Economics blogging and the return of political economy

BlogAlex Tabarrok posted yesterday on the relationship between the economics blogosphere and academic economics. He identifies three contrasts between economics blogging and publication in academic economics journals:

  • Blogs are fast, journals are slow
  • Blogs are open, journals are closed
  • Journals reward cleverness, policy requires wisdom

He notes that blogs play a key role in policy debate not simply because it is possible to conduct the debate on a timescale that is relevant to policy (fast not slow) but also because blogs allow you to do things that journals don’t value. The journals worry about the logical consistency and coherence of models, and are less concerned about whether the models capture particular real world situations in meaningful ways. In contrast, policy needs the judicious application not just of an economic model but also “economic history … psychology, politics and law”. The sort of knowledge useful for policy is hard to represent in the academic economic journals. It is inherently eclectic: wisdom not cleverness.

These aspects of Tabarrok’s post reminds me of some of the comments made by policymakers who participated in the debates at the UK Treasury a while ago on what sort of economics education is useful for policy.

But Tabarrok takes things further than that discussion with his second point. [Read more…]

International evidence on housing booms

This post is the first of its kind for me. The post is jointly authored by myself and my friend and colleague Ken Gibb. It is being published simultaneously on both our blogs. You can find Ken’s post here.

A recent NIESR paper by Armstrong and Davis (November 2014 (£)) compares the last two booms and busts in major OECD country housing markets. The authors present a thoughtful macroeconomic analysis of national housing markets and from there conduct panel data analysis of the determinants of house prices focusing on financial, debt and related variables.

The authors argue that comparison of the two most recent housing market cycles (1985-94 and 2002-11) can test the hypothesis that there was something unique about the most recent boom and its aftermath. They state that the housing market is widely considered to be the main cause of the global financial crisis (quoting such authorities as the IMF). However, the authors come away from overall reading of the data for the two cycles unconvinced. In their view the two cycles are sufficiently similar that it difficult to draw the conclusion that the most recent cycle is different in meaningful ways: it is certainly not unique. The implications is that if the received wisdom is incorrect and other factors were important in causing the crisis then macro-prudential policies in countries like the UK may be incorrectly targeted at the control of house prices and mortgage lending.

We are interested in this broad area for several reasons: why did economists miss the bubble nature of the housing market and its departure form fundamentals? Why did they miss the downturn in national housing markets? How plausible are the microfoundations of the models being used to analyze the housing market and explain what is actually going on? What do these analytical weaknesses tell us about the health or otherwise of economics and its capacity to evolve and learn for future challenges? [Read more…]

Resuscitating Greek myths

4432808605_43e7400304_nNick Clegg has a rather extraordinary post at the Telegraph today.

The second half of the post is pretty standard: the Libdems are less spendthrift than Labour and less ideologically anti-state than the Conservatives. Split the difference and aim for the sensible centre.

But in order to grab the opportunity to reiterate this message he has to find a hook to hang it on. And the hook that he – or, presumably, someone in his team – chose was the Greek election.

He makes some comparisons between Greece and the UK in 2010 when the current UK coalition was formed. In doing so he resuscitates some myths about the state of the UK economy and, therefore, makes some implausible claims about the role of the Libdems in government. [Read more…]

Economists and their politics

Several econ bloggers have had things to say over recent days about the distinctions between mainstream and heterodox economics. It’s a discussion topic that carries a cast iron guarantee of raising the blood pressure of everyone involved. It’s one I’ve blogged about several times previously, but not for a while.

The proximate cause for this debate springing back to life, in the UK at least, was the broadcast of a Radio 4 programme about economics education which some mainstream economists (notably Tony Yates) felt was hopelessly one-sided in its support for heterodoxy, without giving those working from a mainstream perspective the space to respond.

But the discussion has taken a bit of a novel turn. Several of the recent contributions have focused on politics. The starting point is the argument that heterodox economists adopt the stance they do in relation to the mainstream because their sympathies lie on the political left, whereas they perceive mainstream economics as supporting a right wing agenda, now including large doses of austerity. [Read more…]

King speaks

Mervyn King’s stint on the Today programme yesterday was curious. It was much anticipated in some quarters. The reality then proved to be less revelatory than some might have hoped. I’m not sure what people were expecting – after years of buttoned-up discretion it was unlikely he was suddenly going to let all hang out. But some of the interpretation of King’s comments has been intriguingly partisan.

We are now only too familiar with the Coalition’s inclination to pin the blame for the financial crisis of 2007-08 on the last Labour government.  But asked directly yesterday whether he thought Labour were to blame he stated:

I am not going to talk about individual parties’ culpability because I think the real problem was a shared intellectual view right across the entire political spectrum and shared across the financial markets that things were going pretty well.

There were imbalances – we knew things were unsustainable – but it was not entirely obvious where it would come unstuck – and I think that is something everyone shared, and the right thing is to make it better for the future.

This has been interpreted in some quarters – notable by the Guardian – as King shifting his position and exonerating Labour. [Read more…]

Debtornation

Recent economic news is unlikely to fill many with Christmas cheer. Estimates of recent growth have been revised downwards. The current account has deteriorated sharply. The deficit is now in “worst since records began” territory. And it is consumer spending, rather than investment, that is sustaining the growth that is occurring.

Most news outlets seem to have focused on the current account deficit. Whether the deficit is bad news or not can be debated. Most commentators take it to be a bad sign – Britain isn’t paying its way – whereas contrarians such as Tim Worstall at Forbes argue that under floating exchange rates the current account situation shouldn’t necessarily be a major cause for concern. The complementary capital account surplus brings matters into balance and all is right with the world. I suspect that that position is rather too complacent: the long-term sustainability and desirability of ignoring the current account is by no means self-evident. But that is a discussion for another day.

I was intrigued by the way in which the growth figures are being narrated in some quarters. [Read more…]

Playing catch up on contracting

OutsourcingThe Public Accounts Committee report on government contracting, published earlier this week, secured substantial press coverage. The focus was on the report’s finding that G4S and Serco continued to be awarded additional work from government while they were under investigation for overcharging. And this fact rather contradicts previous assurances given by the Government.

How these two miscreants were handled in the period during which their behaviour was being investigated is without doubt an important question. But it is only one issue that the PAC addresses in the report, and it probably isn’t the most important one.

The report is relatively brief. It builds on a couple of previous reports the Committee has produced in recent months, as well as a report produced in the summer by the Committee on Standards in Public Life. It repays close attention. [Read more…]

Economics in the bubble

414585868_2c8513d269_nMy plan was to write something following up last week’s Autumn Statement. But what with having to do other things – work and that – I’ve not had the chance.

In the interim there has been bucketloads of analysis. So I’m not sure there is more to say on the substance. All right thinking people are agreed that George Osborne, along with frontline politicians in the other parties, is suffering from what Gavin Kelly has christened a “candour deficit”. No one is being honest with the electorate over the scale of the cuts being planned. And, equally importantly, no politician is being honest about what cuts on that scale imply for unprotected services. Rick illustrates the point beautifully drawing on data from the OBR, the IFS and elsewhere (here and here).

Even Fraser Nelson is calling Osborne out for the sleight of hand he used to claim that the Government had cut the deficit in half. Fraser Nelson. Crikey! [Read more…]

Fiscal foolishness

Budget Cuts sign with clouds and sky backgroundI’ve had an unusual and vaguely discomfiting experience. I found myself largely in agreement with a leader in the Economist. I may need a lie down.

I can console myself with the thought that what the Economist is saying – that the Conservatives’ fiscal plans for the next Parliament are damaging nonsense – would seem to be pretty much the majority, if not the consensus, view. Seeking to legislate to remove the deficit through slashing spending while at the same time delivering a tax cut is not the most impressively coherent agenda ever advanced. It will undermine public sector functions that are vital to the overall success of the economy. And it will almost certainly slam the brakes on the economy at the same time as inflicting further pain on some of the poorest in society.

The main difference of opinion seems to be around Osborne’s intentions. Are his proposals serious? In which case, he’s a bit of an idiot. Or do they signal an implicit acceptance that the Conservatives are not going to win next May? Osborne is simply trying to stake out a position he will never have to implement but which will provide a platform from which to mount an attack on the incoming government’s actions when they are, inevitably, less fiscally stringent. In which case, he’s a bit of an idiot.

Most commentators might think Osborne is talking rot, and that, at the very least, Labour’s proposal to exempt infrastructure spending from the self-imposed fiscal straightjacket is a step towards a more plausible policy. But fewer have offered alternative approaches towards bridging the gap in the public finances.

Here the Economist comes off the fence and sets out a distinctive proposal. [Read more…]

Policy unpacked #7 – What will make the housing market work?

Policy Unpacked 5Yesterday I took part in a panel discussion on the housing market as part of the Festival of Economics 2014. The panel was chaired by Julia Unwin of JRF; it comprised Kate Barker, Michael Ball, Diane Coyle and me.

It was an enjoyable event, with plenty of questions and comments from an informed and concerned audience.

I had arrived with rather more to say than could sensibly fit into my allotted time. So I ended up speaking rather fast, as a number of audience members pointed out to me after the session. I’m usually not too bad at timing these sorts of things, but clearly I was all over the place yesterday. [Read more…]