Quote of the day: allocative efficiency and output gaps
It takes a heap of Harberger triangles to fill an Okun gap.
Madison on public choice
If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.
– James Madison (1788)
The dangers of writing widely
Pankaj Mishra is “…the author of “Temptations of the West: How to be Modern in India, Pakistan, Tibet and Beyond,” “The Romantics: A Novel” and “An End to Suffering: The Buddha in the World.”” He doesn’t know anything about economics or economic history and yet writes about it on Bloomberg as though he is an expert. When speaking to an expert audience that is dangerous, and perhaps a little foolish.
Rothbard memorably wrote that
…it is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.
You could easily substitute any discipline for ‘economics’ and it would be as true. Why is it that people with so little expertise are so willing to pass judgment?
For economics it may be the familiarity with the subject matter since everybody lives it every day. While an ignorance of Abelian rings is obvious to us, the gaps in our knowledge of optimal taxation are less so. The everyday language of economics and its subject matter seem familiar enough that people feel they have an intuitive understanding of the subject. While it is fantastic to have such engagement with the discipline, it often seems to lead to overconfidence in untrained commentators. For instance, Mr Mishra might have been hesitant to voice an opinion on the Bourbaki project, yet he felt no such qualms about commenting on the reasons for economic growth.
It may also be that the same lack of kjnowledge precludes people from understanding the limits of their knowledge. Bertrand Russell boldly claimed that “…those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision.” However, modern research by Dunning and Kruger suggests that the effect has more to do with knowledge than intelligence. Their experiments show that those who are ignorant in a subject vastly overestimate their own skills. Yet, with only a little bit of tutoring, they gain a far better understanding of their level of understanding.
The lesson I take from all this is that poor writing about economics is a consequence of too little economic education. As economists we all have a role to play in helping people to understand the basics of our discipline. Every time we turn up our nose at a casual discussion about economics among non-experts we are promoting the spread of misinformation by our omission. Rather than just pointing and laughing at people who are plainly wrong we should be there to help.
There’s no new criticism
Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing. To pick up a copy of The American Economic Review or The Economic Journal these days is to wonder whether one has landed on a strange planet in which tedium is the deliberate objective of professional publication. Economics was once condemned as “the dismal science” but the dismal science of yesterday was a lot less dismal than the soporific scholasticism of today
A nobel and quotable scholar
Great quotes from Daniel Kahneman. Very worthwhile clicking through and skimming over.
Many people now say they knew a financial crisis was coming, but they didn’t really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time.
The importance of economists
In the comments of a recent post I claimed that philosophers and economists have little sway over important social policy decisions. Discussing the subject with colleagues I was pointed to this stunning quote by Keynes:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.
I’d like to believe it but is there any empirical support? Not that I’d really want to kill such a beautiful idea with brutal facts.