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Ok, so I am a geek. That should come as no surprise to anyone. One of my favourite book series is Discworld by by Terry Pratchett.
The latest book, Raising Steam, has a nice description of creative destruction: Read more
From the prelude to ‘Fact and Fiction in Economics‘ comes the following gem by Maki:
“Is economics a respectful and useful reality-oriented discipline or just an intellectual game that economists play in their sandbox filled with toy models?”
Variants of these questions fly around all the time. Why are economists making unrealistic assumptions? Why won’t they just assage to “common sense” about the situation? Why are they making the ‘wrong’ choice in some trade-off between looking at the real world and narrative and/or mathmatical beauty?
These questions sound appealing, but in many ways they are often misspecified – not pointless, but without enough content to actually be answerable. As Maki says:
LVR restrictions have been in force for just over a month. They are beginning to bite.
Benje Patterson decided to discuss the incentives he faces when deciding to whip out the credit card to pay for purchases (Infometrics link).
After discussing the benefits he gets from different rewards schemes he points out:
These benefits sound too good to be true, but they really aren’t, so long as you maintain the same spending discipline as our model couple.
But if you aren’t so disciplined (and banks really hope that you are not), then your credit card can quickly change from being a wealth-enhancing device to a real drag on your pocket.
But of course, at his individual level, and given his disciplined use of his card:
But why should I care? So long as banks can continue to profit from these hordes of people with interest-bearing credit card balances, then the status quo remains. As a result, people like me can keep freeriding and enjoying the benefits of sensible credit card use!
Uncertainty is an unavoidable element of policy decisions. In the words of the great Donald Rumsfeld, we must confront the unknown unknowns. In this appearance the BoE’s chief economist, Spencer Dale, discusses his approach to dealing with uncertainty in the context of forward guidance. Essentially, he says that the Bank doesn’t know how big the output gap is so it has been cautious with forward guidance. He suggests that any other course of action would risk pushing up inflation expectations.
His view is understandable, given the Bank’s inflation target, but it is probably not optimal for the UK. Read more
I was going to do a quote by Joan Robinson as a quote of the day – but then I realised, I’d done this before!
The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
And in 2008 I made the same point I was about the make now:
Training to be an economist does not tell you the answer to any economic question – it gives you the tools with which to determine answers for yourself, given your own set of value judgments.
Although I would note “any” is a bit strong, it really depends what the question is 🙂 . So why was I going to post this quote again? Read more
