Lars P. Syll

Brad DeLong is right. Public debt ratios are too low! One of the most effective ways of clearing up this most serious of all semantic confusions is to point out that private debt differs from national debt in being external. It is owed by one person to others. That is what makes it burdensome. Because it is interpersonal the proper analogy is not to national debt but to international debt…. But this does not hold for national debt which is owed by the nation to citizens of the same nation....

Although Bayesians think otherwise, to me there’s nothing magical about Bayes’ theorem. The important thing in science is for you to have strong evidence. If your evidence is strong, then applying Bayesian probability calculus is rather unproblematic. Otherwise — garbage in, garbage out. Applying Bayesian probability calculus to subjective beliefs founded on weak evidence is not a recipe for scientific akribi and progress. Neoclassical economics nowadays usually assumes that agents that...

How to cure the recession …  [embedded content] (h/t Gabriel)

In a recent issue of Real World Economics Review there was a rather interesting, if somewhat dense, article by Judea Pearl and Bryant Chen entitled Regression and Causation: A Critical Examination of Six Econometrics Textbooks … The paper appears to turn on a single dichotomy. The authors point out that there is a substantial difference between what they refer to as the “conditional-based expectation” and “interventionist-based expectation”. The first is given the notation: E[Y|X] While...

Moments like this you never forget! Last year Mark Blyth gave the U. S. Senate Budget Committee a well-earned lecture on public debt. Unforgettable and absolutely fabulous!

Oxford professor Simon Wren-Lewis had a post up some time ago commenting on traction gaining ‘attacks on mainstream economics’: One frequent accusation … often repeated by heterodox economists, is that mainstream economics and neoliberal ideas are inextricably linked. Of course economics is used to support neoliberalism. Yet I find mainstream economics full of ideas and analysis that permits a wide ranging and deep critique of these same positions. The idea that the two live and die...

The tiny little problem with Chicago economics Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions. John Cochrane And the tiny little...

Send in the clowns No, I wasn’t thinking of U. S. republican presidential candidates …  [embedded content]

Diane Coyle has an excellent article in the FT about an apparent puzzle. Why do executives get incentive bonuses (extra pay on meeting some target), but most workers do not? Her article is based around a classic paper by Bengt Holmstrom and Paul Milgrom. Their basic argument is that incentive pay linked to specific targets works (it increases effort) when tasks are simple and effort can be easily measured. However if tasks are complex, and only some aspects of performance can be...

The real cost of euro austerity The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in Greece the people has had to pay the true costs of its concomitant misguided austerity policies. The unfolding of the Greek tragedy during the last couple of years has shown beyond any doubts that the euro is not only an economic project, but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t...