jamesz

Woe is not primarily me

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Ed Glaeser makes an important point about the current recession over at Economix:

it is important to recognize that in this recession, just as in every other recorded downturn, unemployment is overwhelmingly concentrated among those who started with less.
…
The overall unemployment rate for the more educated is only 4.3 percent. Individuals with a high school degree, but no college, have a 10 percent unemployment rate (not seasonally adjusted). The unemployment rate for high school dropouts is 15.5 percent. Moreover, the unemployment rate gap between the most- and least-skilled is widening, not narrowing.

It’s easy for professionals to complain about the problems facing the finance system and the lack of work for finance professionals. Let’s not forget that they are actually very well off compared to the average person in this recession, as in others. Governments may be bailing out financial firms but, if we want to help the most people, we should think about how best to aid the less fortunate among us who are suffering far more.

Matt Nolan

Bernanke is not rejecting Friedman

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A Bloomberg article stated that Bernanke is rejecting Friedman and following Keynes by printing money in the current environment (ht The Big Picture). However, this is far from the case.

Friedman believed that in the short run monetary policy could be used for demand management, but in the long-run undisciplined monetary policy will lead to inflation. The key belief here was that the “velocity of money” changes in the short run but is a constant over the long run. Friedman did not like the idea of using “fiscal policy” to manage demand – which is what Keynes proposed in the general theory.

Now, Bernanke doesn’t control fiscal policy – so I don’t think he is siding with Keynes. Further, Friedman blamed the GD on monetary policy being too contractionary – as even though the stock of money rose, the sharp fall in the velocity of money meant that the money supply contracted.

This is the logic Bernanke is using when introducing “credit easing”. Furthermore, in order to avoid the long run inflation problem he has set it up so a lot of the expansionary monetary policy will unwind (although he has committed to low interest rates in the future in order to keep inflation expectations positive).

As a result, I see his actions as completely consistent with Friedman – and I think the article is misleading.

jamesz

Smoking, preferences and internalities

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Eric Crampton reports a study on the reasons for smoking. It finds that smokers place a lower value on the cost of getting a major lung disease than non-smokers. I really like to see these sorts of studies because differences in preferences are almost impossible to show without them. It’s easy to SAY that smokers just don’t care as much about their health but, unless you have solid evidence, your argument will usually be dismissed. Economists just don’t really like putting things down to differences in preferences unless they’re really forced to.
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jamesz

What’s wrong with being awesome?

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Megan McArdle says that old people laid off in the recession find it hard to get work because

…older workers have more skills. In general, more skills is a good thing. But in an increasingly specialized society, those skills are increasingly specific,. The more skills you have, the fewer jobs there are that match them.

I don’t really get this. If you’re more experienced then you have more skills and more specialised skills. But you were once junior so you have mastery of all the skills that junior people have in addition to your specialised skills. I can accept that you might struggle to get a job utilising all your skills but, since you’ve been there and done that, you can probably do a junior job way better than a junior person.
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Matt Nolan

Why more criticism of macro?

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Tim Harford – someone I personally believe is one of the best economists of our time – has come out stating that modern macroeconomics is a failure. (ht Economist’s View – note that commentary in this post is very good, I agree with much of what Mark Thoma is saying except for the belief that the economic model is different between now and “normal” times.  His point on the lack of data to calibrate is very very true).

Now, Tim Harford is one in a list of very smart, non-macro economists who are attacking macroeconomics.  I don’t agree – as I’ve discussed here.

My main concern now is not so much that these incredibly smart people are attacking the discipline – a discipline does its best work when it is being critiqued.  My main concern is the lack of counter-arguments I am seeing from real macroeconomists.  Where are they?  Where is their defence?  I have stated why I think contemporary macro is defendable – but I’m no macroeconomics professor from Harvard.

Until macroeconomists can define the role and scope of their research, and justify their methodology in a way that other disciplines can relate to we are just going to be stuck with arbitrary criticism.  As a result, I think the lack of explicit discussion surrounding methodology is the real issue in macroeconomics …

Matt Nolan

Economics Carnival

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Curious Cat has an economics carnival on at the moment.  It is a good idea – it is interesting that economics doesn’t seem to have as many carnivals while other disciplines do.

Go check out the posts from all around the economics blogsphere.