You will recognise yourself from my description. (Or you will recognise others who fit this description).
You are probably very smart. You are probably very well-educated — either formally, or self-educated, and probably both. You spend a lot of time on the internet reading economics blogs and commenting on those blogs. You maybe even have a blog of your own, where you write about economics topics. You are probably politically engaged. You are probably a lefty, but may be a righty, or someone who is not easily categorised on that political spectrum. You probably think of yourself as a critic of economics, or a critic of what you see as orthodox economics. You are probably sympathetic to what you see as heterodox economics.
But you have never once read a first year economics textbook.
You have probably many times told me, or people like me, that I really really should read something you want me to read.
Well now it's my turn.
I think you really really should read a first year economics textbook.
You have invested so much time in thinking about, reading about, and writing about, economics. Don't you think it would make sense to spend a tiny fraction of that time just reading a standard first year textbook, cover to cover? You could do it in one day. Maybe two, if you go really slowly and carefully. They were designed to be read by an average reader who is probably less smart and less motivated and less knowledgeable than you are. It's gonna be a breeze!
Even if you think you won't agree with it. Even if you think it's going to be all horribly wrong.
Because, at the very least, you will better understand how the people you are criticising view the world.
Because, at the very least, you will better understand the language that is used by the people you are criticising.
Because, at the very least, you will better understand what is and is not an idea that is seen as "heterodox" by the people you are criticising.
Because, at the very least, you would make this blog and other blogs better.
(The final straw that lead me to write this post was reading a comment on another blog which said that "loans create deposits" is a heterodox idea. Every first year textbook I can remember reading contains a description of how loans create deposits.)
This is said with the greatest of respect (and I do mean that, because I really do respect the amount of intelligence and effort some of you are putting in). But also with frustration.
Now, a second plea: does anyone know a free online source for any reasonably good and reasonably standard first year textbook? One that covers much the same topics and in much the same way as any of the best-selling first year university textbooks? Because I know you can pick up old editions of paper copies of the best-sellers for next to nothing, but I also know that people are much less likely to do this.
(P.S. Non-economists may be surprised that I haven't said which textbook I would recommend. That's because it doesn't really matter much. They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion.)
Worthwhile Canadian Initiative 
“OK. We need to look inside the firm, and stop treating it like a profit-maximising black box. Let’s do that. When we look inside the box we see people maximising their own desiderata.”
No you don’t.
Because one of the budget constraints you face as a real human being living in the real world is that you must develop your strategy in as small a number of computations as practical while subject to Knightian uncertainty about the future. Which means that there is an ocean of decision-making heuristics that perform better than attempting to compute the constrained optimization solution. Any rational person looking to better his lot in life would immediately discard constrained optimization as a strategy that only works in cutesy textbook examples with separable utility functions and less than five variables.
And that’s even leaving aside the fact that as soon as you start discussing politics, you’re leaving the part of the game which has a unique solution. Indeed which can ever have a unique solution. You can’t formulate a game theory model of Nomic.
– Jake
@luis
“that excerpt you cite from Mas-Colell is not about the existence of downward sloping demand curves. It’s about when we can use the consumer surplus of a representative consumer as a measure of societal welfare. The real point being that in the absence of such redistribution, you can’t reach conclusions about societal welfare based on aggregate consumer surplus because there are distributional questions to think about.”
Well unless I have misread, he considers this a necessary condition for the treatment of individual demand as aggregate demand:
“For it to be correct to treat aggregate demand as we did individual demand…there must be a positive representative consumer. However, although this is a necessary condition for the property of the aggregate demand that we seek, it is not sufficient. We also need to be able to assign welfare significance to this fictional individual’s demand function.”
He continues – I won’t quote at too much length.
“I am only somewhat familiar with your output, but from some examples like this one, and I think I have seen you show evidence of misunderstanding of the money multiplier, partial-equilibrium models to give two more examples, you might perhaps want to take a more humble approach regarding your own grasp of the subject.”
You must substantiate your arguments better than this. I have yet to see evidence that economists actually know what is taught on their own courses. Your comments on mainly macro simply deny my direct quote from a textbook.
@DavidN
“On the contrary every single economic field I know uses ‘marginalism’ because it’s a mathematical concept and in econ we use maths. Any time we represent something with a function and that function is differentiable for at least some parts where it is defined we get ‘marginalism’. This isn’t class warfare, it’s math.”
And criticisms on economics focus on how prices cannot be calculated without first knowing income distribution. You can try to shout me down and gloss over it by using/referencing maths all you like, but you still haven’t engaged it. If case the fields you dismissively reference also use marginalism, they are also vulnerable to the same criticisms.
I also acknowledged that in my recent CCC post the paragraph on partial equilibrium was poorly constructed. I demonstrated a similar argument in the comments more rigorously, so attack that if you wish to show that I ‘do not understand partial equilibrium.’
JakeS,
“Of course, this may be because the countries with universal health care are also the ones where the civil service has been most able to resist neoliberal “reform.””
A curious way to describe Britain.
At the current rate, Britain won’t have universal health care by the time the next election rolls around.
– Jake
JakeS,
No.
@DavidN: Thanks. I’ve read some of McCloskey’s work already; that sounds like just the ticket for now.
@Mike Moffatt: Ditto, thanks. Varian does seem to be another name that crops up a lot.
JakeS, as a Brit I can tell you that is 100% complete bullshit.
(In fact, in Scotland, we haven’t had much change of our health service, which is devolved, since Thatcher.)
Let’s stop spitting bile at each other for a brief interlude. Can somebody recommend me what you consider to be (doesn’t have to be free):
(1) A good introductory textbook
(2) A good intermediate textbook
(3) A good advanced textbook.
UnlearingEcon
I’m not sure, but I’d say
1 & 2 – Mankiw, Pindyck/Rubinfeld, Varian.
3) Mas Collel? But no idea, really.
Nick, As it happens, I followed your advice several years before you gave it. When the financial crisis hit in 2008, I thought it would make more sense to read a macro textbook than economic analyses from journalists. I bought Paul Krugman’s intro macro text (a rather expensive choice), and spent a couple of days reading it. Result? A superficial understanding, and the conviction that, as Krugman himself admits in his blog, “macro is hard”. And as a sign of respect, I would not argue with a real economist like you without a lot more study on my part. My guess is that it would take two or three years of full-time study, minimum, for a smart person to have a chance at contributing to the pure economics of blogs like yours.
However, I believe your suggestion would have a far greater benefit if it were directed at journalists, because as a group they have a big impact on public opinion and policy. Many of them have reported on topics like sovereign debt and austerity measures without seemingly any understanding of the economics. And they must bear some responsibility for the climate of opinion that has allowed bad policy to be adopted without a fight. For example, why didn’t Cameron and Osbourne get a rougher ride from the press when they imposed austerity? Martin Wolf can’t do it all on his own. Somebody should set up a program to donate a macro textbook and weekend course for every journalist in need.
Now let me turn the tables. Economic policies are only put in force by politicians leading political parties voted in by citizens in countries with specific histories and cultures. And these politicians are advised by civil servants and academics employed by local institutions with their own histories and dynamics. For example, the fate of the Euro and its shocks upon the world economy now largely hangs on German politics. How many macro economists have directed some of their time to researching the German political and institutional situation, instead of just considering it a black box that will produce some sort of incomprehensible but decisive output?
Cheers.
Varian’s undergraduate micro book covers (not in order), axioms of revealed preference, the assumptions underpinning marginalist consumer and producer behavior (well-defined, transitive, convex preferences), the Lagrange multiplier method of solving constrained optimization problems, Pareto-efficience and Hicks and Slutsky-compensation. Plus a few more that I don’t remember.
If more than half of the previous paragraph is Greek to you, Varian is worth a read, because it is very well written.
Mankiw’s first-year textbook is, in my experience, eminently skippable. Go straight to a proper macro book like Sørensen and Whitta-Jacobsen, Introducing Advanced Macroeconomics: Growth and Business Cycles. Mankiw does nothing for you that Varian and Sørensen et al don’t do better.
– Jake
Introductory and intermediate kind of overlap. Bernanke was good.
It seems there are maybe two kinds of “advanced” books as well. Romer’s Advanced Macroeconomics was used in undergraduate courses at my college, but shows up as introductory material in graduate macro courses as well. Then there’s Woodford’s Interest and Prices, which is quite a bit more advanced than Romer.
If everyone read Bernanke, then picked up a mathematical methods book (Chiang is good), then read Romer, the blogosphere would be awesome. I wish it were a requirement for everyone who wants to write for the WSJ, NYT and Washington Post.
I look forward to seeing (for free, damn it) what Wray and Mitchell have to offer.
I’ve got textbooks but they deny reality many times over. I have a hard time believing your ones are any better but I guess it’s best to have access to the best of the bunch.
Varian has been recommended a few times. I’ll look into that.
UnlearningEcon:
Deirdre McCloskey, The Applied Theory of Price, it’s free online on author’s website.
Micreconomics: Behavior, Institutions, and Evolution by Samuel Bowles.
Pathetic. Someone comes here saying that, if you want me to take your claim of reading a book seriously, that you need to point to real world examples of your theory in action, just as in other disciplines. Nick Rowe then says that “wow, that’s an interesting point and I’ll have to think about it”. If a longtime neoclassical economist/a brilliant deductive thinker cannot come up with one example off the top of his head, you know there’s something wrong with the discipline. Of course there are no real world examples as every heterodox economist has pointed out, and in fact there are hundreds of example where it has been a complete and utter failure, including this past crisis. Of course neoclassical economics has not been designed to predict crises but to be a cheerleader of the system. Students are taught to be cheerleaders. Long ago people like Marx and Veblen pointed out that as an economist if you’re not trying to find areas where the system will fail (and having theories that lead to it) then you’re simply not conducting science. Nick Rowe is a cheerleader. People like vimothy are cheerleaders. Vimothy, or excuse me, “vimothy”, if you expect us to take your claim seriously that you entered neoclassical economics as a critic and came away a believer, then you are 1)a complete fool or 2)a liar. I happen to think you’re a liar.
unlearningecon: dear lord…please do not follow their recommendations, do-not-read varian
W. Peden:
Note the comments of a Sraffian, Franklin Serrano regarding the accuracy of MMT regarding the euro:
” I am sraffian so I can say this with a lot of detachment. There are a large number of big problems with the Euro and of course a number of different people have written about some of them many years ago. From what I learned from Godley, even Kaldor in the 1970s had already warned that if the UK joined the common currency, Britain risked becoming the “Northern Ireland of Europe” But what really matters is that the EXACT and SPECIFIC form this particular crisis has taken , namely, a banking crisis in a few countries leading to fiscal problems and from there to the euro denominated government debt bond yields getting out of control due exclusively to the uncooperative attitude of the european central bank. This has been said clearly only by MMTers (and in particular Mr. Mosler who mentioned banking problems). Even today only very few other people like John Eatwell and Roberto Frenke, for instance,l understand this.Almost everybody else is confusing some other actual or potential problems of the euro , specially current account and regional imbalances, that are important in themselves but certainly DID NOT cause THIS crisis. The key point in MMTs “victory” is not forecasting per se. It is the fact that the correct understanding of sovereign money is the only way to understand what is going on now. The euro sovereign debt crisis is a total misnomer. Had these countries truly sovereign money and debt this crisis could not have happened. Simple purchasing of government bonds in the secondary market by the national central bank (or even the ECB if it wanted to ) would do the trick (no need to say melodramatic things about “monetisation”).”
Case closed. BTW, what MMT did? It’s called science. I hope one day you get acquainted with it.
DaRkJaws,
You are giving heterodox people a bad name. I know from personal experience that both Vimothy and Nick are generous and intellectually inquisitive.
I know from the many posts I’ve read that both Nick and vimothy are willing to engage in any discussions that have the word “heterodox” in it, for sure. I’ll give them that much credit. But vimothy is certainly not “generous”. Nick is a nice man and generous. But it doesn’t change the fact that he’s a cheerleader for the system, whether he’s a willing or unwilling participant. That’s why neoclassical economics was invented, as a response to Marx. If pointing out the truth hurts then so be it, and I am certainly doing what other heterodox people have stated many times (meaning I’m not giving it/them a bad name)
But it doesn’t change the fact that he’s a cheerleader for the system, whether he’s a willing or unwilling participant.
His interest in monetary disequilibrium puts him really quite far outside the mainstream. It’s a gigantic critique of mainstream macro.
at most it makes him a radical member of the mainstream, and not even the type that critiques it but makes slightly different assumptions using the same models. Members of heterodoxy do not accept the modeling techniques nor the economics itself that the mainstream works on. We state things in completely different terminology, for completely different reasons (for the most part)
DaRkJaws: Your attack on vimothy is well outside the bounds that are customary on this blog. Stop now.
DaRkJaWs, I think vimothy’s story is totally believable. I spoke with this “heterodox” guy, http://scholar.harvard.edu/marglin , and he’s seen it happen all throughout his career.
@wh10,
I think you first start out complaining about unrealistic assumptions, but then when you try to write down a model that describes how you think things should be, you find yourself needing to make all sorts of compromises in order to get anywhere. And I guess you have to decide whether those compromises are worth any insight that you arrive at as a result of making them.
For some people, it’s a no brainer to make those compromises because the insight of an interesting model is worth the compromise in realism. And then, those same voices of criticism that spurred you to try to tackle the problem in the first place become somewhat annoying, or at least redundant, because you’ve considered these things already and are more interested in getting something tractable than in endlessly pointing out flaws. Next thing you know, you look pretty orthodox.
rsj: I rather like that comment.
from what I remember vimothy used to make very harsh criticisms of MMT and heterodoxy in general, that doesn’t sound like someone who converted from heterodoxy to orthodoxy…it’s one thing to protect mainstream economics, and another to attack heterodoxy
Edmund: “His [Nick’s] interest in monetary disequilibrium puts him really quite far outside the mainstream.”
And I don’t have a clue how I can model it. See rsj @9.29
rsj, do the compromises need to be made because no one is smart enough to model the complexity/realism?
DaRkJaWs, I think he just sees his old, ignorant self in lots of commenters, is embarrassed by it, and wants to rectify it in an aggressive way.
rsj: There are ways to simplify the treatment down to the point where it is at least numerically tractable, and can provide some practical insight, without crippling it by forcing it into an equilibrium straitjacket and force-feeding it constrained-optimization agents.
It won’t be analytically tractable. But neither is the weather, and we can still model it. The fascination with analytical tractability – to the extent that you see papers prefacing numerical work with an apology for failing to dumb the model down to the level where it becomes analytically tractable – is not gainful for the profession.
– Jake
rsj, do the compromises need to be made because no one is smart enough to model the complexity/realism?
We can debate whether compromises or basic methodology are wrong, but I think that’s ultimately the problem – both a conceptual problem, a problem of investigating and identifying all the needed elements and relationships, and finally of sheer computing power. Looking into Soviet central planning illustrates the last point.
[link embedded here NR]
Neat part quoted:
Truly intractable optimization problems — of which there are many — are ones where the number of steps needed grow exponentially 2. If linear programming was in this “complexity class”, it would be truly dire news, but it’s not. The complexity of the calculation grows only polynomially with n, so it falls in the class theorists are accustomed to regarding as “tractable”. But the complexity still grows super-linearly, like n3.5. Expanding the problem size by a factor of a thousand takes us not a thousand times as long, but about 30 billion times as long. Where does this leave us?
A good modern commercial linear programming package can handle a problem with 12 or 13 million variables in a few minutes on a desktop machine. Let’s be generous and push this down to 1 second. (Or let’s hope that Moore’s Law rule-of-thumb has six or eight iterations left, and wait a decade.) To handle a problem with 12 or 13 billion variables then would take about 30 billion seconds, or roughly a thousand years.
Naturally, I have a reason for mentioning 12 million variables:
In the USSR at this time [1983] there are 12 million identifiably different products (disaggregated down to specific types of ball-bearings, designs of cloth, size of brown shoes, and so on). There are close to 50,000 industrial establishments, plus, of course, thousands of construction enterprises, transport undertakings, collective and state forms, wholesaling organs and retail outlets.
— Alec Nove, The Economics of Feasible Socialism (p. 36 of the revised [1991] edition; Nove’s italics)
This 12 million figure will conceal variations in quality; and it is not clear to me, even after tracking down Nove’s sources, whether it included the provision of services, which are a necessary part of any economy.
Let’s say it’s just twelve million. Even if the USSR could never have invented a modern computer running a good LP solver, if someone had given it one, couldn’t Gosplan have done its work in a matter of minutes? Maybe an hour, to look at some alternative plans?
No. The difficulty is that there aren’t merely 12 million variables to optimize over, but rather many more. We need to distinguish between a “coat, winter, men’s, part-silk lining, wool worsted tricot, cloth group 29–32” in Smolensk from one in Moscow. If we don’t “index” physical goods by location this way, our plan won’t account for the need for transport properly, and things simply won’t be where they’re needed; Kantorovich said as much under the heading of “the problem of a production complex”. (Goods which can spoil, or are needed at particular occasions and neither earlier nor later, should also be indexed by time; Kantorovich’s “dynamic problem”) A thousand locations would be very conservative, but even that factor would get us into the regime where it would take us a thousand years to work through a single plan. With 12 million kinds of goods and only a thousand locations, to have the plan ready in less than a year would need computers a thousand times faster.
…
I said before that increasing the number of variables by a factor of 1000 increases the time needed by a factor of about 30 billion. To cancel this out would need a computer about 30 billion times faster, which would need about 35 doublings of computing speed, taking, if Moore’s rule-of-thumb continues to hold, another half century. But my factor of 1000 for prices was quite arbitrary; if it’s really more like a million, then we’re talking about increasing the computation by a factor of 1021 (a more-than-astronomical, rather a chemical, increase), which is just under 70 doublings, or just over a century of Moore’s Law.
Edmund, that was really interesting, thanks.
Yep, it is a fascinating piece. I never realised just how massive the computing power needed would be, even compared to the massive power of modern computers.
And remember, they made loads of really extreme simplifying assumptions just to get to that point.
We are trying to model the behaviour of people who are as smart and complicated as we are. PLUS, we are not just trying to model the SUM of individuals’ behaviour, we have to model all the interactions between them as well.
There was some talk in the blogosphere a few months back, about the “n-body problem” in physics. I didn’t understand it all. AFAIK (I may be wrong on this) physics can solve the “2 body problem” (Newtonian mechanics) but has runs into problems for numbers bigger than 2 (is that right????). Economics has the “7 billion body (world’s population) problem”. And the interaction between people is a lot more complicated than the interaction between Newtonian objects.
Let’s get realistic about our ability to (ever) build realistic models.
The best we can realistically hope for is some sort of rough heuristic.
Nick: “physics can solve the “2 body problem” (Newtonian mechanics) but has runs into problems for numbers bigger than 2″
I wouldn’t say that. Here is a list of rigid body physics simulation software toolkits. You may be thinking about the fact that systems with more than two degrees of freedom may have chaotic solutions, meaning that computation/specification errors increase exponentially in time so they’re intrinsically unpredictable in the long run. That’s a different issue from computational tractability. Rigid body simulation is at worst n^3 in the number of degrees of freedom. (Yes, I used to be a physicist).
Edmund,
Strictly speaking, that’s all correct. But if it was true in practice, the capitalist system wouldn’t function either. Yes, I understand that the computation is distributed across the economy, but there is no way that each firm is actually carrying out their bit of that exact computation, somehow computing the correct price of their good as a function of all the other goods in the economy. In reality each firm makes very rough heuristic decisions based on the price of their inputs and those of their competitors. Wash and repeat. So the equivalent aggregate computation is mostly just linear in the number of products. The bottom line of Spufford’s novel, I think you’ll agree if you’ve read it, is that the failure of the soviet system was not one of computation, but rather a failure of politics. Capitalism succeeds to the extent that it aligns incentives with maximum output (the second welfare theorem), not by its ability to distribute computation.
K: I got my info from Wiki here. But I didn’t really understand it.
I think you might have misunderstood Edmund’s point. Whether or not the market economy is actually solving the problem we would want it to solve (The First Theorem of Welfare Economics) is a separate question. Regardless of this, the market economy can be thought of as “trying” to “solve” some “problem”, and that problem is likely to be at least as complicated as the central planner’s problem. (That’s what I thought Edmund was saying anyway. And if Edmund wasn’t saying it, I will.
UE
yes you have misread (misunderstood). The “property of the aggregate demand that we seek” is to do with welfare measures, not the slope of demand curves.
It turns out you have also quote selectively from that textbook on mainly macro, giving the false impression it says the money multiplier M=mB is a causal mechanism whereby increases in B will increase M because m can be treated as a constant. In fact it says that m moves around. Which is correct.
DaRkJaWs,
“That’s why neoclassical economics was invented, as a response to Marx.”
I hear Georgists making the same sort of claim. In both cases, the historical dates don’t match up: even the first volume of Capital was not published until 1867. It’s implausible that Carl Menger, who began the Grundsätze in that same year, could have (a) read the first volume of capital within 1867, (b) fully understood its implications, and (c) seen how marginal utility would demolish Marxism’s credibility (which didn’t yet exist) in the economics profession. Even more problematically, I know of no evidence that Carl Menger read Marx at all in the 1860s (or later?). As for Jevons, he had the basic idea of marginal utility worked out by 1860, so it’s rather unlikely that he was responding to a work published in 1867.
That leaves only the possibility that the neoclassicals were responding to Marx’s pre-Capital output, again implausible: there were more than enough major classical economists to respond to. Which figure would loom larger in Jevons’s mind: a failed German revolutionary or David Ricardo?
(As for the Georgist claim, Henry George did not have his “revelation” about land until 1871, i.e. about the time that the core works of the neoclassical revolution were being published, and Progress and Poverty was not published until 1879.)
The Ricardians and other supporters of pre-Marxian classical economics can make a good case that neoclassical economics was a response to them. Marxists and Georgists cannot. Of course, this doesn’t affect the truthfulness of any of these schools of economics, and regardless I find Marxism much more plausible than Ricardianism or Georgism.
Incidentally, you are a perfect example of how the idea of “honest disagreement between intelligent people about complex systems” is actually a radical idea. I’d say that’s the most important fact about science, though I don’t have to assume that you’re unfamiliar with science or an idiot or a charlatan in order to think that you haven’t grasped this fact, because the scientific mindset is also complex.
I find it interesting that no one has considered that the answer might actually be “no”. Which it almost certainly is.
Perhaps, but it’s prominence today clearly is a tool of class warfare.
Luis:
I really don’t see it from my reading, but to be honest it doesn’t matter. The fact is that he still assumes a benevolent dictator redistributes resources prior to trade.
And no, I didn’t quote selectively. Endogenous theory doesn’t simply say ‘the money multiplier is not stable.’ It rejects it completely. Please get more clued up about MY position before you start accusing me of dishonesty.
Mandos,
“Perhaps, but it’s prominence today clearly is a tool of class warfare.”
I don’t know what the function of the word ‘clearly’ is in this sentence.
“The fact is that he still assumes a benevolent dictator redistributes resources prior to trade.”
NO HE DOESN’T, HE SAYS THAT IF YOU WANT TO USE AGGREGATE CONSUMER SURPLUS AS A MEASURE OF SOCIETAL WELFARE YOU NEED TO ASSUME THAT.
anybody who wasn’t solely intent on rubbishing economics would realise this is an economist pointing out that you cannot use aggregate consumer surplus as a measure of welfare unless you make an unrealistic assumption, thereby warning economics students not think aggregate consumer surplus can be straightforwardly used to measure welfare, because doing so ignores distributional questions (that would only not matter in the presence of a benevolent dictator redistributes resources prior to trade).
You might also want to acknowledge your error in the original list of dumb things economists do, and ask yourself what else you have misunderstood.
“Endogenous theory doesn’t simply say ‘the money multiplier is not stable.’ It rejects it completely”
Right. You “reject” M=mB when m is a free parameter. M/B=”NaN”.
Edmund: (a) Reducing the constrained optimization problem to a linear programming requires so many assumptions about the shape of the utility function that you might as well just throw away the utility function and go straight to behavioral heuristics. Which have the commendable property of being directly observable.
In fact, you might as well throw out the utility function anyway, because it’s pure Jesuit reasoning: The only two things utility functions do for you are to let you pretend that you don’t need to study the real behavior of real people (because the whole narrow class of utility functions which are mathematically tractable give roughly the same results), and obfuscate the normative decisions about whose desires are more important for society to pursue (by, effectively, imposing the implicit assumption that it is as great a problem for society when a rich man is yachtless as when a poor man is breadless).
You get a much richer model, as well as one more grounded in the reality of things, by dispensing with optimization and replacing it with behavioral heuristics. At no loss of computational power. (But at great cost in survey effort and econometrician-hours to actually observe and codify the common behavioral responses to stimuli.)
(b) Expecting Moore’s law to hold for another century is just silly. We’re already beginning to see transistor and integrated circuit miniaturization exit the exponential regime. We don’t have quite enough data to fit a logistic growth curve to it with any confidence yet, but we can say with great confidence that from here on out growth will not be exponential, unless there is a breakthrough comparable to going from radio tubes to transistors. And as someone who has dabbled in the underlying physics of optical and quantum computers, I can assure you that the answer to that question is “no.”
(For that matter, thirty more orders of magnitude is just silly – it would give you a transistor you could fit between the second and third electron orbital of the hydrogen atom.)
Rowe: The three-body problem (and, by induction, the n-body problem) is an excellent example of a problem which one can prove has no analytical solution, but which is none the less sufficiently computationally tractable that we can do a flyby of the moons of Saturn with an unguided probe. And sufficiently tractable using complexity theory that we can determine which orbital paths are stable on a 15 bn. yr time scale. Unsurprisingly, they’re the ones the observed planets (counting the trans-Martian asteroid belt as a planet) are in. More surprisingly, there are no other metastable orbital paths on that time scale. So we can say with great confidence that you cannot squeeze in an extra planet or two inside the orbit of Neptune.
But actually warfare is probably a better example: You can never have “mathematical battle planning,” because you can’t make a formal model of the enemy (at least not without an true human-equivalent AI) that the enemy cannot exploit if he gets hold of it (which he will). That doesn’t mean you can’t study warfare or that the general who has studied warfare more diligently will not have an advantage over the equally intelligent general who has not.
Similarly, the central banker who has studied economics should have an easier time taking a sledgehammer to the knees of hostile currency speculators than an untrained intern fresh out of high school. The fact that central bankers lack either the conceptual tools or the political will to even imagine kneecapping hostile currency speculators indicates a severe failing in the economics profession.
Peden: Menger was a third-rate crackpot (sorry, eccentric – he was rich) living in a third-rate backwater ex-empire. That he came up with marginalism some years before the blowback against robber baron capitalism began in earnest does not mean that the… enthusiasm with which such ideas were promulgated in the following years was not a response to that blowback. You had trade unionists before Marx as well, but it would be silly to claim that the trade union movement was not a response to Marx (or rather, to Engels, who did most of the propaganda legwork).
Of course this only torpedoes your argument against neoclassical economics being a political front for the opposition to reform of early industrial capitalism. It would require a serious historical study (which I do not presume to undertake) to actually settle the question one way or another.
– Jake
UnlearningEcon:
Have you actually gone through and read MWG or are you quoting from someone else who has (presumably Steve Keen)?
“Right. You “reject” M=mB when m is a free parameter. M/B=”NaN”.”
M/B = M/B. No more, no less.
It’s simply not an interesting ratio. At all. Ever. Defining the “money multiplier” is as useless as defining the variable “centimeter of rain in Scotland divided by the number of sheep in Transnistria and calling it the “hydro-wool multiplier.” Sure, nothing in the algebra prevents you from doing it, but that doesn’t mean it has any place in rational theory.
So there’s no reason to give it a name or a symbol, because it shouldn’t show up in any equation anywhere else, outside a few very specialized econometric reports. If you are seeing the “money multiplier” in an equation, and you’re not reading a BIS report on the statistical properties of monetary aggregates, then it’s odds-on that the author has bought a ticket to the loanable funds crazy train. So there is certainly no call for writing about it in any but the most recondite of textbooks.
This has been another edition of Occam’s Razor: Economics edition.
– Jake
Jake,
yep it was a cheap crack. The point is that you can still understand how M/B depends on things like the reserve ratio, which is one of the components in m, and that is interesting and informative. For example it explains why large recent increases in B have not lead to large increase in M, because reserve ratios have increased. That’s true and interesting. The textbook money multiplier really just treats reserve ratios, cash-in-hand etc. as exogenous, although there might be some discussion of why they might vary. If you wish to construct a theory of endogenous money, you are just endogenising B and m, you are not doing away with the money multiplier.
interesting and informative? I need an editor.