Sunday, July 29, 2012

Read a textbook

Nick Rowe suggests heterodox critics of mainstream economics do it here.

I think there are still a lot of people out there who have that still offer bad critiques of mainstream economics, but hopefully there's a marginal improvement. One of the nice things about actually reading textbooks is that you really understand what the difference between models and reality means for economists. There are always all kinds of notations about the nature and limits of simplification, and when the evidence does and doesn't corroborate the model. A lot of critiques of the mainstream work off of the presumption that the distinction between models and reality is ignored, and that can easily be remedied by reading a textbook.

There are more technical questions that can be resolved too, though. I used to get comments about utility theory and ordinal vs. cardinal preferences from the Austrians all the time. I don't hear that as much anymore, and I like to think it's because of the time I got fed up and walked through what Varian says about ordinal preference relations being represented by cardinal utility functions which have no particular psychological interpretation attached to them. When you actually see mainstream texts saying that you realize what B.S. places like the Mises Institute have been putting out about these issues.

It's not ultimately a solution, but it's a great start.


  1. Joseph L. McCauley, a leading econophysicist, has read leading mainstream textbooks (Varian and Mankiw) and he is still bitterly critical of the mainstream. Just read any of his articles in Physica A or other outlets for econophysicists, or his book, Dynamics of Markets: Econophysics and Finance. (I own a copy of the second edition.)

  2. I have been doing a bit of reading of anthropologists writing on money. Some of them say amazingly silly things about mainstream economics; or even flatly and patently false ones. Going to do a couple of posts on it.

    On the basic economics point, your post on the zero bound as a price
    stuck in my mind, so I included a link to it in my essay/post on why the Eurozone Great Recession is like the goldzone Great Depression. The post is very Market Monetarist (surprise!) but one of the things I have always liked about economics ever since I did Microeconomics I is how it makes the world around us, and the history of that world, clearer.

    When I originally did Macroeconomics I (second semester, after Micro I), I hated it. After the beautiful analytical system of Micro, it seemed a lot of ad hoc crap. I had a belittling attitude for years to Macro as a result. Then I discovered Scott Sumner's blog and suddenly Macroeconomics was presented in a way which was genuinely enlightening. My econblog reading and commenting expanded and now I write long posts to work things out by trying to explain them to others. The best way to learn is to teach.

    The Eurozone/goldzone post is here

  3. So I burn 45 seconds and click through and find this:

    (The final straw that lead me to write this post was reading a comment on another blog which said that "loans create deposits" is a heterodox idea. Every first year textbook I can remember reading contains a description of how loans create deposits.)

    Well it is a heterodox idea. The idea that banks can create money through loans is total anathema to very serious people who call themselves main stream economists, as Keen has so brilliantly documented.

    Daniel, you, yourself have explicitly rejected this simple truth (and all that follows: that Minsky was right and that markets are thus irrational (Soros and Munger))


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