(I posted this on some of the other commentaries..)

Here is an idea that might be interesting to consider;

Money is not a commodity. It is a public utility. As a medium of exchange and government obligation, it has far more in common with the public highway system, then as private property. We like to think of our bank acounts as personal property, but they are not a safe deposit box. That money is only in our possession when we need it, much like the section of road we are driving on is only ours as we need it. Everyone decries government debt, but it is an essential part of the overall investment pool. The same with Social Security. Where would that money be invested otherwise? The stock markets, real estate, etc. are flooded with liquidity already. If this surplus wealth wasn't being recycled through the public sector and back into the economy, it would be a much smaller economy.
If we understand money as a form of public utility, then wealth becomes as much a responsibility to the larger economy as it is a right to direct that economy. If money is simply one more commodity to be traded, then there is little obligation beyond the Darwinian imperative to maximize one's position.
When we tie it to a particular commodity, whether how much gold is in the treasury, or how much is needed to run the oil markets, then we give those who control that commodity undue influence over the rest of the economy. Those with the gold, rule. With the power this gives oil interests, energy conservation is unlikely, if not politically impossible.

This is an essay I wrote on the topic;
http://www.exterminatingangel.com/index.php?option=com_content&task=view&id=203&Itemid=118

I have a pretty sincere, though possibly lazy and over-broad, question to ask of smart economists. I learned from Prof. Krugman's 1994 book "Peddling Prosperity", (I'm paraphrasing) "There are two really great questions in economics:
1) Why are rich countries rich and why are poor countries poor?
2) Why is there a business cycle, and what is the appropriate policy response to it?"

So my question is, what do economists know about these two questions, and what don't they know? If the economics science keeps progressing, when will we have really good answers to these questions?

One reason I ask is that I have a fair amount of undergrad econ education, and while I think I have a reasonable grasp of question #2 (business cycles), I really am quite confused and have no clear idea of how to think about question #1 (wealth & poverty, & the appropriate pro-wealth, anti-poverty policies)

If these questions were over-broad, here are 2 more specific ones:

Whatever you think of Michael Moore's other work
or ideas, "Roger & Me" is a very funny, moving documentary of the economic pain the people of Flint, Michigan went through after GM moved its Flint plants to Mexico.

For me, the most interesting part of the movie was watching Flint's politicians try to get the city's economy moving again. Their attempted, and disastrous, solution was to attract tourist dollars (A common response of local officials everywhere, I think).

Then they more or less gave up, content with
attracting celebrities to give pep talks (Ronald Reagan's (not bad) advice: "Move to the Sun Belt, where jobs are plentiful")

So here is the question: What should Flint have done after losing so much of its economic base? And what branch of economics do questions like this fall under?

I've asked the Flint question to 2 economists. The first was Gavin Wright, an economic historian from Stanford, and Wright's reply was along the lines of "That's more a question for an MBA rather than an economist.

Basically, the City Fathers have to get together and ask: What Are we good at? What can we do?"

When I suggested that the City Fathers of Flint could have used some help, he smiled ruefully and said "Yes, well, good public officials are always a useful thing to have"

The second economist (via email) was Prof. Krugman, and his reply:

"The field is urban economics / economic geography. I've done a fair bit of work in it myself.

But Flint is a hard case - it's not a place you would really want to locate another industry. New York is different, and there have been a number of good studies of what it's good for.

See Michael Porter's books - and mine. Also the classic by Hoover and Vernon."

The second more specific question I have is I've heard Prof. Krugman getting asked a question along the lines "everything is getting outsourced these days. What would be a good field for a young person to get into?" and I was somewhat surprised to note that Krugman took a pass on the question.

Probably Krugman was right not to give over-specific advice to a specific person without knowing their situation, but what do economists, in general, have to say about the question "So what's a good field for a young person to get into, these days?"

what Tyler (and Dustin) misses completely is that, in a social science, you can't ever make these kind of absolute worthy/not worthy judgements on work. In a natural science you (often) have real replicable experiments that can disprove hypotheses and so you can eventually show that a non-mainstream theory fits the data better. Economists don't have real experiments so we need to be much more modest and less-judgemental of the work. Entrance to the elites of the profession shouldn't be judged by these incredibly narrow methodological grounds that are used but by whether the work is provocative and logical with a real eye towards trying to avoid having your own biases affect the judgement. Instead economics allows unscientific biases full reign by relying on narrow methodologies where articles can be rejected for mystical reasons. Also, becuase you can only find out about the latest econometric or modelling fashions by spending a lot of time at seminars at one of a few schools, the methodology bias is a very effective way of screening out any opinions you don't want to be heard.

the fact that Dean Baker and James Galbraith aren't part of the high level conversation in their economics fields is proof of the narrowness of the economic mafia.

"Having said that, I'm gonna say this. Milton Friedman was a wacko. He, the Chicago school, the Laffer curve, the Nobel committee,and creation scientists are just about equivalent in my opinion."

This is just simple name calling. If you do not like a person's views, call him bad names.

What, SPECIFIALLY, do you think that Friedman got wrong?

My own view is that Friedman got some important things right, such as, for example, that there is no trade-off between unemployment and inflation in the long run, and some things wrong, such as, for example, that the velocity of money is a stable and predictable function of a few variables.

"Since mainstream journals have never published any empirical work that runs contrary to neoclassical theory, ever, why would they start now, when they know the implications of such work."

Perhaps because one of the editors believes that Economics should really practice science, rather than just give lip service to it?

2. "Everyone decries government debt, but it is an essential part of the overall investment pool."

Government debt is a stock aggregate, the investment pool (the supply of loanable funds) is a flow. In the long run, to the extent that government borrows, this reduces the supply of loanable funds to the private sector. (However, in the short run, if economy is in a recession, this need not be the case.)

4."If this surplus wealth wasn't being recycled through the public sector and back into the economy, it would be a much smaller economy."

Where is your proof?

1. The part of the money supply consisting of Currency, which constitutes more than hald of the M1 money aggregate is clearly in the posession of the people who own it. It is in their wallets, their cookie jar, under their matresses, etc.

And the highways are in the possession of the people driving on them. I case you haven't noticed, the public consists of people.

2. "Everyone decries government debt, but it is an essential part of the overall investment pool."

Government debt is a stock aggregate, the investment pool (the supply of loanable funds) is a flow. In the long run, to the extent that government borrows, this reduces the supply of loanable funds to the private sector. (However, in the short run, if economy is in a recession, this need not be the case.)

I'm not the only mentioning the liquidity bubble in the economy. The same relation to interest rates relative to rising prices which created the housing bubble is doing the same to all asset classes. It's inflation, not increasing value. If the money the government borrowed also went into the markets, it would be more inflation, not more growth. In fact, there are a lot of companies who make a lot of their money off government contracts, from highways, military, etc. So if there was not government deficit spending, this sector would be reduced and the economy would shrink!

3. "The same with Social Security. Where would that money be invested otherwise?"

The surpluses of the Social Security Trust Fund could be invested in Corporate Bonds, Corporate Stocks, and even foreign securities.

Same point. When the money supply grows faster then the economy can absorb it, it's not productive, it's only inflationary. Globalization keeps wages and consumer prices in check, so the extra money is creating asset inflation.

4."If this surplus wealth wasn't being recycled through the public sector and back into the economy, it would be a much smaller economy."

Where is your proof?

Can you respond to my previous points and prove it wouldn't be?

Um, I think the classification of DeLong, etc. was sarcasm.

sPh

I see it repeatedly asserted that if economics were a "real" science things like this wouldn't happen. I am highly skeptical. I've seen it happen in linguistics (another fake science) and quasi-scientific school admissions processes. Some panel is presented with an individual or the individual's work. The panel has a conflict of interest: saying yea will decrease or increase their power/status/prestige/wealth or that of those dear to them. They have a menu of rationalizations for saying yea or nay. Corruption isn't their only motivation, but they are corruptible and also fully capable of convincing themselves of the rightness of their rationalizations. Those empowered by the panel are motivated to defend the rightness of its decisions. Those disempowered never get a hearing.

I am skeptical that the the more easy replication of results prevents this in the hard sciences. The panel can't put off the inevitable, but they can procrastinate and indulge their vices. If anything, I expect one can more easily get a hearing in the hard sciences simply because they are better funded so the conferences and journals are more numerous or bigger.

RE
>Economists are hired to help capitalist firms make more money and any group which works against these interests...

The above claim is not helpful and it certain is not literally true. Almost all academic economists I know, which includes mostly mainstream economists, are good people who want to make the world better for the common person. They ache at poverty and unfair treatment of people. They dispise racism and sexism.

Deep inside, mainstream economists and heterodox economists are not all that different. (To be honest, some mainstream economists I trust more than some heterodox economists, but that's annother story!)

The difference is that the mainstream economists have become trapped by this sticky substance called mainstream economics and they have been trained to believe that it is a "science."

It is probably not polite to point it out, but given the anger displayed by James Galbraith and others at the refereeing process and at being shut out from top journals, I feel the need to offer the observation that the vast majority of the work in heterodox economics is of truly miserable quality.

What do I mean by that? I am a behavioral-ish economist and referee several times each year for the AER, JPE and QJE. Once or twice in a year I receive papers for review that are truly heterodox, and so far every single one of them was really bad -- logically flawed, non-identified econometrics (without realizing that to be the case), ignorance of the existing literature, ignorance of the available evidence, and so on.

My own work combines elements from neoclassical economics with elements from psychology and sociology. I am perfectly open to enriching economics with all kinds of new ideas, but I have a strong aversion against bad research. Since I don't want to be rude in my referee reports and hence don't like to write "you have no idea how to do empirical research, so please stop doing it", I often make a few substantive points and then end up saying something to the effect that "this paper goes against current trends in empirical economics" and recommend it for rejection. I am fully aware that this probably re-enforces the heterodox economist’s conviction that s/he is the victim of the bloody mainstream’s conspiracy to ignore the brilliance of his / her work, as so beautifully expressed by Galbraith below.

Since James Galbraith likes to paint mainstream economics with a very broad and pretty offensive brush, let me apply the same brush to heterodox economics, where I believe it represents a closer approximation to the truth: Most heterodox economists are simply not good enough at what they are doing to break into the mainstream. Those that are good enough get absorbed into the ever-changing mainstream and end up re-defining what the mainstream is. The heterodox economists that remain outside the mainstream convince themselves that they are way smarter than all those fools working at Harvard / MIT / Chicago / Princeton / Yale / Stanford and without any doubt the victims of a conspiracy to silence them. Reality is that most of their work is either simply wrong or badly done or both.

Why not mortgages for first time and/or low income home buyers and student loans? 

Would we not be better off directly helping the younger generation help us in retirement rather than hoping an investment in corporate debt will some how trickle down to them via wages and back to us through payroll taxes?

Why are you posting anonymously?

If you aren't willing to back up your assertions with your name, why should they or you be taken seriously?

Max,

I sincerely doubt that you would take me more or less serious if you knew my name. It is the internet, so you can savely assume that I am a dog.

In general, the first question, "Why are rich countries rich and why are poor countries poor?", is covered by development economics. The answer has a lot to do with education, and the related issue of health care and life expectancy (collectively called "human capital"), which help with worker productivity. Other factors are the availability of physical capital (think computers, trains, etc.), efficiency of government policies, and (dare I say it) social customs.

This is entirely wrong. With very few exceptions, the countries that are rich today have had strong governments with strong and smart economic development plans. Part of this has always included 'infant industries' approaches, where high-value-added industries are protected from foreign competition until they are ready to compete on a more even playing field. The level of 'general education' is irrelevant, but governments also were able to accelerate economic growth by training potential workers in the skills specifically useful in the emerging industrial economy. Successful development policies also have controlled the flow of capital, not allowing profits produced internally to escape national borders. Finally, successful development has also prioritized incomes policy, moving as many as possible into a prosperous working and middle class, which creates internal demand that itself propels further economic growth.

Note how many of the above routes to success might be seen as doing direct damage to short-term corporate profits. That's another problem successful development must overcome: the counterproductive power of short-term thinking capitalists.

It is important also, to note that most of the countries considered "less developed countries", or LDC's, are in the tropics, which may have to do with an increased propensity of many diseases. Also, governments play a role, as governments which efficiently provide public goods, and tax and subsidize the right industries, will aid the development of their economies.

The above is silly, and note the glaring exception that disproves the 'rule': Singapore.

A good economist to look up is Hernando DeSoto, who argues that property rights are the key to the success of the west. This argument, with a few caveats, is generally persuasive. Probably, the lack of the availability of loans to small producers is also a major contributing factor.

DeSoto's ideas, implemented faithfully in Peru under Fujimori, were a resounding failure, doing nothing for the poor.

I was trying sarcasm & failing apparantly. My bad. I like Brad DeLong & Robert Waldmann. I find Gregory Mankiw mostly inoffensive.

It wasn't an argument. It was a question. I've already posted plenty of argument(s). Here's another one.

There can be good reasons to be anonymous. Somebody up for tenure, or a grad student trying to keep options open, for instance. Atrios had a good reason too. He had an academic position while his site became a huge target for right-wing harrassment.

This is not a blog thing. It's a professional thing. When you disparage the credentials or qualifications of people with blanket generalizations from a position of power, it is thuggery. When you do it anonymously, it bespeaks cowardice and lack of principle.

It's also stupid. If Sam Bowles had gotten tenure at Harvard, there would be scores of little Sam Bowles's at all sorts of prestigious places and the qualify of heterodox output would be higher.

Max,

Alright, then I am a coward and lack principles.

More to the point though, Sam Bowles should have gotten tenure at Harvard. Unfortunately he went up at a time when almost nobody got internal tenure at Harvard Econ and with a research agenda that was indeed significantly ahead of its time. It did not stop him from publishing lots of his papers in the top journals, though.

But what is truly remarkable is how much of his agenda has been incorporated into the mainstream of economics by now. If you look around the top econ departments today you will indeed find all sorts of little Sam Bowles. It's just that nobody thinks of them as all that heterodox anymore.

"I'm not the only mentioning the liquidity bubble in the economy. The same relation to interest rates relative to rising prices which created the housing bubble is doing the same to all asset classes. It's inflation, not increasing value. If the money the government borrowed also went into the markets, it would be more inflation, not more growth. In fact, there are a lot of companies who make a lot of their money off government contracts, from highways, military, etc. So if there was not government deficit spending, this sector would be reduced and the economy would shrink."

I agree with your detractor on his criticisms, as your post had quite a few holes when analyzed by economic theory, although the broad point that the printed form of money is a public good is more or less a factual one (if a little off topic). But this part of your response-to-the-response drove me nuts. When the government borrows money, it increases inflation, not the other way around. If you look at a graph of the market, the aggregate demand shifts OUT when the government borrows, leading to an increase in inflation. Look it up in a textbook if you don't trust me.

To answer the question on education: most of what I mean is basic education. By this I mean the very basics of anatomy and biology (it helps to understand that diseases are often caused by germs, and not by the village witch. Also, it would be nice if fewer sub-Saharan Africans believed that a cure for HIV is to have sex with a virgin), literacy (this is more so that education can continue), and basic mathematics. Further developments in education, of course, are good even for industrialized countries, but with low availability of education, I think these are more or less the essentials.

Another piece I would add is that physical capital plays a role here. Communication technology is essential to shaping our worldview. A good example of an attempt at a solution is the host of programs trying to bring cheap computers to children in the third world. Success in that venture is far from certain, but I am hopeful about it.

I agree with you completely that human nature claims must be backed up with evidence. My belief is that economics could use psychology as a sounding-board for a new theoretical grounding in human nature. Unfortunately, a lot of economists will need to be dragged along.