Category Archives: Debtwatch

Guest post by Geoff Davies

Many peo­ple, includ­ing many het­ero­dox econ­o­mists, under­stand that the neo­clas­si­cal equi­lib­ri­um approach to under­stand­ing economies is futile and mis­lead­ing [1], because mod­ern economies are far from equi­lib­ri­um. The neo­clas­si­cal pre­dic­tion of equi­lib­ri­um or near equi­lib­ri­um requires a string of patent­ly absurd assump­tions. How­ev­er the devel­op­ment of bet­ter the­o­ries seems to be sig­nif­i­cant­ly hin­dered by a feel­ing that any super­sed­ing the­o­ry has to be thor­ough­ly quan­ti­fied before it can be use­ful, and a feel­ing that the neo­clas­si­cal the­o­ry has set a bench­mark for sophis­ti­cat­ed math­e­mat­ics that must be matched before anoth­er the­o­ry can be respectable. Less fun­da­men­tal­ly there seems to be a com­mon per­cep­tion that empir­i­cal insights can only be gained through elab­o­rate sta­tis­ti­cal treat­ments of obser­va­tions.

A blog par­tic­i­pant (Lyon­wiss) recent­ly made a com­ment about the gen­er­al state of aca­d­e­m­ic eco­nom­ics that was so “spot on” I want­ed to share it more wide­ly. I have of course fol­lowed the exact oppo­site of the con­ven­tion­al route to pub­lish­ing suc­cess that Lyon­wiss out­lines here–and I’ve encoun­tered the neg­a­tive con­se­quences he notes, of rejec­tion by neo­clas­si­cal ref­er­ees and edi­tors.

Here is Lyon­wis­s’s fool­proof for­mu­la for pub­lish­ing suc­cess in aca­d­e­m­ic eco­nom­ics:

Aca­d­e­mics wants to write research papers and have them pub­lished. Uni­ver­si­ty bureau­cra­cies are not only bean coun­ters, they are also paper coun­ters. Pro­mo­tion depends on the num­ber of papers pub­lished. Pub­lish­ing papers is not the same thing as actu­al­ly doing research.

Click here for this post as a PDF

I recent­ly fired a stray shot at Paul Krug­man over his joke paper “The The­o­ry of Inter­stel­lar Trade” (Krug­man 2010), for which I have duly apol­o­gized. How­ev­er in that apol­o­gy I not­ed that Krug­man has also recent­ly pub­lished a draft aca­d­e­m­ic paper pre­sent­ing a New Key­ne­sian mod­el of debt defla­tion, “Debt, Delever­ag­ing, and the Liq­uid­i­ty Trap: A Fish­er-Min­sky-Koo approach” (Eggerts­son and Krug­man 2010), and I observed that I wish this paper was in fact a joke. Here’s why (this is a mod­i­fied extract from my forth­com­ing sec­ond edi­tion of Debunk­ing Eco­nom­ics, which will be pub­lished by Zed Books in about Sep­tem­ber or Octo­ber this year).

OK, apolo­gies to Paul Krug­man, now that I real­ize the Inter­stel­lar Trade paper was a joke and first draft­ed in 1978. I should have checked more before writing–but as not­ed, in the thick of writ­ing the sec­ond edi­tion of Debunk­ing Eco­nom­ics, I latched on to a diver­sion.

How­ev­er at some stage I’ll be pub­lish­ing a cri­tique of Paul’s paper on Min­sky, which I wish was a joke… More anon once the book is fin­ished.

I have almost fin­ished writ­ing the sec­ond edi­tion of Debunk­ing Eco­nom­ics (to be pub­lished by Zed Books in Sep­tem­ber 2011), which (a) makes me par­tic­u­lar­ly sen­si­tive to the dri­v­el neo­clas­si­cal econ­o­mists write and (b) in need of the occa­sion­al diver­sion when read­ing non­sense dressed up as sci­ence gets all too much.

So I have to thank Paul Krug­man for feed­ing both needs at once, with a paper that has been just brought to my atten­tion via the West­ern Eco­nom­ic Asso­ci­a­tion 2011 con­fer­ence newslet­ter (I’m pre­sent­ing a paper at the con­fer­ence, and being a dis­cus­sant on two oth­ers).

Whit­ney Fitzsim­mons’ inter­viewed Chris Joye and myself on house prices for the ABC’s Busi­ness Today last week, and the 11 minute seg­ment ran last Fri­day. The Busi­ness Today site does­n’t allow you to embed a giv­en inter­view, so I’ve saved it onto my blog for view­ing here.

I made one stuff-up, as can hap­pen in an interview—I said that house prices had risen 20 per­cent “last year” when I meant “under the influ­ence of the First Home Ven­dors Boost”. The actu­al peri­od of the rise was from March 2009 till March 2010 (and it was an 18.8% rise in nom­i­nal terms and a 15.5% rise in real terms).

The Mot­ley Fool’s inter­na­tion­al invest­ing team will be vis­it­ing Aus­tralia for a week start­ing on Feb­ru­ary 15th, meet­ing with more than a dozen domes­tic com­pa­nies to get a feel for what the Aus­tralian stock mar­ket has to offer. If you’d like to get their impres­sions, sign up for their free dis­patch­es here. Their overview piece on the trip itself is enti­tled “One Last Giant Prop­er­ty Bub­ble”.

I’m one of the peo­ple they’ll be inter­view­ing, and as a pre­lude they posed 3 ques­tions to me:

• Is Aus­trali­a’s hous­ing bub­ble big­ger than the one in the US?

Busi­ness Today will broad­cast an 11-minute inter­view by Whit­ney Fitzsim­mons about house prices with myself and Chris Joye of Ris­mark at 9.30am this Fri­day Feb­ru­ary 11 at 9.30am.

Though we dif­fered on many points–especially the indus­try-stan­dard propo­si­tion that pop­u­la­tion pres­sure was the main dri­ver of house prices–there was more com­mon ground than I had expect­ed, which is why I’m describ­ing it as a dis­cus­sion rather than a debate.

If you’d like to watch the inter­view and you’re not in Aus­tralia, Busi­ness Today is an ABC Aus­tralia Net­work pro­gram and it’s web-acces­si­ble as well as being broad­cast on a mul­ti­tude of chan­nels in Asia.

As reg­u­lar read­ers of this site would appre­ci­ate, some of the lyrics of Frank Sina­tra’s I did it my way apply to me in spades:

Yes, there were times, I’m sure you knew,
When I bit off more than I could chew…

That has become chron­ic, now that I am try­ing to fin­ish the sec­ond edi­tion of Debunk­ing Eco­nom­ics by the mid­dle of Feb­ru­ary (to be pub­lished hope­ful­ly in Sep­tem­ber by Zed Books). Once I’ve sent the draft off to Zed, I plan to start work on my “mag­num opus” Finance and Eco­nom­ic Break­down for Edward Elgar Pub­lish­ers–a task that will take at least a year, if not two.