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1. Individualism: True and False

   • Hayek does well to remind people of the true definition of individualism in his opening chapter. Many assume the common meaning of terms and concepts such as “individualism” without evaluating the meaning of the term or concept as it was used in a past age. However, Hayek does not seem to dive deep into the Bible to understand its methods or how they were supposed to work. He assumes that history has proven that biblical methods of economics do not work. He does acknowledge the usefulness of biblical principles, but does not see biblical methods as legitimate. Maybe the reason biblical methods have not worked is because governments and nations refuse to implement certain practices? Hayek does not take time to wonder what would happen if a Year of Jubilee was practiced. Finally, Hayek does not address biblical assumptions about man and how he works either. Men’s hearts are corrupt according to the Bible. Hence, greed and usury is prevalent. Hayek does a wonderful job of defining individualism, but makes too many assumptions about how the Bible should be used in regards to an economic system.

   • Posted 10 May 2013 by Matt

2. The Social Science Citation Index: A Black Box—with an Ideological Bias?

   • Hoover Institution publication Policy Review just printed its last issue this month (2/2013). That’s one less conservative SSCI journal cited in the Klein and Chiang article. Will any of the remaining conservative academic journals (such as ANAMNESIS, Academic Questions, First Things or Modern Age) ever obtain SSCI?

   • Posted 11 Feb 2013 by Alex Littlefield

3. The Invisible Hand of Jupiter

   • I hope to add to, and hopefully not just echo, what Erik has already pointed out.

     It would seem that Smith’s use of the “invisible hand” allegory in both The Theory of Moral Sentiments and The Wealth of Nations is used to illustrate the edict of nature and society that direct economic activity. Whereas, in the History of Astronomy the “invisible hand” is used to explain the unexplainable— the events that are beyond the natural laws of the secular world. On the surface, the “invisible hand” reference takes on a slightly different connotation in the three Smith pieces mention above. In The Wealth of Nations it can be interpreted as the natural laws that manage markets and society; in The Theory of Moral Sentiments it can be seen as a divine set of universal rules directing a just and virtuous society; and, in the History of Astronomy it can take on the role of a divine authority overriding these rules and laws. I believe, as I deem Erik does, that the latter use of the “invisible hand” also shows up in The Theory of Moral Sentiments and The Wealth of Nations. Consider the following few lines from The Theory of Moral Sentiments: “The rich…only consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life…had the earth been divided into equal portions among all its inhabitants…”. Although “selfishness and rapacity” would seem to be characteristics that would not direct society in the way of justice or virtues, the industrious individual’s “natural” penchant to serve his own interest ultimately benefits society—the mean may not appear agreeable, but the end is. Is this “natural” penchant toward “selfishness and rapacity” not assumed to be put in place by a precocious, divine authority? It certainly can be interpreted that way. If we except that the “invisible hand” is the work of a higher authority, who has directed the butcher and the brewer to act in their own self interest, and who has provided society with nature ethics and virtues to govern themselves, and who makes it “lightening” and “thunder”, then the metaphor is consistent in all three of Smith’s works referenced above. Since this heavenly intention or intervention is not observable, Smith does not bother with a speculative explanation, simply calling it the “invisible hand”.

   • Posted 15 Nov 2012 by Francis Conlon

4. Smith’s Travels on the Ship of State

   • George J. Stigler is criticizing that Adam Smith confine the self-interest analysis to the economic area. Even in Wealth of Nation, many examples testified that interest groups are pursuing self-interest by influencing public policy. It is not enough for Stigler who expect Smith “use self-interest as a general explanation fo legislation”(268).

     Several Chicago economists have wrote about the inconsistency of Adam Smith’s point of views in Theory of Moral Sentiment and Wealth of Nation. Stigler intended to contribute his explanation of it, however, he overlooked the organon build in Theory of Moral Sentiment which has already explained the self-interest comprehensively. In Wealth of Nation, Smith avoid the non-commercial discussion just because he would like to focus on specific section, not that he fail to “consider systemically the role of self-interest in legislation”, as Stigler puts it (269). In Wealth of Nation, Smith merely treat political institutions as those “facilitating commercial society”(Adam Smith 214). Stigler judge him too soon “without recourse to the Theory of Moral Sentiment”(Viner 201). If he refer TMS, he’ll find it accounts for the the question he challenge Smith.

     Beside, According to Stigler, failures are occurred sometimes when self-interest guides people’s behavior (Stigler 275). Stigler also lists several categories of failure. I: facts and anticipate; II: lack of self-serving conduct; III: fail to provide correct amount of goods (Stigler 275-276). He attribute most of the above to incomplete factual information. He frame the economic model of knowledge and information onto the Wealth of Nation but he should have developed further.

   • Posted 14 Nov 2012 by Zheng

5. The Adam Smith Problem in Reverse

   • Miss Paganelli addresses an important topic among Smith scholars in her article, that of the Das Adam Smith Problem. There is a perceived contradiction between The Wealth of Nations and Smith’s less often read work The Theory of Moral Sentiments.

     I wish to provide some clarification on a point that Miss Paganelli addresses indirectly. Theory of Moral Sentiments is the umbrella under which Wealth of Nations sits. When Smith addresses the role of sympathy he emphasizes its relevance among equals (see I.III.35, II.II.7, II.II.9, and VII.IV.26 as examples). The role of institutions is passive as opposed to active among equals. In the WoN the role of institutions is active. In fact, WoN can bee seen as Smith’s indication that involving the government, or dealing with a superior-inferior relationship as opposed to among equals breaks down the mechanics of sympathy.

     On page 381 in Miss Paganelli’s closing paragraph she captures the key distinction to be made between TMS and WoN, that Smith shows the beneficial elements of self-interest in TMS and the dangerous side in WoN. In TMS our self-interest is checked by institutions and sympathy. In the WoN the institutions become tools for our self-interest.

   • Posted 14 Nov 2012 by Jonathon Diesel

6. 'Il est encore plus important de bien faire que de bien dire' A Translation and Analysis of Dupont d

   • I agree with Mr. Byrd’s comment, but I would like to add what I consider to be the true significance of Dupont’s letter.
     Much has been made of Adam Smith’s so-called concessions to State intervention. If you seek to use Smith’s work to advance the liberty principle you are met with resistance from those who declare that Smith was a realist, and that he favored government control of this or that area of economics life, e.g., the postal service, libel laws, differential taxation, etc. Thus you are left without a consistent system to defend against myriad ad hoc violations of the principle.
     It is true that Smith included in his books, especially in The Wealth of Nations, more than a handful of concessions to government. Many liberty-minded readers would like to think these are anomalies, or that Smith had some ulterior motives in including these concessions.
     Dupont’s letter reveals a possible motivation for Smith to include these concessions, even if he would not actually support them. Dupont asks Smith to “forgive the deficiencies of my work that are not unknown to me and some of which were voluntarily committed.” Is it possible that Smith engaged in the same strategic writing? If Dupont was willing to be so candid with Smith regarding his own work, it seems to me very likely that it was an accepted practice of those hoping to bring wide-ranging reform. If Smith was “neither … read nor heard,” he would have no effect on policy or public opinion. If he was “denounced and estranged from the government itself” he risked prolonging “by a decade ignorance and its deadly effects.”
     If this was the generally accepted practice of the reformers of the day then I believe that many of Smith’s concessions can be read as an attempt to avoid “assaulting [the] eyes [of the public] with a bright light,” and “reconstitut[ing] their blindness.”

   • Posted 14 Nov 2012 by Theodore Phalan

7. the moral justification of free enterprise

   • This article was originally a Presidential Address to the Scottish Economic Society. Macfie chooses Adam Smith’s Theory of Moral Sentiments as his source because is deals with the subjects selfishness, evil and sin that are ignored in other economic and ethical texts. The article wanders a bit but his basic argument is that Smith shows us that a market society is not just efficient but that it also leads to ethically good results. Free competition, which is essential to a market economy, is morally approved of by humans because we enjoy competing with one another within a set of fair and just rules. Under these conditions, free competition turns economic self-interest into the positive economic virtue of prudence.

     In order to prevent the self-interest of individuals from turning into destructive selfishness, there needs to be checks on it. The rules that govern our economic interactions are one such check. Other checks on self-interest include the general rules of morality, the impartial spectator, and the invisible hand. A final external check on self-interest is the state, which is tasked by Adam Smith with prescribing defense, justice, and other tasks too large for private individuals to undertake. The state, however, is unable to direct morals because it is too far removed from individual situations. In order to compensate for this inability, Smith introduces an internal check on self-interest, “the man in the breast.”

     Macfie feels that Smith did not take the idea of the man in the breast to its logical conclusions. Macfie criticizes Smith’s man in the breast for not calling mankind to act and his example seems to be aimed at Smith statement that a man can fulfill nearly all the rules of justice merely by sitting still and doing nothing. I think that Macfie’s criticism is unfair and inaccurate. Smith clearly thought that man had a duty to act in certain situations; he even devotes a section in TMS to the sense of duty. Smith did not think that inaction was a violation of commutative justice but rather was a violation of the general rules of morality. Despite what I feel to be a mistake at the end of Macfie’s article, he does raise some very interesting and relevant points about the moral justification of free enterprise.

   • Posted 14 Nov 2012 by Alexander Schwengler

8. Adam Smith, the Last of the Former Virtue Ethicists

   • Deirdre McCloskey’s article, “Adam Smith, Last of the Former Virtue Ethicists,” is a well-reasoned piece that seeks to dispel the notion that Adam Smith was primarily an economist. As she states in the opening sentence (I love writers who get to the point), “Smith was mainly an ethical philosopher.” Her article traces the line of ethicists from Plato to Smith who believed that seven primary virtues (justice, fortitude, prudence, temperance, benevolence, faith, and hope) provide the foundation for all morality. Where Smith based his economics in his philosophy of ethics, McCloskey shows how modern economists have largely forsaken this connection, forgetting the tie that economics (presented in Smith’s Wealth of Nations) must maintain with ethics (presented in his Theory of Moral Sentiments). In fact, the ethical side of Smith, represented by TMS, was largely forgotten until relatively recently.

     Ms. McCloskey is well-qualified to write a piece on Adam Smith the philosopher, instead of Adam Smith, the economist. Of course Adam Smith WAS really a philosopher: his job title at University of Glasgow circa 1760 reads “Professor of Moral Philosophy.” McCloskey’s position description is similarly expansive at University of Illinois, Chicago: “Professor of Economics, History, English, and Communication.” She is, like Smith, evidently a polymath.

     Most economists today approach Adam Smith from one of two angles. Either he was (1) a free-market capitalist, originator of the “Invisible hand” and early opponent of mercantilist voodoo; or (2) a free-market capitalist and author of The Wealth of Nations (WN), who also wrote a book of philosophy (TMS), which is probably brilliant, but contains language and concepts foreign to (and apparently inconsistent with) WN, and thus to be avoided.

     McCloskey sees no inconsistency between Smith’s two great published works. She sees no need to jettison the moral reasoning of TMS in order to focus on the economic insight of WN. Indeed, she sees Smith’s ethical philosophy as foundational to his economics, and urges present-day economists to make a similar connection. Smith she sees as primarily an ethicist (like the other former virtue ethicists: namely Plato, Aristotle, and Aquinas), whose moral thinking drove his economic thinking. Divorcing the moral aspect of Smith’s thought (as modern-day economists do when they ignore TMS) rends WN, leaving it devoid of its context and true meaning. Similarly, such a divorce rends modern economics from a sure foundation, leaving it amoral, adrift on a sea of maximum utility.

   • Posted 14 Nov 2012 by Todd Peckarsky

9. The Adam Smith Problem in Reverse: Self-Interest in Wealth of Nations and Theory of Moral Sentiments

   • “Das Adam Smith Problem” has been used to describe a fundamental inconsistency between Adam Smith’s two books, The Wealth of Nations and The Theory of Moral Sentiments. Many have claimed beginning with German scholars that the two books seem to present different views of human nature, self-interest, and the ultimate social result. Paganelli suggests contrary to the Adam Smith problem, both books account for self-interest and the Adam Smith problem never existed if we understand public choice concepts when reading the WN. Of the two books TMS demonstrates a much more favorable account of self-interest than WN.

     The primary idea of the article is that the Adam Smith problem can potentially be solved by paying attention to the behavior and role of institutions. The two books present different mechanisms through which self-interest is restrained. In TMS, the restraint is natural. An individual will restrain excessive self-interest and its consequences are beneficial. Self-interest demonstrates the virtues of prudence, benevolence, etc. In the WN, the natural constraints break down because of the role of government and the incentives of bureaucratic and legislative officials. Government perverts the natural mechanisms that normally keep self-interest from exploiting the populace. The consequences can be ruinous.

     TMS presents a picture of self-interest more closely resembling self-interest as traditionally presented in economics. When we pursue our individual self-interest through virtuous actions, both the individual and society are happier. The TMS version of self-interest is kept in check though our desire to be both praised and praiseworthy.

     Paganelli introduces a few misinterpretations of Smith that serve as a distraction and detriment to an otherwise insightful article. She takes her premise to an extreme claiming that in the WN “self-interest cannot successfully constrained, leaving individual and society more susceptible to its abuses” (372). In TMS “self interest is always successfully constrained” (373). These claims ignore Smith’s acknowledgment of a proper role for government such as requiring party walls between adjacent dwellings (WN II.2.94), and self-deceit in TMS. She misconstrues the TMS China earthquake example suggesting that “we would naturally choose to save our little finger and snore placidly through the night” (372). Also in TMS self-interest is constrained when there is an equal-equal relationship, but not necessarily with a superior-inferior relationship. This essential point would have provided an important context to the entire article.

   • Posted 14 Nov 2012 by Martin Heinze

10. Adam Smith’s Marketplace of Morals

    • The article by Professor Otteson is quite perceptive in its suggestion that non-commercial activities of human life, such as developing morality or language, have many parallels to the commercial marketplace. But Professor Otteson’s article does leave me a bit discomfited.

      I can best explain my discomfort by examining Professor Otteson’s four groups of characteristics that are found in all markets: (1) a problem to be resolved, (2) rules that define the marketplace, (3) currency, and (4) unintended result. In the commercial marketplace all of these items can be readily identified. People tend to (1) want higher standards of living, (2) develop contracts and rules for private property and commercial transactions, (3) trade goods and services, and (4) develop a smoothly functioning marketplace. Professor Otteson suggests that the parallel in the marketplace of morals is that people will (1) want mutual sympathy, (2) develop standards for moral judgment, (3) exchange personal sentiments and judgments, and (4) develop commonly shared rules of behavior.

      My concern is in part three of both systems. In the commercial marketplace, Professor Otteson suggests that the currency consists of the actual goods and services being traded. Were that to be true then we would be stuck with a barter economy, which is quite inefficient and ineffective. We are not limited in the commercial marketplace that way because we have a separate form of currency. We may call it the dollar, the pound, or the euro, but whatever we call it, we can count on its being a numeraire. The dollar allows us to purchase whatever we want in the commercial marketplace and the recipient of those dollars can in turn purchase whatever she wants. In this manner, the numeraire performs a marvelous function of smoothing the marketplace and making it unnecessary to identify trades of actual goods and services.

      Were it only the case that such a numeraire existed for morals. The marketplace for morals would then be as efficient as the commercial marketplace. We would know exactly the value of showing esteem for highly accomplished people, the value of certain punishments for lawbreakers, and the relative values of behaviors that may or may not be socially acceptable. But that numeraire is missing. We do not have such an accurate guide. We do our best by generating general rules of behavior that get accepted or not depending on how others feel about it.

      I would find Professor Otteson’s analogy far more satisfying were he to explore whether a numeraire analogy exists in non-commercial marketplaces.

    • Posted 14 Nov 2012 by Michael Smith

11. The Invisible Hand of Jupiter

    • The main point of Macfie’s article, The Invisible Hand of Jupiter (1971), is to analyze, and attempt to reconcile, Smith’s various uses of the famous, yet mysterious, “invisible hand” metaphor throughout his work.

      The original use of the invisible hand is in Smith’s History of Astronomy, an early essay written by Smith, which was published posthumously. In History of Astronomy, the invisible hand belongs to the Roman god Jupiter, and is used by polytheistic “savages” to explain seemingly irregular natural phenomena that interrupt the status quo (e.g., lightning, thunder). In The Theory of Moral Sentiments (TMS) and Wealth of Nations (WN), the invisible hand, assumed by Macfie, among others, to belong to the Christian Deity, is a mechanism of coordination that guides people’s self-love in order to achieve universal benevolence.

      While the uses of the invisible hand seem contradictory, Macfie contends they are not. He suggests that the use of the invisible hand in History of Astronomy was merely where Smith first coined the phrase, and has no significant bearing on its later use in TMS and WN. Macfie interprets the invisible hand metaphor in TMS and WN to be Smith’s attempt to express “his own view as to the relation between divine guidance, the system of nature, and human behavior”, accordingly becoming the energizer of his entire system of thought (pp.598-99).

      While Macfie’s interpretation may be plausible, there is another way to interpret Smith’s use of his famous metaphor. I believe that Smith used the invisible hand metaphor when talking about things beyond human understanding. In History of Astronomy, the savage ascribes lighting, a natural occurrence that he cannot understand, to the mood swings, and invisible hand of Jupiter. In TMS/WN, Smith employs the same invisible hand metaphor when he talks about markets; in doing so, he suggests that people cannot understand why order emerges spontaneously when people pursue their own ends in free markets, but can merely observe that it does. Perhaps this emergent order in markets can be attributed to a benevolent Deity, but, if the use of the metaphor is consistent with its use in History of Astronomy, Smith argues that the cause of this order is outside the realm of human understanding. With this interpretation of the invisible hand, Smith’s seemingly contradictory uses of the metaphor can indeed be reconciled.

    • Posted 14 Nov 2012 by Erik Matson

12. 'Il est encore plus important de bien faire que de bien dire' A Translation and Analysis of Dupont d

    • This is a short, but very illuminating article by Robert Prasch and Thierry Warin. In it, they translate and contextualize a personal letter written by Pierre-Samuel Dupont de Nemours to Adam Smith. It is a letter presenting a book that he had written in defense of the Anglo-French commercial treaty of 1786, which had recently gotten considerable criticism from the Chamber of Commerce of Normandy. The letter is very respectful, but still challenges Smith on some points. The letter is of more interest however than merely the ideas expressed in it. It is also, as Prasch and Warrin point out, of significant historical significance. The main idea expressed in the letter is that Dupont feels that it is best to introduce more hands-off government policies gradually through compromise rather than trying to force it all through at once. Such a middle of the road approach contrasts an unyielding insistence on policy aligning exactly with economic theory. Dupont apparently sees the separation of economic policy and pure economic science as a point where he and Smith differ, but the analysis provided by the article suggests that they feel more similarly than Dupont may have thought. Dupont’s letter also has significant historical value. His communication with Smith shows the position of respect in which others held him in the fields of both economics and philosophy. In addition, it shows that there was an international economic reform effort taking place. Smith traveled Europe and his works, Theory of Moral Sentiments and The Wealth of Nations, were widely influential in shaping thoughts on economics and economic policy. Dupont, as well as other reformers mentioned in the article, such as Turgot, were simultaneously fighting for the liberty principle in France. These thinkers did not work in isolation. Prasch and Warin provide a worthwhile translation of an interesting and informative letter. Beyond this, they provide highly useful contextualization and analysis. Dupont’s letter, in context with the rest of the article is uniquely revealing by both giving a clearer look into how reformers thought of each other and communicated during this time and by giving an additional historical record of their interactions.

    • Posted 14 Nov 2012 by Bryan Byrd

13. Adam Smith, the Last of the Former Virtue Ethicists

    • The point has been made in preceding comments that Smith did not seem to discuss the virtues of faith and hope in TMS. As has also been noted, McCloskey’s defense of those two virtues in a secular setting of modern liberal society leaves much to be desired. I argue is that Smith was not a virtue ethicist in the Christian tradition but in the classical tradition.

      Before Christianity, ancient philosophers developed a set of four cardinal virtues: Prudence, Temperance, Justice, and Fortitude. It was only later, particularly by Aquinas and the schoolmen, that the theological virtues of faith, hope, and charity were added to make a set of seven virtues. McCloskey argues that Smith includes charity along with the four cardinal virtues in his system of ethics while leaving out faith and hope. I think a better reading of Smith is that he adopts the four cardinal virtues but treats charity (which he mostly calls benevolence) differently. In this way he is following the ancient tradition of the stoics more closely than the Christian tradition of Aquinas.

      Smith is clearly sympathetic to the ideas of the Stoics, though he argues they take their principles too far (TMS 272-293). We can see evidence of Smith’s stoicism in how he treats poverty and wealth, what he considers to be necessary for happiness, and how men should bear with misfortune or good fortune. In all these cases, it is the life of the mind, the tranquility of the soul, that is most important; not external circumstances. His description of how the beggar by the side of the road has the security that kings are fighting for is an argument for the superiority of philosophy, not material circumstances (see Thomas Martin’s forthcoming essay on Diogenes & Alexander the Great). All that being said, Smith does take exception to the stoic philosophy that men should not care one bit about their external circumstances (TMS 292). But his objection is a minor exception to only the strictest form of stoicism.

      TMS is filled with references to benevolence. Smith believes that benevolence is one of the key attributes of human sympathy as well as a praiseworthy motivation for action. He describes Nature and God as promoting the whole system of mankind for the purpose of universal benevolence. But Smith doesn’t think of benevolence as a virtue like he does fortitude or temperance. He criticizes moral systems that say benevolence is the only important virtue (Hutcheson), and he criticizes systems that suggest benevolence is irrelevant (Mandeville), but in his own system he treats benevolence as a goal, a good end; not a manner of behavior.

      McCloskey is right to argue that Smith was critical of one virtue systems, having a more complex and developed system of virtues himself. But I think she is wrong to focus on Aquinas and the seven virtues, minus two. Instead, a better reading of Smith considers how much he admired the ancients, not only the stoics but Plato and Aristotle too. It is from them that he takes the four cardinal virtues and incorporates them into his own views of why men have sympathy with each other and how they should live so as to be most happy and productive. Benevolence is the over-arching end, just as Plato talked about “the Good” or the stoics talked about the benevolence of God. It is not simply the most convenient of the three theological virtues that Smith adopted for his theory of moral sentiments.

    • Posted 12 Nov 2012 by Paul Mueller

14. Big Questions and Poor Economics: Banerjee and Duflo on Schooling in Developing Countries

    • I certainly see this same pattern among randomista researchers in studies on interventions to improve access to and/or quality of health services and products .

      The need to answer “big questions” or, pretend to policy relevance (and levels of external validity RCT they lack) means that RCT papers in health very frequently have conclusions that go (way) past the statistical findings. And to generate these conclusions, researchers mostly just pull up some scattered references to support their own biases.

      A common one in health is: our analysis confirms that demand curves slope downward…SO government should provide (whatever) for free through it’s facilities/ supply system. So, similar to what James outlines wrt the Poor Econ chapter and education RCTs, there is a huge leap from the studies’ findings to policy prescriptions – and similarly manifesting a public-sector-solution centric view of the world (not to mention ignoring scarcity of resources…perhaps an even worse sin for economists!).
      Thanks James for taking the time to elaborate these issues.

    • Posted 27 Sep 2012 by April Harding

15. Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?

    • And which econometrician will regard this blatant misrepresentation of the facts as proof that the economics profession has been hijacked by corporate speaking engagement fees and simplistic right wingers who have a criticism for everything, but reverence for only the practice of doing less (so the ‘free market’ can work its magic, don’t you see?) I really hope the state of economics improves to the point where people like Cushman and Mankiw will be held to account for their lies, but remembering Nial Ferguson’s hack journalism in Newsweek reminds me that their are lots more inane fact manipulating liars to go through first. Oh yeah, and Phil Gramm has something to say about the economy in the WSJ. I assume its not that we are still in a “mental recession” as this “nation of whiners” was in 2008? Jeez, the fact these people even get writing gigs anymore makes me want to steal things from 7 eleven.

    • Posted 24 Sep 2012 by Alex Nash

16. Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?

    • The article misreads Krugman’s comments. In the blog entry the article cites (http://krugman.blogs.nytimes.com/2009/03/03/roots-of-evil-wonkish/), Prof. Krugman makes a technical argument against Mankiw’s use of the unit root in his analysis. He does not make a prediction about the speed of the recovery. Krugman’s articles around the time had made it clear that he thought the recession would be deep and the stimulus too small and that the Obama administration was setting itself up for problems in the future by underestimating what needed to be done.

      I will include the full text below:

      March 3, 2009, 9:06 PM
      Roots of evil (wonkish)
      As Brad DeLong says, sigh. Greg Mankiw challenges the administration’s prediction of relatively fast growth a few years from now on the basis that real GDP may have a unit root — that is, there’s no tendency for bad years to be offset by good years later.

      I always thought the unit root thing involved a bit of deliberate obtuseness — it involved pretending that you didn’t know the difference between, say, low GDP growth due to a productivity slowdown like the one that happened from 1973 to 1995, on one side, and low GDP growth due to a severe recession. For one thing is very clear: variables that measure the use of resources, like unemployment or capacity utilization, do NOT have unit roots: when unemployment is high, it tends to fall. And together with Okun’s law, this says that yes, it is right to expect high growth in future if the economy is depressed now.

      But to invoke the unit root thing to disparage growth forecasts now involves more than a bit of deliberate obtuseness. How can you fail to acknowledge that there’s huge slack capacity in the economy right now? And yes, we can expect fast growth if and when that capacity comes back into use.

    • Posted 24 Sep 2012 by Chris Lee-Messer

17. Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?

    • Oh, please, please, please give us a link to where Paul Krugman said the 2009 stimulus was going to lead to “strong growth”.

      (And if you are unable to, does that mean you are, as Krugman contends, making it up?

    • Posted 24 Sep 2012 by John Quick

18. Statistical Significance in the New Tom and the Old Tom: A Reply to Thomas Mayer

    • The misuse of significance tests in econometrics is part of the larger problem of formal criteria that have been imposed and must be respected if one wishes to publish, at least in a mainstream journal. For example, in macroeconomics one is expected to base ones model on the assumption of a rational, utility maximizing representative agent, even though there exists a vast literature that demonstrates that the representative agent cannot be justified by any plausible set of assumptions. The requirements change as research programs change, but they never have a scientific justification. In the post-WWII era for example, it was thought that a macro-econometric model, to be of any use, must have hundreds, perhaps more than one thousand equations.

      I believe that the slave like adherence to absurd formal criteria is a consequence of the recruitment practices in economics over essentially the past half century. There was a vast expansion in the number of professional economist, while the principal criterion of admission was some degree of mathematical competence. A specific interest in economics was not required. Many who became professors of economics must have chosen this career in the same way as one chooses to become a dentist or a lawyer. Their education consisted essentially of learning to solve the problems that they were presented with, without much thought as to their relevance. This is how they continued to work as professional economists. If they had learned how to formulate and estimate, say a rational expectations model, including significance tests, then that is what they did and were expected to do in order to be able to publish in mainstream journals.

      I think the problem viewed this way is rather simple, but unfortunately unsolvable, at least over the foreseeable future.

      Claude Hillinger

    • Posted 24 Sep 2012 by Claude Hillinger

19. Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?

    • Krugman has responded to this article with:
      I guess I should take it as a compliment that people who want to attack my record feel the need to make stuff up.

    • Posted 24 Sep 2012 by Frank Nospam

20. Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?

    • As a non-economist, I lack the expertise to critique the methodology of an economic analysis of this sort, but I’m skeptical of the objectivity of a hypothetical, retrospective prediction of what is now known to have transpired since. Why “posit a hypothetical time series econometrician who, at the time of the blog entries, applies some standard forecasting methods”? Weren’t such analyses with these “standard forecasting methods” done at the time? Did Professor Cushman offer such an analysis at the time?

    • Posted 23 Sep 2012 by Brooks