understatement …

Matt Nolan

A critique of the Austrian and Chicago schools?

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Over at Economist’s View there is an interesting piece from a book named “History of Economic Thought: A Critical Perspective”.

Now I don’t disagree with large parts of this. It is indeed fallacious to state that any CONCLUSION is value free – as it never is.

However, I feel that the piece mixes up its attack on the conclusions of the Austrian and Chicago school with the general neo-classical method – which is, in itself, closer to value free and objective. As the actual article says:

Their science applies everywhere because it applies nowhere. Most theorizing by these schools is purely tautological.

Now this may make the descriptions “unscientific”, but conveniently it also makes them value free.  Remember, the purpose of these “tautologies” is to create statements that we can use to show relationships between things in logical terms – they create a framework that allows us to then apply value judgments and reach conclusions.  Currently, this is one of the main roles of economists – to create a framework that can have value judgments added to it to create descriptions and predictions.  Economists often move a step further and create testable hypotheses, hypotheses that are supposed to describe, or possibly even predict what is going on.  However, another set of value judgments is then required to “prescribe” policy given these descriptions or predictions – this is a bigger step than some economists realise.

Still, for now let us take the implied “argument” that Austrian and Chicago economists are said to use in the above linked article, and see if we can adjust it to suit the way I see things 😛

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Matt Nolan

The morality play of the “non-morality play”

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In an interesting piece over at Economist’s View the case is made from moving away from “morality arguments” and just looking at how we can pull ourselves out of the depression now.

Although the piece provides a clean argument, and involves discussions by economists as intelligent and convincing as Martin Wolf and Paul Krugman I have to admit I nearly completely disagree with it.

Fundamentally, I believe that these economists are making an implicit moral judgment when they state that we need to “improve current outcomes” through employment and consumption. I am not saying that they are wrong, however trying to make their conclusions sound value free is incredibly misleading.

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Matt Nolan

Claiming the individual – breaking the system: A shared tenet of economists and their critics

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I was just hanging out around Dani Rodrik’s blog when I read this interesting post. In it he criticizes Naomi Klein for celebrating the collapse of the Argentinian economy.

Reading his comments, my own feelings, and NK’s comments I realised something – there is some level where we all agree. Fundamentally, we are all interested in maximising the welfare of individuals in a given situation.

Now, if we all agree on this noble aim, why is the view of Dr Rodrik and myself so different to Dr Klein’s?

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Matt Nolan

The upcoming war of succession and the future of Macroeconomics!

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It appears that economics is on the verge of war … ok maybe I’m being melodramatic – but the change in tone of economists recently (well, actually mainly macroeconomists) has been startling!

During the credit crisis, more and more economists have moved towards a panicked position.  However, the first true indication that this might be different than a few little methodological spats came to me from these posts (Econlog and VoxEU).

These posts indicated that the very structure of economics was preventing research into valuable fields – we had failed to achieve knowledge by focusing on “equilibrium”, “mean reversion”, and/or the constant obsession by ignoring the depression when we analyse data.

There are two primary areas where I think the main set of criticism will fall – and the size and scope of this criticism will determine whether it is war, or merely an evolution of ideas.  These areas are 1) aggregation and stability conditions (so macroeconomics and its current foundations) and 2) behavioural assumptions (a more widely shared issue).  Tyler Cowen links on both issues to some degree 1,2.

Hopefully there is a realisation that economic methods and models are useful – even if the value judgments economists make aren’t always up to scratch.  My concern is that disputes about value judgments will lead to a situation where the entire framework is thrown to the side.  However, if this occurs it will be partially the result of some economists inability and unwillingness to describe their assumptions openly – something we should all keep in mind.

jamesz

Economic neutrality

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Robin Hanson says,

Sure we give lip service to fairness, and we may sincerely believe that we care about it, but that mostly expresses itself as sincere outrage when our side is treated unfairly.
. . .
While in practice economics is full of folks promoting various sides, one of the reasons I am proud to be an economist is that we have a good standard neutral analysis criteria, economic welfare, for judging policies

Welfare economics used to be known as normative economics because it uses value judgments to tell us what we should do. Is it accurate to describe any methodology based on value judgments as ‘neutral’? I don’t know a lot about the subject, but would those who do not subscribe to some form of utilitarianism find the economic framework ‘neutral’? Matt talks a lot about making our assumptions apparent and I fear that trying to paint ourselves as neutral obscures the nature of the framework within which we operate.