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It’s been slow going, but I’ve finally finished the draft chapter of my book-in-progress that looks forward to a new research program for macroeconomics, an absurdly ambitious task, but one that needs to be tackled. Of course, what I’ve written isn’t fundamentally new – it’s a distillation of points that Old Keynesians, post-Keynesians and some behavioral economists have been putting forward for a while. But I hope I’ve got some positive contribution to make. More than ever, comments are much appreciated.
Update In response to comments, I’ve fairly substantially revised the section on “avoiding stagflation”. While I don’t back away from the points I made previously, I took for granted some things that I’d mentioned in other places in the book. The result made for a fairly unbalanced treatment with an excessive focus on the role of labor militancy. I’ve now tried to put this into proper context. I don’t expect that will satisfy everybody, but this is closer to what I meant to say all along.End update
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Work on my book-in-progress has been slowed by other commitments. Among other things I’m fighting privatisation proposals from a Queensland Labor government that seems to have learned entirely the wrong lessons from the global financial crisis. Here’s a section on the GFC and the failure of the micro-foundations approach to macroeconomics. As always, comments much appreciated
Another section from my book-in-progress. The book-so-far can be viewed here.
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More bookblogging! It’s all economics here at CT these days, but normal programming will doubtless resume soon.
Most of what I’ve written in the book so far has been pretty easy. I’ve never believed the Efficient Markets Hypothesis or New Classical Macro and it’s easy enough to point out how the occurrence of a massive financial crisis leading to a prolonged macroeconomic crisis discredits them both.
I’m coming now to one of the most challenging section of my book, where I look at why the New Keynesian program (with which I have a lot of sympathy) and ask why New Keynesians (most obviously Ben Bernanke) didn’t, for the most part, see the crisis coming or offer much in response that would have been new to Keynes himself. Within the broad Keynesian camp, the people who foresaw some sort of crisis were the old-fashioned types, most notably Nouriel Roubini (and much less notably, me) who were concerned about trade imbalances, inadequate savings, and hypertrophic growth of the financial sector. Even this group didn’t foresee the way the crisis would actually develop, but that, I think is asking too much – every crisis is different.
My answer, broadly speaking is that the New Keynesians had plenty of useful insights but that the conventions of micro-based macroeconomics prevented them from forming the basis of a progressive research program.
Comments will be appreciated even more than usual. I really want to get this right, or as close as possible
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I’ve been moving slowly on the book for the last few weeks, but I have taken one positive step to encourage further discussion. In response to suggestions from readers, I’ve started a wiki site imaginatively named Zombiecon where my plan is to post draft chapters. The Efficient Markets Hypothesis is already up. In part, the idea is to provide a reference to avoid some of the problems that arise from blogging a section at a time. But, if someone wants to create one or more talk pages on the site itself, that would be great. I’m not really sure joint editing in the mode of Wikipedia, but if you have suggested minor changes, go ahead and make them – I may revert or partially adopt them.
In any book on policy thinking, the easy bit (not all that easy!) is to write about what’s wrong with existing ideas, in my case the zombie ideas I’m writing about. The chapter plan for my book includes, in each chapter, a section on “What next”. As regards the Great Moderation, which was essentially an interpretative claim about the data, it’s not really clear what to include. I’m leaving the details of macroeconomic thinking and policy for another chapter and writing about how society should handle risk. Comments and criticism appreciated as always.
I’m in the process of setting up a site at wikidot.com where the whole draft will be presented in wiki format. But I’ve been travelling and haven’t managed to get it going yet.
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Another section of the Great Moderation chapter from my book. I’m getting a lot of value from the comments, both favorable and critical, so please keep them coming.
Another longish extract from my book project. Corrections and suggestions of all kinds are welcome. I’m also thinking it might be good to have a website where it’s possible to look at, and comment on, all the draft chapters, but I suspect people prefer the atmosphere of a comments thread. Any thoughts on this?
The current working title for the book is Zombie Economics: Six Dead Ideas that Threaten the World Economy (suggestions for a better subtitle are welcome) and that requires a new intro.
Also, I’ve come to the view that “market liberalism”, as opposed to “economic liberalism”, is a better name for the viewpoint, based on the efficient financial markets hypothesis and other ideas criticised here, that has dominated policy thinking in recent decades.
Any thoughts on these points, or the revised intro, would be most welcome.
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I’ve been reading George’s essays for years, but it is only when one reads a large number of them together that one really sees the interconnections. His interests are diverse. Borges, in ‘Tlön, Uqbar, Orbis Tertius,’ notes that the critics of Tlön
often invent authors: they select two dissimilar works – the Tao Te Ching and the 1001 Nights, say – attribute them to the same writer and then determine most scrupulously the psychology of this interesting homme de lettres…
George, when he dedicates the book to Chomsky, Rorty and Lasch, may seem to be doing something similar as an exercise in self-definition – what philosophy on earth might possibly unite these three? The careful reader will at least be able to discern the outlines of an answer to this question when she finishes reading this book. While this answer is not as much an abstract philosophy, as a carefully elaborated set of political and critical judgments, which are both attractive and useful. George’s lens upon the world reveals relationships that would otherwise remain occulted.
One of the themes running through these essays is the proper role of the the public intellectual. George would like public intellectuals to have two features – a grounding in literary culture and a real connection to political debate. As he notes, however, these two requirements are difficult to reconcile with each other in the modern world. This dilemma is described most clearly in one of the earlier essays in the book, “The Sealed Envelope”
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Writing a critique of the Efficient Markets Hypothesis in terms rigorous enough to stand up to scrutiny, but comprehensible to the average reader hasn’t been easy, and I still have a lot more work to do. But thanks to the help I’ve had from commenters here and at my blog, and from other readers, I hope to make a go of it. Now comes the hard bit: suggesting some alternatives, both in theory and policy. I’m not by any means satisfied with this draft. In particular, I need to go back and get a better linkage to the question “if the market price for assets is not the “right” price, what is?”. But, I thought I’d do better getting some help and criticisms now, rather than trying for some more polish first.
In my discussion of the efficient markets hypothesis, I’ve asserted at various times that if (strong or semi-strong) EMH holds, then the market price of an asset “the best possible estimate of the value of the asset” or, more simply, the “right” price. Quite a few commenters asked me to spell out what this means, and there was some useful discussion. This really is the central issue in evaluating the EMH, so I want both to get it right and to express myself as clearly as possible for non-specialist readers. There’s a draft over the fold. I await your brickbats and (hopefully) bouquets.
Another section from the forthcoming book. Casting suggestions for the blockbuster movie will be gratefully accepted, along with more prosaic correction of errors, omissions, and of course, compliments. I’m trying to get a nice HTML version, but will see how it goes
I’m not writing about the debates over health insurance (as, indeed, I am not writing about most policy debates), because I simply don’t think I’m informed enough to say anything very useful about the pros and cons of the specific options under discussion. Still, this by Alex Tabarrok struck me as a bit odd. [click to continue…]
I got more very useful comments on my section on the rise of the Efficient Markets Hypothesis, and I will get down to editing it before long. In the meantime, here’s my draft section on Implications of the EMH
At least in the draft, I’m following a standard structure: One chapter per dead/zombie idea, with sections on Beginnings, Implications, Failure and What Next? It seems to go OK for EMH, and we’ll see how it works for the others.
As before, comments of all kinds, and particularly pointers to (putative) errors, are most welcome.