Posts Tagged ‘Economics’

The Reduction of Science

August 9, 2013 Leave a comment

Steven Pinker has a new piece in the New Republic defending the encroachment of scientific reasoning into subjects that have been traditionally partitioned from it such as art, morality, and the humanities.

Scientism, in this good sense, is not the belief that members of the occupational guild called “science” are particularly wise or noble. On the contrary, the defining practices of science, including open debate, peer review, and double-blind methods, are explicitly designed to circumvent the errors and sins to which scientists, being human, are vulnerable. Scientism does not mean that all current scientific hypotheses are true; most new ones are not, since the cycle of conjecture and refutation is the lifeblood of science. It is not an imperialistic drive to occupy the humanities; the promise of science is to enrich and diversify the intellectual tools of humanistic scholarship, not to obliterate them. And it is not the dogma that physical stuff is the only thing that exists. Scientists themselves are immersed in the ethereal medium of information, including the truths of mathematics, the logic of their theories, and the values that guide their enterprise. In this conception, science is of a piece with philosophy, reason, and Enlightenment humanism. It is distinguished by an explicit commitment to two ideals, and it is these that scientism seeks to export to the rest of intellectual life.

Leon Wieseltier, the literary editor of that magazine, views that intervention as a “spectacular philosophical mistake.”

We are becoming a massified, datafied, quantified society, who looks for wisdom in numbers… which looks for wisdom in numbers. And thinks that numbers can provide certainties of certain kinds. And owing to the explosion of so-called “big data” there has developed this excessive confidence in the ability of the quantifying disciplines to explain human life. So economists are now regarded on authorities on happiness. Happiness is not an economic subject.

Unsurprisingly, Wieseltier relies heavily on confusion and authority to attack science.  Instead of exhibiting undue certainty, science is the language of doubt and caveat. “Big Data” poster boy, Nate Silver, who dealt with statistical luddites at the Times, wrote a whole book on the problem with overconfidence: The Signal and the Noise: Why So Many Predictions Fail – But Some Don’t. After all, it’s not traditional moralists, novelists, or theologians explicitly announcing their “margins of error.”

If you’re going to attack the utility of science, I suppose it’s at least consistent to ignore its lessons when constructing an argument against it. Why is happiness not a subject amenable to econometric analysis? Wieseltier declares so by fiat. No reasons necessary apparently.

Contrary to Wieseltier, economists provide important insights into happiness. Instead of relying on conjecture or conventional wisdom scientists can provide evidence-based judgements on ways to organize society that are consistent with more happiness and well-being. Does the data demonstrate that average happiness is unconnected to economic growth across societies as Richard Easterlin argued? Or does newer research by Betsey Stevenson and Justin Wolfers “establish a clear positive link between average levels of subjective well-being and GDP per capita across countries?” This vital question has an answer. Rationality demands we don’t decide who is right by who argued it first or by who we intuit is correct. Whichever theory offers the more reliable data, the better scientific controls, and the more robust explanation points us to our provisional truth. If we’re not getting any happier striving for an ever increasing GDP we should hop off the hamster wheel and explore alternatives.  But if increasing our incomes does improve our satisfaction we should enact policies to help us accomplish that and continue to explore alternatives.

Another economist, Daniel Kahneman, has spent his career studying happiness and used the observations of neuroscience and the tools economics to vanish illusory forms of happiness and show how specific goals can affect an individual’s future contentment. Learning whether people tend to be happier if they spend their money on a fancier wardrobe or on taking a vacation can help provide useful knowledge when making our own decisions. Aggregating the experiences of others allows us to avoid common biases and mistakes – it allows us to boost the modest trajectory of limited experience. Is a bigger house worth the tradeoff of a worse commute? Economics supplies the means to evaluate these and other tradeoffs.

Wieseltier and other critics such as Ross Douthat want to constrain science’s influence on their own pet passions, the humanities and religion respectively. But by cordoning off scientific methodology and diminishing science to a file of facts and a tweaker of technology critics commit the same mistake they accuse of scientism – a crass reductionism.


Heritage Foundation’s Misleading Chart

July 21, 2011 24 comments

In my ongoing (and largely empty) search to find empirical evidence for the role “policy uncertainty” in slowing hiring, a reader challenged me by sending me this link to a Heritage Foundation report. It was fairly shocking at first how clearly it seemed to show that the passage of Obamacare coincided with the economic recovery “stalling.”

James Sherk writes,

Within two months of Obamacare’s passing, the recovery stalled. Figure 1 shows net private-sector job creation from January 2009 onward. The red line shows the trend in job creation before and after April 2010. Private-sector job creation improved by an average of 67,600 jobs per month before April 2010. That month, private-sector employers added 229,000 net jobs.

As Sherk admits, this is only a correlation not causation but, he writes, “the fact does lend strong weight to the voices of businesses who say that the law is preventing hiring.” It seemed to be at least suggestive evidence of the “policy uncertainty” theory. Yet, my skepticism led me to think about this graph a bit further.

Notice that before around January of 2010 the line graph dips below 0. Although the “trend in job creation” is upward, what that graph actually shows is the economy is losing private sector jobs just at a slower rate from earlier months. Former Bush advisor, Keith Hennessy, had previously criticized Austan Goolsbee for a similar tactic with arrows. (I discuss that video here) The Heritage Foundation even approvingly links that video so they understand what they’re doing.

If you instead look at this bar graph of private sector job creation you can see more clearly what’s going on.

I’ve added in an arrow for April – the month that supposedly shows the beginning of the lower trend for job creation due to Obamacare. But now we see that after Obamacare passed we were gaining jobs while before it we were losing jobs. I’m certainly not claiming causation. I’m merely pointing out the obvious fraud that James Sherk and The Heritage Foundation are trying to get away with here.

[update July 22]: A few other bloggers have noticed them same thing I did about Heritage’s deceitful report. Their pieces are worth reading too. Funny enough, I actually checked all these blogs when I was first sent the Heritage link. Glad they joined the party to expose the propaganda.

Modeled Behavior   Kevin Drum   Matt Yglesias

[update September 13]: I’m happy to see that this post has been cited frequently in numerous online forums. Unfortunately, I’ve noticed that some confusion continues around the change in “trend” in private sector employment before and after the passage of Obamacare. The trend cited by Heritage is purposefully misleading; we were not gaining an average 67,600 before April and then 6,400 afterwards. Repeat: Net change in jobs is not the same thing as job growth. I looked up the private sector job numbers for the dates in the graphs (Jan ’09 – Jun’11) and calculated the average monthly change in private sector employment before and after Obamacare, which is what everyone seems to think the Heritage graph shows.

Before Obamacare the monthly change in private sector employment was an average of about -326,000 jobs a month. That’s NEGATIVE 326 thousand.

After Obamacare the monthly change was an average of +114,000 jobs a month. That’s POSITIVE 114 thousand.

How’s that for a changing trend?

Breaking Commitments

December 30, 2010 1 comment

I’m about as big a fan of markets you will find from someone on the center-left (a very imprecise designation). I prefer the government allow free interaction between people as much as possible unless the negative externalities outweigh the positive consequences of the exchange. But certain recessions seem to call out for intervention.

So I have a serious question for all readers that favor government inaction during strong recessions and high unemployment. Let’s abstract away from our current economic predicament. Paul Krugman in an interview with Rachel Maddow discussed our current unemployment mess, but regardless of if you think his analysis of the current economy is accurate try to grapple with this chain of logic:

We don’t have jobs because businesses aren’t hiring. Businesses aren’t hiring because they don’t have sales. Businesses don’t have sales because people don’t have money. People don’t have money because they don’t have jobs.

He believes in these situations the government needs to step in to break that cycle by boosting aggregate demand and putting people to work. For those who don’t favor fiscal or monetary stimulus, what is supposed to break that cycle? Falling prices don’t seem to do it. First deflationary cycles can happen and those are very dangerous. Also “sticky wages” won’t allow businesses to cut nominal wages enough for the market to easily self adjust. Economists George Akerlof and Robert Shiller in Animal Spirits discuss the topic.

Yale’s Truman Bewley gives qualitative evidence on money wage stickiness. He conducted an intensive interview study of New Englanders involved in the wage setting process. He asked why money wages had not declined in the New England recession of 1991-92. With the high unemployment of the time, any worker who might quit in response to a wage cut could have been replaced easily and rapidly. But Bewley found that employers were loath to reduce wages during the recession. In the employers’ opinion workers would view such wage cuts as unfair. They would reduce their commitment to their jobs. Furthermore, when the economy revived they would still be angry and thus more likely to quit. Bewley found a few firms that made such cuts, but only after considerable agonizing and also after continued losses. In those rare instances workers accepted wage cuts as fair. They were a last resort, necessary to save their jobs.

It might be an irrational feature of human nature that causes that but it exists and can’t be wished away to fit an ideological commitment to free markets. I suppose one could argue that after the economy completely crashes with prolonged periods of high unemployment which causes huge amounts of human suffering, economic loss, and lost opportunity the economy might eventually self-correct. That might be a necessary evil if it prevented all future recessions, but it obviously wouldn’t.

What is supposed to break that cycle? Are you conceding that a devastating depression is necessary for the market to realign? If so, why is your commitment to markets stronger than it is to people?

Printing Money and Predictions in Print

November 14, 2010 7 comments

I try not to make too many predictions on this blog. If I do the only prediction I’m likely to correctly make is that my predictions will be off. Jonah Lehrer shares the results of a big study that calls into question the ability of experts to accurately forecast.

How did the experts do? When it came to predicting the likelihood of an outcome, the vast majority performed worse than random chance. In other words, they would have done better picking their answers blindly out of a hat. Liberals, moderates and conservatives were all equally ineffective.

The reason so many experts were wrong was due to confirmation bias – they were confident they were right so they ignored evidence that undermined their preconceptions. While reading up on whether or not anyone should be concerned about inflation right now (due to Obama’s or the Fed’s policies) I feared ending up in that pitfall. So in my quest to find diverse viewpoints I discovered some older Art Laffer and others making predictions about future inflation because of Obama’s policies. Determined not to prove Lehrer wrong, who writes, “Famous experts were especially prone to overconfidence, which is why they tended to do the worst,” Laffer and gang’s predictions turned out to be almost exactly antithetical to reality.

On June 11, 2009, Laffer wrote a column Ehrlichianly titled, Get Ready for Inflation and Higher Interest Rates: The unprecedented expansion of the money supply could make the ’70s look benign. Now that we stand over a year later, let’s take a look at accuracy of some of his and other inflation Chicken Littles’ predictions.

It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits.

His primary evidence for his fears is this chart:

[Our Exploding Money Supply]

But let’s now check out this updated chart (upper-right), courtesy of Martin Wolf, from a few days ago.

Martin Wolf charts for Comment

The rate of change in M1 has plummeted and the new data doesn’t look so scary or out of place with history now, does it? M2 (the money in circulation) also dropped to very low levels. We can also see US inflation rate/expectations (lower-left) hit negative levels and currently floats under 2 (below the Fed’s target rate). With all the current talk about QEII and deliberately raising inflation expectations, the inflation alarmists are back, but as Martin Wolf points out, even if we were to see inflation growing too fast (which there is currently no evidence for) we could always just scale it back.

The hysterics then add that it is impossible to shrink the Fed’s balance sheet fast enough to prevent excessive monetary expansion. That is also nonsense. If the economy took off, nothing would be easier. Indeed, the Fed explained precisely what it would do in its monetary report to Congress last July. If the worst came to the worst, it could just raise reserve requirements. Since many of its critics believe in 100 per cent reserve banking, why should they object to a move in that direction?

Mark Thoma at his blog, Economist’s View, discusses further some mistakes that people worried about the growth in currency are currently making. It’s worth reading but here is the graph that he uses, which shows that the currency in circulation is not outside the historical norm.


Over at the American Principles Project, a conservative Christian organization, Samuel Gregg (who cites Laffer) also worries (7 July 2009) Obama’s policies are going to lead to 1970s style inflation – he even mentions Mugabe’s Zimbabwe.

More than one economist believes that it is only a matter of time before the third member of the 1970s trio – growing inflation – will be back to wreck havoc upon us.

Most amazingly, Gregg’s article stumbles onto an important insight about inflation. Since he takes for granted inevitable skyrocketing inflation, he spends the bulk of his article explaining why having to lower inflation will be so terrible.

Seriously fighting inflation entails a willingness to tolerate increasing unemployment. This is the price of reducing the excessive amounts of money sloshing through an economy.

So if lowering inflation will increase unemployment, what might raising inflation do? Yup, increase employment. Considering 15 million sit out of work right now, which is about 4 million people greater than the entire population of Greece, I think we could stand to raise the inflation rate a tad.

We can see that inflation expectations are low right now; it’s also worth going over some other measures of inflation and potential inflation. Here’s the Consumer Price Index.

FRED Graph

And here is core inflation (which is the CPI minus volatile items like food and energy):

FRED Graph

(By the way, you can have more fun data like this at the St. Louis Fed’s great website.)

Here’s our current core inflation overlaid with what happened in Japan (via Krugman):


Here’s the Treasury Maturity Spread (via DiA). Yup, also low.










Many alarmists point to rises in gold and other commodity prices. What about those? First it is important to remember that we don’t usually consider volatile commodities when looking at inflation because unpredictable spikes can occur. They’re also traded on world markets so judging US inflation can be thrown off because of that. Consider if a huge new supply (or disruption) of oil or gold was discovered that could suddenly change the price of those commodities, but that wouldn’t really represent a significant change in inflation. Commodities aren’t entirely useless (they’re not all constantly and extremely volatile) and inflation predictors keep using them, so let’s take look at some of them anyway.

On gold, many have been unnerved by the “record high” of its price. Yet, as David Leonhardt points out, it’s not true.

Gold is at a record only if you fail to adjust for inflation. And you should almost always adjust for inflation.


This isn’t simply a question of math. Anyone who says gold is at a record high (or who said oil was several years ago) is getting the story wrong. Why? Because $10 today is not more valuable than $9 a few decades ago. Claiming otherwise is tantamount to saying that 10 rupees is more valuable than $9 because 10 is a bigger number than 9.

Here’s a graph (via Krugman) that isolates commodity prices for us.


I don’t know about you, but it doesn’t really look like any historically high jump in commodity prices going on.

Everyone is entitled to make some bad predictions, but I’m not sure what Sarah Palin’s excuse is for her inability to predict the past. Here she is on grocery inflation.

“Everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so.”

The Wall Street Journal reporter who had the gall to question her responded.

The Nov. 4 Wall Street Journal article noted, in its first sentence, “the tamest year of food pricing in nearly two decades.” It does indeed report that supermarkets and restaurants are facing cost pressures that could push their retail prices higher — but it hasn’t happened yet on a large scale. Critics of the Fed’s quantitative easing policy are focused primarily on concerns about potential future inflation.

Let’s now take a look at few other predictions on inflation at about the time Laffer and Gregg wrote their pieces.

Paul Krugman (28 May 2009):

It’s important to realize that there’s no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.

Seems he was correct.

Paul La Monica, CNNMoney Editor (4 June 2009):

So with all due respect to the Fed chair, he can talk as much as he wants about how he’s not too worried about inflation. But investors disagree. And Hoenig thinks that the Fed would be unwise to dismiss what’s going on with bond rates, currencies and commodities.

Score that one: Bernanke 1 – La Monica/Hoenig 0.

The Economist (22 Oct 2009):

In short, the likeliest triggers of an acute crisis—a lenders’ strike, a crash in the dollar or inflation—seem remote.

Cheers to the Brits on that one.

None of this should suggest that Krugman or The Economist is always correct or that La Monica, Laffer, and Gregg are always wrong (Palin I’m not so sure about). Remember Lehrer told us that “Liberals, moderates and conservatives were all equally ineffective.” But it does suggest to me that we shouldn’t keep listening to the same voices on a topic they’ve been so utterly wrong about until circumstances change (or they change) and indicate things might be different. For example, here’s Laffer –again in a WSJ Op-Ed– from 2 days ago.

Outlining his growth agenda he recommends,

2) Price stability. Congress should revise the Federal Reserve’s mandate, making it serve only the goal of price stability (and not also full employment). In addition, the Fed should follow a monetary rule, targeting either the quantity of money or the price level. There can be no prosperity without price stability. (my emphasis)

He’s still worried more about inflation than our current unemployment crisis. Can editors explain to me why we keep hearing more and more from those with such bad records? The inverse correlation between the voices of inflation alarmists and the actual inflation rate is surreal. We have plenty to worry about without concerning ourselves with phantoms and problems that only occur if we’re more successful.

I hope I’m not giving the impression that I think I know what will happen with our inflation rate or commodity prices. If I did I’d be in the markets right now, not writing blog posts. But what I can tell is that the bizarro Chicken Littles (“The ground is rising?!”) keep being wrong and the available data suggests we’re not in imminent danger of turning into Zimbabwe. So if you think Greece’s economy is bad and you realize that just because the overall health of our economy is better doesn’t mean that virtual unemployed nation we have living within our borders isn’t feeling real pain. Unconventional ways to further loosen monetary policy aren’t likely to solve all our problems but it could help alleviate a lot of needless suffering.

I’d rather not make a prediction, but I think we should put some money on this.

No More Uncertainty: It’s Demand

September 16, 2010 Leave a comment

Catherine Rampell, of the Economix blog at the New York Times, shows what “the biggest single problem facing America’s small businesses” is right now.

Much of the debate about how to spur growth and encourage hiring has focused on making the tax picture temporarily more business-friendly. But as you can see, the portion of small businesses citing taxes as their superlative problem has remained about the same — mostly in the 17-22 percent range, say — for about a decade. (my emphasis)

It’s clear that “poor sales” is what has changed (look from Sep ’07 on) and why employers aren’t hiring right now. That’s not to say that taxes aren’t a concern – of course they are a concern – but if you’re trying to argue that small businesses aren’t hiring now because of the increased weight of Obama’s Marxist regulations (dark orange), new crushing tax increases, the recent Nazi-like health insurance scheme (light orange), or because evil unions are keeping wages artificially high (light blue) you might reexamine those views in light of the, you know, evidence. 

Note to policymakers: craft policies that best increase aggregate demand. 

Moreover this demonstrates the continued lack of evidence for the argument from uncertainty (i.e. policy uncertainty is causing businesses not to hire) (see: here, here). Yglesias also asks proponents of that argument to justify their argument from history.

I’d be fascinated to hear Otellini describe to me the past era in which firms knew exactly what their health care, energy, and tax costs were going to be. This was a time in which the future trajectory of oil prices was entirely predictable, and it was clear that congress would never again alter the tax code. A time when general macroeconomic conditions were not subject to any vagaries of fortune. A magical time.

The biggest uncertainty to businesses right now is whether their sales will grow. They don’t see consumers demanding more goods so if they think sales will stay low they won’t hire new workers to supply for that demand. Welcome to Econ 101.

[update 09/18]: I got in a little debate on this topic over at Rick MacDonald’s blog. I’ll crosspost it here but I encourage readers to check out the original post and following discussion at the source. Enjoy. I threw in a couple more links and a graph so readers have an easier time following what I’m referring to. 

Dan:  I’m sympathetic to the argument that we should make tax policy simple, clear, and as least burdensome as possible for the engines of economic growth – businesses. But I have to say I’m completely unpersuaded that the primary trouble for our businesses right now is taxes or policy uncertainty. There just doesn’t seem to be much of any evidence that demonstrates that either of these are unique or major problems to our current economic climate. It seems you’re a proponent of this view and I’ve tried to find some evidence to support those positions (especially the latter). I was wondering if you could respond to my questions regarding this theory. It seems to me that the real problem for small businesses is lack of aggregate demand manifesting in poor sales.

Rick: I’ve provided interviews with Donald Trump, Jim Rogers, T. J. Rodgers and Steve Wynn…if the direct statements of billionaires can’t convince you about the importance of unpredictability and their view that the uncertainty of markets, tax policy and government intervention are inhibitors; it would seem that you are content to remain unconvinced. The consensus as stated by these gentlemen is the consensus on Wall Street among the majority who are holding onto their capital reserves and only betting on the short term.

Dan:  It’s not that I’m content to remain unconvinced, it seems you’ve mistaken some anecdotes for data. In the link I provided survey evidence (close to 4,000 businesses were surveyed) from respected National Federation of Small Businesses, and policy uncertainty doesn’t show up – or at the least isn’t nearly as big a concern as other issues. Poor sales seems to be the overriding concern. Also, I linked to a graph of recent major legislation paired with the stock market and the passing of the bills never seems to greatly affect the stock market in a negative way. Even with healthcare where you’d suppose the most uncertainty resides, that industry has seen the most job growth out of the major sectors of our economy. Furthermore, it’s not clear that if uncertainty is a problem that it’s a major problem (I’m not saying that it’s not a problem AT ALL, even slightly) or that it’s uncertainty with policy rather than run of the mill economic uncertainty. Consider that quote from Matthew Yglesias I referenced, where he makes the point (I made it to you before myself in a previous exchange) that there is no time in history where there is complete economic certainty. Therefore, how can anyone say now that it is a special problem? 

So in light of all this (survey data from thousands of small businesses, stock market/legislation comparative analysis, the case of the healthcare industry, and the general historical perspective) what can you point to that demonstrates that uncertainty is a MAJOR problem? A few businessmen just saying so isn’t especially persuasive – if a few other extremely rich businessmen said the opposite would you find that convincing of my case? If all this doesn’t make you question your case, maybe it is you who “are content to remain unconvinced.” Notice I am just merely asking you to provide some evidence to support your position aside from a few anecdotal statements you have already quoted. I didn’t think it was absurd to ask you to justify your claims or respond to my counter-evidence.

Rick: It’s my view that you are content to remain unconvinced. The “anecdotes” come from 4 major investors and holders of wealth in the form of fixed capital.

As to statistics; many on the left claim that we are not suffering inflation. If you’ve been shopping on your own for a while, you will notice that prices (especially food prices) have been steadily rising even though interest rates remain low. Jobs are still disappearing at over 400,000 a week, wages are beginning to fall as well and credit is tighter than ever in spite of the government spending the wealth of 2-3 generations or more. As I’ve said before, I have too much to do to debate on line via a blog.

The Keynesians say this and the Austrians say that…I tend to agree with the Austrian economists and see hope that Keynesian economics will soon be tossed aside as a failed system and buried in a grave alongside communism. I know, the video is all ancedotal, but it’s also true.

Dan: Well if you’re not interested in convincing people who don’t already share your views that’s your choice I suppose. I know you’re not interested in debating this and that’s fine, I’ll just make a few points and I’ll end my side of the conversation if that’s your preference. First, it’s not just a “claim” on the left that we’re not suffering from inflation. We’re actually not suffering from inflation. I mean honestly, in the past 2 or 3 years has your money really lost all its value? When was the last time you took a wheelbarrow to the store to buy stuff? We’re not even suffering from moderate inflation. The BLS’s core inflation rate is slightly above zero right now
Your example of food prices is especially dubious because that’s not even included in the rate because prices for things like food and energy are very volatile. Even still it’s not like food or energy prices have jumped very much either.
The video you linked is interesting and I’m slightly familiar with Peter Schiff. Just realize that the idea that because 1 austrian economist predicted a few things correctly than the entirety of mainstream economics has been overturned is preposterous and borderline delusional. You realize Keynesian economists make correct predictions too, right? Has an austrian economist ever got anything wrong? If so, does that invalidate the entirety of the discipline for you? He seems to be getting the whole hyperinflation thing wrong – but I guess we’ll just have to see. Another thing, maybe I’m missing it, but nothing he said in the video seems to directly contradict much of anything in new Keynesian economics. I mean it’s not like mainstream economics doesn’t recognize the possibility of housing bubbles or think that selling toxic financial gimmicks are a good thing for the economy.
Also understand that I’m not saying Schiff’s perspective isn’t informative or impressive. I fully concede that mainstream economics may be able to learn from some of the insights of the Austrian school. But your hyperbole about Keynesian economics belonging in the dustbin of history is too much – as if 80 years or so of economic research has been entirely fruitless. Please.
I guess I shouldn’t be surprised that you’d punt rather than grapple with any of my challenges. The Austrian School which you find so persuasive seemingly rejects the whole concept of empiricism and the scientific method. Peter Schiff didn’t bury Keynes, and his shovel hasn’t even broken ground on the Enlightenment.

Rick: Opinions vary, and it’s not that I’m not interested; as I stated earlier, I have little time for long pedantic discussions via comments.

As to the “scientific method” of Keynes, that is all well and good; however, Keynesians leave out the inate tendany of people in power abusing power and acting in ways that are irrational and anti-scientific. They leave behind common sense and ignore corruption and other human factors that one can’t chart except, perhaps, with a Ouija board.
President Obama claims the economy is improving, yet the evidence in housing, unemployment, and contraction of businesses and investment say otherwise. I would tend to call the administration’s opinions more delusional than appreciating what one experiences at the cash register during checkout more so than the comments by the President’s economic team, or his own mouth. Wasn’t it President G. H. W. Bush’s appearance in a store where he couldn’t come close to pricing items? That was the beginning of his reform, and Obama’s “willful suspension of disbelief (H.T. to Hillary Clinton) that will ultimate end his tenure in a vein similar to Jimmy Carter’s.
Of course Austrian economists make mistakes, but they have yet to put the entire global economy in jeopardy to the extent Keynesians have in our current fiasco. I’ll take my chances siding with people like Peter Shiff over others like Art Laffer and Krugman (Keynesians both by definition and admission, but on opposite sides of the Keynesian fence that segments his pragmatic followers according to how much “science” they choose to apply to their “methods”.
Thanks for commenting. Hopefully, you now have a clearer expectation as to what this blog is about and to the audience it tries to serve. Best wishes.

Mankiw Challenges "Extreme Keynesians"

August 15, 2010 Leave a comment

I don’t think I actually fall into that category, but I’ve been stretching my Keynesian lungs frequently enough on this blog to warrant posting Mankiw’s challenge

University of Chicago economist Casey Mulligan offers a challenge to that view.  Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased).  That is no surprise: It is normal supply and demand in action.  But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one.  But it does!

I’ll be clear, I think supply and demand still function during recessions and weak economies. I’m not an economist and I don’t pretend to be but this chart doesn’t seem to suggest to me that weak aggregate demand isn’t a problem. Doesn’t increased summer demand partly explain the increased seasonal employment? Also, 2010’s employment numbers run much lower than all the other lines so something different is going on at least at the margins. Mostly though, what this graph doesn’t illustrate is what would happen in seasonal employment without fiscal stimulus. I’d like to see state adjusted data that corresponds to the net stimulus in each state. Mulligan argues that this graph undermines the notion of a liquidity trap and the need for stimuli, but we’re not looking at data that shows an economy behaving normally in the absence of stimuli. Couldn’t I just as easily view this as confirming the success of government intervention breaking the liquidity trap? 

Those are just some of my initial thoughts – I’ll be sure to post some more expert views if I come across them. Mulligan and Mankiw are right that supply still matters and I agree that this graph shows that; I’m just not sure it is any real challenge to Keynesianism. 

Surprise! Conventional Wisdom Wrong

March 14, 2010 Leave a comment

Slate publishes an article by Zachery Meisel and Jesse Pines on Emergency Room use and its connection to healthcare costs. Turns out it’s not as big a problem as often speculated.

While the past decade has seen dramatic increases in the use of emergency care and ER crowding, ER care is but a tiny portion of the U.S. health care pie: less than 3 percent. The claim that unnecessary visits are clogging the emergency care system is also untrue: Just 12 percent of ER visits are not urgent. People also tend to think ER visits cost far more than primary care, but even this is disputable. In fact, the marginal cost of treating less acute patients in the ER is lower than paying off-hours primary care doctors, as ERs are already open 24/7 to handle life-threatening emergencies. And while we’re at it, let’s dispel one other myth: Despite the belief that the uninsured and undocumented flood ERs, most emergency room patients are insured U.S. citizens.

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