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From Priest to Heretic

by Colman Wed Feb 27th, 2013 at 07:38:05 AM EST

Apparently Martin Wolf was in Dublin giving a talk on "The State of Economics" yesterday, as reported by Nat:

"We did not know what we thought we knew" about the economy. That was one of the strong themes of Martin Wolf's presentation. He talked about his own, belated, interest in the work of Hyman Minsky. Minsky posed a deceptively simple (and for years ignored) question to macroeconomists. Minsky argued that for any model of the economy to be realistic, it had to allow for a Great Depression as one possible outcome.
<sigh>

Mr Wolf has come to the conclusion that the macroeconomic paradigm "failed" and the orthodoxy was simply "wrong", in relation to the importance it gave to inflation targeting and the mistaken belief that "cleaning" after a crisis would be cheaper than "leaning" against one, in terms of Government policies to prevent a crisis from occuring.

Wolf's turn to the dark side is complete, apparently.

What this implies, he said, is that a good deal more leaning against risky behaviour is required by governments, including regulation of banking, less risky financing of property, and much larger counter-cyclical capital investment.

In hinting at what a new economic paradigm might look like, Mr Wolf used the analogy of a bridge building project. Although the fundamental laws of physics apply to the construction of bridges, we do not ask theoretical physicists to undertake their design. Rather, we employ the profession of engineers, who have an array of practical skills, including rules of thumb, that better qualify them to oversee the construction of a durable bridge in the real world. By analogy, we need more "economic engineers" in future rather than theoreticians to advise governments and business about how the economy works in reality, rather than according to the idealised, orthodox models (the same models, I might add, that failed to allow for the possibility of the major economic crash that we just experienced).

Those putative engineers won't be listened to, because their narrative would be complicated to use in soundbites. The orthodox narrative is popular because it appeals to all sorts of pre-existing biases and simple "common sense".


Display:
Those putative engineers won't be listened to, because their narrative would be complicated to use in soundbites. The orthodox narrative is popular because it appeals to all sorts of pre-existing biases and simple "common sense".

ALSO

the few people who control everything important are having a ball being filthy rich/powerful and don't give a rat's ass about anything else.

So give up this "economic theory" el crapola ... it's just an excuse to screw the rest of you over ,,, and the weird thing ... you people take it!

The good news ... it's only a life sentence. You eventually leave this planet of idiots.

by THE Twank (yatta blah blah @ blah.com) on Wed Feb 27th, 2013 at 09:57:29 AM EST
Indeed, the comparison is rather generous to the theoretical economists.

Theoretical physicists may not be the ones building bridges, but their models are an excellent match to observed phenomena. And when they are not such a good match, they are often willing to -I am afraid to even say it- question the models.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Feb 27th, 2013 at 09:58:17 AM EST
Imagine if theoretical physicists were like our blessed theoretical economists. Commission them to build bridges; the bridges would collapse in spectacular manner. On examination, their theoretical physics would prove to be full of shit.

Yet here we are, with economic bridges falling around our ears, and no questions asked about their competence or adequacy to prescribe policy.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Feb 27th, 2013 at 10:27:52 AM EST
[ Parent ]
Important people use helicopters. Bridges are a sideshow.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Feb 27th, 2013 at 10:37:59 AM EST
[ Parent ]
No they wouldn't. The theory would be sound; the bridges collapsed because of external shocks.
by gk (g k quattro due due sette "at" gmail.com) on Thu Feb 28th, 2013 at 03:17:35 AM EST
[ Parent ]
Reminds me of that video of the suspension bridge destroyed by a 40mph wind.

Designed by economists, without a doubt.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Feb 28th, 2013 at 08:30:58 AM EST
[ Parent ]
Engineers using untested theory built it:

Tacoma Narrows Bridge (1940) - Wikipedia, the free encyclopedia

However, according to Eldridge, "Eastern consulting engineers"--by which Eldridge meant Leon Moisseiff, the noted New York bridge engineer who served as designer and consultant engineer for the Golden Gate Bridge--petitioned the PWA and the Reconstruction Finance Corporation (RFC) to build the bridge for less. Moisseiff proposed shallower supports--girders 8 feet (2.4 m) deep. His approach meant a slimmer, more elegant design, and also reduced the construction costs as compared with the Highway Department's design. Moisseiff's design won out, inasmuch as the other proposal was considered to be too expensive. On June 23, 1938, the PWA approved nearly $6 million for the Tacoma Narrows Bridge. Another $1.6 million was to be collected from tolls to cover the estimated total $8 million cost.

Following Moisseiff's design, bridge construction began on September 27, 1938. Construction took only nineteen months, at a cost of $6.4 million, which was financed by the grant from the PWA and a loan from the RFC. The Tacoma Narrows Bridge, with a main span of 2,800 feet (850 m), was the third-longest suspension bridge in the world at that time, following the George Washington Bridge between New Jersey and New York City, and the Golden Gate Bridge, connecting San Francisco with Marin County to its north.[2] Moisseiff and Fred Lienhard, the latter a Port of New York Authority engineer, published a paper[3] that was probably the most important theoretical advance in the bridge engineering field of the decade.[4] Their theory of elastic distribution extended the deflection theory that was originally devised by the Austrian engineer Josef Melan to horizontal bending under static wind load. They showed that the stiffness of the main cables (via the suspenders) would absorb up to one-half of the static wind pressure pushing a suspended structure laterally. This energy would then be transmitted to the anchorages and towers.[4]

Using this theory, Moisseiff argued for stiffening the bridge with a set of eight-foot-deep plate girders rather than the 25 feet (7.6 m)-deep trusses proposed by the Washington Toll Bridge Authority. This change was a substantial contributor to the difference in the projected costs of the designs.

So:

Tacoma Narrows Bridge (1940) - Wikipedia, the free encyclopedia

The failure of the bridge occurred when a never-before-seen twisting mode occurred, from winds at a mild 40 miles per hour (64 km/h). This is a so-called torsional vibration mode (which is different from the transversal or longitudinal vibration mode), whereby when the left side of the roadway went down, the right side would rise, and vice versa, with the center line of the road remaining still. Specifically, it was the "second" torsional mode, in which the midpoint of the bridge remained motionless while the two halves of the bridge twisted in opposite directions. Two men proved this point by walking along the center line, unaffected by the flapping of the roadway rising and falling to each side. This vibration was caused by aeroelastic fluttering.

Which led to:

Tacoma Narrows Bridge (1940) - Wikipedia, the free encyclopedia

The bridge's collapse had a lasting effect on science and engineering. In many physics textbooks, the event is presented as an example of elementary forced resonance with the wind providing an external periodic frequency that matched the bridge's natural structural frequency, though the actual cause of failure was aeroelastic flutter.[1] Its failure also boosted research in the field of bridge aerodynamics-aeroelastics, the study of which has influenced the designs of all the world's great long-span bridges built since 1940.

And thus the early 20th century models that had been proven wrong were retired. And there I guess is the difference.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Feb 28th, 2013 at 01:55:26 PM EST
[ Parent ]
Theoretical physicists may not be the ones building bridges, but their models are an excellent match to observed phenomena.
The problem is when they start working on unbserved phenomena. Then all kind of gonzo-weird shit happens (see String Theory).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Feb 28th, 2013 at 12:51:55 AM EST
[ Parent ]
Still far more plausible than rational agents.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu Feb 28th, 2013 at 07:28:16 AM EST
[ Parent ]
Rational agents are quite plausible, as a first approximation.

It's just that calling model-consistent optimizing behavior "rational" is to commit a violence upon the English language.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 28th, 2013 at 10:46:20 AM EST
[ Parent ]
"Rational agents are quite plausible, as a first approximation."

We'll need to agree to disagree. Perfect, free to acquire information with error-proof intertemporal maximisation (that somehow never gets interrupted by, say, death) is highly implausible.
It's a worse approximation than a flat earth carried by a giant turtle.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Feb 28th, 2013 at 04:10:49 PM EST
[ Parent ]
I hope you're not disrepecting Boris the Great Turtle.
by Colman (colman at eurotrib.com) on Thu Feb 28th, 2013 at 04:35:10 PM EST
[ Parent ]
Is she not called Great a'tuin?

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Mar 1st, 2013 at 10:07:53 AM EST
[ Parent ]
Quite, which is why model-consistent utility optimization is a bogus model of human behavior. But only a neoclassical would label as "rational" a decision-making strategy that requires one to obtain and (accurately) digest as much information as is required to perform model-consistent utility optimization.

Homo Economicus is not a rational agent. And any economist who pretends that it is needs to be challenged on his abuse of language.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Mar 2nd, 2013 at 08:55:54 AM EST
[ Parent ]
He is arguing for government regulation of and intervention in the functioning of the "free" capitalist market.

As the last 30-40 years have been dedicated to the veneration of the concept of freeing these markets for the dead hand of govt regulation for the benefit of the super-rich, who now own govts and the legislative process lock, stock and barrel, and sod democracy entirely, I rather think that you would be more successful trying to ban gun ownership in the USA

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Feb 27th, 2013 at 11:12:11 AM EST
I think we've lost sight of how remarkable it is that Martin Wolf
is arguing for government regulation of and intervention in the functioning of the "free" capitalist market.
But it's been over 5 years since the crisis started and he is usually ahead of the curve on the commentary.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Wed Feb 27th, 2013 at 11:23:00 AM EST
[ Parent ]
Let us just hope that there IS a curve of received economic opinion of which he IS ahead and that he does not turn out to be just another 'lone gunman'.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 27th, 2013 at 11:59:10 AM EST
[ Parent ]
I fear that he has simply taken himself off the list of approved "serious" economic commentators, entrusted by the plutocracy to reliably purvey their propaganda.

He is now no longer welcome in circles where his message might be broadcast and cause inconvenience

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Feb 27th, 2013 at 12:04:33 PM EST
[ Parent ]
Is that remarkable? What his starting point so neolib?
by IM on Wed Feb 27th, 2013 at 12:38:42 PM EST
[ Parent ]
No, but it was fairly conventional. Here's an example of a debate with Martin Wolf as late as the Iceland/Ireland/Belgium bank meltdown.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Wed Feb 27th, 2013 at 12:43:27 PM EST
[ Parent ]
And I am reminded of this followup nearly two years later (not involving Wolf, just internal ET debate around the same issues and with a better understanding).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Wed Feb 27th, 2013 at 12:54:15 PM EST
[ Parent ]
Olli's Follies: Is Debate About Fiscal Multipliers Unhelpful? - Forbes

Olli Rehn is the European Commissioner for economics.  Olli has spent much of his time in recent years telling everyone that Europe's austerity policies were working and the Eurozone economy was just about to turn the corner.  In reality, the Eurozone has been in recession since the third quarter of 2011 and the recession appears to be deepening: Eurostat this week reported a decline of 0.6 percent in real GDP in the final quarter of 2012.

This week, Olli sent a letter to the EU's finance ministers and other luminaries including IMF managing director Christine Lagarde.  So what was on Olli's mind? Concern about the ongoing slump? Worries about record high unemployment?  No. It turns out Olli is worried that IMF economists are doing research on fiscal multipliers.



It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Feb 27th, 2013 at 11:25:10 AM EST
I've really jumped the shark, first The Moustache of Understanding, now Martin Wolf. Here's something I posted a while ago in a comment on StumblingAndMumbling:

Economists think they are physicists, studying fundamental laws of science.
In fact, they are car engineers, like the Toyota ones from the 1930s. In studying a system (a GM or a Ford) they are reverse engineering a built thing. Underneath that built thing are some principles of physics - but mostly they are studying the design decisions, which are just that, engineering tradeoffs/design decisions.

A second key misunderstanding is that economists who deal with policy think their purpose is trying to identify a platonic ideal of a moving vehicle, whereas what we need them to do right now is identify practical ways to make our vehicle work just a little bit better. And frankly, right now in much of Europe, it's to make our vehicle work at all.

The result of all this is that post-Hayek we get endless navel-gazing from economists about what can possibly work and a refusal to look at evidence of what does work. All because they think they are studying nature (e.g. subject to gravity, things basically go down) whereas our economy is a machine (pistons go up and down.) Now physics does underlie the explanation of why pistons go up and down, but economists are stuck shouting "it can't go up, there's nothing in the natural system that makes things go up that way."

by Metatone (metatone [a|t] gmail (dot) com) on Wed Feb 27th, 2013 at 01:29:05 PM EST
Mr Wolf has come to the conclusion that the macroeconomic paradigm "failed" and the orthodoxy was simply "wrong", in relation to the importance it gave to inflation targeting and the mistaken belief that "cleaning" after a crisis would be cheaper than "leaning" against one, in terms of Government policies to prevent a crisis from occuring.
It's even worse, the orthodoxy refuses to even clean up after the crisis.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Wed Feb 27th, 2013 at 03:02:34 PM EST
"Cleaning" may mean something more like cleansing, as in ethnic.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 27th, 2013 at 04:30:12 PM EST
[ Parent ]
Purging - with leaches and emetics
by Metatone (metatone [a|t] gmail (dot) com) on Wed Feb 27th, 2013 at 05:03:25 PM EST
[ Parent ]
pruning off the scroungersdeadwood.


"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Thu Feb 28th, 2013 at 07:08:49 PM EST
[ Parent ]


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