Shamubeel Eaqub

The ‘gummint’ should do something!

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In an excellent article Deborah Coddington wrote:

“…encouraging voters to look to gummint for the good life is a futile exercise. No one in their right mind would willingly assign their choice of car, design of house, style of dress, or gardening habits to their local MP.

To preserve the New Zealand Quality of Life, it’s to ourselves we should look, not a bunch of representatives in one or another political party.”

I agree. Too often every perceived problem is met with an outcry for the government – or my preferred, gummint – to do something. Read more

jamesz

Economics vs physics

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An interesting post by the Economic Logician that bears on our recent discussion:

Physicists believe that social sciences can only be described as true sciences if on can figure out some laws that always apply, without exceptions, and if there some invariant constants that would be good, too. Social scientists do not believe this is the right approach, foremost as one has to deal with individuals and societies that make choices.

James Wayne realizes that Physics lacks one ingredient that is essential in social sciences: choice.

jamesz

Is economics a science? Yawn!

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Matt has written a long post discussing Rosenberg and Curtain’s NYT article about the science of economics. Their basic point is that economics has a poor forecasting record so it’s not a science and we should just treat it as a useful art. Matt’s response engages directly with the philosophy of science but I think an interesting perspective is raised by Paul Krugman in his reply. He first points out that economists’ models have actually performed very well throughout the crisis and Bernanke is far from an artist:

…far from acting as a free-spirited improviser, Bernanke has been largely implementing recipes developed in the academic literature years before.

These are easy points to score against the philosophers, who appear completely clueless about economics. Worse, they spend all their time attacking the strawman of logical positivism, which has never really described the way economists or other scientists actually work. But I’m going to leave that argument to Matt because I think, in one key respect, Paul Krugman goes too far. Read more

Matt Nolan

Economics and science – careful with the prediction call

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I see that Rosenberg has created a bit of an uproar in the economics community with his claims around economics (although the articles focus is macroeconomics) not being a science.

Unlike other economists I think this is a good thing in terms of forcing economists to defend against the claim – however, like other economists I don’t quite agree with his sole focus on predictive success and the way he frames elements of economists’ arguments.  To me the suggestion that economists are instrumentalists (the Friedman essay) misses the point on what economists actually do – fitting the Friedman essay into a consistent lens of understanding for what economics is and what economists do is a hard, but fun, thing to attempt do with friends over beer 🙂

Read more

Matt Nolan

Cochrane’s macroprudential rules

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John Cochrane has a great post up on his blog about macroprudential policy, where he notes three important rules to their implementation:

  1. Humility about our lack of knowledge, and thereby avoiding fine-tuning (note, the burden of proof may be set in different ways for “structural” policy – but when it comes to changing policy actively this constraint needs to be admitted).
  2. Follow rules where possible instead of relying on discretion.
  3. Limited power to “manage” the economy is part of independence – the more the Fed/central banks take on the more their independence will be undermined.

I agree with these rules, and think I was consistent with them in my recent discussion on LVRs in New Zealand here and here.  I believe that central bank policy over here in New Zealand takes these issues into account – but I also have no doubt there is a clear debate to be had around rule following vs discretion (as has been had with inflation targeting).  As a result, I will try to keep my mind open with regards to new information and new arguments 🙂

Update:  Lars Christensen discusses the article in a lot more detail – strongly recommended read!

jamesz

Central bankers are the modern storytellers

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Anyone who’s followed TVHE for a while will enjoy Gillian Tett’s discussion of the skills needed by central bankers:

Rather than operating the controls, moreover, central bankers also try to control economic outcomes by using words, not merely to influence price and interest rate expectations but to shape the mood. Thus the seemingly dry ritualistic texts that are issued each month – and supplemented by sober speeches – no longer merely describe policy; they are creating it too. Words are the weapon.
…
[It] suggests that we all need to spend more time reflecting on the implicit social contract and cultural messages in central bank statements. …The next Fed chair needs to be a masterful storyteller and cultural analyst, who can read social sentiment, shape norms, (re) create trust and persuade us all.