Sunday, December 30, 2012

Not a great start to the book, but I'm hopeful

I started Knowledge and the Wealth of Nations yesterday. My Macro II class this spring is going to be almost entirely growth theory, and I do want to work with endogenous growth for one of my dissertation chapters, so it seemed like a nice time to pick this up, just to get a journalists view of the backstory of it all. A few things have made me cringe, just in the first couple pages.

First, Warsh says that Romer "initiated a far-reaching conceptual rearrangement in economics" by expanding the normal public/private goods distinction into considerations of rivalry and excludability.

Romer is great, but no - he didn't do that at all.

Then a page later Warsh backtracks a little and says that "public finance specialists had used a series of often confusing terms to explain the source of 'market failure'" before Romer (really? these are confusing terms used by obscure specialists?), but even then Warsh claims "it was by marrying nonrivalry to the concept of excludability, and applying the distinction where it had not been employed before, that Romer cast a new light on the ubiquitous role of ideas in the economics of everyday life".

It's fair to claim that Romer applied these ideas in areas where they had not been applied before... maybe... although of course he had predecessors in Allyn Young and even Paul Krugman (brace yourself: Krugman did not get the Nobel Prize for trashing Bush in the New York Times, no matter what your favorite bloggers told you). But it's still not right to say that he was the one that "married" nonrivalry and excludability into something a little different from a public good.

Next Warsh tried to explain exogeneity this way:
"These background conditions were, in modern parlance, treated as being exogenous to the economic system. They lay outside the model, treated as a 'black box' whose detailed internal workings were to be willfully ignored. Exogenous to her concerns is what the waitress means when she says, 'It's not my table'."
No, no, no! The first part is fine but that last sentence completely misses the point! Something is exogenous if it does effect affect a system but it is not determined by that system. You could say that the quality of the food that a chef produces is exogenous for the waitress. She doesn't control it - it's exogenously given to the system of her service to her table - but it impacts what occurs in that system.

None of this matters all that much and I'll probably still learn a lot reading this, but it's frustrating to see these sorts of mistakes in the first couple pages!


  1. But does Warsh confuse effect with affect? If not, you can continue reading.

    1. Baaaaah.

      Normally that's one of MY pet peeves.

      For all we know he does and his editors fixed that ;-)

  2. Replies
    1. Don't worry, the comments are really having an affect on me now. I promise I will improve.

      [a joke, people]

    2. We right-wingers are indeed fascists when it comes to grammar.

  3. Something is exogenous if it does affect a system but it is not determined by that system.

    I've always thought the exogenous/endogenous distinction can be somewhat confusing, especially when you get into general equilibrium theory.

    Take a price in a basic GE model. For the individual the price is taken as given. It's clearly exogenous. But, the *equilibrium* price is determined by the system. It is endogenous to the aggregate of optimal decisions by individuals and the imposed constraint that markets clear.

    Put it this way. Depending on how define a system, a variable can be exogenous for an individual but endogenous to the system.

    Could that be what Warsh means?

  4. Out of curiosity Daniel Kuehn, what is your opinion of Dr. Michael Emmett Brady's review of David Warsh's book? It turns out that he too has read this work before...


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