Category: Books
Discover your Inner Economist, Italian edition
Here is one place to buy it and here. Here are other relevant purchase sites. I believe it is available in both hardcover and paperback, although don’t hold me to that claim.
The mid-title — Scopri l’economista che è in te — still resembles "Discover Your Inner Economist." But now the book has a new lead title : "No Crac" ["No Nonsense"?] and a new subtitle, something like "How to survive the great depression and be happy," or so I am told by Maria Pia Paganelli.
Keynes’s General Theory, chapter five
Part i shows that Keynes had digested the Austrians, and especially the Swedes, far more than he let on. He goes through considerable machinations to show that his main argument is consistent with the Swedish long vs. short-run, ex ante vs. ex post analysis that ruled Stockholm at the time, as found in Myrdal, Lindahl, Ohlin and others. For all of Keynes’s periodic dismissiveness of his precursors, I read him as actually quite intimidated by them. In this section he’s "looking for their approval," if only in his own mind.
In Part ii Keynes presents two bombshells, more or less from out of nowhere:
a) For the short-run, the common default expectation is that "recently realized results will continue"; this precludes entrepreneurial creativity and creation as a way out of a bad situation. You’ll note the influence of Cambridge epistemology here, namely that we do not recreate our entire basic picture of the world de novo every day. G.L.S. Shackle is mostly a Keynesian but on this issue his emphasis on the creative imagination of the individual is a significant revision of Keynes.
b) Long-term expectations do not adjust smoothly but rather become more bullish or bearish in volatile leaps.
Furthermore a) and b) are held together, which implies at some margin a sharp disjunction between the short-run and long-run. I do not regard Keynes’s two assumptions as absurd, but they are hardly a "general theory." Note that you need a) to choke off various processes of recovery and you need b) to get investment demand to be so volatile in the first place. Let’s say you think b) is reasonable, then in my view you should also believe in possible "cascade" effects which can pull you out of a downturn in the short run. But for Keynes, no.
Here is a comment on last week’s session. Chapter six will be going up this afternoon. On short vs. long-term expectation, Felix Salmon has some good points.
Tips for scoring with the opposite sex
Yes, reading:
"The men polled said they would be most impressed by women who read
news websites, Shakespeare or song lyrics. Women said men should have
read Nelson Mandela’s biography or Shakespeare."
Here is the link. 46% of the surveyed men lie about what they have read — to impress partners — and 33% of the surveyed women admit to lying about their reading habits. In fact it’s the second most likely form of lying (or so people say) for purposes of sexual conquest, with lying about one’s own sexual past as the most likely form of lying.
And for teenagers? (presumably British):
Top of the list to impress a teenage boy are Facebook and MySpace
followed by text messages, Harry Potter and song lyrics. Magazines like
Zoo and Nuts are number seven. To impress a teenage girl, it is the
same top two, followed by song lyrics, cookery books and Harry Potter.
Reassuringly, Jane Austen is number seven.
Here are the actual lists but of course I believe people are lying about those too.
Prudie on husbands who write books
Trudie chuckled when she read these two sentences from Prudie:
I can’t tell if your husband’s fantasies are sweetly pathetic or disturbingly delusional.
…and…
You don’t need to crush your husband—you’re right, the marketplace will take care of that task…
The highly egalitarian Trudie believes that everyone deserves a chance. What would Immanuel Kant’s wife (it is no accident he didn’t have one) have said about his draft of Critique of Pure Reason? Trudie offers the husband — if he can be located — the following deal, maintaining his anonymity if he so wishes. I’ll read the manuscript, or at least try to, and tell everyone what I really think.
Keynes’s General Theory, chapter three
The material on Say’s Law is good but J.S. Mill understood similar points as early as the 1840s.
In section ii Keynes wrote: "This particular relationship, which corresponds to the
assumptions of the classical theory, is in a sense an optimum
relationship. But it can only exist when, by accident or design,
current investment provides an amount of demand just equal to the
excess of the aggregate supply price of the output resulting from full
employment over what the community will choose to spend on consumption
when it is fully employed."
That is one of the most important passages in the book. Consumption
is stable and investment is the volatile variable. For equilibrium to
obtain, C + I (forget about G for now) must absorb Y. But "I" is ruled
by fickle forces and there is no guarantee it will play its required
role. Consider this one of Keynes’s basic models.
Garett Jones suggested to me that Keynes is postulating a vertical
AD
curve in this chapter. The question is why Say’s Law doesn’t
have more force, namely why supply increases don’t translate into
aggregate demand. Keynes thought it was the liquidity trap –receipts
get soaked up in hoards rather than spent — but I think the key
problem has to be a broken banking system. Holdings of currency just
aren’t large enough and otherwise the held money
would end up being invested through intermediation. In the model
Keynes is often looking for ways to "break the circular flow" but he
didn’t always succeed.
Section iii has some lovely prose.
General Theory, chapters one and two
I am repeatedly struck by Keynes’s skill as a literary stylist. Usually this praise is denied the General Theory but I consider the book his Finnegans Wake; the most difficult passages are often the most charming but of course they are not for everyone.
I see three main themes in the book as a whole:
1. Income effects are more important than substitution effects.
2. Expectations matter.
3. The private and social returns to liquidity are very different.
#1
(as applied to macro) and #3 were most original in his time. The book
as a whole circles around these themes and repeats them in varying
combinations, not always coherently or consistently. You could also
add the claims that 4. monetary factors render a "natural rate of
interest" problematic and 5. labor markets are special. Chapter two is
essentially about #1 and #5.
Keynes did go beyond the classics,
even if he did often caricature them. (Keynes is brilliant as a
historian of thought when praising but almost always wrong when
criticizing.) Since Keynes never gives us a truly coherent model —
not even verbally — it is easy to pick holes in the GT.
Keynes had so many exciting new ideas that he never decided what his
main point was or exactly under which conditions it would hold.
Much
of chapter two is devoted to establishing the proposition that workers
cannot in any direct way choose a lower real wage. For Keynes nominal
wage flexibility doesn’t solve the
main problem. If nominal wages fall across the board in an economy,
prices will fall and real wages will remain high. Unemployment will
continue while the economy enters a downward spiral. I’ve already
discussed that point here but to sum up my view Keynes is presenting a special case not a general case.
p.9 puts forward a version of the doctrine of money illusion.
p.15
defines involuntary unemployment, namely if the economy can be inflated
into a higher level of employment. This pragmatic definition reflects
that Keynes was never sure why workers minded inflation, and a cut in
the real wage, less than they minded a cut in the nominal wage. But
that is one of his behavioral postulates and it has survived into macro
to this day.
The "neo-Keynesian" models are not so loyal to Keynes. Keynes held sticky nominal wages to be a policy prescription, but not necessarily a good description of the world.
Chapters
one and two are stunning, as they announce that we are now living on a
different economic terrain. But we’ve yet to see whether the main
arguments are truly sound.
On Thursday we’ll be doing chapters
three and four — be ready! And I encourage other bloggers to follow
along and offer their own commentaries.
What I’ve Been Reading
1. Stephen Schwartz, The Other Islam: Sufism and the Road to Global Harmony. Islamic theology is a reading interest of mine and I don’t mean the stuff that the terrorists promote. This book is not a comprehensive introduction to Sufism but it is interesting throughout and most of all excellent on the sadly neglected topic of Albanian Bektashi theology.
2. Alexander Dolgin, The Economics of Symbolic Exchange. A long, sprawling, and often creative and interesting overview of cultural economics, especially as it relates to issues of symbolic goods.
3. Michael Bérubé, Life as We Know It: A Father, A Family, and an Exceptional Child. About the author’s Down syndrome child; this is a very good book and it is also conceptual, not your usual concrete-bound memoir.
4. Heraldo Muñoz, The Dictator’s Shadow: Life Under Augusto Pinochet. This book fills in a lot of back detail about the Pinochet years. It is not perfect, but it is far more objective and useful than I had been expecting, especially given that the author was persecuted by Pinochet.
5. Elena Ferrante, The Lost Daughter. Translated from the Italian, this short novel is one of my favorite fictional works of the year; it is a favorite of Bookslut (and others) as well.
6. Speaking of Bookslut, Jessica Crispin’s favorite fiction book of the year was the Hungarian Metropole, by Ferenc Karinthy. I read it some time ago and inexplicably forgot to mention it. The feel is Kafkaesque and the premise is that a man wakes up in a world where suddenly he cannot understand any of the languages being spoken and has no way of communicating with anybody.
Joe the Plumber and his favorite books
Joe reads economics:
The Theory of Money and Credit (Ludwig von Mises): "It brought
monetary theory into the mainstream of economic analysis. It is
important reading for these troubled times."
My theory is that someone in Ron Paul’s camp told him to say that. Here is the full list of his favorite books. Here is my source. Here is an on-line version of TOMAC. Scrolling through it a bit, it is more readable than my recollection and it remains one of the better 20th century books on monetary theory.
Changes in money wages
And what Keynes had to say then is as valid as ever: under
depression-type conditions, with short-term interest rates near zero,
there’s no reason to think that lower wages for all workers – as opposed to lower wages for a particular group of workers – would lead to higher employment.
Suppose that wages across the US economy had been, say, 20 percent
lower than they actually were. You might be tempted to say that this
would make hiring workers more attractive. But to a first
approximation, prices would also have been 20 percent lower – so the
real wage would not have been reduced. So how would lower wages lead to
higher demand for labor?
Well, the real money supply would have been larger – but the normal
channel through which this might increase demand, lower interest rates,
was blocked by the zero lower bound. Yes, there would have been a
slight Pigou effect: real private sector wealth would have been higher,
because cash under the mattress (or wherever) was worth more. But on
the other hand, real debt burdens would also have been higher, probably
exerting a contractionary effect. Overall, there’s no good reason to
think that lower wages would have helped raise employment.
That is Paul Krugman and also here. That is correct but note the argument requires lower wages for all workers, exactly as Krugman states. He does not go through a change in wages for only some workers and indeed that scenario is very different and not necessarily Keynesian. When unemployment is present, lower wages for some workers can stimulate renewed employment and — depending on elasticities — possibly greater purchasing power as well or at least not proportionally diminished purchasing power. (Each worker earns less but there are more workers employed.) There won't in general be much of a deflation. The hiring of some workers can also lead to an upward spiral in production, employment, and again purchasing power, as outlined by W.H. Hutt in his books on Keynes.
Krugman and others wish to argue that the New Deal years were ones of recovery; that is fine but it increases the chance that the Hutt scenario and not the Keynes scenario would apply at that time.
The simplest version of the Keynesian argument on money wages also relies on labor as the primary source of marginal cost (true in many but not all sectors) and lack of market power for retail prices, among other assumptions about market structure. Yet another scenario is that some nominal wages fall and entrepreneurs (with some market power) invest more in response and hold retail prices relatively steady.
I believe Keynes's "falling nominal wages-falling prices-constant real wages-constant unemployment" scenario does hold for some of the 1929-1932 period and indeed I have argued as such in print. But once we get into the Roosevelt era, we have government propping up some wages above market-clearing levels and thus higher than necessary unemployment. Note that the Roosevelt policies applied only to some workers and by no means to all or even most workers, which again suggests the Hutt analysis is more relevant than the Krugman/Keynes analysis.
Krugman asks why Keynes's point, presented in 1936, is not more widely recognized today. But the limitations of Keynes's argument — including its reliance upon particular assumptions about cost and market structure — were pointed out by Jacob Viner in…1937 (see pp.161-162 JSTOR).
Viner, I might add, was hardly a laissez-faire denialist. He favored an active government response to the depression, and he admits Keynes's results can hold but needn't hold. He is the one who stakes out the sophisticated middle ground, not Keynes. So we're still trying to catch up to 1937, not 1936.
Addendum: It turns out I am blogging chapter 19 of the General Theory; I am looking forward to our forthcoming book club too much!
New MR book club – Keynes’s *General Theory*
Greg Mankiw wrote:
If you were going to turn to only one economist to understand the
problems facing the economy, there is little doubt that the economist
would be John Maynard Keynes. Although Keynes died more than a
half-century ago, his diagnosis of recessions and depressions remains
the foundation of modern macroeconomics. His insights go a long way
toward explaining the challenges we now confront.
I will go through the book, chapter by chapter, with an eye toward a deeper understanding of what Keynes wrote and why it is, as Greg says, so important. I’m not yet sure what kind of pace I can maintain but order your copy here, now. The Kindle version is only $3.96. We’ll do chapters 1 and 2 by next Monday, eight days from now.
Law and Literature reading list, Spring 2009
The Five Books of Moses, edited and translated by Robert
Alter.
The Metamorphosis, In the Penal Colony, and Other Stories,
by Franz Kafka.
Smilla’s Sense of Snow, by Peter Hoeg.
The Art of Political Murder: Who Killed the Bishop? By Francisco
Goldman.
In the Belly of the Beast, by Jack Henry Abbott.
Borges and the Eternal Orangutans, by Fernando Verrissimo.
Glaspell’s Trifles, available on-line.
Great Short Works of Leo Tolstoy, by Leo Tolstoy.
Sherlock Holmes, The Complete Novels and Stories, Sir Arthur
Conan Doyle, volume 1.
Out: A Novel, by Natsuo Kirino.
I, Robot, by Isaac Asimov.
Moby Dick, by Hermann Melville, excerpts, chapters 89 and 90.
Year’s Best SF 9, edited by David G. Hartwell and Kathryn
Cramer.
Pale Fire, Vladimir Nabokov.
Blindness, by Jose Saramago.
We also will view a small number of movies — most of all Sia — and perhaps I will add a Henning Mankell novel as well.
Questions that are rarely asked
Richard Green writes to me:
If the likes of Hitchcock and others could turn works that were mediocre in literature into great films, I wonder what mediocre films could have been great literature.
The point is not to come up with a list (though some of you will) but rather to ponder what we can learn about literature as a medium. He continues:
…literature adapted from films is almost (and this is a hedge because my experience says invariably) hack work, rushed and held in the lowest regard...Is it because literature is the elder medium, and has a higher status which would prevent condescension to recognising a prior from another medium? Is it because creation is more personal to a individual writer than the inevitable collaboration of film, and so they are loath to allow others’ work in?
Movies need (at least) a plot and a script and that can be taken from a book, with results of varying quality of course. But I do not have an equal understanding of which factor of production is scarce to writing a good novel. Do professional writers benefit more from showing originality in creating a world and also creating a language? There is plenty of fan fiction based on Star Trek and the like but few professional writers take this same tack.
A simple default hypothesis is that movies are more powerful and more real than books. So a movie based on a book won’t necessarily be overwhelmed by its source but a book based on a movie will be. Of course there are many books adapted from oral tales so maybe it is the addition of the pictures that is so overwhelming. I know only a few books adapted from paintings, most notably Gert Hofmann’s excellent Der Blindensturz.
The Life and Times of Raul Prebisch 1901-1986
The author is Edgar J. Dosman and this is a clear winner for most neglected book of the year. It is a very good economic and intellectual history of Argentina, a first-rate history of economic thought on the idea of import substitution, and an excellent biography, all at the same time.
It cost me $40 and I haven't regretted it. Every page is full of content. It's not easily excerpted but on Thanksgiving here is one bit I enjoyed:
Raúl and Adelita were now impatient to get home; they had been away for a full three months, but there was no escaping the boredom of wartime travel in the Americas, with one uncomfortable and bumpy flight after next and numerous stopovers — Miami, Mexico, Panama, Lima, Santiago, and finally Mendoza, where they boarded a train for the last leg to Buenos Aires.
You can buy it here. And if you agree with Dani Rodrik more than you agree with me, you may like the book more yet.
The Superorganism
The subtitle is The Beauty, Elegance, and Strangeness of Insect Societies and that is the new book by Bert Hölldobler and Edmund O. Wilson.
This is another plausible candidate for best non-fiction book of the year. I liked this paragraph:
Here is another good bit:
Whenever two kinds or organisms live in close mutualistic symbiosis, as is the case in leaf-cutting ants and their fungus, we should expect communication between the two mutualists. The fungus may signal to its host ants its preference for particular vegetable substrates or the need for a change in diet to maintain nutritional diversity or even the presence of a harmful substrate.
Here is a New York Times review of the book. The photos are wonderful too. Here is a short paper on the work of Barlow and Proschan and the general topic of "reliability"; it has implications for the financial crisis as well.
Iowa City fact of the day
In 2006, for a population of 63,027, there were 63,713
public library patrons; borrowers as a percentage of population reached
101 percent.
Is Will Wilkinson now one of them? Here is more. In another life, I would write a whole blog just on public libraries. UNESCO, by the way, has just designated Iowa City as the world’s third City of Literature. Edinburgh and Melbourne are the other two.