Two links

It was a somewhat disappointing home inspection... an issue we'll have to call in an engineer for. It may be fixable, or it may be a deal breaker. All we have to do is wait.

Anyway - not a fun day, but it's always good to come home to two solid pieces of economic analysis that I can nod my head vigorously to:

1. The indispensable Paul Krugman on how annoying it is when people lump Social Security, Medicare, and Medicaid together, and

2. Adam Ozimek on four things that "all economists" agree on. What's most impressive about this post is that for the most part he did not pick stereotypical things like rent control.

Industrial Policy

Ezra Klein asks if the debate about it is back. Hopefully not. I think reasonable economists who understand that some interventions correct rather than create market distortions should be very careful how they talk about these things, because discussions about "industrial policy" very quickly become big tents that everyone can latch on to. We need to make specific cases for externalities that need to be addressed, so that people understand why one action that may help manufacturing firms is reasonable while another action isn't. We can't let people get away with the idea that anything that helps American manufacturing is good policy. And we really, really need to drop this term "market failure" (which Klein uses in the post). It's a terrible term. Markets haven't "failed", they're distorted or operating sub-optimally for one reason or another. If people start questioning the validity of market allocation, that too will become a free for all.

We should be talking about specific externalities and helping people understand them - we shouldn't be sowing seeds of doubt about markets writ large.

A few questions about Hayek and Keynes

1. Exactly why are so many Austrians so convinced Keynes botched Wicksell? I hear this all the time, but I don't know if I've ever heard why. I'm not sure they even know why I say this. The best explanation I can get isn't from any modern Austrian, but from Hayek himself who talked about how concepts of saving weren't exactly consistent between them. This is something I thought Keynes noted explicitly, so I'm not sure this amounts to him "not understanding" him. Am I missing something?

2. It will feel like we've been over this before, but why would it be wrong (or wouldn't it be wrong?) to look at employment fluctuations in more and less roundabout industries as a test of ABCT?

3. How do Austrians think about the yield spread as a predictor of recessions? For me, it seems to highlight changing subjective expectations of future profit opportunities, so it seems to have an obvious Keynesian interpretation. It's less obvious to me how Hayek especially would think about it, because he didn't talk about short and long term rates as much as Keynes did that I know of.

Stickman defends Malthus

Here. Good for him! I've always thought people were unfair to him too. I've talked about the "Malthus PR Problem" here, and in a few other cases. I also suggest reading the sections on general gluts in his Principles of Political Economy.

Sumner on Krugman

Recently I've been bothered off and on by Scott Sumner's insistence that everyone has it wrong but him, and his regular claims that somehow there's a debate between Keynesians and market monetarists over whether monetary policy is wise right now. He strikes me as inventing enemies because... well I'm not sure exactly why - it seems like a dumb thing to do right now.

In light of that, it's worth reading this new post by Scott on Krugman, where he acknowledges Krguman's support of monetary policy and presents the expectations-based argument that Krugman and other Keynesians make now that we're in a liquidity trap (in which the short-term interest rate mechanism of monetary policy is less relevant to talk about).

Life updates

I don't know why, but I kind of like writing these autobiographical updates when things move into the "inbox" and get put in the "outbox". So here's another one.


- As I noted, there were a few counter-offers on the house but we finally settled on something that we're happy with, and the contract is ratified - closing May 10th if everything goes well. This whole process went surprisingly smoothly, but I imagine when it comes to juggling selling and buying at the same time it would have been a lot harder. Home inspection Monday - I'll try to remember to take pictures and post.

- A draft proposal that Hal Salzman (Rutgers), Lindsay Lowell (Georgetown) and I are writing for the Sloan Foundation was submitted today. They have an interesting grant process - we submit a draft, they circulate and critique it, then send it back to us to change before the quarterly meeting where they make the decision. This is very exciting because it will fund my stipend so I don't have to TA anymore! The proposal is for research on "loose coupling" between science and engineering education and the labor market. Basically, lots of S&E majors don't get S&E jobs and we're looking into why. Hal is a sociologist and Lindsay is a demographer and they have analyses they're spearheading, but the part of the work I'll be directing will be a standard occupational choice model with a few important twists, which will hopefully be intriguing enough to be one of my dissertation essays. I am very excited about this - it could really change the complexion of graduate experience if we get it (which I get the impression there's a good chance of).

- With that off my plate for a little while, I got another thing on my plate that's very exciting! I was invited to write an article for a special issue about Hayek of Critical Review. I was asked to write a "fair but critical" assessment of ABCT. Due in a little down the road, which is good because this will be a busy summer. There are some big names among the other contributors, so this is a great opportunity.

But for now - finishing off the school year, and finishing off a few current projects.

Now that's a good way to scare off potential reviewers!

I am looking through Richard Edwards's Contested Terrain: The Transformation of the Workplace in the Twentieth Century for a paper for my U.S. Economic History class, and he writes this in the preface after thanking some people for reviewing the manuscript: "While I suppose I must accept final responsibility for any mistakes in what follows, these friends have pored over enough of my drafts that they cannot escape completely blameless" !!!!

Labor Supply Functions are Real

I meant to share this the other day. It's a great follow-up coverage by Bill Maher on welfare recipients. If you think labor supply theories are just things that mean neoliberal economists invent to trash poor people, you're wrong. Labor supply curves are upward sloping, and there's a good reason for that, and that's something policymakers should be cognizant of. That's not to say by any stretch that there aren't good arguments for policies that may have negative labor supply effects. There are.

One thing I do agree with Keen on

Is the criticism of representative agent models.

Represenative agents aren't the end of the world, of course, but I think they're very misrepresented. All representative agents give you is a macroeconomics grounded in optimizing behavior. That is the sense in which they are "microfounded". A better word might even be "optimization-founded". That's an important technique to use, but it's not entirely satisfactory. Agent based modeling (or something else other than representative agent) is what really gets you microfounded models.

Do agent based models get you substantially different insights than well done representative agent models? That I don't know.

Am I being too hard on Keen in LK's comment section?

Here. He's got a really bothersome video posted that's worth watching just to get a sense of what Keen's position is. I have to say, my opinion of this guy has dropped like a rock ever since this Krugman/Keen thing started. I always gave him the benefit of the doubt because so many people spoke so highly of him. The blog back-and-forth made me leery, but I figured maybe they were just talking past each other. But this video is chock full of cases where Keen is either completely ignorant or completely disingenuous when it comes to mainstream economics.

One thing's for sure though - I'm really looking forward to my Macro Political Economy class in the fall now. It's basically a post-Keynesian political economy class.

I still have a lot of respect for most of the post-Keynesianism I've run across. But this Keen guy is really starting to rub me the wrong way.