Added an Econ Blogroll

I've added a list of economics-related blogs I read to this site. It's dynamically updated and sorted to show the most recently updated blogs first. If you have any suggestions of other econ blogs I should read, let me know.

(Thanks to Ryan Romanchuk for the pointer to David Friedman's excellent Ideas blog.)

First Day of School

I just got home from my first day of class. I'm really glad I decided to do this. (If you're just tuning in, you can read about my decision to go back to school here.)

Predictably, the class itself was consumed mostly by housekeeping: going over the syllabus, talking about whether you really need the ninth edition of the textbook or if you can get away with using your roommate's eighth edition, etc. But Dr. Hickenbottom showed himself to be an animated speaker and an approachable guy.

I introduced myself after class and reminded him that I had emailed him last week telling him, among other things, about this blog. He said that given my description of myself ("I'll be the old guy in the front") he had been looking for someone wearing a suit. Ha!

After class I allowed myself a few minutes to walk around campus and enjoy the 72°F sunshine. Ah, Texas in wintertime.

James K. Galbraith to Speak at UT on "The Financial Crisis and the Road Ahead"

On Wednesday, January 28 at 7:00pm, UT's resident celebrity economist James K. Galbraith (not to be confused with his even more celebrated father) will giving a talk on the causes of and his recommended solutions for the current financial crisis.

I'll be there. If you will be too, let me know. I'd love to say hello in person.

You can add the event to your calendar by clicking here.

Principles of Textbook Economics

Classes haven't even started and already I'm getting schooled.

That Dream

Last night I had That Dream. You know, the one where you show up to a final exam without having studied at all or attended any of the classes. I haven't had That Dream in years. Motivating.

The Predictability of Irrationality

Very entertaining presentation by Predictably Irrational author Dan Ariely. (Skip to 13:45 for an excellent pricing example involving The Economist.)



Thanks to Paul Kedrosky for the link.

Predicting the Recovery

The 14-page report The Job Impact of the American Recovery and Reinvestment Plan just released by the incoming Obama administration includes this caveat (among others):

Our estimates of economic relationships and rules of thumb are derived from historical experience and so will not apply exactly in any given episode. Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.

And as we're constantly reminded by financial vendors, "past performance does not predict future returns."

So how predictive is economics? The irony seems to be that the more you need a good prediction (e.g., in today's unusual and severe crisis) the less likely you are to get one from economic models.

It would be interesting to plot the actual unemployment numbers against the report's projections (both with and without the proposed stimulus):



However, since there will surely be some stimulus it will be impossible to know what the "without recovery plan" numbers would have been. And since the plan that finally comes out of Congress will surely not be the one proposed by the Obama camp, the "with recovery plan" projection will be invalidated too.

I hope they update this report or issue a similar one once Congress passes their stimulus package.

What Would Jozsi Do?

I've just finished Prophet of Innovation, Thomas McCraw's biography of Joseph Schumpeter (who, as a boy, was called "Jozsi" by his family).

The most compelling parts are the chapters that focus on Schumpeter's economic philosophy, which champions entrepreneurs and accurately asseses the barriers put in place by established business structures to hinder their progress. Most importantly, Schumpeter's writing describes and celebrates the recursive process of innovation he would eventually famously call "creative destruction".

So if he were alive today, what would Jozsi do?

Schumpeter's prescription for the American economy during the Great Depression was a combination of credit creation and private-sector innovation. Here he falls between the dogmatic extremes of massive Keynesian deficit spending and the laissez-faire Austrian school. Just yesterday, Google's Chief Economist (and Berkeley economics professor) Hal Varian wrote an op-ed in the Wall Street Journal calling for a similar approach to today's crisis.

Were he alive today, Joseph Schumpeter would surely call for programs to support the flow of credit (including venture capital) to "New Men"—entrepreneurs. He would look to innovation, not infrastructure, to pull the economy out of its current state. And he would recognize that the "destruction" is already at hand—what's needed is to accelerate the "creative" half of the process.

Early Childhood Economics Education

This cartoon was made in 1954 but I saw it probably a dozen times or more as a kid in the 70's. "Mazz conzumption und mazz production!" Classic. (The propaganda lesson starts around 3:30.)

Is Economics Science? (And if not, what then?)

I just added an Interesting (?) Link to an article by quant author and blogger Paul Wilmott titled Economics Makes My Brain Hurt. (Hat tip to Paul Kedrosky for the link.) In it, he writes about one of the central issues I hope to explore in my study of economics:

"And that’s the point I identify as being the problem: The jargonizing of complex ideas based upon irrelevant assumptions into an easily used and abused building block on which to build the edifice of nonsense that is modern economics."

If economics is a real science, why do people have such widely divergent (and fervently-held) beliefs about it? In the hard sciences, there may be controversy at the edges (e.g., string theory) but the basics (e.g., classical mechanics) aren't usually subject to the kind of religious debate I see in economics.

Wilmott says that economics is not in fact science (i.e., built on laws that are very well supported by data and have never failed any empirical test) and therefore shouldn't make the error of behaving like it is.

What say you economists?

Update: Mark Thoma provides a timely answer with his blog post The Austrian and Chicago Schools. The short answer is, "Some economists believe economics is hard science. They're nutjobs."

Update 2: A commenter on Tyler Cowan's Marginal Revolution blog puts an even finer point on it:

"Mistakes in economics is a dull subject. The truly electrifying inquiry would be to name 10... well... 5... OK just 3 incidents when economics made indisputably correct (in a rigorous scientific sense—since economics dare to call itself a science) prediction/forecast on a more or less significant scale."

So, should economics be called "the dismal pseudo-science"?