Fertile Ground

A politico trained in agronomy
Was convinced he could grow the economy:
"To start with manure
'S the best way for sure,
So bullsh*t's incumbent upon-a me."

If there's one phrase that unites Washington these days, it's "to grow the economy."  Passions may boil over whether it's better to direct such growth from "the middle out" or "from the top down;" whether "the job creators" or "America's working families" comprise the more fertile soil in which to germinate the economy's roots; but there is no doubt as to the choice of metaphor.  In the newly redesigned New Republic's Jargonist column, Noreen Malone finds that "growing the economy" is a relative neologism in our old republic, first popularized by Bill Clinton in 1992.  Prior to that, the preferred metaphor imagined the economy as "an engine," on the basis of which the partisans could dispute how many cylinders it had, or whether it was firing on all of them.  Perhaps it is time to bring back Adam Smith's "invisible hand," although, in our hypersexualized era, we may not yet be ready for its inappropriate touch.

Economics and Ideology

As opposed to the world's great religions,
Economics is free from divisions
(Except for the few
Applicable to
The really important decisions).

Economists from around the country and the world converged on San Diego this past weekend for the American Economics Association annual meeting.  Among them was Paul Krugman, who would take part in a panel discussion of "What Do Economists Think About Major Public Policy Issues?"  The discussion centered on a paper by UC San Diego economists Roger Gordon and Gordon Dahl, which subjected the question of "Professional Consensus or Point-Counterpoint" among their peers to statistical analysis.  Gordon and Dahl concluded that professional consensus does indeed exist, and that much of the disagreement is not ideologically driven. As preparation for his part in the discussion, Prof. Krugman published a New York Times blog post in which he concluded that, while consensus may generally reign in the Dismal Science, a statistical approach may overlook the at-times virulently ideological disputes that arise in the biggest and most consequential matters.  These include questions such as whether "the benefits of the American Recovery & Reinvestment Act exceeded its costs."  (I.e., was the stimulus worth it?)

The panel also included the University of Michigan's Justin Wolfers, who offered a milder interpretation.  Although Prof. Wolfers' analysis also showed an ideological basis for economists' opinions on the stimulus bill, he nevertheless could not conclude that, on the whole, responses to a broad range of policy questions are statistically correlated to ideology.  May there yet be hope for rationally based policy?

No More Fed Action?

"The economy's growing respectably,"
Said economists surveyed collectively,
"So a Fed funds regime
At a low-rate extreme
Is an outlook we look upon skeptic'ly."

The Wall Street Journal has reported the results of its latest survey of US economists, and, while not especially pretty, they do not paint an ugly picture either. Writes the Journal's Phil Izzo, "More economists are convinced the Federal Reserve won't take further action to spur growth this year, as the economy appears to be on firmer footing." The "respectable" 2.2% first quarter growth rate is forecast to bump up to an annual 2.7% GDP increase by year end. As a result, 36 of the 51 economists surveyed expect the Fed to refrain from any additional large-scale bond-buying. Interest rates? The consensus is that they've gone about as low as they can go, and the mean forecast for the June 2014 Fed funds rate is 1%. Come to think of it, that is a rather mean forecast, but it's better than nothing.

A Myopic Perspective

Said a critically ill PhD
To his young, volunteer EMT:
"Your work, while essential,
Is only tangential
To raising the raw GDP."

Dr. Goose attended the annual Glen Ridge, New Jersey Volunteer Ambulance Squad Recognition Dinner and was impressed once again by the spirit of those who give their time, literally freely, for the well-being of others. Afterwards, he reflected on the value of volunteer work and how it is generally ignored in economics. Certainly, if one googles the "economics of volunteering," one finds some earnest attempts at bringing the third sector (after commercial and government activity) into the fold. However, volunteer work is not figured into national economic output, nor are those willing souls tallied like the ranks of the jobless and the gainfully employed. Perhaps the primary motivations for volunteers - a sense of personal achievement, giving back to society, learning a skill, or finding camaraderie - are just too hard to measure, though we know we could not survive without their selfless service.

Conflict of Interest

Said an econ professor named Booth,
While instructing America's youth:
"The Original Sin
Of the business I'm in
Is to advocate, heedless of truth."

Members of the American Economics Association took a big step forward this past weekend at their annual meeting in Chicago, when they voted to adopt a code of ethics to address conflicts of interest. The 2010 Academy Award-winning documentary film "Inside Job" shone a harsh light on the ties of well-known economists to companies that later went bust in the financial crisis. Director Charles Ferguson charged that social scientists' lucrative and undisclosed ties to corporate interests caused them first to miss the signs of the impending crisis, and then to recommend policies that benefited their clients at the expense of the broader economy. Inside the AEA, professors such as the University of Illinois' Deirdre McCloskey echoed and amplified that view: "The master sin, in American economics especially, is advocacy without regard for the truth," she said to fellow delegates.

The new code of ethics is a first corrective step, limited to disclosure of potential conflicts of interest. AEA members will now have to disclose all sources of financing for their research and all "significant" financial relationships with groups or individuals with a "financial, ideological or political stake" therein.

Walking out of Econ 10

Said Harvardian students of Mankiw:
"Shall we occupy seats here? No thank you!
We simply despise
Inequality's rise,
Among whose enablers we rank you."

The professor replied in an entry:
"You need learning that's more supplement'ry
Before jousting the rich
With your knowledge base, which,
Like my lectures, is quite element'ry."

One of the recent highlights of the Occupy movement was the walkout last month of some of the Harvard freshmen in Professor Greg Mankiw's Economics 10 introductory class. The students asserted that "the biased nature of Ec10 contributes to and symbolizes the increasing economic inequality in America." Though the story has faded from the front pages, the Professor is continually asked about it, and gave his thoughts in a New York Times op-ed piece on Sunday. While acknowledging that claims of inherent conservative bias in the economics field are not new, Prof. Mankiw prefers to cite Keynes' view that

The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.

And the Nobel Goes To...

The committee bestowed some respect
On the science of cause and effect
With a new Nobel prize
For a couple of guys
Who proved that it's hard to project.

The 2011 Sveriges Riksbank Economics Prize in Memory of Alfred Nobel has been awarded to two Americans who have done pioneering work on the effects of government policy on the macroeconomy. Thomas Sargent of NYU and Christopher Sims of Princeton (pictured right above and below respectively), who were classmates at Harvard and now teach a course together at Princeton, have worked mostly separately and often disagree; the Nobel committee felt that their different approaches were complementary. Mr. Sargent developed complex models to predict the behavior of the economy, while Mr. Sims is skeptical of such models and has focused on direct analysis of economic data.

Harvard Nobel Prize in Economics Prediction Pool

A man of conviction who needs
To declare which economist leads
May wager a bet
On the one who will get
That prize given out by the Swedes.

Nobel Prize season is upon us: on Monday, October 10, the winner(s) of the 2011 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel will be announced in Stockholm. That means that once again it's time for the Nobel Prize in Economics Pool, sponsored by Harvard University. The self-described "world's most accurate prediction market" invites economists far and wide to wager a dollar on the name of each predicted winner. Although practitioners of the Dismal Science failed to predict last year's winners, Thomson Reuters has stepped in with a handy handicapping sheet. Don't delay - entries must be received in Cambridge MA before 11:59 PM this Sunday night!

It's Your Turn

Said Bernanke, recounting the facts,
While deflecting some Red-State attacks:
"The Fed did our part;
It's on Congress to start
To simplify filing one's tax."

Fed Chairman Ben Bernanke addressed the Congressional Joint Economic Committee on Tuesday, and told them that they and their colleagues must work together with the White House to renew the "close to faltering" American economy. His suggested Congressional to-do list includes finding a permanent solution for Fannie Mae and Freddie Mac; easing mortgage refinancing while enabling banks to rent out foreclosed properties; and simplifying the US tax code. At the same time, he dismissed the ever-more-frequently heard Republican criticism that, by keeping interest rates low, the Fed is enabling federal budget deficits. "I don't think that's a valid point," retorted the Chairman.

The Ten Principles of Economics, in Limericks

Just in time for returning econ students, Dr. Goose has rendered the Ten Principles of Economics by Harvard Prof. Greg Mankiw (pictured) into a collection of ribald limericks.  Please click through, enjoy and study hard!

Fightin' Words

A woman who loved a good fight
Would demand, as she argued all night,
Philosophical heft
From those on the left
And empirical proof from the right.

A recent walk through the economic blogosphere left the impression that liberals (of the progressive variety, as in this randomly selected post by Paul Krugman) like to base their arguments on data, history and "whatever works;" while conservatives (particularly of the supply side or libertarian variety) seem to prefer philosophy, game theory, analogies or even the US constitution - anything but empirical studies.

Analogies Économiques II: Economy = Balloon

It's distended when something constricts it,
Once inflated, will burst if one pricks it;
Whether flaccid or rounded,
When broke, it's confounded
The efforts of experts to fix it.  

Pooled Wisdom

The Harvardian Nobel Prize Pool
Lets you bet which economists rule;
So the ken of the crowd
Will predict the endowed
Of which think tank or graduate school.

Econ 101

A shift in demand quite suffices,
With a given supply, to raise prices;
This idea, though descriptive,
May not be prescriptive,
To guide one to virtues from vices.   


Thanks to James Kwak for provoking a passionate debate on the ethics and economics of scarce resources in his blog, The Baseline Scenario.

Mr. Hoenig's FOMC Dissent

"I've said at each meeting I've been to,
We should hike rates to one point and then two;
If recession resumes
Now there's no wiggle room
In this corner you've painted us into."

Harvard, Econ 10, Opening Day

To his freshmen said Gregory Mankiw,
"For your curious minds I should thankiw,
But take care when you speak
Not to give any cheek,
And never forget I outrankiw."

Mortgage Defaults, Then & Now

The first wave of mortgage foreclosures
Was related to ARM-loan exposures,
But more so of late
The relevant rate
Is the instance of factory closures.

Thanks to Nick Timiraos for his analysis of mortgage delinquencies and foreclosures in The Wall Street Journal.

Existing Home Sales Report

Though recov'ry was said to depend on
The sales of old homes that banks lend on,
They collapsed in a rout
When the tax break ran out,
And revealed an Achilleus tendon.

The Big Dipper

Said a well-economically-versed one,
"I see bubbles and I've got to burst one:
The one way we'll skip
The next double dip
Is we never got over the first one."

With apologies to David Rosenberg of Gluskin Sheff  as seen in The Big Interview with Kelly Evans of the Wall Street Journal.

He's an Optimist

The economist Kotlikoff fretted:
"We don't realize how much we're indebted.
When you add FICA, then
It's doubled again;
Is America solvent? Forget it!"