There has been much talk about microfoundations on the economics blogs in the last few months [ Noahpinion , Mark Thoma , Simon Wren-Lewis twice , Andrew Gelman twice , Karl Smith , Paul Krugman twice , Robert Waldmann , Rajiv Sethi from 2009 ]. The idea of microfoundations is that a model of the overall economy should be consistent with how individual people act. The aggregate behaviour of variables like GDP, government deficits and unemployment should be derived by adding up the choices of individuals, not by treating the whole population as if it were a single entity. (A microfounded model might start off like this: "Imagine N agents, each of which has income y n , consumes c n and saves s n . Then y n = c n + s n . For each agent, s n varies with the interest rate r according to the following relation..." while a non-microfounded model is more likely to start: "Total spending in the economy is C and saving is S. C+S must sum to Y, total income. S varies w
Showing posts from 2012
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This New Yorker article about why so many Americans are single reminded me of the debate about unemployment prompted by Casey Mulligan . Here’s why: From the New Yorker: "...do people live alone because they want to or because they have to?" Paraphrasing Mulligan and his critics: “Are workers choosing to be unemployed or are they forced to be?” [actual quotes from Mulligan: " there are sensible people ...who will recognize that 2009 is not the time for them to...commute a long distance to work...[unemployment insurance has] dramatically reduced the costs to them of making this the year they coach junior's baseball team, or do some work on their house, or spend time with an ailing parent" " the market tends to create and allocate jobs for those people who are most interested in working " and " my research has been to examine...changes in the willingness and availability of people to work " versus Dean Baker's " this does not m
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Do you remember those catchy tunes from the late 1980s? I Should Be So Lucky ? The Locomotion ? The first time you heard them they were quite fun, memorable even. But then they got more airplay. And more. And more. Radio stations figured out that the sugary, bubbly popness of the tunes would cut through a lot of background noise and get your attention, so they played them again and again. Soon we had Got To Be Certain , and Je Ne Sais Pas Pourquoi , which were exactly the same as the first two songs. Then a "strategic inter-agency collaboration" with Jason Donovan on Especially For You . ( Jason looks a bit less lifelike in this alternative version) . After a short interlude in late 1989, another number 1 with Tears On My Pillow , which was meant to be more sophisticated but was equally artificial, overproduced and in fact just the same old song as I Should Be So Lucky . By this time anyone who wasn't a 13-year-old girl was thoroughly sick of Miss Minogue, who wasn'