When I was in the White House, I used to bristle when people would say I was a Keynesian economist. They acted as if I believed that fiscal stimulus mattered because of some theoretical book written in 1936, or because of what I was taught in graduate school. I used to say that I am not a Keynesian economist, I am an empirical economist. I believe what I do because of the empirical evidence.
— Christina Romer (University of California, Berkeley)
I’ve been banging the “uncertainty” drum (as opposed to “risk”) for a few months now (see here, here, here, and here):
In his latest book, Keynes’s biographer Lord Robert Skidelsky argues that you just can’t insure against some risks. In fact, some expectations shouldn’t be called risks at all. One of Keynes’s least appreciated contributions, also voiced by his contemporary Frank Knight, was the importance of uncertainty, events in the future that we can’t measure or predict because we don’t have enough information or computational capacity.
Markets depend on prices, and prices depend on information, rational behavior, and predictable distributions of random shocks. When those foundations break down, governments are the only institutions that have the ability to restore order, from central banks injecting liquidity during credit crunches to regulators preventing or monitoring new innovations (be they financial derivatives or oil rigs) with uncertain social costs.
One important example that I haven’t spent enough time talking about is… Continue reading “A Good Economist Knows What He Doesn’t Know”
Kenneth Rogoff: “Those who believe — often with quasi-religious conviction — that we need even more Keynesian fiscal stimulus, and should ignore government debt, seem to me to be panicking.”
Since we’re giving opinions — let’s call them “seems to me-isms” — rather [than] analysis, let me give mine: “Those who believe — often with quasi-religious neoclassical conviction — that no further Keynesian fiscal stimulus is needed, and that government debt cannot be ignored, seem to me to be insensitive to the needs of the millions of unemployed, and at odds with the available evidence.”
As for the snide remark about “panicking,” for those who are truly panicking due to the struggles they face finding a job, paying the bills, and so on, some urgency from policymakers would be much appreciated.
— Mark Thoma (University of Oregon)
I want to write an investment newsletter, but I don’t like the pay-and-email model. I want it to be transparent, and like everything I write, I want the information and analysis to reach as many people as possible. So here it is. I wrote this first edition last Monday, but it took a week to get some feedback and rejigger the format. If any of it is out-of-date, now you know why. I most regret that I didn’t post it in time for you to take advantage of this. — AWO
It’s a stupid time to start an investment newsletter.
Economists are worried about a “double-dip” recession, public and private debt are at record levels, the world has just escaped two financial crises in three years, and the Chairman of the Fed says the future is “unusually uncertain.” With record-breaking temperatures outside, a smart person would work on their tan until the economy returns to normal.
Trouble is, I don’t know what “normal” looks like. Continue reading “The Ethical Investor: August 2010”
I promised you some interesting new material on economics, and here’s a new blog post at the Sun-Sentinel to that effect. I’ll explain more about the difference between risk and uncertainty in the coming weeks and months. Meanwhile, you can find more prescient papers by Pavlov and Wachter here, here, and here, and you can find the Princeton paper here.
The commenter “Max-42” counters that El Niño is responsible for the record-breaking ocean temperatures, and he’s partly right. El Niño is playing an important role, but so is climate change. Joseph Romm has an excellent post explaining how the two have worked in tandem. I encourage you to check it out.
And, as always, read the original post.