Matt Nolan

More protesting for the sake of it: Economics students

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I know what its like to be a student, and feel like you know everything there is to know.  But the truth is that you don’t, you really don’t.  And that is something that the students walking out of Econ 10 should realise.

I learnt this the easy way – I listened to my lecturers, asked about the issues, and was able to tell that they were significantly smarter than me … and that they had critically analysed many of the same issues in the past.

From this I discovered that economics provides a framework that can be used for understanding the allocation of resources when we have scarcity.  It doesn’t prescribe to us what policies are right or wrong, it just gives us a transparent framework where we can hang up our dirty assumptions for everyone to see and then look at what conclusions pop out.

Look, there is nothing wrong with critical thinking – hell critical thinking is essential in the framework I’ve described about.  But they are complaining about a course that leaves all its assumptions out in the open, leaves itself open to criticism, and helps the student to engage in critical thinking.

If you want to know how poor the understanding of the students is look here:

There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory

Comments like this show to me that the students actually know nothing – and just want to protest the course because they don’t know what the course is, or what economics is.

In fact, I’m surprised at this idiocy.  I’m a fluffy business economist – nowhere near academia or study – but I read the General Theory and Wealth of Nations in my first year of study.  At that point I knew the fact that “Adam Smith’s theories” and “Keynesian theories” were about different things, and shared a lot in terms of the fundamental framework – the framework that is taught by Mankiw in Econ 10.

I find it difficult to believe that anyone could have the arrogance to walk out like this when they have no knowledge or understanding – but then again, maybe I’m underestimating the arrogance of Harvard students …

And this is my issue with a lot of the protests at the moment.  There are real issues in the US and Europe, where protesters SHOULD be out complaining – and the knowledge gained from a course like Econ 10 would help to provide this.  In fact, once you start to understand allocation, you begin to realise just how much there is to protest about – especially with regards to the developing world, and the inequities we tolerate for the worlds real poor.  Instead, the protests are dominated by self-centred narcissists who want attention and want to “fight the system” – giving the whole idea of protest a bad name.

Update:  Mankiw discusses here.

Update 2:  Reading the comments to the articles linked to by Mankiw is one of the most depressing things I’ve ever done.  I hope to god these aren’t actually Harvard students, because the comments are:

  1. Moronic
  2. Filled with a lack of evidence gathering – with people discussing Marx who don’t seem to understand that Marx’s method was Ricardian economics, and people saying there are no empirical studies in economics …
jamesz

NZAE (blog) splits

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It appears that the mainstay of NZAE’s recent blogging efforts, Bill Kaye-Blake, now has a blog of his own: Groping towards Bethlehem. No doubt full of enthusiasm from the joy of blogging he decided he needed an outlet where he can talk about Meat Loaf, post-modern cliches, psycho-analysis, and welfare reform; a more idiosyncratic blend of thoughts than one might expect to see on NZAE’s website. It seems that Bill’s blog might be a bit more fun than most economists’ and I was particularly delighted to see no mention of inflation or interest rates in the first few posts! [Not that there’s anything wrong with those, Matt ;)]

Eric Crampton comments on the first few posts here and reckons “Bill’s thinking about things in the right way”. Sounds like a pass mark to me!

goonix

The Economist on ‘job creation’ in the energy sector

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A very timely opinion piece in The Economist here on how energy policy should not be confused as with job creation.

Too often investment in the energy sector, especially around low-carbon energy, is held up as a way to ‘create’ jobs for the economy. This article dispels the myth:

At the risk of being obvious: energy policy is not a jobs programme. Here are three reasons why politicians shouldn’t try to create jobs through energy policy: it’s ambiguous, it’s inefficient, and, most importantly, it’s undesirable.

In summary the author’s critiques are as follows:

1. What counts as a ‘green’ job, for example? Would that job have occurred anyway? Did the ‘creation’ of that job crowd-out another job?
2. The energy sector is typically capital intensive rather than labour intensive and hence efforts to ‘create’ jobs may be better directed elsewhere.
3. More important issues exist in energy, such as accessing cheap, sustainable energy and the security of energy supply – adding a further goal of ‘job-creation’ muddles this.

Given job-creation via energy seems such a hot topic throughout much of the world right now due to weak economic activity, elections forthcoming in the US and NZ and ongoing concern with carbon emissions and a need to ‘green’ the energy sector, it’s worth keeping in mind these criticisms.

Matt Nolan

Incompetence in Europe

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I fully endorse Krugman’s point here:

These alleged technocrats have in fact systematically ignored both textbook macroeconomics and the lessons of history in favor of fantasies. The European Central Bank has placed its faith in the confidence fairy, while imagining that it can run policy in a way that has never worked in several centuries of central bank experience. Meanwhile, the European policy elite has simply wished away the clear evidence that the euro zone needs to make an adjustment that is virtually impossible unless inflation targets are raised.

Not only are we seeing why the Euro was a silly idea in technical terms – we are seeing how endemic policy failure can be in places like Europe.

Seriously, the vast majority of economists knew that we just needed the ECB to act as a lender of last resort, and for the default in Greece (and policy changes in the rest of the PIIGS) to be determined in a reasonable amount of time – instead we’ve seen failure from both monetary and fiscal authorities around the region.  Embarrassing failure.

Matt Nolan

RIP Roger Kerr

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Over the weekend Roger Kerr passed away.

This is extremely sad news for both the family, and the wider community.  During his lifetime Roger did a significant amount to improve the level of debate around policy in New Zealand, and his efforts have helped to improve the shape and strength of New Zealand’s policy framework incredibly.

I never had the good fortune to meet Roger, but I was lucky to grow up in a country that has transparent fiscal policy and robust monetary policy – in a large part thanks to his efforts.

The Hand

Have you read the PREFU yet?

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Below is an excellent guest post from Andrew Coleman on the PREFU – pointing out one of the weird assumptions that the government is relying on to “balance the books”.

“Have you read the PREFU yet?” bellowed one of my colleagues as he sauntered down the corridor at Otago University last week. “Of course not – why would anyone do that,” was my glib response.

The answer, of course, is that the PREFU is one of the great components of New Zealand’s modern democratic process. It requires that the Government provides an internally consistent set of projections about the likely state of the fiscal position over the next four or five years. Internal consistency is a marvelous thing. It means if the government announces a tax cut, the direct and indirect implications of this cut for growth, tax revenues, and the government deficit are properly calculated.

It means if the Government projects a surplus, the assumptions on the evolution of different classes of government spending are clearly portrayed. In short, it provides transparency.

Internal consistency is hard work, and we should be genuinely grateful to the Treasury analysts who do this work. All the assumptions are clearly laid out for anyone and everyone to see. If the Government is going to balance the books by imposing significant real cuts on health and education expenditure, then it will be reported and no-one has any excuse for not being provided with the information or for not having a model able to do the complex arithmetic.

Actually, it does appear that the Government is claiming the books will be balanced because of significant real cuts in the health and education sectors. This is not directly mentioned in the Executive Summary, where the focus is on the predicted growth rate (2.9 percent per annum from 2012 to 2016) and the return to surplus in the operating balance in the year to June 2015. (Mind you, the summary does mention that core Crown expenses will decline as a percentage of GDP.)

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