Matt Nolan

Tarotnomics: Part 1 – The cards

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While enjoying the economics at the NZAE conference this year, I felt that, in 2013, I should really submit something.  After a few beers I worked out that my comparative advantage likely lies outside the core of economics – and so I decided that a paper on the economics of tarot card reading was in order.

Now I have written on this issue briefly before, and I have even given the economy a tarot card reading at one point.

With the idea in mind, and motivated by the suggestion at NZAE from Berk Ozler that crowd sourcing papers was a good idea – I’m going to put together the concepts on the blog.  The way I see it, I’m doing the paper in my spare time, and I do the blog in my spare time, so why not mix the two.

As a starting point I want to do something pretty simple – I want to explain broadly what the actual tarot cards are.  Once we have that, we can move on to thinking about readings, and then get an idea of how a tarot card reading represents a type of “model”.  With that in mind, we can work out what attributes of a model this reading has.

Once we’ve then listed down what an economic model is, we can compare and contrast – through this process, we can hopefully shine a light on what economic models represent, how they are useful, the things we have to keep an eye on, and the possible pitfalls.

Note:  If there is anyone around with knowledge about analytical tarot card reading then comments would be much appreciated – especially if you are also well versed in economic methodology, given that’s the direction I’m coming from here.

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jamesz

There’s no new criticism

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Mark Blaug in 1997:

Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing. To pick up a copy of The American Economic Review or The Economic Journal these days is to wonder whether one has landed on a strange planet in which tedium is the deliberate objective of professional publication. Economics was once condemned as “the dismal science” but the dismal science of yesterday was a lot less dismal than the soporific scholasticism of today

Matt Nolan

How to sell superannuation changes

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While sitting today I got very confused.  I realised that I could really see future generations currently stealing resources off me in the way I keep hearing.

Now, as was quickly pointed out to me by my work colleagues’ resources are in fact being “stolen off me” in two ways:

  1. Future taxes will need to rise to pay for superannuation
  2. Knowing that superannuation is available, the older generation is saving less now and increasing consumption – thereby pushing up interest rates and the price of consumption.

Very good, we have our fundamental reason why superannuation is unsustainable – because tax rates will need to rise in order to satisfy the governments “balanced budget” constraint.

Now if we believe it is the hubris or straight selfishness of older generations that is behind the refusal to change the superannuation age to make it affordable – then frame it in terms they understand.

Say that, when they are retired it will be the next generation in charge.  The next generation won’t be willing to increase taxes, and so will cut them off – forcing them to leech off their children or live an impoverished existence.  If the younger generations show this degree of bloody-mindedness now then older generations will definitely cut back on consumption, and start saving for their retirement.

They might even be willing to “make a deal” regarding the retirement age.

So if that’s the way you think, stop saying how much Gen X  and Gen Y are going to get hurt by the superannuation issue – point out the potential for the Baby Boomers to have the rug pulled from under them, giving them a miserable impoverished retirement.

Easy.

Note:  I don’t want anyone to suffer here.  I’m just part of Gen Y, and we were raised during the reforms – so I’ve learnt to think about these matters in a more, say, clinic way.

Update:  Bill picks up that the population demographics aren’t in favour of my proposal – while Eric indicates that no-one really is 😉 .  I’d note that my joking proposal was mainly just a way of showing that there is a “cost” turning up, and we are thinking about how to share this burden between people – it isn’t just a case of baby boomers robbing everyone blind!

jamesz

It’s the stupid, stupid

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I get it: economists aren’t cool. It’s fashionable to complain about them without understanding the first thing about the discipline. Ordinarily that sort of thing is easy to ignore. But sometimes, though very rarely, it produces that special sort of stupid that you can’t help but cherish! Today is one of those beautiful days and we can thank Ross Gittins for providing it.

His lengthy rant, which I don’t recommend ploughing through, accuses economists of being idiots for not solving all the world’s problems before they happened. So far, so dull. The good part comes when he tells us his solution to all the stupid economists:

She was Elinor Ostrom, a professor of political science at Indiana University, who devoted much of her career to combing the world looking for examples where people had developed ways of regulating their use of common resources without resort to either private property rights or government intervention.
…
For her pains, Ostrom, who died last month, was awarded the Nobel prize in economics in 2009, the first woman so honoured.

Whoah, hold up there, the solution to all the dumb economists is… more economics?! Yes, apparently what we need are more Nobel prize-winning economists, drawing on their cross-disciplinary expertise to make the world a better place. Not the solution I was expecting but I can’t say I disagree!

HT: Bernard Hickey.

jamesz

A nobel and quotable scholar

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Great quotes from Daniel Kahneman. Very worthwhile clicking through and skimming over.

Many people now say they knew a financial crisis was coming, but they didn’t really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time.

Matt Nolan

A summary of credit creation

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This post on VoxEU gives a neat summary of the credit creation process, and the ways that collateral chains have had an impact on the process.

I’m not going to reiterate the post – as it is concise, and if you are interested it would be a good idea to go and read it.  However, what I will say is that this is akin to the standard view of credit markets – essentially at a given point in time assets and liabilities match across the market, but the more convoluted the chain, the more vulnerable financial markets are to an uncompensated change in asset prices.