He just doesn’t get this economics stuff, does he?

Most economists don’t get this. That’s in part because they have never been near, let alone run, a real business. But it’s also because they do not want to get it because it makes the maths of their economic models hard. So, most pure neoclassical economists assume there is no lag in the economy between a change in possible circumstances (call it an economic reopening) and its consequences being seen. Things ‘clear’, as they would put it, perfectly. New-Keynesians think there is a delay in the clearing process, but that it happens. And the reality is that there is no guarantee of that clearing happening at all.

No, the immediate market clearance is an assumption of classical economics. It’s a useful idea in new classical economics too. But neoclassical and new classical are not the same thing, not the same thing at all. Neoclassical insists that things happen at the margin (The Marginalist Revolution) and inherent in that is that we don’t in fact have a phase shift but a dribble, a trickle, of change.

New Keynesians – you know, like such heterodox people as Greg Mankiw – do indeed think that things take their time. So therefore that’s what’s taught at Harvard (where Mankiw has been teaching Econ 101 for many a year) and is in the leading textbook (author, Mankiw, G.).

As to the change not fully working through at all that’s standard Keynesianism – itself a neoclassical derivative – because that’s how it is possible to end up with non-optimal equilibira.

And to think, the quote comes from someone who was hired to teach economics in a British university. Someone who simply does not know the difference between new classical and neoclassical.

27 thoughts on “He just doesn’t get this economics stuff, does he?”

  1. “Most economists don’t get this.”

    It’s the arrogance of the fat fucker that astounds.

    He could drop an apple in front of his dullard sycophants, explain that the fall was ‘gravity’ and add that ‘most scientists don’t get this’.

    Then he’d add that he invented gravity.

  2. Aren’t there any actual economies where you could, like, watch what happens and see whichever theory is correct and then you wouldn’t need competing schools of thought?

    (If not, it’s just a giant wank-off, isn’t it?)

  3. Ah but you’ve hit the nub of economics there, Rhoda. Supposed experts disagreeing about what they’ve just seen happen. God help us when they get onto prediction…

  4. “That’s in part because they have never been near, let alone run, a real business. ”

    The gall of the man. Let’s run through the CV again….

    He left Pete Marwick and set up an accountancy firm for luvvies with someone who would become his ex-wife and sold it just after the divorce (along with the London pad). Of course he got full taper relief, something he doesn’t want new entrepreneurs to have.
    While doing that he fell into a guy that licensed Trivial Pursuit and others from offshore companies.
    He then set up a manufacturing operation in Ireland, by his own admission, to dodge tax (likely he was just chosen to do it as he had the require passport).
    So disgusted was he by that tax dodge, he left (but stayed as an advisor for 6 years).
    He then ran a company where the owners were going through a divorce; he claims he turned it around.
    He then grabbed the coat tails of the Trivial Pursuit guy again when he started a new venture, he left when it turned over 200K, but he claims he had some role in the fact it was later sold to Yahoo for $20m.

    After selling the accountancy business he went off to be a business advisor, but no-one wanted his advice but he bumped into John Christensen and grabbed his coat-tails instead.

    For “someone who hasn’t really run a real business” (but someone that has hung on to the work of others) look in the mirror Spud.

  5. Correckshun! He doesn’t teach economics, he teaches political economy. Political economy is to economics as biomedical sciences is to medicine: if kids are too thick to do the latter, they settle for the former, and hope nobody notices.

    They always notice.

  6. Ah Diogenes… That only works if you have acquired the services/attention of an Igor..

    And you really don’t want to have that model too accurate.. At least not in a high-causality field..

  7. “Diogenes

    Does his ignorance have any limits?”

    He relies heavily on the ignorance of his readers and ability to censor anyone who shows him up.

    It’s why he hides away on his blog. Laughably he claimed the other day that he didn’t have time to deal with comments made on his YouTube channel. That, of course, is because he has no control over it.

  8. Just an honest question here….

    This discussion on how different tribes of economists see the result of a change in circumstance…

    Well, to an engineer this looks a lot like negative feedback theory: well researched and highly documented area of engineering. Feedback, phase lags, reverse gain, stability criteria, hysteresis…it’s all there.

    Do economists study negative feedback theory, or just invent their own less mathematical and more woffly version?
    And if the first, why not use the standard lingo?

  9. @rhoda

    Worth bearing in mind just how little economic data there really is. GDP really only got formalised in the post-WW2 era for example, a lot of stats were only estimated retrospectively. For many events of economic importance – market bubbles, recessions, outbreaks of inflation – there’s only really good data available for a handful of them. To make things worse, we go from having a long period of history with very little data available indeed (and most of it reconstructed) to a relatively short period of history in which thousands of time series of data are available for more variables than you can shake a stick at. And you’re looking at a system which is both more complex (in the sense of inter-linked, with feedbacks etc) and more noisy (subject to essentially random shocks, and often with substantial measurement error) than, say, something as mechanistic and predictable as the orbits of the planets, for which a long enough period of observation plus a good enough theory allows very precise predictions you can verify later. Just in those very general terms it’s easy to see why you can, in good faith, generate a surfeit of plausible theories that give a reasonable fit to available data.

    It’s not like economists are actually thick about the technical side of stuff. A graduate (or arguably even good undergraduate level – plenty of unis teach e.g. instrumental variable techniques and cointegration tests for time series at second-year undergrad) econometrics textbook will have a far more sophisticated and nuanced discussion of causal inference than most MSc-level statistics textbooks I’ve seen. They’ve developed a ton of machinery to help them tackle the problem they face, but it’s a bloody difficult problem, and views along the lines of “all these conflicting pie-in-the sky theories!! why don’t they just look at the real world, like proper scientists?” seem rather strike to me.

  10. @TTC

    Yeah, have a look at the economic literature on that. Might interest you.

    On a related note, economists actually borrowed a lot from optimal control theory too. (And was there an extent of vice versa? Ramsey was working on economic control problems back in the 1920s for example.)

  11. MBE, you may well be right, and you’ve obviously twigged that I know nothing of it, but it just seems to me that the conflicting theories are actually the point of the whole thing. They aren’t for proving, they are for debating only.

  12. That’s in part because they have never been near, let alone run, a real business.

    And he has?

  13. MBE:
    You could add that Chaos theory tells us that many situations are not just indeterminate but indeterminable, and likely some or much of economics is like that.

  14. Rather than chaos theory, one might more simply look at the fact that we can’r measure everything everywhere to a reasonable accuracy often enough. And that there are confounding effects at the individual level.

    It’s a bit like supposing that the average wind speed or the current barometric pressure completely quantifies and describes the weather.

  15. Bloke in North Dorset

    Another problem is what might be called Cowperthwaite’s dictum:

    By measuring the economy some damned fool will have interfered. How can you be predictive in those circumstances?

  16. TimTheCoder: Ah, but negative feedback is eevuulll, all feedback must be positive otherwise you are paternalistically belittling what achievements have been accomplished. Negative feedback must be outlawed.

    ‘s true, I was told so on a Job-Seeker’s Training Course.

  17. I wonder whether Ramsey might, inadvertently, have worked to the detriment of economics. His formulation of mathematical theorems in an area where real, empirical data is hard to reach might have delayed true understanding.

  18. Sooo…you can’t produce falsifiable theories and you can’t make checkable predicitons.

    Dunno what you have there, but it is not a science. It is a self-perpetuating academic field. Much like an animist religion, don’t offend the gods, make sacrifices just in case, that sort of thing.

  19. Much macroeconomics is indeed like that. Much microeconomics isn’t.

    For example, we generally say that demand falls as prices rise. This is observable. It’s thus usefully predictive as well. There are exceptions, those being called Giffen Goods. When the price rises the quantity demanded rises. Hmm, OK. So, if we’re to be a science we need to work out why the exception, what they are, and can we move – having found our explanation – from the specific to a generalisable classification of goods this happens to?

    The first known identification was of wheat noodles in North China, of rice in South China. As the price rises so quantity demanded does. The reason being – this is back when China was considerably poorer – that they are the staple food in a largely subsistence population. Some part of the food budget – they are just above subsistence – is spent on better foods than just the basic stodge. But the mass of calories is that stodge. So, when the price of stodge rises it is necessary to stop eating the slightly better foods and devote the entire budget to stodge. Quantity demanded of stodge rises when stodge prices rise.

    OK, so we’ve found our Einstein exception to Newton’s Laws.

    So, can we apply it more widely? Yes, as it turns out this does apply to the basic caloric stodge in subsistence societies. Tortillas in poor parts of Mexico, Cassava or perhaps yams in West Africa and so on and on.

    Hypothesis, evidence, exception, why, revision of theory – yes, we’re doing science here.

    Ritchie gets to spend £100 billion on the Green New Deal not so much.

  20. SCIENCE:
    If you don’t make mistakes, you’re doing it wrong.
    If you don’t correct those mistakes, you’re doing it really wrong.
    If you can’t accept that you’re mistaken, you’re not doing it at all.
    Richard Feynman

  21. ENGINEERING:
    You should be glad that bridge fell down.
    I was planning to build 12 more to the same design!
    Isambard Kingdom Brunel.

    🙂 Thanks Chris for a wonderful quote from the Great Man.

    The best way to settle economics arguments would be to take a country, split it in two, and run each half differently: capitaism versus communism. That sort of thing.
    In a generation or two, you’d soon see who is wealthy, and who is starving.
    But the experiment could never be done, no chance of getting it past the Ethics Committee.
    What? You mean it’s already been done? Three times!!!! What was the result?
    🙂

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