Marginal Revolution

New MR book club - Keynes's *General Theory*

Greg Mankiw wrote:

If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

I will go through the book, chapter by chapter, with an eye toward a deeper understanding of what Keynes wrote and why it is, as Greg says, so important.  I'm not yet sure what kind of pace I can maintain but order your copy here, now.  The Kindle version is only $3.96.  We'll do chapters 1 and 2 by next Monday, eight days from now.

The Cassandra Hunt

Kevin Drum comments, here is Brad DeLong, and Matt Yglesias, and Arnold Kling; they make good points all around.  There aren't nearly as many Cassandras as you think, once you require more of a person than "having called" the housing bubble.  A simple question is what financial stocks a person had shorted as of, say, November 2007, or for that matter July 2007, and no "my wife wouldn't let me" is not an adequate comeback.  And if you're afraid of an unhedged position or margin call just buy some puts.

I plead fully guilty to not having been a Cassandra.  Oddly, I published an entire book in the late 1990s -- Risk and Business Cycles(cheaper on Kindle)  -- on how excess risk and correlated errors could cause an economy to explode; I'll tell you more about that soon.   But if anything when it came to running commentary (on this blog, most of all) I was an anti-Cassandra.  First, I was too influenced by the relatively mild housing bubble collapse of the late 1980s.  Second, I did not understand how much fragility the extant degree of leverage implied.

Cassandra's gift was in fact the source of continual pain and frustration.  That's one reason why not so many people are Cassandras.

Fischer Black insisted in the mid-90s that the law of large numbers did not apply to individual economic forecasts of sectoral shifts and thus such errors could not be expected to "cancel out" in the aggregate.  Not so many people believed him and in retrospect the failure of people to take Black seriously on this point is further evidence that the point is indeed correct in many situations.

Addendum: The end of this Kevin Drum post nails it.

Law and Literature reading list, Spring 2009

The Five Books of Moses, edited and translated by Robert Alter.

Billy Budd and Other Tales, by Hermann Melville.

The Metamorphosis, In the Penal Colony, and Other Stories, by Franz Kafka.

Smilla’s Sense of Snow, by Peter Hoeg.

The Art of Political Murder: Who Killed the Bishop? By Francisco Goldman.

In the Belly of the Beast, by Jack Henry Abbott.

Borges and the Eternal Orangutans, by Fernando Verrissimo.

Glaspell’s Trifles, available on-line.

Great Short Works of Leo Tolstoy, by Leo Tolstoy.

Sherlock Holmes, The Complete Novels and Stories, Sir Arthur Conan Doyle, volume 1.

Out: A Novel, by Natsuo Kirino.

I, Robot, by Isaac Asimov.

Moby Dick, by Hermann Melville, excerpts, chapters 89 and 90.

Year’s Best SF 9, edited by David G. Hartwell and Kathryn Cramer.

Pale Fire, Vladimir Nabokov.

Blindness, by Jose Saramago.

We also will view a small number of movies -- most of all Sia -- and perhaps I will add a Henning Mankell novel as well.