Pursuit of Truthiness

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Dialogue on Randomization

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Roger Bacon- Consider the diverse benefits of randomization. Piercing through the vagaries of chance and deception, it allows us to discern truly the causes and consequences of action.

Trollius Maximus- Yet, there are costs to randomization. A trial requires an exceeding amount of time and treasure, while other methods can be done in short time by a single natural philosopher of modest means. Even if trials were as easy to conduct, they are harder to generalize to far-away lands and eras. To say nothing of the ethics of rewarding one man while spurning another, all according to the flip of a coin.

Bacon: I do not say that randomized studies are the only way. Where traditional methods fail, or when the question is of true import, we will find the costs of randomization to be of little matter.

Trollius: Even the ethical costs? Will you so lightly toss aside the question of the good?

Bacon: What could be the flaw of helping one while passing another by, so long as I do no harm to the other? Does not every good deed only help one or a few, while the multitudes remain ignorant of the deed?

Trollius: Have you indeed done no harm to those passed over in your trial, or those who bear witness to your study? Have you not convinced them that the world was a more random place than they had thought, that their own actions matter little compared to the all-powerful, uncaring hand of chance?

Bacon: Perhaps I have. Indeed, I stand convinced. I shall demonstrate in a paper using a randomized trial that exposure to randomization undermines people’s conviction that they are the master of their fate, the locus of their control, and I shall show that this new belief causes them great harm.

Trollius: Your paper would roil the world of randomistas.

Bacon: Yet I worry that natural philosophers will still turn too readily to randomization, since they gain most of the benefits from doing such studies, while experiencing only a fraction of these costs. Witness how psychologists continue to use deception, while economists and others spam the world with audit studies.

Trollius: Ah, but your work would be so convincing, your brilliance could shatter the randomista movement with a single blow. They would return to running cross-country regressions, and Sophists will carry the day once more.

Bacon: I see. Your trolling has convinced me to stay silent, for the good of the world I must maintain the Noble Lie that randomization is the ideal and the future of natural philosophy.

Trollius: By silence, you mean not writing a paper. Certainly a blog post could do no harm; people would find it funny, rather than a failed attempt at cleverness and a lame imitation of Brad DeLong (who you shouldn’t be trying to imitate anyway).

Bacon: Indeed. To the blogosphere!

Written by James Bailey

November 11, 2014 at 11:15 pm

Ignoring Economics: Tactics for Beginners and Advanced Practitioners

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President Obama called for an increase in the minimum wage to $9 in last night’s State of the Union speech. A lot of economists will take this as a personal affront, wondering how people still think this is a good idea after we explain in every MicroEcon 101 class how it will backfire and result in poor people losing their jobs and losing non-wage benefits. If you are determined to support a minimum wage, you could simply ignore all these arguments, but this beginner tactic will leave you looking ignorant.

A more advanced tactic for not having to change your mind about the minimum wage allows you to know two things instead of none. You can know the Econ 101 arguments, and also know about Card and Kreuger’s 1996 empirical study showing how the minimum wage might not affect unemployment. Pull out your pocket copy of Card and Kreuger’s paper whenever someone brings up the topic.

Be careful, though, not to take this whole “acquiring new information” thing too far. Remember that your goal isn’t to understand how the world works, but rather to keep the beliefs you started with. Don’t develop a general rule of looking at the academic literature on a subject: this would lead you to do things like read other papers about the minimum wage, but the vast majority suggest problems with it. Don’t decide that David Card and Alan Kreuger are the most trustworthy economists- this would mean you need to take their other work seriously, and then you would have to change your mind about immigration or occupational licensing. Remember, reasoning works by starting with a conclusion you like, and then looking for information that supports it. Otherwise you might have to admit you were wrong!

Obviously this is my poor attempt at a joke. More seriously, as a researcher I worry that even when people do seem to be interested in your work, it is only because it confirms their prior beliefs. Alan Kreuger is a great econometrician and managed to become an advisor to the President. This could be a great opportunity for his work to inform which policies to choose, but instead his work is either ignored or used as a decoration for policies that would be pushed anyway. So, depsair.

Written by James Bailey

February 13, 2013 at 1:22 pm

What is Macroeconomics?

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Studying for the comprehensive exam in economics meant wading through a lot of difficult math that still vastly oversimplifies things. It is enough to make anyone wonder, what is the point of it all? This post is my attempt to explain what the point is.  There are a lot of different ways to carve up what a field is, so I will make a brief attempt at several.

End Goal: Most simply, macroeconomics is the study of how to make national economies work well, meaning how to bring about material conditions that make people in general happier.

Intermediate Goals: high GDP growth (more stuff), low unemployment (people who want jobs can get them), and stable prices (a monetary system that facilitates trade). All else equal, these things tend to make people happier, and they are a lot easier to measure than happiness.

Time Frame: We find it useful to divide the field of macroeconomics into growth (long-run) and business cycles (short run), because we think there is little overlap between the best ways to increase long-run growth and the best ways to prevent or reverse sharp declines (recessions). Denying that difference is sometimes seen as denying macroeconomics.

Conclusions: Keynesians think the best way to end recessions is with fiscal policy (government lowering taxes and/or increasing spending).  Monetarists thought we could prevent recessions and high inflation by stabilizing the growth of the money supply; market monetarists now think we can accomplish these goals by stabilizing the expected growth of nominal GDP.  New Classicals think the government can’t really do anything to end recessions.  One can divide macro into many more schools based on such policy conclusions.

History: Recessions in the modern sense (where we have an industrial economy able to recess) begin happening in the early 1800’s, so people begin trying to explain them.  Some like are JS Mill are “under-consumptionists”, saying the economy gets so productive we have trouble consuming all the production or finding useful work for people to do.  Jevons comes up with a sunspot theory, that every 10 years or so sunspots will change the earth’s weather and reduce the productivity of agriculture. A growing thread focuses on the importance of interest rates and money.  The biggest recession of all hit in 1929, leading to the perception that macroeconomics is its own separate crucial field. Governments and public opinion seem to prefer economists who tell them to do something rather than nothing. I can go on with history for a long time, and I haven’t even discussed the history of growth theory, so that is enough for now.

Tools: Often it is not differing goals or conclusions that seperates people but rather the tools they use. Economics began with Adam Smith who was trained as a moral philosopher and whose main tools were eyes to examine the world and a pen to write verbal arguments. David Ricardo turned the profession toward abstract models, looking at a simplified and formalized world about which we can make stronger and more certain statements than we could about the real world in all its complexity. Alfred Marshall brought in graphs and algebra; Jevons and Walras brought calculus. Paul Samuelson showed that most questions in economics could be posed as constrained optimization problems using Lagrangians.  Later economists used the more complex optimization tools of Hamiltonians, dynamic programming and stochastic calculus. Another thread pioneered by Ken Arrow turned up the formalism another notch by using set theory and real analysis; after the 1950’s it is common to speak of theorems and proofs. At any given time some “institutional” or “historical” school is pushing back against the ever-increasing use of math.  Many fear that excess formalism limits the set of questions we think we can answer or even ask. The last great tools-war on the theoretical side is the debate over the use of Dynamic Stochastic General Equilibrium in the 1970’s and 80’s. It is said that many Keynesians objected because they thought the tool would inevitably lead to certain (small-government) conclusions, then stopped objection once it was shown that the tool could be used to support many different conclusions.

There has been a whole separate evolution of tools on the empirical side.  For one thing the quantity and variety of data and the capacity and power of computers has kept expanding. Alongside this has come the gradual development of modern statistics and econometrics.  The many-equation macro models developed in the 1950’s have mostly been displaced by Vector Autoregressions and calibration.

Analogous fields: We have physics envy. We may have succeeded in emulating string theory. The predominant modern paradigm of DSGE uses a mathematical advance to beautifully and elegantly unify of micro, growth, and business-cycle theory.  It also does a poor job of describing the real world.

Stylized facts: Are there any? See jokes.

Jokes: The three scariest words in the English language are “macroeconomists agree that”.  The difference between microeconomics and macroeconomics is that microeconomists are wrong about specific things, while macroeconomists are wrong about things in general.

Written by James Bailey

February 16, 2012 at 9:23 pm

9 Books Which Have Influenced Me Most

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1. Icelandic Sagas, especially the Grettis Saga.  I admit I was pretty silly at age 18, but the tales are engaging and show how people can live and prosper in essentially stateless societies.

2. Proust, Recherche des Temps Perdu.  For the account of interior life.  Vastly superior in the original French.

3. Spinoza, Tractatus Theologico-Politicus.  It was after reading this that I realized the great books were becoming my friends.

4. Herbert Spencer, Social Statics.  Ideas don’t always imply what you may think.  Spencer’s premises are so close to those of Darwin and Marx yet his reasoning leads to very different conclusions.

5. Michel Foucault, The Order of Things.  Everyone reads Discipline and Punish but Foucault’s best insights are found here.

6.Douglas Hofstader, Gödel, Escher, Bach.  I would have got more out of this had I finished high school math first.

7. Roger Penrose, The Emperor’s New Mind. Thought-provoking but in the end I was not convinced.

8. Sir Arthur Conan Doyle, The British Campaign in France and Flanders: 1914. All his war journalism is excellent, however in this book above all one gets the sense that Conan Doyle wants to tell the story of a few heroic characters but is unable to do so as they keep dying too quickly. Just as the Great War challenged ideas of what military conflict meant, so too did it challenge conventional ideas of heroism and narrative.

9. Neal Stephenson, Snow Crash.  For the internet, for the microstates, for the Babylonian-Pentecostal mind control, but most of all for reshaping my idea of what protagonists could be named.

Just Kidding!!!

I’ve only even read the last two.  Some of the others are on the to-read list, especially GEB.

Do check out the link though, the idea is hilarious.

Written by James Bailey

April 5, 2010 at 5:02 pm

It’s a Liquidity Trap!

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I’m not proud of this, but its seems no one in the whole wide internets had done it yet, and it needed to be done:

Ackbar realizes he's trying to push on a string

The best part is that our solution to the liquidity TRAP was a TARP.  Now let’s hear the Bernanke/Ackbar jokes.

Written by James Bailey

February 16, 2010 at 11:30 am

Zombie Economics

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I was just reminded of the Macro Flame War again, and I realized that one thing both sides agree on is that the other is setting economics back by decades through their ignorance and the resurrection of old fallacies.

But this very fact seems to favor one of the sides in the debate.  It reminds me of one of my favorite economics jokes:

A Keynesian encounters a Real Business Cycle theorist and says, “you idiots have set the field back twenty years !”, to which the RBC theorist replies “so you DO believe in negative productivity shocks!”

Don’t hurt yourself laughing now.  Anyhow, what does it remind you of that each side here is saying, “I thought we had dispatched these old fallacies, but here they are again moving about in broad daylight and going for people’s brains”?  Zombies of course!  We are dealing with at least one set of idea-zombies, or zombie-ideas.

But given the current economic environment, we can see that the zombie invasion is spreading.  After the bailouts, there are zombie banks too!  You must be on the lookout to protect your money and your delicious brains.

Written by James Bailey

October 6, 2009 at 5:55 pm

Posted in bad jokes, Economics

Returns to Like-Mindedness and Diversity

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I’m spending this week at a seminar put on by the Institute for Humane Studies, which involves people listening to lectures on lots of topics from a libertarian perspective and drinking free beer.  It is odd being in a place where most people around me also love to talk about economics and libertarianism, since the vast majority of Americans are not libertarians or economics majors.  But is this newfound consensus a good thing?

In some ways its great; conversations can flow at a much higher level when you can presume that most participants have taken the same classes and read the same books.  There aren’t many other places people laugh at my “how many Austrian economists does it take to screw in a light bulb?” jokes.

On the other hand, there is the potential for “groupthink”, the lack of imagination and the lazy arguments that are so easy to succumb to when there is no real live person to represent opposing views.  So a diversity of opinion can be good just to keep everyone on their intellectual best behavior.

But there can be a greater benefit to diversity than merely avoiding groupthink.  Sometimes the interplay between varying ideas allows great progress to be made; there can be an intellectual division of labor and specialization.  Richard Feynman said that other physicists thought him a math genius, but in reality he was not better at math than them, he just had a different approach; and though their approaches may be equally good on the whole, they would only come to him with problems to which their approach had failed.  There’s no reason this can’t apply in economics, or even to some extent in political philosophy.

Another way of thinking about this is the diminishing marginal returns of a political philosophy; perhaps a conservative could come here and argue libertarians out of the worst 10% of their ideas, or vice-versa in the real political world if a minority of libertarians can keep the worst 10% of the ruling party’s ideas from becoming policy.

Written by James Bailey

July 12, 2009 at 5:51 pm