Stephen Williamson — Quote of the Day

“I tend not to think about the problem of people forecasting in different ways, as things are hard enough already and I want to focus on other things.”

Stephen Williamson 

The Biggest Crock in All of Economics

This is the damage which Robert Lucas has done to macroeconomics:

Let’s deal with some of Mark’s specific complaints about what he thinks practicing macroeconomists have been up to:

Macroeconomic models have not fared well in recent years – the models didn’t predict the financial crisis…

I’m so sick of hearing that one I could scream. The economic agents living in a model in which a financial crisis can occur know that there is a possibility that this event can happen. But they cannot predict it, otherwise there would be an unexploited profit opportunity. Similarly, a real human being could not have used such a model to predict the financial crisis.

This is _the_ great fallacy introduced into economics by Robert Lucas (whether he still embraces it or not). The fallacy is so massive and significant that it arguably wipes out the significance of any other contribution Lucas might have made to economic science.

One of the properties of false price signals in an essentially complex network of millions of systematically related relative prices across time it that these false prices have the capacity to fool and mislead people systematically and structurally in an manner that isn’t immediately revealed, but can make itself felt — and unavoidably so — after the passage of an economically significant length of time.

What Stephen Williamson is giving us is excuse making for a research program (whatever other achievements it may claim) which has utterly failed at the one task that is non-optional: as a causal / explanatory enterprise.

More later.

UPDATE: Even more perversely, Stephen Williamson claims there is “no evidence” for “market failure” during a recession or depression.

Paul Krugman has written a post that encapsulates his thinking on macroeconomics – how he thinks other people do it, and how he thinks it should be done. His post is a comment on Barro’s WSJ article that I discussed here. Let’s take this apart. First paragraph:

As Glasner says, there’s something deeply weird about asking “where’s the market failure?” in the face of massive unemployment, huge unused capacity, an economy producing less than it did three and a half years ago despite population growth and advancing technology. Of course there’s some kind of market failure, which means that there’s nothing at all odd about asserting that better policy can yield free lunches.

We cannot observe a market failure. To deduce that a market failure exists, one needs a model. Given that we cannot observe market failure by looking at the state of the economy, we also can’t say what a “better policy” is. Again, for that we need a model.

We cannot observe a market failure? Take a drive, Stephen, outside of Bakersfield, CA or South of Olympia, WA or on the road to Joseph, OR or south of Corvallis, OR, and what you will see is mile after mile after mile of mothballed lumber hauling rail cars, given non-economic status by the artificial boom and inevitable bust of the 2002-2011 period. Or watch the nearly completely houses bulldozed in Victorville, CA in the wake of the housing boom & bust. And banks are still bulldozing homes all across the country.

But attempting to get Williamson to admit there are “market failures” in our midst is much like getting a philosopher teaching Descartes to admit there really is a white board in the room. Both are entranced by a perverse philosophical picture of “knowledge” and neither one of them wish to talk sense.

UPDATE: More than twenty-five percent of construction workers in America are unemployed in the post-boom phase, and construction unemployment by region systematically tracks the geography of the housing & commercial construction boom. You can see systematic patterns in the data — or you can get in a car and go look at the neighborhoods with “house for sale” signs everywhere, or you can get out of our car and go to the neighborhoods with huge numbers of unemployed construction workers and you can shake their hand and talk to them about it. All phenomena just as real as the philosophy professor’s white board …

UPDATE:  The pathology of Stephen Williamson in a nutshell:  “I tend not to think about the problem of people forecasting in different ways, as things are hard enough already and I want to focus on other things.”

Bill Wittle Presents Hayek’s Knowledge Problem & The Case for A Free Society

George Selgin — Extended Hayek vs Keynes Remarks

Read them here.  Stream the Hayek vs Keynes debate broadcast via BBCRadio4. Quotable:

I especially regret not having been called upon to answer Duncan Weldon’s claim that Hayekians are like dentists who have nothing to offer someone who is suffering from a rotten tooth. I might then have been tempted to point out, first of all, that it was pretty cheeky for a British proponent of greater government intervention to be bringing up dentistry. But what I really wanted to observe was that it is the Hayekians who, after all, are all for pulling an economy’s “rotten teeth” not only to eventually stop the pain but also to keep them from stinking it up, whereas it’s the Keynesians who say, in effect, “Oh, don’t worry about that tooth…just have some more candyand everything will be all better.”

I wish as well that I’d had more time to address Lord Skidelsky’s suggestion that one had to be far gone to believe that FDR’s New Deal actually delayed U.S. recovery from the Great Depression. He evidently is unaware of the very substantial body of research pointing to the harm done by certain New Deal programs, and especially by the National Recovery Administration, none of which by the way is due to crazy Hayekians. Indeed, some is by scholars generally considered sympathetic to Keynesian ideas.

Finally, neither Jamie nor I managed to make as much hay as we ought to have out of Skidelsky’s assertion that government spending of whatever kind is as good as any other sort for promoting long-run economic growth. Here surely was a chance, had we only the time, to draw attention to the rotten heart of Keynesian economics. For Skidelsky’s argument–that workers will supply factories with orders for things no matter who pays them–illustrates in all its naked crudity the dangers of ignoring the “supply side” of economic activity. After all, it isn’t just what workers would like to have in exchange for their paychecks that determines what they can have. On the contrary: what they can have depends crucially on what they themselves actually produce in exchange for the payments they receive. An army of government workers employed digging and refilling ditches, for instance (and the sweeping nature of Skidelsky’s assertion warrants the reductio) contributes absolutely nothing to either its own or others’ ability to consume, let alone to the maintenance or augmentation of the stock of productive capital.


Broadcasting Today — Hayek vs Keynes Debate on BBCRadio4

The Hayek vs Keynes L.S.E./BBC debate featuring George Selgin & Robert Skidelsky will be broadcast today at 3 p.m. Eastern, 12 noon Pacific, and at 8 p.m. in Britain — go here and click on the “Listen” button for the broadcast to listen live, or download here later after the broadcast has appeared.

The BBC Debate: Selgin on Hayek, Skidelsky on Keynes

George Selgin’s case for Hayek & Robert Skidelsky’s case for Keynes — from last week’s L.S.E. / BBCRadio4 debate.

LSE Hayek vs Keynes Debate: Selgin & Whyte vs Skidelsky & Weldon

The LSE and BBC Radio 4 are hosting a Hayek vs Keynes public debate, Tuesday July 26, 6:30 – 8 pm at the Old Theatre, Old Building, the London School of Economics featuring George Selgin, Robert Skidelsky, Duncan Weldon & Jamie Whyte, with BBC Radio host Paul Mason in the chair.

The debate will be broadcast twice on BBC Radio 4:  Wed. Aug. 3 at 8 pm & Sat. Aug. 6 at 10:15 pm.

More details on the debate and the debaters here.

Created Value Poured In, Destroyed Value Drained Out

Hayek vs Keynes Debate at the L.S.E.

Jamie Whyte has been tapped represent the ideas of F. A. Hayek in a debate with famed Keynes scholar Robert Skidelsky, advancing the economics and political agenda of Mr. Keynes. The debate will be moderated by leftist Paul Mason of the leftist BBC.

Nearing 1,000,000 YouTube views: Hayek vs Keynes “The Fight of the Century”

David Glasner is blogging

David Glasner — an excellent monetary economist — has launched a new blog. Please check out the Uneasy Money blog.

Brian Lamb Interviews Russ Roberts & John Papola on the Hayek vs Keynes “Fight of the Century” Rap Video

This is just excellent:

Follow FriedrichHayek on Twitter

Random Quote

Much of my research work since the 1950s has been focused on issued in welfare economics viewed from an informational perspective. The ideas of Hayek (whose classes at the London School of Economics I attended) have played a major role in influencing my thinking. — Leonid Hurwicz

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