jamesz

There is no such thing as an economic historian

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Economists often get criticised for trying to emulate physicists by arriving at a set of equations that describe human behaviour. There have been innumerable critiques of that approach and the predictive power of economic models is notoriously poor. This article was written in 1986 but feels as if it could have been written yesterday.

…economics, in view of what it is rather than what it claims to be, is a proper subset of history. …[Economists] are trying to do the same thing as historians, namely, to tell plausible stories about the past. …When done well it has the air of good history written by someone who has taken Differential Equations 152.

Which isn’t to say that we can’t learn from the past. In fact, when you read Matt’s posts about the role of economic forecasters he characterises them as story-tellers rather than oracles. The numbers are inevitably wrong but that is not the economist’s forte and shouldn’t be seen as the useful output of the profession. It is to the detriment of all economists that some members of the profession promulgate the view that we are fortune tellers. As McCloskey says, “if economists go on indulging the misapprehensions of their customers, issuing predictions about next month’s exchange rate of next spring’s interest rate, the loss of reputation when the customers catch on will be large, and richly deserved.”

Matt Nolan

Explaining the food headlines

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Yesterday we were told two things in media headlines:

Dairy weighs on food

Food prices up 1.4% in June, biggest monthly rise in a year

So what is it, did food prices go up lots or did they fall?  Who was right, Stuff or NBR?

Well, they were both right – although Stuff was a bit more right 😉

I remember this time last year, people were saying that we had massive inflation on the way – as shown by the price of tomatoes.  This was a load of bullocks, and in the same way the idea that the 1.4% lift in food prices we saw in June is inflationary is bullockey … as food prices tend to rise sharply in June.  Adjusting for the normal seasonal bit, prices were only up 0.2%.

Now Statistics New Zealand doesn’t like to seasonally adjust these figures for a reason – the actual seasonal pattern can be a bit weak and variable.  As a result, we should treat any adjustment with care, and also compare prices now to where they were a year ago – in this way we can note that food prices were down 0.2% from last June.

Falling dairy prices have been a big part of the weakness – as has the fact that we haven’t had a repeat of the Queensland floods from last year, which had pushed up prices for fruit and vegetables significantly!  All in all, the only thing we can take out of the data is that food price growth is really pretty weak.

As a result, if I had to pick which organisation was more accurate with their headline – it was stuff.co.nz.  But neither organisation was completely wrong.

 

jamesz

Best article on the Treasury website?

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Fortuitously stumbled across this while looking for something else. Arthur Grimes investigates the Arbee:

In his “Life Among the Econ” Axel Leijonhufvud took an ethnographic approach to describing the Econ tribe and, especially, two of its components: the Macro and the Micro. My purpose is to delve further into the life of the Macro, specifically examining the Arbee sub-tribe. The task of our research is to examine the nature of the Arbee reaction to claims by other tribes and sub-tribes that the Arbee rituals have caused The Imbalance in The Economy. Specifically, their highly formalised OC Ritual (OCR) has been blamed for creating The Imbalance … It is the rituals of the Arbee that many claim to be the cause of The Imbalance in The Economy. If only the Arbee were to conduct their ritual in a different manner, the prices, expenditure and living standards would all right themselves.
…
The OC Ritual is a highly stylised dance. The first move involves no actions by the priests, just observation of other dancers. The priests observe the effect on all prices that result from the bigfella man’s resource directives. The high priest has a contract with the bigfella man that price rises must be kept to within a certain sacred range.

Hilarious, yet serious, it’s worthwhile reading the whole thing. See Leijonhufvud for the background.

Matt Nolan

Careful with regulation

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Here is an article I wrote for the fine people over at Idealog on regulation.  The primer is:

Tobacco prices must be higher, alcohol availability is going to be limited, and even Coca-Cola has come in for a lashing for being an addictive substance. But this obsession comes with a cost that policymakers need to face before they impart harm on innocent Kiwis.

Feel free to go over to the site to see what I said and comment 😉

jamesz

Palmy: better with economists

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A couple of weeks ago Matt and I had the pleasure of attending the annual NZAE conference in Palmerston North. Attendance was disappointingly low, which I blame on Palmy, but it was great fun nonetheless. For that we can thank Seamus, who blogs at Offsetting Behaviour: he organised the whole thing, presented a couple of papers, and somehow didn’t end up looking frazzled the entire time. In fact, it ran incredibly smoothly from the perspective of an attendee, with only a few minor hiccups at the conference awards that I’m sure were intentional gags to provoke a few laughs! So thanks to Seamus and the organising committee for an excellent event and we look forward to seeing more of you there next year.

I didn’t manage to see everything I wanted to but here are a few highlights. I’m sure Matt will want to add a few of his own, too.

  • The blogging session was novel and saw a great presentation from Berk Ozler. If you’re not already reading his blog, Development Impact, you can read what he had to say about the conference here. The following panel discussion was interesting, although it would have been nice to have more time for comments and discussion from the floor. I hope it encouraged a few more people to comment on the NZ economics blogs; I’ve certainly seen a few attendees of that session jump into our comment threads since, which is great!
  • The keynote’s I saw were all fantastic. Lutz Kilian’s presentation on oil markets was more interesting than oil market econometrics have any right to be. He’s also a very forceful and persuasive presenter; I certainly wouldn’t want to be on the other side of an argument with him, that’s for sure! Leslie Young’s comment on the complexity of financial systems and the differences between China and America’s markets was also very insightful.
  • Watching Andrew Coleman advocate for a capital gains tax, followed immediately by Seamus putting up a slide entitled ‘Capital gains taxation is an insidious taking’, was entertaining. I don’t think they actually had a substantive disagreement but it’s always fun to see two excellent economists take opposing sides in a debate.
  • Arthur Grimes’ presentation on wellbeing indices brought interesting empirics to the discussion of their value over and above GDP measures. I think that’s worthy of a blog post on it’s own.
  • But the best part of a conference isn’t the papers, it’s the people. NZ economists are an incredibly friendly, knowledgeable, and welcoming bunch so I highly recommend turning up next year, if only for the beer and banter!

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Matt Nolan

Tarotnomics: Part 1 – The cards

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While enjoying the economics at the NZAE conference this year, I felt that, in 2013, I should really submit something.  After a few beers I worked out that my comparative advantage likely lies outside the core of economics – and so I decided that a paper on the economics of tarot card reading was in order.

Now I have written on this issue briefly before, and I have even given the economy a tarot card reading at one point.

With the idea in mind, and motivated by the suggestion at NZAE from Berk Ozler that crowd sourcing papers was a good idea – I’m going to put together the concepts on the blog.  The way I see it, I’m doing the paper in my spare time, and I do the blog in my spare time, so why not mix the two.

As a starting point I want to do something pretty simple – I want to explain broadly what the actual tarot cards are.  Once we have that, we can move on to thinking about readings, and then get an idea of how a tarot card reading represents a type of “model”.  With that in mind, we can work out what attributes of a model this reading has.

Once we’ve then listed down what an economic model is, we can compare and contrast – through this process, we can hopefully shine a light on what economic models represent, how they are useful, the things we have to keep an eye on, and the possible pitfalls.

Note:  If there is anyone around with knowledge about analytical tarot card reading then comments would be much appreciated – especially if you are also well versed in economic methodology, given that’s the direction I’m coming from here.

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