How about economics being the (theoretical) study of phenomona whose qualifying aspect is economic, where the nuclear meaning of that aspect is the “allocation of scarce resources.” Computer programmers do have to make what are, in an analogical sense, economic decisions (e.g. space efficiency vs time efficiency). Everything in life has an economic aspect to it. But not everything is qualified by that aspect.

Cf. Herman Dooyeweerd, New Critique of Theoretical Thought

Cf. Roy A. Clouser, A Sketch of Dooyeweerd’s Philosophy of Science [pdf]
http://tinyurl.com/cy9k3e

It is depressing that Romer represents the “Left” in the Obama administration, considering that she argues for fundamentally conservative positions, and argues weakly. For example, she says “the 1960’s (specifically, the Johnson administration) introduced the country to the phenomenon of persistent peacetime deficits”. It somehow eluded her that Vietnam was not peacetime, Congress’ failure to declare war being a legalism of no economic significance. She compares this period unfavorably to the 50’s. So how does she deal with Korea? Um, well, she explicitly excludes it from consideration as an “unusual circumstance”. But the Vietnam period is central to her argument.

She then claims that the electoral results of the 70’s support the policies she favors. The clearest electoral referendum on the monetary and fiscal looseness she condemns would have to be Burns opening the floodgates to re-elect Nixon. In fact, Romer dings Burns specifically. Newsflash: electorally, it worked. Chalk up one for looseness. I assume she means the defeat of Carter, but the vote against Carter, to the extent it was not about Iran, was a reaction against the Volcker policies and their deliberate recession, which are precisely what Romer praises. Romer is free to argue that the voters were wrong, but wrong to argue that they voted for her position.

Her conclusion is to praise copiously the monetary policies of the last 30 years, but to decry the generally high levels of deficits. Because of the first position, she generally praises the post-1980 economy. But, of course, that is also when the deficit spending she so opposes really got going, well beyond the 60’’s and 70’a, though with an exception during the later Clinton period. And what damage does she attribute to the deficits? Well, not much yet, but it’s only been 30 years. The problems of deficits may take a century to show up – she says this – but we know they will because “most economists agree” on this point. Three decades should be enough time to at least be able to point to the trends that lead to ruin. There is a serious failure of epistemological skepticism in feeling she can simply assert and not even have to argue for the long run consequences. And now that ruin is upon us, it seems to have much more to do with the basic nature of the world Volcker created than with government deficits, though the foolish and unproductive nature of the deficits of the Bush years were not helpful.

Romer is praising as “splendid” the period from 1980 to 2007 (when she wrote the paper). It is not clear that the median standard of living improved during this period, other than improvements in technology, especially when costs (longer working hours, more instability, higher personal debt) are factored in along with benefits (larger homes, bigger TVs). Indeed, she praises this period for its stability, when people’s personal lives were not very stable, largely because of the sacrifice of high employment for the sake of low inflation that she glorifies. By contrast, the median standard of living did increase from 1960 to 1980 as a consequence of political and economic choices: medicare, vastly expanded public colleges and financial aid for college, expanded welfare, etc. She attacks this period for its instability but it seemed to do pretty well from 1960 to 1973. Inflation was somewhat higher than previously, but unemployment was lower. It seems Romer buys the idea that higher inflation must eventually lead to higher unemployment too, but is that really what we saw in the 1970’s? By Romer’s own account, the recession of 74 was largely a result of Fed tightening : a policy she criticizes only for not going far enough. And the same thing in 1978. But if she advocates these policies, and thinks they should have gone even farther, she doesn’t get to condemn the instability they caused: that was part of the intended effect.

And, rhetorically, it’s a little bit pathetic to use “pathetic” twice in one para, except self-referentially :-).

It seems likely that a combination of behavioral economics, asymmetric information theories and (gasp) learning from othe social sciences will lead us to a view that people and institutions are a fair way from being rational in the way in which classical economics supposes and that the best way to explain macroeconomic (and lots of microeconomic) outcomes is to admit this.

Even if there is an argument for the definition, it’s certainly not the product of common sense that it’s often presented as. It is a particular formulation by a particular dead economist: Lionel Robbins. The fact that it’s trotted out like it’s an obvious truth is what brings to mind the Keynes quote. (And if the limitation of scarce resources vanished tomorrow, we wouldn’t need economics, but we wouldn’t need politics or engineering either.)

Just a thought (and avery Marxist one at that). It baffles me more and more that there is almost no reference whatever to the persistent increases in scale over past decades – worse: the typical response to current woes is to increase scale & concentrate power.

Small wonder that evolutionarily we’re doomed to progress in leaps & bounds.

So is your pathetic solution to run away from this blatant failure to pretent that Keynesian economics is something that it has not been since its very creation? Pathetic.

I understand that this is a normal human goal, but is there really evidence that any human system is stable enough to maintain a positive equilibrium with or without substantial government intervention and without at least sometimes collapsing into crisis?

I’m not sure how it would look, but maybe it would be better to build systems that are generally stable, but also really good at letting things change when there is a crisis?

But…

Delong on Marx …very long, April 20, linked only for this paragraph. I am not sure if this isn’t revisiting stuff from the earlier Marx thread.

“Marx thought that business cycles and financial crises were evidence of the long-term unsustainability of the system. We modern neoliberal economists view it not as a fatal lymphoma but rather like malaria: Keynesianism—or monetarism, if you prefer—gives us the tools to transform the business cycle from a life- threatening economic yellow fever of the society into the occasional night sweats and fevers: that with economic policy quinine we can manage if not banish the disease…BdL”

But I am very discouraged by the resistance and recalcitrance in US among many of the most currently influential economists. DeLong, Bernanke, Summers, Romer (and Obama) I believe do want to return to the paradigms & conditions of the mid-90s, with very minor tweaks & fixes. I sometimes hear the longterm solution proposed as being as simple as a revival of Glass-Steagall. They may be able to manage a recovery that lasts a while, until a worse crash.

There is a middle ground between Marx’s “long term unsustainability” and DeLong’s occasional bouts of malaria” perhaps a systemic instability. And “social democracy” doesn’t really do me much good because both the US & Sweden (for example) are social democracies with very similar economic systems, and the difference is mostly one of degree. But I think the necessary transition from a public sector periodically moving from 35% to 50% of the economy and back to one permanently at 50% will demand a radical change in theory, one this generation of orthodoxies may not be able to manage.

On the other hand, there’s very little agreement on the desirable alternative that might emerge.

Cue the Austrians, I suppose.

The production and distribution of more-or-less material surpluses.

“What would be the point of economics in a world with no scarcity?”

Whose scarcity? Is the perception of “scarcity” constant and unaffected by relative affluence?

Hey even gold standard laissez-faire represented substantial state intervention – the imposition of a fixed gold-based exchange rate. Of course once you established this rule and let it fall into the background you can quickly forget about it for practical purposes and advocate that the market be allowed play itself out – contrived spontaneity. The imposition of private property rights (the sine qua non of any functioning market) is the highest form of this art but I think monetary policy executed by independent central banks (seen as technocratically applying the Taylor Rule or some other formula) can qualify.

It’s undoubtedly true that the crisis has brought in new forms of intervention – equity stakes for example – and a higher overall level of intervention; but intervention before the crisis was still substantial.

How about the financial sector shrinks for a generation because most investors learnt their lesson, a lot of ex-bankers earn a lot less money, massive government debt renders governments incapable of applying further Keyneisan stimulus and life trots along as normal? Until at least that is a new generation of investors who don’t remember 2007 and 2008 take power again.

And it seems incredibly strong to claim that “any part of the existing economic and social order” is dependent on adopting Keynesian social democracy. What, the police are going to disappear, judges will all be fired, and prisons are going to be shut down unless we adopt Keynsian social democracy? Governments are going to stop funding public education systems? Defence spending will disappear?

One may think that any or all of those aspects of social life should be reformed or destroyed, but since they’ve all survived the Great Depression, WWII, the collapse of Bretton Woods, the 1970s stagflation and the rise of neoliberalism, then I find it hard to believe that the criminal system, public education, and defence are going to be changed drastically if Keynesian social democracy isn’t adopted.

Incidentally, how do you define “social democracy”?

Walt: Hearing someone say “For that is what economics is all about, the allocation of scarce resources, no?” as if this was an unquestionable claim brings to mind a certain overused quote of Keynes about being the slave of some defunct economist.

If economics is not about the allocation of scarce resources, then what is it about?
Serious question here. Questioning this is like questioning whether physics is about “the science of matter and energy and the interactions between the two.”
Now, one could argue that a particular economic theory is designed to allocate resources towards the already-rich-and-powerful, or one could argue that a particular economic theory is dead wrong, and some theories have clearly been disproved, but that’s different to saying that economics isn’t about the allocation of scarce resources. What would be the point of economics in a world with no scarcity? As far as I can imagine it, in such a world at best economics would be a mental exercise, like Sudoku.

19:MACROECONOMIC POLICY IN THE 1960s THE CAUSES AND CONSEQUENCES OF A MISTAKEN REVOLUTION …Christina Romer, Berkeley 2007, currently chairman of CEA.

There is also the earlier”A Rehabilitation of Monetary Policy in the 1950’s” by C & D Romer to be found at Romer’s Berkeley Home Page

I would consider these to be pertinent, at least for a possible American policy.

There has been an argument about causes of & solutions to the 60s & 70s macroeconomy going on for at least 30 years (dozens” hundreds of papers?) among various flavors of economists who claim Keynes as an influence;I have attached my non-economist self to what is apparently a losing faction. I have become testy.

Heterodoxy, bot about the 60s-70s, but I hope on topic

http://www.levy.org/vevents.aspx?event=23

18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies …April 16-17 both audio and pdfs. Levy Institute, I have only begun to explore the material. Blinder, Kregel, Mosler, L Randall Wray, Janet Yellen, and Joseph Stiglitz, among others