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Wednesday
Dec252013

In praise of online wordsmiths 

I am generous when it comes to highlighting interesting ideas and theories on how the world works. After all that is the only way that we can make any progress in this world. My blogroll is big in that respect. However, I am picky when it comes to good writing. Only the best make it on my list. One of the absolute best out there, The Epicurean Dealmaker, has just released his greatest hits for 2013

This is the seventh year I have maintained this site, with greater or lesser diligence as the spirit moves me and non-blogging obligations allow. Seven years is a long time in any relationship, as marital psychologists and Tom Ewell alike can tell us. We will see in the coming year whether you and I can sustain our little pixellary romance, or whether like all good things this relationship must come to an end. I make no promises other than to be myself.

But do not think of that now. Look back on 2013 and revisit the year’s greatest hits, as determined by you. Enjoy.

I am sure the EPD will keep going to complete its eighth year of punditry. If you haven't jumped the bandwagon you should do so immediately. 

Other notable mention obviously goes to Team Macro Man and Cass where the level of linguistic wit, observation and syntax continue to keep the bar very high indeed for the rest of us. 

Wednesday
Dec252013

Main Street under pressure ...

We can always debate whether home ownership is a birth right in the US or indeed in any modern economy. I suppose most would agree that it should be a realistic opportunity. So incidentally should having a job, supporting your family etc. None of this can be be guaranteed, but it should be within realistic reach for those who work hard. 

What does the chart below tell us about the prospects of Main Street in the US since the crisis and throughout what now seems to be commonly known as the "recovery". 

 (click picture for better viewing)

Source: St Louis Fred

I should note here that I am not a perma bear. In fact, I see the contours of technological advances in the next decade that could greatly transform our societies for the better (e.g revolution of payment systems, 3D printing/manufacturing and robotisation). I am just starting to wonder whether the supposed middle class (you know, those people who sell their labour for a living) will reap any of the rewards of this and what happens when/if they discover that the game is rigged specifically to their disadvantage. 

Monday
Dec232013

The Civil War in Macroeconomics

Paul Krugman never shies away from a strong headline in his column at the New York Times (I suppose that is in part what they pay him for). His latest evocation of the civil war in macroeconomics might just be pushing it, but in principle I think Krugman is right to have a go a at micro foundations. I have criticised the concept myself for ignoring the potential for research paradigms that are purely macroeconomic in nature. In this sense, the fact that Krugman puts his weight behind this critique is important. It is time that pure macro theories are given the same attention as micro founded models in explaining macroeconomic phenomena. The state of play up until now where pure macroeconomic analysis has been (is) discarded as inferior, non-rigorous, undergraduate analysis is quite simply no good. 

A more fundamental methodological problem is that micro foundations as a hitherto unassailable core of the way advanced macroeconomics is researched and presented to the world is now showing serious cracks. This is a problem.

Anyone with basic knowledge of scientific methodology will know, eg from reading Popper and his student Lakatos, that while a paradigm may survive a number of auxiliary hypotheses being falsified there are always core hypotheses to which the paradigm must link its survival. If these are successfully attacked and falsified, the paradigm must fall. 

The ongoing failings of a rigid and static focus on micro foundations that were developed and presented in the 1970s is beginning to look like a terminal failure of a "hard" core hypothesis. Krugman for example is pretty clear that we are now at a fork in the road. 

Can you live with (...) the notion that not everything you put in your model has microfoundations? If you can, you’re a saltwater economist, in some sense a Keynesian. If you can’t, you’re part of what has gone wrong with the field.

Krugman obviously has several axes to grind here and the shadenfreude literally dripping off of the pages on his blog. But make no mistake of the importance of the discourse Krugman is molding here. If the challenge to micro foundations were to be considered and accepted as a genuine issue, macroeconomic textbooks would literally have to be re-written. Indeed the way the field is taught would need a complete re-structuring. What may have started as a civil war could quickly escalate into a full blown nuclear, MAD-like, conflict between the Freshwater and Saltwater economists.

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