Saturday, September 5, 2009

The Truth - Blowin' in the Wind

The story is told of a Australian whose favorite hobby is ballooning who decided to practice her favourite sport one Sunday afternoon. She miscalculates the wind and gets blown across the Pacific Ocean and lands in a field someplace in America. As she is lying there half-stunned in the basket, an American rushes up and says, "What happened?" The Australian woman says, "Where am I?" The American replies, Why, you are in a basket in the middle of a field." To which the Aussie woman asks, "Are you an economist?" Yes I am, how did you know?" said the American. "Because the information you have given me is completely accurate and totally useless."

The nationalities and genders and occupations of the individuals have been changed for the hell of it. The joke comes from Howard J Ruff's 'How to Prosper During the Coming Bad Years - A crash Course in Personal and Financial Survival' written in 1978. On the same page he refers to the 1973 US Budget deficit that was reported to be $3.5 billion but was actually $95 billion. A truth in government accounting bill introduced by then Congressman Phil Crane died a quick death.


Brenda Rosser said...

"I must admit that I enjoyed this job immensely. There was no solid data available in Saudi Arabia, in the Boston Public Library, or anywhere else that justified the use of econometric models in this context. In fact, the mangnitude of the job – the total and immediate transformation of an entire nation on a scale never before witnessed – meant that even had historical data existed, it would have been irrelevant.

Nor was anyone expecting this type of quantitative analysis, at least not at this stage of the game. I simply put my imagination to work and wrote reports that envisioned a glorious future for the kingdom. I had rule-of-thumb numbers I could use to estimate such things as the approximate cost to produce a megawatt of electricity, a mile of road, or adequate water, sewage, housing, food, and public services for one laborer. I was not supposed to refine these estimates or to draw final conclusions. My job was simply to describe a series of plans (more accurately, perhaps, “visions”) of what might be possible, and to arrive at rough estimates of the costs associated with them.

I always kept in mind the true objectives: maximizing payouts to US firms and making Saudi Arabia increasingly dependent on the United States....

John Perkins as an economist. In his book 'Confessions of an Economic Hit Man' page 87 paperback. 2005

Shag from Brookline said...

Speaking of economists, Paul Krugman's article in today's NYTimes Magazine is a great read. I await critiques. By the way, is Krugman a Saltwater, Freshwater, or some other category of "wading" economist?

Anonymous said...

"By the way, is Krugman a Saltwater, Freshwater, or some other category of "wading" economist?"

I think the term which applies in his case is completely underwater...

He completely takes Schumpeter out of context - a context which shows Schumpeter to be absolutely accurate regarding the inflationary effects of government intervention.

He completely distorts Schumpeter's and pre-depression economics' view of markets to say that somehow the Great Depression "shattered" their belief. Schumpeter actually agreed with Marx that capitalism would eventually collapse.

He interprets Keynes' view in a one-sided fashion to mean only fiscal and monetary stimulus - completely ignoring Keynes position on shorter working time.

He ignores the fact that this is not simply a replay of the Great Depression, but is, in fact, a failure of the post-war Full Employment paradigm, which is the systematic encouragement of consumer, corporate, and government debt to absorb excess saving.

Only those on the left will take notice of it, but who among them will critique this mess?????

Shag from Brookline said...

"Schumpeter actually agreed with Marx that capitalism would eventually collapse."

Is this accurate or is Anonymous all wet?

Max Jr ( not the original) said...

Yes Krugman's atricle is a great read. Krugman himself is salt-water, but he is from international macro not domestic macro. The int-macro people were,at least since the late 90's, less sanguine about economic stability than domestic (US) macro people.

One thing that bothered me about Krugman's article was his Prophet-maximizing veneration of Keynes. The last thing economics needs is yet another cult. Trying to canonize Keynes is not the right way forward.

My objection is to PK going overboard, not to Keynes or Keynesians (of whatever variety). Incidentally, PK quotes Keynes from Chapter 12 of the General Theory. This chapter is well worth reading. It stands on its own.

On Schumpeter: Schumpeter certainly had a Panglossian view of the trade cycle so I dont think Krugman's reference to Schumpeter is as unfair as Anon makes it out to be. Schumpeter argued that capitalism would wither away (not collapse) because of its success. (See here)

Anonymous said...

Schumpeter: TEN GREAT ECONOMISTS: From Marx to Keynes, page 53...

"[E]ven though Marx’s facts and reasoning were still ... at fault ..., his result might nevertheless be true so far as it simply avers that capitalist evolution will destroy the foundations of capitalist society. I believe it is. And I do not think I am exaggerating if I call profound a vision in which that truth stood tevealed beyond doubt in 1847. It is a commonplace now. The first to make it that was Gustav Schmoller. His Excellency, Professor von Schmoller, Prussian Privy· Councillor .and Member of the Prussian House of Lords, was not much of a revolutionary or much given to agitatorial gesticulations. But he quietly stated the same truth. The Why and How of it he likewise left unsaid."

(He also called Marx an economist of first rank.)

Anon doesn't exaggerate...

Anonymous said...



Shag from Brookline said...

"[E]ven though Marx’s facts and reasoning were still ... at fault ..., his result might nevertheless be true so far as it simply avers that capitalist evolution will destroy the foundations of capitalist society. I believe it is."

How was Marx at fault, according to Schumpeter?

And as to capitalist evolution destroying the foundations of capitalist society, that could result in progress, perhaps strenghtening the continuing foundations of a society that might be better off, addressing, e.g. global warming, and other problems that capitalism contributed to. (After all, nothing lasts forever.)

As to ranking of economists, I think Krugman did a pretty good job of "ranking" some of them (in the 'dirty dozen" sense) without getting Rand-y.

Shag from Brookline said...

Krugman's article in the NYTimes Magazine yesterday (9/6/09) was submitted for publication perhaps over a week ago. Consider the lead front page article in the Sunday NYTimes with which the Magazine was included:

"New Exotic Investments Emerging on Wall Street - Packaging Life Insurance Policies, Despite Fallout From Mortgage Crisis" (by Jenny Anderson)

and how it fits in with Krugman's article. Is this an example of creative destructionism? Is there any securitization after death?

Anonymous said...


The point is that Schumpeter had a much more nuanced view than the flat earther idea that market economies never fail.

This should be acknowledged by Keynesians, particularly since the logic of his critique was that depression is a necessary, if undesirable, adjustment to previous technological change.

Further, he accurately and explicitly predicted that attempts to stop this adjustment would result in a "false prosperity" of an inflationary regime, and lead both to undermining the regulatory reform put in place during the Great Depression, and lead to another, far worse, collapse.

The connection between this view, and Sandwichman's argument that Keynes himself indicated an application of his ideas which does not include government debt financed stimulation and manipulation of interest rates is both obvious and striking.

Hours should have been reduced during the Great Depression and after, and the failure of the New Deal to accomplish this was a mistake.

Krugman's interpretation of this history is a bald disservice to both Keynes and Schumpeter - AND NEEDS TO BE CHALLENGED BY A PROGRESSIVE ECONOMIST. PROGRESSIVES WILL BE MARGINALIZED IN THIS DEBATE UNTIL THIS IS DONE.

Anonymous said...

"How was Marx at fault, according to Schumpeter?"

I can only argue this by analogy: Darwin described the concept of evolution about the same time Marx did his own work.

Science today recognizes that description as accurate in general while flawed in many of its details. The theory of evolution is called Darwinism, despite the mistakes of Darwin.

Schumpeter's criticisms of Marx is of this timber: He believes Marx got many questions wrong, but he acknowledges he did much ground-breaking work, had a unique and holistic approach to those problems, avoided easy pat solutions, and often arrived at the correct conclusion despite flawed methods.

What ever one may think of Schumpeter's work, his critique is both professional and courteous.

Shag from Brookline said...

But social Darwinism and economic Darwinism differ from Darwin's theory of evolution. So be careful in mixing/comparing Marx and Darwin.

Shag from Brookline said...

Oxford University Press offers at

a fairly concise summary of Schumpeter that includes references to Keynes and Marx that closes with the following:

"However, Schumpeter himself remains a fairly obscure figure outside academia, compared to John Maynard Keynes who was an almost exact contemporary. One key difference between the two is that Keynes was a convinced liberal who retained faith in freedom (even if some of his critics saw fit to doubt his lifelong commitment). By contrast Schumpeter, with his first hand experience of continental Europe between the Wars, strikes the reader as a much more cynical observer of human affairs."