Jean-Claude Trichet Rejects the Counsels of History - Grasping Reality with Both Hands
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Grasping Reality with Both Hands The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, RealityBased, and Even-Handed Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.
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Jean-Claude Trichet Rejects the Counsels of History We are, once again, live at the Financial Times with a critique of Jean-Claude Trichet. They removed my first two paragraphs--the ones in which I attempted to delegitimize everybody who is not an economic historian. Here they are: One of the embarrassing dirty little secrets of economics is that there is no such thing as economic theory properly so-called. There is simply no set of foundational bedrock principles on which one can base calculations that illuminate situations in the real world. Biologists know that every cell runs off instructions for protein synthesis encoded in its DNA. Chemists start with what the Heisenberg and Pauli principles plus the three-dimensionality of space tell us about stable electron configurations. Physicists start with the four fundamental forces of nature. Economists have none of that. The "economic principles" underpinning their theories are a fraud--not bedrock truths but mere knobs twiddled and tunes so that th right conclusions come out of the analysis. What are the "right" conclusions? It depends on what type of economist you are, for three are two types. One type chooses, for non-economic and non-scientific reasons, a political stance and a political set of allies, and twiddles and tunes their assumptions until they come out with conclusions that please their allies and their stance. The other http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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type takes the carcass of history, throws it into the pot, turns up the heat, and boils it down, hoping that the bones and the skeleton that emerge will teach lessons and suggest principles that will be useful to voters, bureaucrats, and politicians as they try to guide our civilization as it slouches toward utopia. (You will not be surprised to learn that I think that only this second kind of economist has any use at all.) And here is the rest of my critique: What lessons does history have to teach us about Jean-Claude Trichet’s call for immediate, rapid, and substantial fiscal and monetary retrenchment and austerity-about his full-throated endorsement of the agenda of the Pain Caucus? Well, history tells us that there are times and circumstances when countries’ refusal to listen to calls for retrenchment and austerity has led to economic disaster. Times when a country’s supply of savings is inelastic and more government borrowing leads to sharp rises in and high real interest rates are times in which government budget deficits have drained the pool of savings, reduced private investment, and slowed growth--as they did in the U.S. in the second Reagan and the first Bush administration. Times when monetary and fiscal laxity leads to an expectation that government debt will be monetized and to rapid rises in inflation expectations are times in which policy has made a deep recession to restore price stability inevitable--as happened in the U.S. in the Nixon, Ford, and Carter administrations. And times when irrational exuberance on the part of foreign investors leads a country’s public or private sector to borrow heavily in foreign currency, it needs to pre-emptively retrench before foreign investor exuberance wears off, or else--as happened to East Asia in 1997-8, to Mexico in 1994-5, or to Argentina innumerable times since 1890. The first key to the current situation, I believe, is that none of the core economies of the Global North--not France and Germany which are the heart of Eurozone, not Britain, not the United States, and not Japan--are in any of these three positions right now. All of the mechanisms and channels that have in the past made countries regret their failure to pursue policies of retrenchment and austerity are inactive. There are no clear and present dangers that would be fended off by retrenchment and austerity right now. What else does history tell us? It tells us that in 1925 Chancellor of the Exchequer Winston Churchill was ill-served when he rejected the arguments of John Maynard Keynes and accepted the arguments of his Treasury staff that Britain required retrenchment and austerity: Churchill thus gave Britain a three-year head start on suffering from the Great Depression. It tells us that from 1930-1936 the belief of government after government of France’s Third Republic that if only they retrenched a little longer that the confidence of world capital markets in France would be so great that it could escape the Great Depression unscathed: the length of the Great Depression and the class war thus engendered in France weakened it enormously in the late 1930s--it is hard to stand up for freedom when the graffiti on the banks of the Seine reads “better Hitler than Leon Blum.” It teaches us that Weimar German SPD leader Rudolf Hilferding was extremely ill-advised to commit the SPD to policies of retrenchment and austerity when his labour economist Wladimir Woytinsky was calling for the SPD to develop a plan for a New Deal for Germany. And it teaches us that in his memoirs U.S. President Herbert Hoover, who was bitter about many things, was bitterest that he had let Treasury Secretary Andrew Mellon hamstring Hoover’s progressive impulses and lead the Hoover administration to policies of retrenchment and austerity.
http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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History teaches us that when none of the three clear and present dangers that justify retrenchment and austerity--interest-rate crowding-out, rising inflationary pressures on consumer prices, national overleverage via borrowing in foreign currencies--are present, you should not retrench and austerity: don’t call the fire truck when there is no smoke. And history teaches us that when economies suffer from high unemployment, enormous excess capacity, incipient deflation, businesses terrified of a lack of customers, and an enormous excess demand for high quality assets, then is the time for expansion and stimulus: when the deck is awash, start bailing. Yet Jean-Claude Trichet rejects these counsels of history. He seems to me to place himself in the position of, as British interwar bureaucrat R.G. Hawtrey described his precedessors at the start of the Great Depression, somebody: “crying ‘Fire! Fire!’ in Noah’s flood.” Brad DeLong on July 23, 2010 at 08:15 AM in Economics, Economics: Federal Reserve, Economics: Finance, Economics: Fiscal Policy, Economics: History, Obama Administration | Permalink Favorite
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Comments Roland Buck said... Hopefully Obama's 3 new appointees to the BOB are full employment hawks. One of the main things the Fed has to do is to prevent the job killing policies of the European Central Bank and the European governments from slowing down the growth of the U.S. economy. Measures to bring down interest rates other than the very short run are desperately needed. Since these interest rates are significantly above zero and can be brought down, the economy is not in a liquidity trap. Reply July 23, 2010 at 08:29 AM Taylor said... Trichet's an extremely well-trained engineer apparently. Reply July 23, 2010 at 08:34 AM Roland Buck said...
http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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"it is hard to stand up for freedom when the graffiti on the banks of the Seine reads “better Hitler than Leon Blum.� On purely economic issues, Hitler's economic policies were a lot more effective than those of the French Government. By 1936 Germany was back at full employment, which shows that macroeconomic policies were capable of ending the Great Depression. These policies were primarily due to the work of Hjalemar Horace Greely Schact. Clearly economic historians could learn a lot from these successful macroeconomic policies. But this episode of successful macroeconomic policy continues to be ignored. None of this, of course, in any way exonerates Hitler from responsiblity of being one of the great evildoers of history. Reply July 23, 2010 at 08:44 AM Joe Smith said... "Economists have none of that. The "economic principles" underpinning their theories are a fraud--not bedrock truths but mere knobs twiddled and tunes so that the right conclusions come out of the analysis." John Von Neumann said: "With four parameters I can fit an elephant, and with five I can make him wiggle his trunk." Any theory that requires fiddling with the parameters to make it work is no theory at all. Reply July 23, 2010 at 09:28 AM nilso said... There was a good piece on NPR's Morning Edition today saying just that about Germany's retrenchment policies. It was a surprisingly good report on how they were in an unsustainable situation themselves, and were attempting to impose on the rest of the EU a policy that could only work for Germany (dependence on exports) because you can't have everyone taking in each other's laundry. Good to hear a critique going to the heart of the problem, at least in the Eurozone. Reply July 23, 2010 at 10:46 AM mike said... Oh, the sacrilege! To say economists have NO theory! Why, people OPTIMIZE! We have EQUILIBRIUM, general and Nash! Bedrock, no. Close enough? I don't know, but probably not. I like your first two paragraphs and would like to share them. Somewhere I would like to see the word "evidence," as in "evidence in history." In any case, fix the typos please! Reply July 23, 2010 at 11:20 AM mike said in reply to Richard... How can one (a) be interested in history and (b) not be a Keynesian? Hypocrisy in a single sentence, I say. Reply July 23, 2010 at 12:17 PM Nico S said... I think the real issue here is, why are we subordinating millions of people's lives into the depths of utter hopelessness and poverty to satisfy hedge funds and other institutional investors? We may reify the "market" into this abstract principle devoid of people, devoid of any irrationality; but the market is ultimately about people, interests, and institutions. The problem, clearly, is that we HAVE given up on the class war, we http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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can no longer see behind the mystification's of conservative rhetoric. We have blindly accepted the logic of the commodity fetish, by totally ignoring the reality of people's needs for the profit-motive. We are putting the profit of finance capital in front of employment for tens of millions of people, we are systemically destroying human and capital resources due to under-utilization of existing resources, which is not only inhumane and politically irrational--from the perspective of capital--, but it is also economically irrational by sapping from the economy whatever demand was left! Capitalism, on its own, with its own logic, is a self-destructive system. Since the Keynesians are losing this battle, the solution is not going to be pretty: fascism. Reply July 23, 2010 at 12:20 PM Steve Bannister said... The second suppressed paragraph is an eloquent version of a philosophical approach to economics overall that I first heard, from Katarina Juselius, in the context of econometrics. Very simply, there are two approaches she describes: data-first or theory-first. She explicitly prefers data-first. This is an extension of the works of Doan, Litterman, and Sims in the early 1980's before they were, at least virtually, excommunicated from the University of Minnesota and the Minneapolis Fed. The U of M of course is the cradle of DSGE style models. Many of the first type of economists Brad describes are, not coincidentally, also theoryfirst (or theory-only). Data, after all, can be inconvenient to theory. Reply July 23, 2010 at 12:45 PM SomeCallMeTim said in reply to Nico S... Paraphrased from a lefty radio broadcast this morning: /// Banks are getting zero or near zero interest loans and able to relend the money to make a profit (or keep zombies walking...I'm unsure of which metaphor fits here). Why not instead refinance mortgages at 1% and put money into the hands of those buying homes on the extended installment plan?/// This is likely a simplistic suggestion, and certainly politically na誰ve, but for me at least put another fine point on the upward political refraction of U.S. economic policy. [kindly excuse the Laurel & Hardy reference] Reply July 23, 2010 at 01:11 PM Maynard Handley said... "They removed my first two paragraphs--the ones in which I attempted to delegitimize everybody who is not an economic historian." This is truly astonishing behavior, especially given the background that these paragraphs provide. What were their justifications? It is hard to look at this behavior and not conclude that, regardless of what people might say about the value of the FT, at the end of the day their ONLY concern is with the maintenance of the current plutocracy and the intellectual edifice that sustains it. Which makes one wonder why we should bother reading "Pravda for rich Englishmen". How can we be sure that the essential point in any other editorial or story has not been omitted because it portrayed an inconvenient truth? Reply July 23, 2010 at 01:18 PM Maynard Handley said...
http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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"On purely economic issues, Hitler's economic policies were a lot more effective than those of the French Government. By 1936 Germany was back at full employment, which shows that macroeconomic policies were capable of ending the Great Depression. These policies were primarily due to the work of Hjalemar Horace Greely Schact. Clearly economic historians could learn a lot from these successful macroeconomic policies. But this episode of successful macroeconomic policy continues to be ignored. None of this, of course, in any way exonerates Hitler from responsiblity of being one of the great evildoers of history." This assumes that there is something called "economics" and "economic policies" that lives apart from culture, politics, and all the rest of social interaction. Claiming this is so does not make it so. Or, to put it differently, could you have run Hitler's economic policies in a society that wasn't already juiced up to listen to and do whatever authority told them? That wasn't willing to compromise in various ways and give up various freedoms because they knew they were put of a glorious greater whole? That wasn't willing to work harder for less pay because they were preparing for a war that would purify the earth? Reply July 23, 2010 at 01:25 PM purple said... I think their thinking is simpler. Europe (i.e Germany) thinks they will export to 'fat' Americans (while making fun of them), and to middle-class China (never mind that China has no intention of opening its markets), and recover in this manner. Therefore austerity in Europe is OK, because Germany, and to a lesser extent France, will export its way to prosperity.
Reply July 23, 2010 at 02:43 PM Bob Athay said... The proper term for the kind of economics where the "right" outcome depends on a preferred political stance is, as George H. W. Bush put it, Voodoo Economics. I really like this piece, Brad; especially the first two paragraphs. Nicely done! Reply July 23, 2010 at 02:47 PM Measure for Measure said... That's a heck of a broadside in 2 short paragraphs. I say FT did the right thing in excising them. That said, I would like to read the 7-10+ paragraph version of the good Professor's initial argument. It applies mostly to macro rather than micro, right? I'd say that the micro paradigm is pretty well developed. Reply July 23, 2010 at 03:50 PM Grebmorts said in reply to Ola Dunk... "The German thinking is simple: Live within your means." Living within your means is a terrible idea when you urgently need medical care. Save your life first, then you can work to pay for it. A corpse without debts is just a corpse. Reply July 23, 2010 at 04:58 PM Steve Bannister said in reply to Measure for Measure... Consider that the micro paradigm is overdeveloped. And, as the "micro-foundations" of New Keynesian DSGE macro, is the root of the problem. http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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Reply July 23, 2010 at 04:59 PM Joe Smith said in reply to Roland Buck... "On purely economic issues, Hitler's economic policies were a lot more effective than those of the French Government. By 1936 Germany was back at full employment, which shows that macroeconomic policies were capable of ending the Great Depression." Hitler controlled prices and wages and forced large parts of the population into low income jobs. There may have been full employment but it appears the average standard of living fell. The adverse impact on the economy may well have contributed to Hitler's decision to go to war. The United States could adopt Hitler's policies and achieve full employment by pressuring women and Jews to leave the work force, breaking the unions, borrowing extensively from the rich and forcing the unemployed to work for low wages building roads and weapons. Reply July 23, 2010 at 05:09 PM Brad DeLong said in reply to Maynard Handley... Their justification? That comments should not be more than half as long as the pieces they are commenting upon. Sounds fair to me... Yours, Brad DeLong Reply July 23, 2010 at 05:46 PM Robert Waldmann said... three is a typo in your second paragraph. "three are two types" should be "there are two types." A very troublesome typo as three is a number like two. Reply July 23, 2010 at 05:56 PM Alex said... Brad, this is off topic, but you have been accused of being part of a conspiracy to fabricate global warming on the world! Ctrl+f on your name here: http://www.realclimate.org/index.php/archives/2010/07/the-montford-delusion/ Hilarious! Reply July 23, 2010 at 07:43 PM mistah charley, ph.d. said... Speaking of economic data and models and adjusting parameters etc., Isuggest a look at Scott Page's congressional testimony from earlier this week: http://tinyurl.com/267yfe5 Page says what we need are MANY complex adaptive system models - run them all and compare the results. Although he does not say so in his testimony, this is what the meteorologists are doing these days for predicting paths for hurricanes. See also: Miller, J. and S. Page (2008) Complex Adaptive Systems: An Introduction to Computational Models of Social Life, Princeton University Press. http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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Reply July 23, 2010 at 08:21 PM Roland Buck said... "Hitler controlled prices and wages and forced large parts of the population into low income jobs." Schacht's economic policies were based on the principle of running deficits by printing money. This stimulated aggregate demand. The success in ending the high unemployment and making the economy prosper again was one of the main factors that made him very popular in the pre-war period. Clearly the working people did not think they had been made worse off. When my father returned from the United States to Germany in 1935 to marry my mother, jobs were already plentiful. Somebody needs to make a thorough study of how restoring the economy to full employment was achieved. Reply July 23, 2010 at 09:11 PM Ciprian Tudor Florescu said in reply to Brad DeLong... First you acknowledge that there is no bedrock basis for economics and then teach Trichet a lesson based on ...history. Let me just say you don't understand anything from this situation. And this is precisely why you're looking at history to get an insight, because you lack a "bedrock". If I asked you or an economist to create something that has value, you wouldn't know what value is in any given epoch. You would have to "look at the culture" and sociological data to understand what could constitute a value. But still you think that economics can judge past economic operations based on your present deductions on what constitutes a value. You, and others like yourself from this profession, continue to talk about liquidity, savings, growth and other vacuous terms that don't name anything other than operations that took place in a particular epoch context. But still, you equate operations that took place some 80 years ago with operations taking place during the last few years as if we are living the same day everyday. This is to the point on economics. On Trichet's politics: Please give me an example of a similar attack by hedge funds on Greece's sovereign debt situation during the 1930's. I sometimes think that the AngloSaxon world promotes this view on Europe austerity measures for disingenuous reasons... The problem of debt is no longer economic, professor, it is a matter of national and regional security. Make no mistake that we Europeans understood the right lesson from these events, but you can continue to lobby for other solutions. Best, Ciprian Florescu Reply July 23, 2010 at 09:17 PM Captain Button said... "Well, history tells us that there are times and circumstances when countries’ refusal to listen to calls for retrenchment and austerity has led to economic disaster." The geek in me wants to see this section summarized as a parody of Aragon's "But it is not this day!" speech in The Return of the King. Reply July 23, 2010 at 11:40 PM Uncle Billy Cunctator said... Someone might enjoy this: http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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http://tinyurl.com/NaziWinnipeg Reply July 24, 2010 at 12:34 AM vtcodger said... The point of the first two paragraphs -- that economic theory is pretty much useless at a practical level -- seems valid. But I have some reservations about the way you develop them. What distinguishes the hard sciences from economics is not necessarily better models. The hard sciences have generally been data driven even when the models were really, really wrong. We tend to view Ptolemy's solar system with its rotating crystal spheres as being primitive, laughable, and wrong. But you could navigate by its answers and end up where you wanted to go. And therein, I think, lies the problem with economics. You can navigate by its answers, but the odds are that you will end up someplace a long way from where you want to go. I would view historical analysis as an attempt to bypass defective modeling and at least occasionally get answers that are somewhat correct. Reply July 24, 2010 at 01:13 AM Tax Lawyer said... Selfishness, and out-of-State governotorial candidates. Okay, I was reading about Tom Tancredo's Colorado threats to enter the race and derail the Republican race for governor, and I began to think of a bizarre and very selfish worldview idea. If I am a resident of State X, and a liberal Democrat is elected as governor, then one would expect that State X would adopt an adequate safety net, and provide services for the needy. But as a resident of State X, why shouldn't I hope that State Y elects a conservative Republican, who will cut social services, given an entirely selfish perspective that doesn't care about suffering in other States? It would seem to me that the more progressive my State representatives are as compared to neighboring States, the better off our State's populace would be. As a resident of MD (supposedly progressive until one examines the abysmal mass-transit operation), I see the VA population pursuing harmful economic policies, and MD benefiting from VA's stupidity. Even the corporate giveaways from VA don't make up for the denigration in life-quality from their policies. Does this help MD? Or does the cumulative effect of poor governance in neighboring States damage MD's prospects? I don't know the answer. From a humanitarian perspective, where residents of every State deserve adequate progressive representation, it is obvious that VA's approach is harmful to many of its residents. But are VA's woes a benefit to MD. If I had the power to re-order our government, I would simply eliminate the whole concepts of States altogether (and cede TX to Mexico, and probably AZ as well). Imagine a country such as the U.S. with no States, just a federal government, with oversight in law enforcement, public assistance, professional licensing (which would benefit me immensely by being able to practice my profession anywhere--and would increase economic mobility for many). I don't know if this would be a much better system, or a much worse one. I would guess that our country would swing from one extreme to another, until we reached a consensus (see Denmark, Sweden, the Netherlands, Belgium). I suspect that this type of system would be superior to having a Texan president, followed by a Chicago president, etc.
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Any ideas? Second question, and I am getting tired of asking this with no response. What happens to net public and private debtor countries in a trade war? Do they come out on top, or suffer more than the rest of the world? Can SOMEONE provide some data on this? Reply July 24, 2010 at 01:36 AM Hopefully Anonymous said... Fellow commenters, Please don't attempt to push Prof. Delong into positions. Roland Buck, I feel like you're trying to push Prof. Delong into a pro-full employment position. I'd prefer he have epistemological slack. Brilliant first 2 paragraphs, IMO. I remember the kids who thought they were extra-smart reading FT in college while lesser minds read WSJ and the Times. I thought it was generally inferior to the Times, but I didn't imagine that in the future it would all be 2nd tier options for me to expert blogs like this one. Reply July 24, 2010 at 05:23 AM Hopefully Anonymous said in reply to vtcodger... Tax Lawyer, Since you're wont to big picture thinking, what would an optimization of the federal tax code look like? Has any great mind (on the order of Mankiw or Delong) made a good faith, comprehensive attempt? I've taken a few tax classes in my time, and the best professors have pointed out the wasteful insanity in the tax code. But it's always been examples here and there. I haven't seen a smart comprehensive reform treatment yet (in contrast to smart comprehensive proposals regarding Health Care and national security). Reply July 24, 2010 at 05:29 AM Bob Athay said in reply to vtcodger... First, let's be fair to the Ancients! Ptolemy's model of the universe was wrong, but it wasn't primitive or laughable. It was based on a great deal of careful observation and sophisticated enough that it could be adapted to include new data. More importantly, it was accurate enough to predict the seasonal cycles that governed people's lives: when to plant, and harvest, more your herds to summer pasture or winter ranges, etc., or navigate over the known trade routes. People had very practical reasons to gaze at the stars in those days. Economics doesn't need to be like physics or chemistry in order to be useful in practical applications. Rather, it needs empirical models (Brad's Boiled-Down History), heuristics and methods. Not unlike some kinds of engineering. By the way, if you want to understand why a steel ball bearing bounces when you drop in on a thick, steel plate, appealing to first principles of modern physics won't help at all. Instead, we need some principles from Newtonian physics and some empirical models with more than one or two parameters. And the more carefully we want to fit our model to observations, the more parameters we need, too. It gets complicated in a hurry, believe me -- or I'll prove it. But what physics has and economics lacks is the ability to devise repeatable experiments against which we can validate or falsify our models. Reply July 24, 2010 at 06:57 AM http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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Roland (full employment hawk) Buck said... "Roland Buck, I feel like you're trying to push Prof. Delong into a pro-full employment position." I'm trying to push everybody I can into a pro full-employment position. There are two reasons: 1. If unemployment is high, not only does this impose a lot of unneccesary hardship on working people and the poor, but billions and multi-billions of output and income are lost. This lost output is not stored somewhere so that it can be drawn on and put to use once the economy has recovered. It is lost forever. 2. I grew up in a blue collar household that actually experienced cyclical unemployment. I have seen at first hand what it is like to have the family breadwinner lose his job and live in fear of losing one's home due to not being able to make the mortgage payments. I know from personal observation that the New Classical Economists, who think unemployed workers are choosing leisure are idiot savants. They are very techically skilled at drawing up abstract, but irrelevant, theoretical models, but they do not have a clue about the situation that workers face during periods of high unemployment. I AM AN UNAPOLOGETIC FULL EMPLOYMENT HAWK! With the economy in the kind of hole it is currently in we need BOTH expansionary monetary AND fiscal policy. Reply July 24, 2010 at 07:05 AM Roland (full employment hawk) Buck said... "But what physics has and economics lacks is the ability to devise repeatable experiments against which we can validate or falsify our models." But, with only few execeptions Astronomy does not have this ability either. Reply July 24, 2010 at 07:09 AM Roland (full employment hawk) Buck said in reply to Taylor... "Trichet's an extremely well-trained engineer apparently." So was Herbert Hoover. Reply July 24, 2010 at 07:11 AM J said in reply to Taylor... "Trichet's an extremely well-trained engineer apparently" Neither l'Institut d'Êtudes politiques de Paris nor l'École nationale d'administration teach engineering. Reply July 24, 2010 at 11:37 AM Bob Athay said... You're in exceptionally good form on this topic, Roland. Congrats on being "Hoisted From The Comments", too! On being a full employment hawk: I was among the long-term unemployed after the Cold War went away and the "peace dividend" dried up my line of work. I was over 40 with a family to support, so I know first-hand how hard it can be. Yet many people were (and are) worse off than I was. On experiment and theory: In my ball bearing example, it would be a straightforward matter for you to replicate my experiment as precisely as we're capable of measuring. Astronomy isn't amenable to that kind of experimental control, but even so, if I http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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Jean-Claude Trichet Rejects the Counsels of History - Grasping Reality with Both Hands
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formulate a theory based on a set of astronomical observations, it should be possible for you to make another set of observations that you could test my theory against. Comparing the data sets is harder, because there are variables that we can't control and have to account for. But a good theory should still be falsifiable. Reply July 24, 2010 at 01:20 PM TJS said... Does anyone else think that Trichet is still wrestling with the ghost of the ERM crisis? Reply July 24, 2010 at 02:17 PM Full Employment Hawk (Roland Buck) said... " But a good theory should still be falsifiable." Unless it is actually falsified, in which case it is a discredited theory. I think the new classical economics has been well falsified by the empirical evidence. Lucas's monetary version of the new classical economics is falsified by the fact that business cycles have continued to occur after contemporeanous data on the money supply became available. As far as Real Business Cycles are concerned, adverse supply shocks that cause a drop in productivity, reducing real wages are supposed to cause workers to choose leisure and work less. But in the current recession, productivity has grown. Therefore according to the theory real wages are supposed to be high, so that workers choose to work now and choose leisure later. So unemployment should be very low. But the advocates of the New Classical Economics behave like ideologues and not scientists and are not willing to give up their discredited dogmas. Reply July 24, 2010 at 06:47 PM Alex said in reply to Roland (full employment hawk) Buck... And Bin Laden. And others: http://crookedtimber.org/2007/11/10/engineers-of-jihad/ Reply July 24, 2010 at 07:27 PM Bob Athay said in reply to Full Employment Hawk (Roland Buck)... That, my friend, is precisely the point! The Great Lesson of modern physics is this: Our best understanding is still only a model. We cannot assume that it is reality. We still don't know what we don't know. That's also why I'd like to round up that crowd from U Chicago, the Hoover Institute, etc. and put them through a couple semesters of thermodynamics. Reply July 24, 2010 at 09:39 PM Alexei McDonald said in reply to J... Trichet knew this, so cunningly went to study at the École nationale supÊrieure des mines de Nancy first. Reply July 25, 2010 at 06:40 AM Troy Camplin said in reply to Ciprian Tudor Florescu... More than that, I detected a use of theory in the analysis. One cannot interpret data without a theory, after all. Another theory might come up with a different interpretation of the data. How might, say, Austrian theory interpret it? Or Marxian theory? Or monetarist theory? Reply July 27, 2010 at 01:29 PM Troy Camplin said in reply to Bob Athay... http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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Jean-Claude Trichet Rejects the Counsels of History - Grasping Reality with Both Hands
10/24/10 1:39 PM
Physics and more traditional forms of math are utterly useless in understanding the economy. Those approaches -- especially including Newtonian physics -- have gotten us into the ridiculous situation economics is in today. They need to be rejected utterly before economics can become a real science. Here are a few things that can actually work to help us understand the economy, as they model things more like economies: complex adaptive systems theory, network theory, game theory, chaos theory, bios theory, information theory, evolution, and catastrophe theory. Combined, they are able to tell us much about economies, which are after all agent-based complex, evolving systems. Reply July 27, 2010 at 01:34 PM Comments on this post are closed.
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Media Matters for America - Oct 19, 2010 In a November 17 post on his personal blog, University of California-Berkeley economics professor Brad DeLong wrote, "Private investment recovered in a very ... Related Articles » « Previous Next »
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http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
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Jean-Claude Trichet Rejects the Counsels of History - Grasping Reality with Both Hands
http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
10/24/10 1:39 PM
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Jean-Claude Trichet Rejects the Counsels of History - Grasping Reality with Both Hands
http://delong.typepad.com/sdj/2010/07/jean-claude-trichet-rejects-the-counsels-of-history.html
10/24/10 1:39 PM
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