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December 5, 2011

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Latest Posts from Economist's View


Paul Krugman: Send in the Clueless

Posted: 05 Dec 2011 12:24 AM PST

Wondering why the Republican candidates for president are so bad? It's no accident:

Send in the Clueless, by Paul Krugman, Commentary, NY Times: There are two crucial things you need to understand about the current state of American politics. First, given the still dire economic situation, 2012 should be a year of Republican triumph. Second, the G.O.P. may nonetheless snatch defeat from the jaws of victory — because Herman Cain was not an accident.
Think about what it takes to be a viable Republican candidate today. You have to denounce Big Government and high taxes without alienating the older voters who were the key to G.O.P. victories last year — and who, even as they declare their hatred of government, will balk at any hint of cuts to Social Security and Medicare (death panels!).
And you also have to denounce President Obama, who enacted a Republican-designed health reform and killed Osama Bin Laden, as a radical socialist who is undermining American security.
So what kind of politician can meet these basic G.O.P. requirements? There are only two ways to make the cut: to be totally cynical or to be totally clueless. ...
The larger point, however, is that whoever finally gets the Republican nomination will be a deeply flawed candidate. And these flaws won't be an accident, the result of bad luck regarding who chose to make a run this time around; the fact that the party is committed to demonstrably false beliefs means that only fakers or the befuddled can get through the selection process.
Of course, given the terrible economic picture and the tendency of voters to blame whoever holds the White House for bad times, even a deeply flawed G.O.P. nominee might very well win the presidency. But then what?
The Washington Post quotes an unnamed Republican adviser who compared what happened to Mr. Cain, when he suddenly found himself leading in the polls, to the proverbial tale of the dog who had better not catch that car he's chasing. "Something great and awful happened, the dog caught the car. And of course, dogs don't know how to drive cars. So he had no idea what to do with it."
The same metaphor, it seems to me, might apply to the G.O.P. pursuit of the White House next year. If the dog actually catches the car — the actual job of running the U.S. government — it will have no idea what to do, because the realities of government in the 21st century bear no resemblance to the mythology all ambitious Republican politicians must pretend to believe. And what will happen then?

 

Links for 2011-12-05

Posted: 05 Dec 2011 12:06 AM PST

"Things are Looking a Little better, But Not a Whole Lot"

Posted: 04 Dec 2011 01:44 PM PST

Jim Hamilton:

...we ended the week with an employment report that could have been worse. According to the BLS survey of establishments, there were 120,000 more Americans working (on a seasonally adjusted basis) in November than in October, and the gain would have been 140,000 had it not been for the ongoing declines in the number of people employed by state and local governments. More encouraging was the 278,000 estimated gain reported in the BLS's separate survey of households. The two surveys are in broader agreement if you look at 12-month averages. We see an average employment gain over the last year of 133,000 per month from the establishment numbers and 139,000 per month from the household. Those are the sort of numbers that just keep pace with the growing population, and really don't make much progress in reducing the size of the army of unemployed U.S. workers. True, the unemployment rate (derived from the household survey) has fallen from 9.8% a year ago to 8.6% last month. But the biggest single factor in that has been the growing number of Americans who are now characterized as "not in the labor force." Each month over the last year, on average America has added 149,000 new people over 16 who are not working and not actively looking for work. In other words, the number of American adults who are "not in the labor force" is growing faster than the number who actually have jobs.

Hence the summary with which I started-- things are looking a little better, but not a whole lot.

"Mankiw’s Reply to the Walk-Out"

Posted: 04 Dec 2011 10:17 AM PST

In case you want to talk about Mankiw's column, here's a response from Peter Dorman to get things started:

Mankiw's Reply to the Walk-Out by Petrer Dorman: Whatever my disagreements with Greg Mankiw's op-ed self-defense today, I appreciate that he takes his dissident students seriously...
That said, I think Mankiw fails to see two ways in which his introductory course, and other mainstream econ courses, impose a worldview that makes thinking constructively about economic problems less rather than more likely.
First, what does Mankiw say? I would summarize his argument in this way:
1. His Ec 10 course at Harvard is not much different from other mainstream introductory econ courses taught in other colleges and universities. (Nor by implication is his textbook so different either.) It's the tried and true.
2. Economics is essentially an organized, rigorous way of thinking; it allows its practitioners to adopt a wide range of positions, so long as they reason clearly and respect evidence. There is no intrinsic bias to the discipline.
3. Even economists on the left, like Paul Samuelson, have been the object of criticism coming from Marxists and others outside the mainstream. This shows that it is not Mankiw's personal conservatism that has sparked the protest, but the discipline of economics itself. (The implication is that replacing the Republican Mankiw with another professor more associated with the Democrats would not placate the protesters.)
Let's take these in reverse order. I think #3 is correct, although this bears mainly on how well the protesters understand what they are protesting. If they think Ec 10 can remain a mainstream introductory course but shed its conservatism under new management, they are wrong. In other words, this is not about Mankiw. ...
#2 is on shakier turf. Mainstream economic concepts and tools are valuable and well worth knowing, but they also contain implicit biases. The most fundamental of these is the assumption that individuals are connected to one another almost exclusively through markets—that the essential aspects of the economy can be understood by employing models that incarnate this assumption, relaxing it in only a few narrow instances. What are the connections that are left out or radically downplayed? Culture, politics, language, environment: the relationships between people, and between them and their material world, that are the objects of study in such fields as sociology, politics, organization theory, social psychology, anthropology, geography and so on. The problem is ... assuming that economic interactions can be studied apart from all the others leaves power and culture out of the equation. (Literally.) That's a bias. ... There is a reason why exposure to economics, and especially the worldview-defining core of microeconomics, tends to shift student views, on average, in a libertarian direction.
Repeat: the solution is not to simply throw mainstream economics into the dumpster. There is a lot of good, useful stuff, and students should be exposed to it. But the assumptions should be discussed openly and honestly, so that students can develop a sense for when economics has more to say, when it has less, and how its insights can be combined with those from other intellectual traditions.
As for #1, Mankiw is right, and that's the problem. It would not be an exaggeration to say that there is a central narrative at the introductory level that has hardly changed in at least a generation, perhaps longer. It presents a system of perfectly competitive markets composed of rational, unconnected agents as the benchmark, from which specific deviations, like externalities, behavioral anomalies, sticky prices, etc., are considered one at a time. Most of the interesting and important work in economics is about these deviations. If you added up all of this innovative research, you would have a composite picture that is exciting, relevant—and light years away from the introductory narrative.
A huge gap has opened up between the introductory course and the work professional economists are actually doing. Each departure from the narrative is considered one at a time, even though research has chipped away at all of them. Unfortunately, this feeds back to the self-understanding of the researchers themselves: they get their central narrative from the vision of Ec 10 (or 101 or whatever) and see their own work as deviating in just one specific way from the benchmark model. (To get published, this is exactly what you need to show, that your novelty, taken in isolation, enhances the benchmark's explanatory power.) Thus the introductory course still looks like a distillation of the research frontier, even though, if you put all the research results together, you would have something quite different. Consider, for instance, the vast amount of work that has gone into the analysis of cooperation and its relevance in a wide range of economic situations. Is this work mainstream? Yes. Has it entered the core narrative? No. It's just another wrinkle, taken up at one juncture and then put aside when the next wrinkle is introduced.
The introductory economics course is a big, big problem. I hope the walkout adds to the pressure for a fundamental rethinking.

I was going to stay out of this, partly because I don't find this particular expression of the protest very compelling, but I'll add one thing. A big part of the problem is what we are not supposed to talk about in economics, the politics that surrounds the profession and, in particular, policy prescriptions (and don't let Mankiw kid you, through the things he chooses to link, say on his blog, etc., he plays the political game, and plays it fairly well). The fact that one introductory class at Harvard has this much power to affect the national narrative is part of the problem not the solution. It is yet another reminder of just how concentrated power is in this society, and where it lies. Would a protest at a typical state university have gotten as much publicity? Nope. But when it's the institution that educates the rich and powerful, suddenly we are supposed to take note. And we do.

I started blogging in part because I was fed up with the way in which economic issues were presented at CNN and other mainstream news outlets prior to the Bush reelection. Those with the power to get on the air would make claims that were supposedly based upon economics, but were clearly false or at least highly misleading, and they would do so without an effective challenge from the hosts/anchors or other guests. It clearly had an effect on the national conversation, but it was all based upon using economics as a political rather than an analytical tool. So I don't think the problem is what we teach in economics courses, though we could certainly improve in some dimensions. Most courses are careful to cover market failures, etc., and how those problems can be solved through various types of interventions. The problem is the way economics is used by those with a political agenda. If the powerful had an interest in promoting ideas about market failure and the need for government to fix the problem, we'd hear about these ideas endlessly in the media. But those with power want the ability to use it unconstrained by government or any other force, and it should be no surprise that anti-government, anti-regulation, and anti-tax ideas come to dominate the conversation.

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