The use of HET in the crisis debates

A Duke maling-list message just made me aware of this article from the University of Chicago magazine, “Chicago Schooled: the visible hand of the recession has revitalized critics of the the Chicago School of Economics.” It offers an interesting and quieter counterpart to the Krugman debate which is turning into a settling of old scores, but the bottom issue is the same. How much is the Chicago genealogy, from Murphy and Cochrane back to Heckman, Pelzman Fama, Becker, Stigler, and, of course, Friedman (how comes? ) among many others, and its market enthusiasm responsible for the present crisis.

Even more interesting is the use made by the author of recent works by historians of economics, mentioning Ross Emmett and Phil Mirowski.

Here’s the extract:

“The 2008 market collapse shocked the global economy like nothing since the Great Depression. Given the breadth of the failures involved, casting blame at a single school of thought may seem overly simplistic. But the Chicago School’s ardent championing of market forces, says Ross Emmett, a Michigan State University economist who studies the Chicago School and heads an oral history of it, makes it “a convenient locus” for anger.

Chicago’s market focus developed as the original Frank Knight/Jacob Viner Chicago School—also anti-Keynesian but skeptical of markets’ efficiency and mathematical models—waned along with World War II. The government’s influence on the University’s scientific-research funding disturbed then-president Robert Maynard Hutchins, according to Philip Mirowski, professor of economics and the history and philosophy of science at Notre Dame, and coeditor of the new book The Road from Mont Pelerin. (The Mont Pelerin Society was a Friedrich Hayek–led debating organization dedicated to advancing free-market ideals, including markets’ ability to efficiently show information.)

In 1946 Chicago already had a neoclassical presence: the Cowles Commission for Research in Economics, funded by Alfred E. Cowles III, scion of one of the Chicago Tribune’s owners. Cowles’s postwar staff at Chicago included nine future Nobel laureates, among them Kenneth Arrow and Tjalling Koopmans, who won Nobels in economics before Friedman. Cowles promoted an economics more scientific than the theoretical type that dominated the field at the time. But he was left-leaning. Hutchins wanted specifically anti-statist thinkers, Mirowski says, enlisting help from the now-defunct libertarian William Volker Fund to hire, among others, Aaron Director at the Law School, Friedman (Director’s brother-in-law) in economics, and Hayek at the Committee on Social Thought (the economics department nixed Hayek). Cowles would decamp to Yale in 1955. »

As an aside, there is increasing references (on the blogosphere) to the paper by Robert Gordon on the development of macroeconomics since the 70s in the light of the current crisis which was presented at the 1st ISHET. It is viewed as a more balanced criticism of the current state of macro research than Krugman’s.

Is the next step the recognition of HET as useful knowledge for economists in a time of crisis?

Getting younger and younger

In the last few, summer, months I have been an unreliable blogger. It is going to get worse. One good reason is that I have set up a new blog that requires my attention.

For 7 weeks in September and October, I teach a class titled generically “History and Methodology of Economics”, which I have ambitiously re-named as “the politics of economics.” The course reviews literature on the place and role of economists in contemporary society from an historical standpoint. Because one of my goals for the class is to develop appreciation for the multiple interpretations of which economics is subjected to, and to the multiple uses given to economic ideas in public life, I asked them to participate in a course-blog. This will be 10% of their final grade. Their task is capture commentary on economics or uses of economics in unexpected places, notably in mass culture.


From my brief, hands in the air, survey, nearly none of the students had experience with the blogging form. So they are learning not only about the practice of observing economics in its historical drift, but also about expressing themselves in a blogging setting. I leave you here an invitation to visit, to comment and to encourage on “Observing Economics“.


The images of my summer were not of white sanded coast lines or of foaming rivers in extreme rafting. With nerdish pride, the images of my summer were genealogical trees.

In Toptaki Palace, Istanbul
In Toptaki Palace, Istanbul
In El Escorial, Madrid
In El Escorial, Madrid

In our age, genealogy has become decreasingly serious (my way of avoiding more severe terms). It is a spectacle and a recreational activity. The BBC show Who do you think you are? has experts go on the road with celebrities to discover their great grandparents. There are mega websites, such as, that make birth, death and marriage records available on a click. Software lets all and any family write down and visualize DNA lines, in the confusion of multiplying last names. Finally, record offices in all countries have guides on how to construct “your” family tree.

Yet the “tree” in “family tree” had never been vivid to me, until this summer, until I saw the “tree” change in group portraits of power. The contemporary “tree” resembles a corporate organization chart, of levels advancing in overcrowdedness with thin lines of connection. The seventeenth century “tree” is leafy. The names or faces are not hanging fruit on a line, but flowers in a lush and organic setting.

To me it seems the “tree” back then asked the question “who is in?”. Today’s “trees” seem to ask “where do I fit?”

The audience, yet again

No theorizing today, just a quote from the last paragraph of the preface of the very interesting Let us now praise famous men.

b2ae06e288a21332797b8fcfada672afHere it is: “This is a book only by necessity. More seriously, it is an effort in human actuality in which the reader is no less centrally involved than the authors and those of whom they tell.Those who wich actively to participate in the subject, in whatever degree of understanding, friendship, or hostility, are invited to address the authors in care of the publishers. In material that is used, privately or publicly, names will be withheld on request.”

I am wondering whether anyone ever wrote to the authors/the publisher and what did he wrote?

Game over

I’ve been making notes on the media debates about the economic (formerly financial, and credit) crisis. My plan was to write down in notecards: themes, characters, positions, and narratives. Then cover a large table with the color coded cards. Shuffle them. And rearrange them in sequences and distances, taking photographs of each setting. With no pretension of making an art installation. This is my native, Ven diagram, way of thinking through the thematic patterns of popular discourse.

080111-new-yorker2Regrettably I am too slow. My speed impairment is expressed in my street running, my pool swimming, my football striker instincts and my paper writing. Worse still, I don’t usually win games: chess, checkers, Go, Unreal Tournament, Fifa 07. Picking last week’s New Yorker I notice how I lost another race. I feel cheated, my notecards stacked mercilessly into one single paragraph.

Please take a deep breath, and read the following:

This crisis is the culmination of events and trends reaching back, depending on your perspective, four, seven, seventeen, twenty-two, twenty-seven, thirty-eight, sixty-five, or a hundred and two years. (…) The causes are technological, mathematical, cultural, demographic, financial, economic, behavioral, legal, and political. Among the dozens of contributors and culprits, real or perceived, are the personal computer, the abandonment of the gold standard, the abandonment of Glass-Steagall, the end of fixed commissions, the rating agencies, mortgage-backed securities, securitization in general, credit derivatives, credit-default swaps, Wall Street partnerships going public, the League of Nations, Bretton Woods, Basel II, CNBC, the S.E.C., disintermediation, overcompensation, Barney Frank and Chris Dodd, Phil Gramm and Jim Leach, Alan Greenspan, black swans, red tape, deregulation, outdated regulation, lax enforcement, government pressure to lower lending standards, predatory lending, mark-to-market accounting, hedge funds, private-equity firms, modern finance theory, risk models, “quants,” corporate boards, the baby boomers, flat-screen televisions, and an indulgent, undereducated populace.

(Friends, family, and fans, worry not, I will pull through and have already a new paper idea: to expose the New Yorker as meta-journalism.)

Self help or science fiction?

Jim-Collins-for-WebBusinessmen are steely figures. They hire and fire. They invest and disinvest. They make decisions in the haze of uncertainty. And for all that they calculate, reason, plan.

Yet, in contrast to this materialistic character, they subscribe to mysticism. Executives are known to pay absurd sums to “management experts” to hear a litany of pedestrian commentary on the great business adventure. For instance, Jim Collins‘ new book, making the cover of Business Week, Why the Mighty Fall: And Some Companies Never Give In. The core of the book is identifying the 5 stages of failure:

    1. Hubris born of success
    2. Undisciplined pursuit of more
    3. Denial of risk and peril
    4. Grasping for salvation
    5. Capitulation to irrelevance or death

In reading it I had the feeling it was a rip off of the Kubler-Ross model, of the 5 stages of grief (denial, anger, bargaining, depression, acceptance) reordered. It is clearly charismatic for some audiences. (He definitely looks good! Like a younger Michael Porter.) It is undoubtedly successful discourse. But what is it? Is it self-help psychology for organizations? Or is it fiction with scientistic claims to spice the imagination?

J’Accuse…! (or “on the spirit of animals”)

Mister President,

If you may permit me, and with gratitude for the kind reception you once devoted to me, to have the attention of your just glory to remark that your star of justice, your joyful star, is in risk of being tainted by the most obscuring and indelible of threats.

Professor George Akerlof, Nobel Laureate of 2001, spoke in these terms to Bloomberg Radio on the 1st of April.

I feel that the most important animal spirit about the job market is what is creating the number of jobs we have. And for that, I think confidence is one. I think that stories about the economy is another. And the general feeling by the public, that the possibility that people may sell snake oil… And there is a long chapter about that.

Only today I heard Professor and Judge(!) Richard Posner speaking to Bloomberg Radio:

Animal Spirits is a John Maynard Keynes expression, and he said – and I think very insightfully – that because businessmen operate in a very uncertain framework, you known, uncertain environment… If you build a plant and its not gonna yield revenues for several years, you are really taking a shot in the dark. Because in a few years your markets may change, competitors may eat you alive, and so on. So you need some feeling of confidence, spirit, daring. And in a depression the economic environment becomes so uncertain, that people begin to freeze. So you see a lot of hoarding…

(Posner also adds that Frank Knight was an influence on Keynes. Sure, and the Easter Bunny was roommate to Santa Claus. No?)

Here is what John Maynard Keynes actually wrote:

Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

It is, I hope apparent, that Keynes idea of an urgency to action, the animal leap away from reason and best judgment, has nothing to do with either “confidence” or the drive of the “entrepreneur.” It is not the memory of man Keynes that I wish to preserve from blemish. It is mine and the public’s right to sanity in preserving the meaning and sense of words, their power to guide our thoughts. In Akerlof or Posner there is just nothing animal about them spirits.

I have but one passion: to enlighten those who have been kept in the dark, in the name of humanity which has suffered so much and is entitled to happiness. My inflamed protest is simply the cry of my soul. Let them dare, then, to bring me before a court of law and let the proceedings take place in broad daylight! I am waiting.

With my deepest respect, Sir.

That Joke Isn’t Funny Anymore

pj-orourke-1-1You don’t find jokes about economic graphs every day. Looking for a catch phrase for a paper on visual representation and economics textbooks, I came across political satirist PJ O’Rourke’s Eat the Rich, subtitled “A Treatise on Economics”. On page 110, O’Rourke introduces an absurd diagram in which he relates “the number of pages of Econ text devoted to graphical analysis” to “the number of Econ students asleep in the lecture hall”.  On page 105, he summarizes the attitude of most undergraduate students toward the principles of economics class: “I. There are a lot of graphs II. I’d better memorize them III. Or get last year’s test”. Okay, that’s funny. And so I have my catch phrase.

What is not as fun, on the other hand, is the rather populist background that comes with that joke when we get deeper into O’Rourke’s book. What he really means, in fact, is that economic diagrams as well as other technical elements are thrown in the introductory course only to introduce socialist ideas, for example the idea that “all wealth is the result of criminal conspiracy among: A. Jews B. Japanese. C. Pirates in neckties on Wall Street” (Ibid.). One of the examples provided by the author is the Keynesian equation Y=[C+I+G+(X-M)]/(1-c). He notes that “it’s hard to imagine applying the above formula to any ordinary economic question, e.g. should I put my bonus in a certificate of deposit or buy new stereo speakers?” (p. 106). O’Rourke may well have his definition of “economics” from Aristotle rather than from Robbins, so it’s easy to disembowel the guy for writing that but most importantly, all of the chapter is to show us that mathematical economics is simply socialist thinking dressed in fashionable mathematical nonsense. I thought this kind of thinking had been thrown out with McCarthyism. So this is not so funny, after all …

What is a bit funnier, on the other hand, is that the opposite discourse has become as fashionable: thanks to Sonja Amadae, we know that mathematical economics and assumptions about rational behavior necessarily imply the defense of capitalism as a political discourse. Amadae is probably more researched than O’Rourke in her demonstration but the similarity between the two theses is that mathematical economists are just idiots who are not even aware of the political implications of their discourse. For O’Rourke, they’re just a bunch of socialists in disguise; for Amadae, they just underwrite the protection of big corporations. I am not naive: I would not assert that there is no politics in methods. I just wonder whether it is too much asking for more subtlety…

Blogs as historical objects

blogcartoon2To echo Yann’s reflection on wikipedia, I want to say a few words on my difficulty using economic blogs as an historical object. There are the very few posts I publish on this blog and there are the numerous I trash before they reach the playground. One reason for this is that I’m often left wondering about the significance of the opinions, anecdotes, controversies and disputes I find on the web, and on economists’ and journalists’ blog in particular –from Mankiw and de Long’s blogs to New York Times columns including Krugman’s,to  the freakonomics and marginal revolution blogs and others. Does such and such opinion reflect a wider one within the profession (and which professin matters: academic economists, economists working in administrations, banks, columnists, journalists…), does such and such event reflect a general move, a cultural evolution, an historical trend ? What are the blogs that matter and how do they matter? I remember this discussion we had with Tiago on wikio, technorati, and other ranking tools, where “authority” (in technorati) is estimated by counting the links to a blog within the last 6 months or 30 days. We discussed the limits of such tools (you have to ask to be registered, so what if you don’t want to enter the game?), in particular the use of links as a yardstick (what if a blog function as a forum where people discuss in the comments rather from blogs to blogs, what if “visual” content such a charts or videos is generally more “linked” that columns or texts), and most important, we discussed the meaning of such ranking. Tigao found them useful as measures of conversation, social networking. I found them limited and problematic as measures of influence (as regards the spread of ideas, the impact on decision makers, for instance), popularity and power. There are two sets of questions recurring with my everyday use of blogs:

-How do we use them in a research on the history of current economics? Will they replace Friedman’s Newsweek columns? Or do they vividly display science in the making the way the minutes of the first Mount Pelerin Society or Herbert Simon’s handwritten notes of meetings at the Ford Foundation do? Or rather opinion in the making? How to make sense of the comments which feed blogs when then are mostly anonymous. How are we to handle the multiple identities of those researchers-academics-columnists-bloggers-citizens-public intellectuals? Are blogs a separate forum? Do they replace others or get a new function?

-How do you proceed to feel the zeitgeist of our times? Do you have a list of blogs and sites to eat up with the morning coffee ? If so, how does such list evolve over time? Do you just swin with the tide, jumping from links to links? What media and ideas do you choose to remember our times and how?

This IS knowledge !!!

Reviewing (i.e. bashing) David Warsh’s Knowledge and the Wealth of Nations for the Journal of the History of Economic Thought, Philip Mirowski (2007: 492), concluded:

I pity the poor student of modern economics, trying to make some sense of what can only appear to the outsider as cryptic oracular pronouncements emitted from people who claim to be experts in the nature and validity of knowledge.* But when you get your news from Jon Stewart, your history from Paul Krugman, and your research facts from Wikipedia, maybe the nature of knowledge has itself changed.

The end of the sentence is tinged with what I believe is Mirowski’s utter disdain for popular culture. It takes, however, just a few days for a non-American person to realize that Jon Stewart’s Daily Show is certainly a better source of information than any other cable news (CNN included …), though I personally prefer the Colbert Report.

But my question is: what about Wikipedia? I have to confess I use it quite frequently,  for some basic research at work as well as for some more silly inquiry about music, cinema or celebrities at home.  Of course, I never take the information that is given there as granted and I think it is rather crucial to double check it with a more formal source of information, but I have largely benefited from the bibliography that is often provided at the end of articles. I am fairly impressed by the fact that some anonymous people have spent some time writing on E. Roy Weintraub or Waldemar Kaempffert, sometimes advertising the works of others without any reward. All in all, there is an underlying model of disinterestedness scientists should be proud (or envious?) of … Why, on the contrary, they spend so much time bashing it is therefore a mistery to me. Where does this idea that an increasing dissemination of knowledge corresponds to a degeneration of its substance come from? Jealousy? Elitism?  Declinism? Conservatism? Repugnance for the “neoliberal” ideology they think such modes of dissemination sustain?

PS: Thanks to Wikipedia, for example, I learned that philosopher of science Susan Oyama has been married to the late great contemporary composer Luciano Berio from 1966 to 1972. Pretty interesting …

* I should point out that Mirowski is not referring to David Warsh here but to Paul Krugman, though his using the plural of “experts” is quite intriguing.

Open letter

Dear Yann,

I hope these words find you in good health and high spirits. [to add: short funny and self deprecating story about myself]

cadburrys_guardianI write you to collect your thoughts on a puzzle that has bothered me in the last few days. Some of the newspaper websites that I visit regularly have called on their readers to send “images of the recession.” National Public Radio’s Planet Money has collected in bulk over 300 pictures in flickr. The UK Guardian has a recession monitor, also in flickr, introduced frantically “So it looks like we’re in a recession, or heading for one. Or are we? How do we know? We want to see your shots of how the recession is (or isn’t) affecting your area.” Finally, the New York Times has not outsourced and hosts “Picturing the Recession” with some cool flash enabled browsing. I recall our conversations about the FSA photographs and discussing Cara Finnegan’s book Picturing Poverty on that same topic. These are items of visual culture as you are fond of calling them, and I of echoing. I wondered if you had noticed this phenomena and if you see how one can speak meaningfully about it.

Cynically, I see these as mostly gimmicks to draw people to web content and give them a stake of ownership. The websites and the newspapers make no direct use of the readers’ photographs, I found no references to these besides the appeals for more. It does not help newsprint in imagining the economy as the FSA photographs did by design. What do you think we can draw from these? May they tell us something about popular culture? If these are clues, what is the mystery?

[to add: tangent about some of the photographs, and so cool down the letter]

With best regards,
[to add: my name]

P.S. [to add: joke about recipe of cod and fava beans…]

Two cultures, three cultures, and feeling dizzy

2628723One of those people that have initials for their first name, CP Snow is famous and infamous for a lecture given 50 years ago at Cambridge University. In “Two cultures and the Scientific Revolution”, Snow indicted the humanities for halting the progress of society. The literary inclined Universities were unwelcoming to the knowledge and methods of technologists and natural scientists. (A likely third culture might be social scientists, whether angels or devils, I don’t know if Snow specified.) In the New York Times book review section Peter Dizikes, a science writer, thought again about the Snow essay and tried to get something fresh and contemporary out of it. And it seems quite a struggle to make that text speak again. The world seems less binary without the Cold War. Dizikes concludes hurriedly:

the aspect of “The Two Cultures” that speaks most directly to us today. Your answer — and many different ones are possible — probably determines how widely and deeply you think we need to spread scientific knowledge. Do we need to produce more scientists and engineers to fight climate change? How should they be deployed? Do we need broader public understanding of the issue to support governmental action? Or do we need something else?

The equivalent of the “two cultures” is a bureaucratic decision about what kinds of big science to fund? I guess that means the humanities lost, but then again it was never their war…

The Historian, the Economist and the Scientist

Back from Amsterdam where I attended the Observation in economics and natural sciences, historically considered‘s conference ( In the conference, several discussions have focused on whether there was some difference between observations in natural and social sciences (at least  for the sake of history).

bad-economyWhile opening the Saturday issue of Le Monde, I found an article (reproduced from the NYT) titled: “Physicist Tried to Outwit Wall Street. They Failed”, that put (at least for me) these discussions in an interesting perspective. One of the quotations from the main character, the former physicist turned professor of finance, Emanuel Derman, is interesting. He wrote in his biography: “In physics there may be one day a Theory of Everything; in finance and the social sciences, you’re lucky if there is a usable theory of anything.” I take this quote as representative of what many scientists , who believe that there is a lot of differences between natural and social science, think. The question is: does it matter to us, historians. I do not think so. In the face of history, all sciences are equal!

A Useless Synthesis?

Punch (1851): Useless Information (John Leech Sketch archives from Punch)
Punch (1851): Useless Information (John Leech Sketch archives from Punch): "Now, Marm, this goes to the Christial Palis." / "Bless the man! I don't want no Christial Palises. I am goin' to the borough."

Last Friday, the graduate students from my department interested in macroeconomics organized a round table on the so-called “New Neoclassical Synthesis”, as Goodfriend and King (NBER Macroeconomics Annual, 1997, pp. 231-283) called the convergence in method in macro: the fact that “all” macroeconomists seem nowadays to subscribe to the use of a dynamic stochastic general equilibrium (DSGE) model for the analysis of the business cycle and growth.

The students invited three macroeconomists trained in different traditions (two were more “new classicals” and the other was more “post-Keynesian”) and myself to discuss the convergence in macro. The event surprisingly attracted a wide range of people to the audience: graduate students in general, other faculty members working on different areas, and undergraduate students (probably looking more for the heat of the debate than for its light…). A room for 130 people was packed.

The discussion was lively and interesting. One issue that was raised by one presenter was that academic economists do things for grasping better how the economy works, while economists at the Central Banks have to use in the best way they can the available theory to prescribe economic policies (clearly in a different time frame than the academics’), and economists and journalists in the media strategically criticize both academics and policymakers in order to sell their products.

In this vein, it was very interesting that a day prior to the event a friend had just called my attention to Willem Buiter’s comment on Financial Times (March 3rd). According to Buiter, who has important academic and policymaking credentials, modern macroeconomics has to be rewritten almost from scratch: it is simply incapable of dealing with economic problems during “times of stress and financial instability.” Thus, I add, macroeconomists may be proud of spreading the word that they now have a consensus method for doing economics, but a useless one according to some people: simply the wrong direction.

The current economic crisis may bring novel ways not only of doing economics but possibly also of looking at and using its past, a hope (or doubt?) with which Craufurd Goodwin closed his Palgrave (2008) entry on the history of economic thought. Any bets?

Imagining the “reckoning”

In Obama’s speech yesterday he mentions the “day of reckoning.” He says it only once in the sentence: “Well that day of reckoning has arrived, and the time to take charge of our future is here.” after mentioning “we have lived through an era where too often, short-term gains were prized over long-term prosperity; … Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.”

boschThe idea, which William Kristol finds “little ominous coming from a candidate of hope and change” is remarkably effective in capturing media attention, and maybe the public’s imagination. All news media used the sentence to summarize the speech – check google news search.

The question for me is why does it seize the imagination? In my mind it calls up an image, Bosch’s horrid paintings of confused nakedness and deformity. But what do western media see when it is conjured? Surely the staging of a trial, also the dividing of the world between saints and sinners? The news articles don’t help, some show a thoughtful Obama, others a solemn Obama, yet others show him playful. Maybe it calls no image, but primes you to a sense of justice, righteousness and comfort in the knowledge that someone above the fray will separate the angels from the sinners, and make the world intelligible again.