Greg Mankiw, Ignorant or Dishonest?

Why choose?

"The model also maintains the neoclassical conclusion that, given ability, people are paid the value of their marginal product. That is, people are paid what they contribute to society." -- Greg Mankiw

Alessandro, Tell Us What You Really Think

Alessandro Roncaglia's The Wealth of Ideas: A History of Economic Thought (Cambridge University Press, 2005) is a work of massive scholarship in the history of economic thought. Roncaglia's assessments are often quite harsh. Here are several examples, which could easily be expanded:

"This [the 'new view'] is an interpretation clearly grounded on the neo-classical theoretical approach, attribution of which to Ricardo implies a thoroughly distorted reading of his writings." (p. 184)

"It is to be stressed that, despite the references to the methodology of general economic equilibrium, quite often the models used to analyze the various cases of asymmetry or imperfect information fall in the category of partial equilibriums. Indeed, without simplifications it is practically impossible to extract meaningful results from the analysis. Use of extremely simplified models in order to deal with specific issues, with recourse to ad hoc assumptions, has indeed been the most common path for research in the past twenty years. Often it is maintained that this provides rigorous microfoundations for the treatment of concrete issues, originally dealt with in conceptual frameworks different from that of general economic equilibrium theory. The outcome, however, is quite different: the attempt to avoid absolute indefiniteness of results imposes opportunistic choices. The most often adopted paths are those of return to partial equilibrium analysis, or to the assumption of a one-commodity world: either analytical rigor or realism is sacrificed. The conclusion is that, despite the efforts expended on it, the research stream of general economic equilibrium did not overcome its basic limits (from the assumptions of convexity recalled above, to the difficulty of excluding multiple equilibriums or instability of equilibrium): it thus remained an abstract exercise, an end in itself, devoid of any utility for understanding the economic systems in which we live. Indeed, reference to the general economic equilibrium approach is often used deviously, on the one hand as a rhetorical trick to enhance the value of models with a low theoretical content, on the other as Caudine Forks for students of advanced economics courses." (p. 474)

"Success of this line of research [new Keynesian economics] is quite difficult to understand: in order to reproduce the notable results of Keynesian analysis within the neoclassical tradition, ad hoc assumptions are introduced, often rather implausible ones, on the sandy theoretical foundations of one-commodity and/or partial equilibrium models with their inverse relationship between real wages and unemployment." (p. 484)

"We thus have, on the one hand, 'lowbrow' economic analyses, which make indiscrimate use of analytical tools whose theoretical foundations have come in for destructive criticism (for instance, the inverse relation between wage rate and employment in macroeconomics) but which pretend to provide 'scientific' economic policy advice on such flimsy foundations. Frequently, policies tricked out in scientific guise actually derive from a priori opinions and may arouse reasonable perplexity on the grounds of plain common sense, while recourse to unnecessarily complex theoretical apparatus is essentially for rhetorical effect. On the other hand, we have 'highbrow' theories, sophisticated exercises within axiomatic schemes based on processes of abstraction that are never subjected to critical scrutiny. The element of pure intellectual challenge is dominant here, but there is a significant cost in terms of lost heuristic power and hence of a meaner market share for economic science in the political and cultural debate." (p. 508)

Obviously, my choice of these examples reflects my interests.

"Undergraduate Economics is a Joke"

I'm not sure what this site is. Maybe it is put up by one of David Colander's undergraduate students. But this appears to be a chapter from Colander, Holt, and Rosser (2004), consisting of an interview with Herbert Gintis. (I also provide, in references an Colander, Holt, and Rosser response to reactions to that book.)

Herb moved to the University of Massachusetts at Amherst as part of one of those McCarthyite purges they keep on performing in the Harvard economics department. This one was in the early 1970s. Gintis no longer considers himself an heterodox economist. You might consider him a representative of mainstream economics at UMass. This identification can be seen to have generated some prickly comments here and there. But Gintis has a point, given that his interests have evolved to include principal agent problems, asymmetric information, behavioral economics, experimental economics, and evolutionary game theory.

Anyway, here's what a defender of the mainstream has to say about how economics is taught:

"You can’t write all economists off as ideologues, because they’re not. They’re open to new ideas. However, there’s still this incredible tension in what we teach. I am so displeased at the way undergraduate and even graduate economics is taught. Undergraduate economics is a joke--macro is okay but micro is a joke, because they teach this stuff that you know is not true. They know the general equilibrium model is not true. The model has no good stability properties, it doesn’t predict anything interesting, but they teach it. The production theory that is taught is also a joke. They use this old Marshallian production with LRACs and MRACs to determine firm size. This doesn’t determine firm size, it determines plant size. Totally different things determine firm size. So why do we teach undergraduates this? Why do you teach income and substitution effects and Giffen goods, when there are so many interesting things to discuss? So I am so upset by what they teach. I am retiring from UMass this year (Sam is, too), so I won’t have to deal with this anomaly any more.

If this were physics or astronomy, when they get new ideas at the forefront, they immediately teach them, but in economics they teach the stuff that even thirty years ago, people didn’t believe. My view is that economists should not be so tolerant of teaching out-of-date ideas. Micro is a total disaster. So I think there’s still a tension, and that there will be one for a long time. I guess sometimes people treat Sam, me, and all these people who do behavioral work, like they treat the dentist, it hurts but you should go do it." -- Herbert Gintis

Happy thanksgiving.

References

• Colander, D., R. P. F. Holt, and J. B. Rosser, Jr. (2004). The Changing Face of Economics: Conversations with Cutting Edge Economists, University of Michigan Press.
• Colander, D., R. P. F. Holt, and J. B. Rosser, Jr. (2007). "Live and Dead Issues in the Methodology of Economics", (June)

Othering

Dani Rodrik writes:

"...the University of Massachusetts Amherst ... department of economics ... is well known as the hangout of left-wing critics of economics and economic policy..."

Notice Rodrik doesn't write that they are critics of "neoclassical economics" (or "orthodox economics" or " mainstream economics"). Don't they do economics of some sort at Massachusetts? Don't they make suggestions for economic policy? Can a mainstream economist even acknowledge the existence of heterodox economists?

I've seen comments like Rodrik's before. I am skeptical of the whole notion of "anti-economics". A serious scholar would acknowledge the existence of divisions in his field, not pretend some with a different approach are merely outsiders or critics.

(I do know that, like Notre Dame, UMass has a good lacrosse program.)

Myerson Not A Historian

Philip Mirowski has been quite critical of an essay by Roger Myerson:

"Some of the most bizarre and outlandish statements about the history of economics have recently been made about the role and accomplishments of the Nash equilibrium concept in game theory. Much of this cynosure is due to the fact that a broad regiment of economic theorists have recently sought to write von Neumann out of the history of game theory to the maximum extent possible, striving to supplant his legacy with the work of John Forbes Nash...
At the end of the twentieth century, this quest to doctor the record with regard to Nash and his equilibrium has attained the status of a public relations campaign with ... a commissioned survey in the Journal of Economic Literature (Myerson, 1999). Although this is not a treatise on the contemporary sociology of the economics profession, a small caveat needs to be inserted here about this unusual effusion of infotainment concerning what must seem, to even the most avid follower of economics, a topic of rather arid compass appealing to only the most limited circle of cognoscenti. Incongruity turns into downright incredulity when one learns ... that the commissioned JEL survey was never vetted by any historian familiar with the relevant events, and consequently the only 'history' to grace the text appears as a word in its title. The reader should approach these texts forewarned that John Nash and his equilibrium, through no effort of his own, have become the object of a vast ceremonial purification exercise." -- Philip Mirowski, Machine Dreams: Economics Becomes a Cyborg Science. Cambridge University Press, 2002: pp. 332-333

And again:

"...the account in Myerson, 1999 of how von Neumann 'failed' has absolutely no relationship to the historical record. The idea that Nash possessed acute insights into human psychology and institutions that von Neumann somehow missed would be ludicrous were it not persistently found in conjunction with the obvious motivation to rewrite von Neumann out of history." -- ibid, p. 347

For example, one would never know from Myerson that Morgenstern and von Neumann analyzed non constant sum games:

"In 1928 and again in his 1944 book with Morgenstern, von Neumann tried to justify this cardinal utility assumption by identifying all payoffs with monetary transfer payments, which led him to the restriction that payoff is transferable and all games are zero-sum...

In 1947 (in their book's second edition), von Neumann and Morgenstern published their third great contribution to game theory: the axiomatic derivation of expected-utility maximization from a substitution argument. This new justification for measurable utility should have prompted them to consider dropping their restrictive assumption that payoffs must be transferable and zero-sum in all games, but they did not." -- Roger B. Myerson (1999). "Nash Equilibrium and the History of Economic Theory", Journal of Economic Literature, V. 37, N. 3 (Sep.): 1067-1082

What Can A Poor Boy Do Except To Sing For A Rock N Roll Band?

"Now Nixon was realigning the party. 'States' rights' and 'law and order,' two thinly veiled appeals to racism, were mainstays of his campaign. States' rights, from the time of Calhoun, meant not letting the federal government interfere with the denial of black rights in southern states. 'Law and order' had become a big issue because it meant using Daley-type police tactics against not only antiwar demonstrators, but black rioters as well." -- Mark Kurlansky (2004). 1968: The Year That Rocked The World, Ballantine Books, p. 361

"Shirley Chisholm was elected the first black woman member of the House. Blacks gained seventy offices in the South, including the first black legislators in the twentieth century in Florida and North Carolina and three additional seats in Georgia. But Nixon won a clear majority of southern white votes. The strategy that undid Abe Fortas also elected Nixon, and it became the strategy of the Republican Party. The Republicans get the racist vote and the Democrats get the black vote, and it turns out in America there are more racist voters than black ones. No Democrat since John F. Kennedy has won a majority of white southern votes.

This is not to say that all white southern voters are racist, but it is clear what votes the Republicans pursue in the South. Every Republican candidate now talks of states' rights. In 1980 Ronald Reagan kicked off his presidental campaign in an obscure, backwater rural Mississippi town. The only thing this town was known for in the outside world was the 1964 murder of Chaney, Goodman, and Schwerner. But the Republican candidate never mentioned the martyred SNCC workers. What did he talk about in Philadelphia, Mississippi, to launch his campaign? States' rights." -- ibid. p. 365

Shrillness In The Defense of Liberty: Two Reviews

Michael Tomasky and Peter Beinart review Paul Krugman's new book, The Conscience of a Liberal, in the New York Review of Books and the New York Times, respectively. I am unsure if I want to buy this book. I've read Krugman's columns fairly often, and the difference in performance between the post-war "Golden Age" and the world after the fall in the Bretton Woods system is an old story to me.

Please Remember Victor Jara, In the Santiago Stadium

As the title suggests, history gives us plenty of stories of people, when put to the test, of being more heroic than anybody should be expected to be. But I am telling the story, I am sorry to say, of somebody willingly signing up to be a zero.

Apparently, in 1981, Hayek visited Chile. Given the context, I cannot read this interchange in an interview as an abstract discussion:

Lucia Santa-Cruz: "There is reference in your work to the apparent paradox of dictatorships that may be more liberal than a totalitarian democracy. But it is also true that dictatorships have other characteristics which contradict freedom, even if it is understood negatively as you do."

Hayek: "Evidently dictatorships pose grave dangers. But a dictatorship may limit itself (se puede autolimitar) and if self-limited it may be more liberal in its policies than a democratic assembly that knows of no limitations. I must admit that it is not very probable that this may happen, but even so, in a given moment, it may be the only hope. Not a sure hope because it may always depend on the good will of an individual and one can trust in very few individuals. But if it is the only opportunity in a given moment, it may be the best solution in spite of all. But only if the dictatorial government visibly leads to a limited democracy."
-- El Mercurio, (not my translation) Sunday, 19 April 1981

In the same interview, Hayek said:

Hayek: "Democracy has a task which I call 'hygienic', for it assures that political processes are conducted in a sanitary fashion. It is not an end in itself. It is a rule of procedure whose aim is to promote freedom. But in no way can it be seen in the same rank as freedom. Freedom requires democracy, but I would prefer temporarily to sacrifice, I repeat temporarily, democracy, before having to do without freedom, even if temporarily." -- ibid.

Furthermore, Hayek gave various presentations to various conferences. Apparently, in a chat with Jaime Guzman, Hayek said, "Pinochet is an honorable general."

IMF and World Bank Blogs

The economic counsellor and director of research department at the IMF has a blog. I've added his blog to my blogroll. Apparently, the World Bank has a number of blogs. I added the one for their Poverty and Growth Program to my blogroll. The IMF and the World Bank are the subject of one of the few political protests I've attended in the last decade.

Yeager Mistaken

Just when I planned on putting aside Austrian economics until receiving referee reports...

The Ludwig von Mises Institute has made Time, Uncertainty, and Disequilibrium: Exploration of Austrian Themes available. These 1979 proceedings were edited by Mario J. Rizzo. The conference at which these papers were presented was held at New York University on 7 January 1978.

For some reason, Austrian economists take Leland B. Yeager as having an authoritative response to the Cambridge Capital Controversy. So I reference his 1976 Economic Inquiry article in my recent refutation of Austrian Business Cycle Theory. These proceedings have an article by Yeager, "Capital Paradoxes and the Concept of Waiting", that I have not previously had access to. Also, Roger Garrison responds with a comment.

Yeager's supposed resolution to the CCC is, roughly, to take interest as the price of waiting, defined as "the tying-up of value over time". Since value is part of its definition, the amount of waiting embodied in a technique cannot be measured by the physical characteristics of a technique. The amount of waiting embodied in a technique can then be expected to vary with prices and interest rates. Thus, reswitching does not seem paradoxical to Yeager.

Yeager acknowledges that he has not resolved the puzzle of "perverse" switches. Presumably, a lower interest rate is associated with the adoption of a technique embodying relatively more waiting. Yet around a perverse switch point, a lower interest rate is associated with the adoption of technique that produces less consumption per worker. How can this be? If laborers work with more waiting - a factor of production - shouldn't they get more output?

Anyways, this incorrect claim shows that Yeager had not fully absorbed the lessons of the CCC:

"The demand for waiting, as for labor and land-use, derives from the factor's capacity to contribute to output - ultimately, output of consumer goods and services - and from consumers' demand for that output. The relative strengths of consumer demands for goods embodying relatively large amounts of particular factors affect producer demands for those factors and so affect their prices. A decline in consumer demand for a highly waiting-intensive good tends to lower the rate of interest." - Leland Yeager

The last statement is without foundation.