Knowing and Making

A debate has been going on within economics (and in my head) about how the economy is changing. Tyler Cowen thinks there is a " Great Stagnation ": all the low-hanging technological fruit (trains, planes, automobiles) has been harvested; we've grown for the last thirty years by getting some efficiencies out of existing processes, but that has limits; and there's no new major new invention on the horizon which will transform living standards further in the coming century. Umair Haque says something similar in more provocative language: the old models are bankrupt, we need a new mode of life - moving away from consumption and towards eudaimonia . A bigger TV doesn't provide any more satisfaction, just a shallow, temporary endorphin hit and a status upgrade relative to some of your friends. [ Update : Umair comments on twitter that "my definition of eudaimonia is economic, not just psychological" ] But the default position of economists - including...

Some recent interesting articles: A Physicist Turns the City Into an Equation is a description of an ambitious project by Luis Bettencourt and Geoffrey West at the Santa Fe Institute to develop mathematical models of the behaviour of cities (and earlier, of the physiology of living organisms). They claim to have found some strong correlations in both cases. For instance, a city that doubles in size increases its productivity and economic activity per capita by 15%. And animals that grow larger become more efficient users of energy. However, it's not clear whether they have a real model which explains these phenomena, or just some statistical correlations. Paul Mason went to the LSE and conducted a whimsical interview with the ghost of John Maynard Keynes. As fits someone who changes his mind with the facts, he has grown out of Keynesianism and is seeking a new model which can handle fiat currencies and global finance. An excellent challenge. Another challenge comes from Tyl...

My former colleague Henri Yandell analyses the differences between context switching and multitasking, and between deep and shallow thinking here . Rory Cellan-Jones has a less interesting but more...well, more BBC, take on the same subject  here . I guess they're both prompted by The Shallows by Nicholas Carr - a man with whose previous writings I have disagreed violently. Looks like the subtitle on the paperback has quietly been changed from "What the Internet is doing to our brains" to "How the Internet is changing the way we think, read and remember". Presumably the old title was provoking too much hostility. Carr's thesis about shallow thinking is very different to, say,  Tyler Cowen's Age of the Infovore , which argues that the Internet now allows us a much deeper  and more engaged experience with the narratives of our lives. Rory's argument (and that of Douglas Adams, to whom  Henri links ) is that this debate has been going on for m...

Here's  a little something  on fiscal stimulus. It contains a suggestion I've seen from Tyler Cowen and Scott Sumner, among others: ...while the zero bound does not bind, the Fed might nonetheless be reluctant to engage in the appropriate amount of monetary expansion, and that a fiscal boost is therefore required. A potential response to this is that if the Fed has chosen the unemployment rate with which it is satisfied, it will simply offset any fiscal measures to push unemployment below that level. That's only true if the Fed is assumed to be a simple (rational?) agent acting with just one lever: controlling the money supply in order to choose a balance between inflation and unemployment. However, it's very plausible that the Fed is  not  happy about the current unemployment rate, and recognises that it could and perhaps should increase inflation (or NGDP) to fight it. But it is  also  worried about its long-term credibility (as Ben Bernanke indicates i...

Tyler Cowen was prompted by a reader question to offer his ten most influential books . He challenged other bloggers to do the same, so here are mine (as for Tyler, this is my "gut list" though informed by a pleasant half hour looking through my bookshelves to prompt my memory). It surprises me how few economics books are here - but then I didn't do much formal economics study at the time of life that one chooses influential books: Easily at the top of the list is Douglas Hofstadter, Gödel, Escher, Bach - An Eternal Golden Braid . The first book that started me exploring the mysteries of cognition and consciousness - and a book of such beauty, grace and depth that my life's work would be complete if I could write anything like it. Most of his other books are excellent too. Christopher Alexander,  A Pattern Language . Gives another insight into where abstract patterns can be found in the world - this time in the architecture of cities, buildings and rooms. Steve McC...

Two independent observations of a new trend today. First on twitter: Then on Marginal Revolution : Kate is very well-versed in the British newspaper industry (I used to adore her TV listings in the FT), but I had no idea that the Mail's reputation had spread even to Tyler Cowen's parish.

Happy birthday to Tyler Cowen, prime mover behind the Marginal Revolution blog (sorry Alex, but you just don't post as often). In honour of Tyler and MR, clearly the emperor of economics blogs, here are a few recent pages which I discovered via his targeted link-collecting. Unlike Tyler I think this research gets to the heart of exactly why music works psychologically. I don't know the UCL or Goldsmiths people involved, but will try and find out if they work with my friends from the Judgment and Decision Making seminar. He also links to an interesting post from okcupid , a site I am (ahem) familiar with. And this fascinating if tenuous link about number sounds, from the Barking Up the Wrong Tree blog which I hadn't seen before, also comes via him. Finally, you can't go far wrong by picking and reading a random article from MR and thinking through the conclusions (though Tyler has usually done that for you too, which is a pretty efficient use of scarce cogni...

Apart from Alchian and Allen, Tyler Cowen is the only economist mentioned in the Wikipedia entry for the Alchian-Allen theorem . Is this because he is the pre-eminent commentator on that theorem in the contemporary economics world? Or just because he has a popular blog? This post won't answer that question, but it is prompted by Tyler's thoughts on the theorem in his book , and in an interesting Econtalk podcast with Russ Roberts . The theorem states that if a fixed unit cost is added to the prices of all products in a set, relative consumption will shift towards the most expensive one. Or more simply: high shipping costs lead to higher quality goods. The classic example is apples. In Somerset (arguably the apple capital of Britain, for readers unfamiliar with its many joys ) let's imagine a juicy, hand-picked, top quality Pink Lady apple costs £0.10; while a tasteless, mass-produced Golden Delicious costs £0.02. That's a fifth of the price! Local consumers of apples w...

An chain of favourites is emerging in recent blogs. Let me show you how it works. Chuprevich 's favourite economist is Tyler Cowen (he is a few other people 's favourite too). It follows of course that his favourite monetary economist is also Tyler Cowen*. Tyler Cowen 's favourite monetary economist is Scott Sumner. Scott Sumner 's favourite monetary economist is Bennett McCallum. Bennett McCallum's favourite monetary economist is not currently known. Can this chain of favourite monetary economists be extended in either direction? Perhaps Professor McCallum will leave a comment to assist. If anyone's favourite monetary economist is Chuprevich, do let us know. I am having trouble investigating that as his website makes me dizzy, not to mention the fact that Chuprevich may not be a real person. Can we develop a theory of favouritism among monetary economists? This Google search shows a few more favourites (note the American spelling) and a fair inference is th...

Matthias Wasser , in a response to Tyler Cowen's progressivism post , writes: In a large state true democratic governance is impossible, because unlike the market, a perfectly functioning democracy would require every voter to have perfect global knowledge. Is this true? Note that Matthias is not necessarily giving his own view here, but (as per Tyler's challenge) his characterisation of libertarian opinion. But it's an intriguing statement. Many people think the converse: that the efficient markets hypothesis requires all market participants to have perfect information, and the action of an informed and beneficent government is a way around this problem. He's correct to point out that this is not in fact a condition of the EMH. But surely it would be possible to design a democratic system where the same thing holds: where, somehow, distributed knowledge enables society to make the right collective choices. What are your ideas on this? Comments are invited.

Tyler Cowen challenged progressives to come up with an intelligent defence of libertarianism. While I might not be considered especially progressive by European standards, I probably am on the American spectrum. I thought that a view from a European might be interesting given that he makes several comparisons between the two continents in his list. Incidentally, I think his list is not a bad summary of the progressive position, though I'd disagree with 3 and the second part of 8. Maybe those points are where I am revealing my libertarian bits. Here's my attempt to return the favour: As a matter of principle, freedom is both a good in itself and a bulwark against damaging authoritarianism. In general, each individual knows more than anyone else about their own interests and the context they live in, and by making their own choices they are best able to maximise those interests. Indeed, the only way we can get any genuine insight into someone else’s interests is by observing the...

Tyler Cowen's book has finally arrived and I'm devouring it. Full review later. My bubble detection proposal was mentioned by Scott Sumner on TheMoneyIllusion this week, and there's also an interesting discussion of it on Baseline Scenario today. The Walker Review was published today, in interim form. You can read the report here and our submission to the process here . Some of the points on the moral hazard of limited liability, and the externalities imposed by the financial sector, echo our comments. Some of our other suggestions, for example that banks should use standardised product definitions to enable transparency of their asset mix and better decision-making by their creditors, have not been taken up but we may make another submission during the consultation period. As part of its "where economics went wrong" feature this week, The Economist has an interesting analysis of the efficient markets hypothesis and some departures from it, including the impli...

Dear Tyler I'm very much looking forward to reading Create Your Own Economy and even more encouraged by your offer on the blog today. And yet I have a dilemma. It seems that it won't be published in the UK until September (not in fact, as per amazon.co.uk , last February). I can order it now from Amazon US, but the estimated delivery time is 18-32 business days - which might take me nearly up to the UK publication date anyway. Unless I pay more for priority courier service than the price of the book. And that option - even if it still generates positive consumer surplus - just doesn't feel right. On the other hand, I can buy the CD version which is available in the UK and get it delivered next week. Or I can get an audio version online - but that isn't downloadable until Tuesday 14th. And anyway, either of the audio editions will take longer to consume than the hardcover version. I am pretty sure I can read faster than Patrick Lawlor can speak. Not as long, admitte...

Tyler Cowen's thought-provoking analysis of national income accounting. From Cheap Talk (also via Tyler), Is behavioural economics doomed ? Linking to Cheap Talk rather than the original David Levine paper because there are a few interesting comments on that version. A piece by Christopher Caldwell (no relation) in the FT on addiction and Gene Heyman's book Addiction: A Disorder of Choice . I don't think I fully agree with his political/moral point but he has a couple of interesting notes on intertemporal optimisation and the serial nature of choice.

I am looking forward to Tyler Cowen's new book, Create Your Own Economy , which sounds like a thought-provoking and very unusual approach to economics. But I didn't really want to pay US shipping fees or wait several days, so I clicked over to the UK version of Amazon to see its entry there . I was surprised to see that on the UK edition, he has acquired a new editor and illustrator...with very strange names: But I guess people have all sorts of odd names nowadays. So I thought I'd scroll down and find out a bit more about what the book covers. I'm afraid, however, that it may be a little too avant-garde for me. The product description is in some rather odd style of free verse. I am sure the book will be exciting but it's going to be tough going if this is any guide:

I don't often do link lists but they seem to be quite the thing for bloggers. Here's one: Tim Harford's article in Forbes about what credit does to our brains . A clear and simple model showing one way to think about toxic bank assets from Mark Thoma The US is following the UK again: the administration has a plan to improve small business access to credit, just like Alistair Darling; a guest post on Econbrowser  has some interesting microeconomic analysis of the rationale. Nick Rowe is always good value: here is a discussion of how liquidity can be factored into the value of a financial (or other) asset. A very nice summary (PDF) from Tyler Cowen of different definitions of rationality used in economics (somewhat technical, so you'll need a bit of economics vocabulary, but not much mathematics) That will do for now. Given the results of this week's zeitgeist, perhaps I should include something about AIG. But I find it difficult to care.