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Are economists just dirty, stinkin' liars?
I loved this post. Excerpt:
AAARGH!!! Foreign Policy, the People magazine of international affairs has produced a column entitled "5 Lies my Economist Told me". The problem is, they are either not really lies or else not really what a professional economist would say!!
The dissection then proceeds. How about this line?
I think there are a lot of countries in the world who'd be thrilled to have a financial crisis because it would mean they had experienced some foreign investment.
Posted by Tyler Cowen on August 3, 2007 at 06:48 AM in Economics | Permalink
Comments
Seriously, how come a serious publication such as FP can get away with nonsense like that?
Posted by: Erik at Aug 3, 2007 7:30:03 AM
They get away with it because some non-economists, especially journalists, will apply the label "economist" to anyone who talks about the economy. FP has obviously adopted this definition.
Posted by: Some Random Economist at Aug 3, 2007 10:26:59 AM
Well, I don't want defend "the People magazine of international affairs", but it seems to me that if there are economists who think that the Euro is a bad idea, then don't they have to explain why they are not in favor of separate currencies for each state and municipality?
Posted by: RobbL at Aug 3, 2007 11:35:18 AM
"it seems to me that if there are economists who think that the Euro is a bad idea, then don't they have to explain why they are not in favor of separate currencies for each state and municipality?"
Boy, is it ever your lucky day! Economists have explained, many times, in hundreds of articles, why too many local currencies may not be great. Namely, think economies of scale and transactions costs.
Interestingly, these same concepts of economies of scale and the desirability of reducing costs mostly favor lower trade barriers, which is why an economists can favor a world with zero trade barriers while not necessarily wanting every locality to have its own currency.
Mainly, the most-often stated underlying case for national trade barriers ("saving our jobs") suffers the same logical flaws as the case for local trade barriers. If we should raise trade barriers between Ohio and China to "save the rustbelt," then the same exact logical case holds for raising trade barriers between Ohio and Arizona.
This is not true of optimal currency areas. The optimal scale of currency could easily encompass many, but not all, areas.
Posted by: Keith at Aug 3, 2007 1:41:14 PM
Marty Feldstein, for one, thinks the Euro is a bad idea. He claims a single monetary policy is too inflexible for the numerous economies of Europe. Relative to America, there is much less labor mobility in the Eurozone, so workers are less responsive to differences in regional recession/boom cycles. If you have one country overheating, while another is lagging, what's the appropriate monetary policy?
Posted by: Trey at Aug 3, 2007 3:45:33 PM
@Trey: The Europeans still have fiscal autonomy. I admit, it's probably less effective that monetary policy (longer lags, crowding out of private demand) but the single European currency is so much more handier than EMS-I which preceeded it. I think the balance of the Euro stikes out positive.
Posted by: JSK at Aug 3, 2007 5:43:49 PM
Not liars, just motived by their own biases such as saying something is good or bad while omitting for whom (usually themselves).
Posted by: Lord at Aug 3, 2007 7:14:19 PM
Lord, economists have their (our) share of imperfections, but are generally dedicated to certain policies even when it harms their own self-interest. For example, most economists, including myself, favor the continued practice of giving assitantships at state-funded universities to foreign-born graduate students assistantships, which then confer to these graduate students the right to pay in-state tuition (which their assistantship wages then cover).
This clearly increases the foreign competition we economists face, and likely lowers our wages, but we still support it. It's rare that any other profession, especially in academia, displays that kind of selfless devotion to principle.
Posted by: Keith at Aug 3, 2007 9:54:46 PM
Of course, I guess it's worth noting that this practice of awarding assistantships to foreign grad students does benefit the tenured professors....so at least part of the profession isn't necessarily so selflessly devoted. But the rest of us favor it because we're good people!
Posted by: Keith at Aug 3, 2007 10:28:51 PM
Keith, Hmm....
I take it you are some sort of professor? I shudder at you grading my economics exams.
Could you read what I wrote more carefully?
Of course you could professorly say that I was not clear in presenting my ideas so I guess it is a standoff.
Let me be more clear. I think that I was expressing the same sentiments you do...
Posted by: RobbL at Aug 4, 2007 12:42:57 AM
Four of the five lies do have some substantial basis in fact and do demonstrate the limits of the economic profession. However, the last “lie” is a doozy. Japan is not the second-ranked economy in the world. China’s economy is 2.4 times larger than that of Japan and around 77% the size of the US economy.
China’s economy will surpass the United States in just a few years, perhaps before 2010. Note that China is already (by far) the dominant producer of industrial materials (for example, cement production 11x the United States) and the largest emitter of CO2. China holds the largest foreign exchange reserves as well.
My suggestion is that the editors of FP should fact check their articles. Providing authors with access to the Internet can be quite helpful as well.
Posted by: Peter Schaeffer at Aug 4, 2007 1:48:25 AM
Keith,
Perhaps you haven't noticed, but China isn't "competing" with Ohio. China is engaging in "Exchange Rate Mercantilism". See the Martin Wolf paper on the subject. The United States has every right and reason to stop China from engaging in economic predation.
Posted by: Peter Schaeffer at Aug 4, 2007 1:51:29 AM
Peter, China's "exchange rate mercantilism" amounts to giving us free goods because their capital markets aren't yet well-developed enough to funnel their considerable savings to the highest-yield investments.
China wants to (or feels forced to) engage in policies that benefit us at their expense? Great!
Again, this "exchange rate mercantilism" stuff really is just a lot of hot air from people who don't understand exchange rates.
Posted by: Keith at Aug 4, 2007 2:13:07 AM
Peter, China's "exchange rate mercantilism" amounts to giving us free goods because their capital markets aren't yet well-developed enough to funnel their considerable savings to the highest-yield investments.
China wants to (or feels forced to) engage in policies that benefit us at their expense? Great!
Again, this "exchange rate mercantilism" stuff really is just a lot of hot air from people who don't understand exchange rates.
Posted by: Keith at Aug 4, 2007 2:14:31 AM
Keith,
“Again, this "exchange rate mercantilism" stuff really is just a lot of hot air from people who don't understand exchange rates”
Really? Martin Wolf of the FT doesn’t understand exchange rates? The Martin Wolf who created the “Economists’ Forum” (http://ftblogs.typepad.com/wolfforum/)?
Take a look at the three presentations linked to over at “Martin Wolf must have an amazing research assistant …” (http://www.rgemonitor.com/blog/setser/122822). Please read them and reconsider your assertion about who does and who doesn’t understand exchange rates.
Posted by: Peter Schaeffer at Aug 4, 2007 9:39:17 AM
"I think there are a lot of countries in the world who'd be thrilled to have a financial crisis because it would mean they had experienced some foreign investment."
Whoever wrote this needs a serious dose of Bastiat.
Posted by: Billy at Aug 4, 2007 4:29:16 PM
Pater, actually, it appears that Martin Wolf's opinion is similar to mine, that China hurts themselves with their exchange rate policy. In other words, the problem ain't Martin Wolf, but your lack of reading comprehension.
Posted by: Keith at Aug 4, 2007 5:22:31 PM
In fact, Peter, look at slide 21 of Martin Wolf's presentation, and he makes it quite explicit that he believes China's exchange rate policy is self-destructive.
I also point out that his listed benefits of China's policy for the US is similar to my arguments. Wolf also believes it creates problems for us.
So much for your predation argument.
Posted by: Keith at Aug 4, 2007 5:29:41 PM
@Keith:
What Peter says and what Martin says does in no way contradict one another. Talk about poor reading comprehension... don't you think that short-term economic 'predation' and long-term economic self-harmfulness can be fully compatible?
Posted by: JSK at Aug 5, 2007 12:14:36 PM
All of that said, I also don't think Martin Wolf knows what he's talking about a good part of the time. Just because he created a blog with "economists" in the title doesn't mean he's an economist. After all, I blog about crap all the time, and I don't know what the heck I'm talking about.
But, since we're on the subject, bringing up Martin Wolf illustrates the stupidity of the FP's point #5. Just because someone says "economics" doesn't mean they are an economist. Chalmers Johnson, Clyde Prestowitz, Robert Reich and most of the others beating the Japan industrial policy supremacy stuff in the late 1980s were not economists. Articles in the Wall Street Journal and Financial Times are not (usually) written by economists. And if someone says their specialty is "political economy," they are certainly not an economist.
Posted by: M.D. Fatwa at Aug 5, 2007 4:03:32 PM
M.D. Fatwa,
The population of the United States is 2.4x that of Japan. To reach the GNP of the United States, Japan’s per-capita GDP would have to be 140% higher than that of the United States. A difficult prospect at best.
By contrast, China has 4.4x times as many people as the United States. China has only to reach 23% of the per-capita GDP of the United States to surpass the US in total GDP. Given that every developed nation of Asia has done far better than 23% of the US, China’s GDP will far exceed that of America in just a few years.
Posted by: Peter Schaeffer at Aug 7, 2007 12:13:25 PM
Peter,
So? My point is that #5 on the FP's list is something that few economists argue, but that lots of journalists and so-called "economic experts" hit on. There is little doubt that China's economy will surpass the United States' eventually, unless something dramatic happens such as another revolution or civil strife. That said, so what? Does that mean the Chinese are going to take over the world economy? Which economists have said this?
You could argue that a huge Chinese economy will translate into a huge Chinese military, and that this will mean the Chinese will politically dominate the world. But that's a political science argument and I rarely see economists take such a Neo-Realist/zero-sum position.
Posted by: M.D. Fatwa at Aug 7, 2007 3:47:03 PM
Am I an economist? One of the contributors above asks this question. Well, I have a post-graduate degree in economics from Oxford University (a Master of Philosophy,to be precise) and was the senior economist in the India Division of the World Bank in the mid-1970s. I have never studied anything called "political economy", though my first degree at Oxford was Politics, Philosophy and Economics. I am rather inclined to think I am an economist. But I have never been an academic economist. I much prefer my current activity of engaging in public debate.
And, yes, I do understand the argument that deliberately trying to keep one's exchange rate down, as China has been doing, cannot be predatory, but is, on the contrary, extraordinarily generous.
Posted by: Martin Wolf at Oct 6, 2007 2:44:26 PM
Hey Fatwa, you must have shit for brains if you think they are "extraordinarily generous". I will explain... They have no minimum standard of living which makes it easy for exploitation to flurish. So what they have is a very large proportion of people working and living in poverty to bank roll the economy. Further, they keep their exchange rate down (pegged to US$) to ensure foreign investment and most of the world's manufacturing continues to "pump" huge sums of $'s. So, keep buy everything and send all your manufacturing there... And the end of the US economy is just around the coner. The world will be sad place when china takes over...they will exploit you too !! Finally, here's a message for all in the West : wake up people - our forefathers created the modern western world we enjoy. IF YOU give away your technology, know how, manufacturing, education and the desire to be a contributing memeber of our western society our future will be in the hands of china. IS THAT WANT WE WANT TO HAND OVER TO OUR CHILDREN. now for a saying everyone has forgotten: dont sell the cow...sell the milk.
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