Archive

Just wanted to let you all know that amongst the distinguished, distinguishable and disturbing people at the INET conference we have inserted ourselves in the middle to do some interviews, attend talks and blog about what is going on.

In science, empirical disciplines such as physics, chemistry, history, and parts of sociology and political science, reason from facts.

FT Alphaville has picked up on my friend James Sweeney’s latest, and since James cites the latest writings by other friends Zoltan Pozsar, Manmohan Singh, as well as my own most recent, the piece reads like a discussant’s comments on a shadow banking symposium.

Having just started Findlay and O’Rourke’s mammoth history of world trade in the second millenia, I have been struck by a strange incongruity

Last week the central banks of China and Australia announced the creation of a $31bn currency swap line

Yesterday the Chancellor of the Exchequer (or UK ‘finance minister’) gave his annual budget speech where UK fiscal policy is set for the coming years.

Entangling alliances or entangling leagues are nothing to the entanglements of cash owing—Keynes

In his notorious “How Did Economists Get It So Wrong” NYT article in 2009, Paul Krugman relied on the freshwater/saltwater distinction to explain that the economists’ inability to predict and solve the current economics crisis was due to the fact that MIT/Harvard economics lost their long dispute against their Chicagoan counterparts.

Discussion of the results of the ECB’s LTRO2 has revolved around the question of hoarding, specifically whether banks are using the newly-created reserves to fund new lending.

Fundamentally, the ECB is trying to keep the ongoing sovereign debt crisis from turning into a full-fledged bank credit crisis.

Judy Klein is Professor of Economics at Mary Baldwin College in Virginia. She is the author of Statistical Visions in Time: A History of Time Series Analysis 1662-1938, (Cambridge 1997) and co-editor of The Age of Economic Measurement (Duke 2001), and co-author of The Strange Career of Cold War Rationality (in preparation)

Perry and I extend our apologies for the unplanned hiatus. By way of breaking radio silence, it seems appropriate to check in on our two favorite banks.

I am writing from my notes. The event I want to report took place some two months ago, I have since been preoccupied, then occupied, and now increasingly overwhelmed.

A money view of SDRs

From a money view perspective, the central issue is settlement of TARGET balances between national central banks within the Eurozone, and the key is to understand TARGET balances as a kind of interbank correspondent balance.

The current account still matters, but other things do too, and maybe more. In light of recent focus on gross flows, here and elsewhere, I want to argue for the language of the balance of payments.

In recent years, an increasingly significant part of the history of economics has modeled itself after the methodologies developed by Science and Technology Studies (STS) scholars.

The title is the same as that of Maury Obstfeld’s Ely Lecture, delivered Jan 6 at the AEA meetings in Chicago. Yours truly was at the meetings mainly to deliver a paper on “Three Principles for Market-Based Credit Regulation”, about which more in a later post. And for most of the rest of the time I was locked in a hotel room interviewing candidates for an assistant professor slot at Barnard College (which gave me a good overview of the current state of macroeconomics, again fodder for a later post).

So with a suitably provocative title I think we can declare 2012 open.

So with a suitably provocative title I think we can declare 2012 open.

A correspondent sends us to a column of Paul Krugman’s that asserts that “nobody understands debt”. Fair enough.

When I started this blog, almost exactly one year ago today, my thought was to provide commentary on the financial events of the day, using the Financial Times as my primary source of information about those events.

As we prepare to digest the implications of this week’s ECB move, it seems worthwhile to take a look at the monetary economics of fixed exchange rates.

[The following guest post is by John Whittaker, from whom we have learned much of what we know about how the European payments system works. See his terrific papers here and here, both of which reward close study. He has been looking over the last couple Money View posts, and the comments to those posts, and has this to say.]

Why is the IMF getting involved in the Eurocrisis, and why is its involvement taking the form of lending to individual member states of the Eurozone?

The ECB has always been the protagonist of the eurozone crisis story.

The fact of the matter is that European bank funding markets are collapsing onto the ECB balance sheet.

My friend read somewhere that the experience of death makes people think in philosophical terms. He might have thought of religion rather than philosophy, I replied. We agreed, and wandered off talking about our crypto-religious experiences in good old secular Europe.

Bloomberg’s reporters continue their diligent work looking back on the Fed’s lending in the subprime crisis.

Europe is embarked on a grand experiment, managing modern financial crisis without a dealer of last resort, so refusing to follow the lead of the 2008 Fed.

On November 2nd, I was sitting in the Hayden Library Special Collection reading room at MIT, browsing archives on the undergraduate and graduate students’ discontent during the early 70s and the response of the economics department faculty.

Amid mass unemployment and economic turmoil, instructors who lecture on the superiority of free markets without acknowledging the dysfunction in the wider economy are at risk of appearing out of touch and exacerbating antipathy towards economics.

INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular.

A week ago, Mark Carney, chairman of the Financial Stability Board, warned of emerging global consequences of the escalating eurozone crisis.

The INET roundtable on “new conversations and the academy” took place a week ago. Most panelists were bloggers, including Mike Konczal from RortyBomb and Noah Smith from Noahopinion.

A recent e-mail conversation I had with Harro Maas concerning one of my latest drafts (shameless self-promotion) made me buy and read Naomi Oreskes and Erik Conway’s, Merchants of Doubts.

The following text was sent to us by Roger Backhouse and Bradley Bateman, we reproduce it in its entirety.

Professors Roger Backhouse and Brad Bateman wrote an op-ed for the New York Times a few days ago, arguing that “thanks to decades of academic training in the “dentistry” approach to economics, today’s Keynes or Friedman is nowhere to be found” - we have stopped thinking big they say.

The Toxic Textbooks movement devotes energy to curriculum reform as well. Its purpose is to galvanize student protests and “encourage schools and universities to use economics textbooks that engage honestly with the real world.”

This is the question I’m supposed to answer for an experimental INET conference aimed at inspiring new thinking through interdisciplinary conversation and collective reflection without rules.

Yesterday, Harvard students of Ec 10 staged a walkout to draw attention to the bias they detect in the course.

My first TV chat show performance:

In the case of utility, it’s all in the name.

Okay, so here is the statement, but what does it mean? Felix Salmon offers an unnamed advisor’s flowchart. Let’s see if Money View thinking can do better.

Last week Goldman Sachs published a note in favor of the Fed’s adopting a formal nominal GDP target, while Fed-watchers caught a whiff of a possible change in policy in the works.

Till is right. It’s not the historian’s task to question the legitimacy of the decisions of the Nobel Committee.

It’s Nobel Prize time again. And what a beautiful prize this year it is!

Plumbing Matters

The optimism embedded in the efficient market hypothesis has been one of the main sources of the recent turmoil

Focus on quantities

First ECB, then EFSF

The financial crisis of 2007-2009 should have been sufficient empirical evidence to indicate that the axiomatic basis of the mainstream theory needs to be replaced.

The future of macro, he says, may well make “the formation and revision of expectations an object of analysis in its own right.”

The reputation of economics and economists, never high, has been a victim of the crash of 2008.

This one is different. Tiago, Benjamin and Floris have asked a dozen economists in the Bretton Woods hotel hall to reflect on the way their teaching has been affected by the current economic crisis and their answers, taken collectively, are quite puzzling.

Forget the G7, Watch the C5

At its core, this rolling crisis is really about financial globalization.

Financial Globalization versus the Nation State

I cannot resist but to start quoting Mary Morgan’s second entry to the second edition of the New Palgrave: “Modeling became the dominant methodology of economics during the 20th century.”

While waiting for TALF

Can the renminbi displace the dollar as the world’s international money?

I thought I could use some of my illegitimate blog administrator’s privileges to participate in the discussion on the “progress in economics” post by Floris without being lost in the midst of other users’ comments.

Understanding QE3

Ok, time to deal with the elephant in the room: when is one theory better than the other? What is progress in economics?

The transatlantic conference has been moving targets: sociology went first, then economics, then history, today it was political science and international relations.

It’s not everyday that one finds economists using history as not just the right way but the only way to answer a question.

The U.S., in aggregate, acts as a bank to the rest of the world. The precise role of that bank has evolved over the course of the crisis.

Our interviews in the halls of the Mount Washington Hotel, covered the range of opinion about the severity of conflicts of interest in economics: we are alright; economics is no more corrupted than other sciences; corruption is substantial; it is rotten to the core.

The first graph shows US financial flows over the past five years.

The Marshall Lectures often provide thought provoking talks and one talk in particular spoke to me looking at the relationship between history and economics:

One silence, and one silo

Last June at a History of Social Science workshop , David Engerman presented a paper on the Harvard’s Refugee Interview Project (1950-1954).

On this blog, we like to overstate quite a bit our irreverence towards the establishment and in particular our senior colleagues.

In response to the walkout staged by students in the intro economics class at Harvard, the Institute launched the syllabus project, 30 Ways to Teach Economics.

To celebrate its 100 years of publishing, the AER published a special issues, whose retrospective part consisted of a list of the 20 most important articles, assembled by a committee which included Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow, and an essay on the history of the AER by Robert A. Margo.

Months ago, I got a message from a friend that was a swift and excited line: Errol Morris was writing a series of posts about science, even more remarkable about Thomas Kuhn.

I am late to the party on the inventive use of copper by Chinese companies seeking alternative sources of funds.

And heading where?

Updating Hawtrey for the Shadow Banking System

Economics and politics go hand in hand, we all know that.

Fed to the Rescue?

I interviewed Victor Shih, political scientist at Northwestern, at INET’s Bretton Woods conference earlier this year.

INET is all about thinking new things, and indeed academia is supposed to inspire great thoughts.

Grand Bargain at last?

As part of the tremendous promotion campaign for the 8th edition of his textbook Economics, Samuelson was devoted a feature in the New York Times (February 5, 1970, p. 41).

Paul Samuelson was notorious for many things, but also, like Marshall, for spending most of his academic life in the same institution.

Alchemy or Banking?

Two FT pieces by Tracy Alloway caught my eye this week: this article from Tuesday’s print edition, and this post on Alphaville today.

Two things seem to be taken for granted in the current debt-ceiling debate: 1. The parties will come to an agreement on the debt ceiling because 2. These United States have never defaulted and will not start now.

Mention the government and the market and all academic reflection and civilized discussion dissolves into heated monologues. Politicians are an extreme case.

A Monetary Rorschach Test

Last time, I looked at the Chinese property market. The last link in that chain of financial interlinkages is the People’s Bank of China, the Chinese central bank.

You would have thought that to be a “jazz economist” was a good thing. I first imagined a “cool cat” that would entrance the hearts and minds of the populace. Not so.

So, how hard is it to write the history of exceptional figures? Shall we buy film cameras?

The view from BIS

The organizers of Duke’s Summer Institute on the history of economics were so worried that students might be embarrassed to ask their supervisors for a letter of recommendation, or that the supervisors would say it’s a waste of time to study history, so they took a last minute decision to cancel the need for a letter of recommendation.

In his two-tome, 1400 page Dutch Leerboek der Staathuishoudkunde (Textbook of Economics), first published in 1884, Nicolaas Pierson (1839 - 1909) accuses the great Scotsman of being a communist – or at least of consciously clearing the way for the socialists with their ideal of a communist society.

The Political Economy of Debt