Tag Archives: economics

My views on monetary economics

Source: EconLog
by Scott Sumner

"The lesson of the Great Recession is that macroeconomists need to spend less attention on the financial system. Bernanke attempted to integrate the financial system into macro in his famous 1983 AER article, which argued that banking problems directly depressed output during the early 1930s. That led Bernanke and others to wrongly conclude that fixing the banking problem was the way to stabilize the economy in late 2008. In fact, the Fed needed to use monetary policy to try to prevent a steep fall in NGDP. It did not even attempt to do so. Indeed the (contractionary) monetary policy of interest on reserves (adopted in October 2008) was aimed at depressing the economy, while the Fed worked to rescue the banking system." (06/29/17)


James Buchanan on racism

Source: Notes on Liberty
by Vincent Geloso

"Ever since Nancy MacLean’s new book came out, there have been waves of discussions of the intellectual legacy of James Buchanan — the economist who pioneered public choice theory and won the Nobel in economics in 1986. Most prominent in the book are the inuendos [sic] of Buchanan’s racism. Basically, public choice had a 'racist' agenda. Even Brad DeLong indulged in this criticism of Buchanan by pointing that he talked about race by never talking race, a move which reminds him of Lee Atwater. The thing is that it is true that Buchanan never talked about race as DeLong himself noted. Yet, that is not a sign (in any way imaginable) of racism. The fact is that Buchanan actually inspired waves of research regarding the origins of racial discrimination and was intellectually in line with scholars who contributed to this topic." (06/26/17)


Watching with Arnold Kling economics' left-wing march

Source: Cafe Hayek
by Don Boudreaux

"Arnold Kling has good reason to predict that, in his words, 'academic economics is on the road to becoming like academic sociology. That is, it will become increasingly driven by a left-wing agenda.' Arnold himself, in the post linked here, offers no explanation(s) for this left-wing movement of economists and, hence, of economics. I don’t doubt, however, that Arnold has a few excellent possible explanations in mind. Let here me offer an explanation of my own: economists’ increasing embrace of empiricism that isn’t solidly rooted in basic microeconomic theory of the sort that can be, and should be, taught to undergraduates." (05/22/17)


Three ways the critics get praxeology wrong

Source: Ludwig von Mises Institute
by Jonathan Newman

"According to Austrian economists, economic theory is constructed through deduction and not experimentation or mathematical modeling. It is unfortunate that this position elicits more backlash than almost any other claim made by Austrian economists, because this one is so fundamental. If there cannot be agreement about how to do economics, then how fruitful can a discussion about policy be? Much of the criticism I see is based on a misunderstanding and caricaturization of what Mises called 'praxeology.'" (05/22/17)


Wages are the key to the business cycle

Source: EconLog
by Scott Sumner

"Back in the 1980s and 1990s, I did some research with Steve Silver on sticky wages and the business cycle. Using postwar data, it's very difficult to draw any conclusion, as the economy was hit by both supply and demand shocks, which have very different impacts on real wages. During the interwar period, however, demand shocks are much easier to identify and the role of wages really stands out." (05/21/17)


The opportunity cost of reading "Das Kapital"

Source: Acton Institute
by Kristian Niemietz

"A few years ago, I was invited to a panel discussion on Marxism, to debate against some Marxist professor. I chickened out, and I would chicken out again if I received another invitation of that kind today. I know that my opponent would say something like 'You clearly have never read the key paragraph on page 857 of Das Kapital, otherwise you would know X, Y and Z,' and they would be right. I haven’t read page 857 of Das Kapital. I haven’t even read page 1. … The burden of proof should be on those who insist that Marx is still relevant, and that we cannot understand capitalism without him. It should not be on those who believe that Marx has been broadly refuted by events, and that reading Das Kapital is a waste of time. The people who urge us to read Das Kapital may well be right – but their case is not nearly as obvious as they think it is, and reading Marx has opportunity costs." [editor's note: If his opponent spoke English, presumably that opponent would have referred to the book by its English title, "Capital." Just sayin' – TLK] (05/16/17)


Bretton Woods as a "guardrails" approach to monetary policy

Source: EconLog
by Scott Sumner

"I now favor a monetary policy rule that I have dubbed the 'guardrails' approach, although a more accurate metaphor might refer to the beeper you hear if you are about to hit a car in the front or rear when parallel parking. Under this approach, the Fed would offer to sell unlimited NGDP futures contracts at a price featuring 5% growth, and also offer to buy unlimited NGDP futures contracts at a price featuring 3% NGDP growth. Someone expecting more than 5% NGDP growth would buy these contracts from the Fed, and profit if growth did indeed exceed 5%. A bearish investor would sell 3% NGDP futures contracts to the Fed, anticipating sub-3% growth. Because this is an unfamiliar concept, I'd like to compare it to the Bretton Woods regime." (04/24/17)


Why we don't need macroeconomic data in a free economy

Source: Ludwig von Mises Institute
by Frank Shostak

"It is common for commentators and economists in their discussions to continuously refer to something called the 'economy' — which sometimes performs well and at other times poorly. This 'economy' is presented as a living entity apart from individuals. For example, various experts report that the 'economy' grew by such and such percentage, or the widening in the trade deficit threatens the 'economy.' What do they mean by the term 'economy?' Does such an entity actually exist?" (04/04/17)


Conservatives better hope that wages and prices are sticky

Source: EconLog
by Scott Sumner

"I believe that a combination of sticky wages and monetary shocks produce most of America's economic slumps, including the Great Contraction of 1929-33, as well as other big recessions like 1920-21, 1937-38, 1981-82 and 2008-09. I do not believe the capitalist system is 'inherently unstable' and that big government is needed to stabilize it, rather I believe that it is naturally stable, as long as bad monetary policy doesn't interact with wage stickiness to produce business cycles. But suppose it were shown that I am wrong, and that wage/price stickiness is not an issue — what then? That would be very bad news for my laissez-faire ideology. Now I'd have to concede that events like the Great Contraction of 1929-33 showed that capitalism is indeed inherently unstable, and that this problem could not be fixed with good monetary policy. Now I'd have to entertain other solutions, such as big government and or comprehensive economic planning." (03/25/17)


For Keynesians and Austrians, "uncertainty" means two different things

Source: Ludwig von Mises Institute
by GP Manish & Felicia Cowley

"Keynesian economics has witnessed a remarkable resurgence since the crisis of 2008. The inability of mainstream economics to predict or explain the crisis led many economists to become skeptical of its core macroeconomic tenets. Several have turned the clock back to the ideas of Keynes to make sense of the housing bubble and the ensuing recession. One such explanation inspired by the General Theory emphasizes the endemic uncertainty of the future and its implications for market stability. … this line of thought bears a striking resemblance to Austrian ideas. Moreover, its rejection of mathematical probability as a foundation for expectations is echoed by several prominent Austrian economists. Nevertheless, while Keynesians conclude that the uncertainty of the future renders a market economy inherently unstable, Austrians embrace uncertainty without losing faith in the order generated by a market economy. What lies at the root of this puzzle?" (03/23/13)