Oct 13, 2015

Data and theory: lessons from Angus Deaton

The Nobel to Deaton is a prize to applied economics, serious empirical research; something that does not make you look as a disruptive genius, but more as incremental builder of knowledge, which in the long run can slowly change things for the better. This is the core message of this prize. But this focus on empirics is not to confuse with atheoretical data mining. Data must be interpreted and often you can say one thing and its opposite by just looking at data. Data require thinking, empirical analysis requires theoretical reasoning; and the two are complementary.

In the end, there is no substitute for careful evaluation of the chain of evidence and reasoning by people who have the experience and expertise in the field. The demand that experiments be theory-driven is, of course, no guarantee of success, though the lack of it is close to a guarantee of failure.
This is the methodological message of this lecture, that technique is never a substitute for the business of doing economics.

Angus Deaton


Sep 23, 2015

Volkswagen, Free Software and Economic Incentives

The automotive industry has been in the spotlight after a massive scandal at Volkswagen, using code hidden in the engine management software to cheat emissions tests.

Volkswagen programmed its car engine computers to detect the EPA's emission tests, and run dirty the rest of the time.

In real driving, the cars exceeded emissions standards by a factor of up to 35.

It has long been known that such software is spying on the habits of the driver and this data is extracted from the car when it is serviced and uploaded to the car company.

VW being caught is the exception and this is hardly surprising; proprietary software is often malware.

In fact, experts generally agree that there is no means other than software freedom to counter the might of corporations like Volkswagen and their potential to misuse that power, as demonstrated in the emissions testing scandal.

Using free software would not have stopped Volkswagen from programming it this way, but would have made it harder to conceal.

Feb 23, 2015

Die hard mercantilism

Protectionists wish to do to you in peacetime what your enemies wish to do to you in wartime.

A nicely written brief article by Bob McTeer.
In a few simple words he gives some goods hints about common misconceptions about the relation between import and GDP and about import vs export.

I think this kind of articles are still very useful, especially for non economists, since mercatilist ideas keep being around, with all their nonsense.

Here a few quotes: 

Exports add to GDP, but imports subtract from GDP.
Imports must, therefore be bad. Furthermore X > M is good while M > X is bad. Right? No, wrong. Imports are subtracted because the other spending components C, I, G, and even X all have import components [...]

Nevertheless, we tend to treat imports as some sort of negative or bad thing even though, when you think about it, imports are what we gain from international trade while exports are what we pay in international trade.

Henry George’s famous quote clarifies it best for me. If you are in a war, why does your enemy wish to close your ports? To prevent your exports or your imports? His quote was to the effect that “Protectionists wish to do to you in peacetime [limit you imports] what your enemies wish to do to you in wartime.”

Feb 20, 2015

Principles of Macro

I was rather surprised when I read this: 

This spring I have a new assignment: to teach Macroeconomics I for graduate students. Ordinarily this course is taught by someone who specializes in macroeconomics; and whatever topics my popular writings may cover, my professional specialties are international trade and finance, not general macroeconomic theory. However, XXX has a temporary staffing problem, which is itself revealing of the current state of macro, and I have been called in to fill the gap.

This spring I am actually going teach Principle of Macroeconomics to US and other international students visiting Italy. My professional specialization indeed is in international trade. The LDM, where I'll teach, actually had a temporary staffing problem...
and, yes, the "current state of macro" is even worse than it used to be at the time the above statement was written...

Now, this is an interesting coincidence.
It gave me some motivation.
I guess it was an useful experience for the author of the statement.
If it was useful for him, for sure it will be a very very useful experience for me.
I still have a long way to go...

By the way, who is the guy that I'm talking about?

Some references about the state of Macroeconomics:
William Barnett (2012) http://www2.ku.edu/~kuwpaper/2009Papers/201218.pdf
Chari and Kehoe (2006) http://www.jstor.org/stable/pdf/30033681.pdf
Bob Solow (2008) http://www.jstor.org/stable/pdf/27648233.pdf
Chari and Kehoe (2008) http://www.jstor.org/stable/pdf/27648234.pdf
Bob Hall (1976) http://web.stanford.edu/~rehall
Bob Solow () https://www0.gsb.columbia.edu/faculty/jstiglitz/festschrift/Papers/Stig-Solow.pdf

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