Saturday, July 4, 2009

Why Economists Should Study Anthropology...

OK, so one big gripe I have with the way that economics is taught is that emphasis has always been on just doing a bunch of math, writing proofs, etc., with no realization that most economists' views on any economic issue are in fact decided, not by any model, but by said economists political views, sex, race, and social position. Economists merely use models to argue for their preconceived political views, often which were developed in high school or before.

Hence, when evaluating someone's argument (or one's own), it is always appropriate to evaluate their (your) biases.

So, I just reread chapter 7 of Friedman & Schwartz's Monetary History of the US in which they argue that the Fed alone could have prevented the Great Depression. Now, that's an almost impossible claim to prove or disprove (Schwartz & Bordo claim to prove it in another paper), but what worried me is that much of the Chapter almost sounds like a white-washing of Hoover and the role of conservative economic ideology during the crisis, both of which, quite clearly, deserve central blame. Why am I worried about this? Because, if I'm not reading Friedman & Schwartz incorrectly, they spend more time blaming FDR for the Great Depression in Ch. 7 than they spend blaming Hoover!!! Now, they never say such a thing, and if they did, it would be crazy, but nevertheless it's a case of having their biases on full display. Blaming FDR for the third banking crisis without blaming Hoover (who, btw, was still President, and who could much more easily have stopped it) is just plain nuts. Crazy. Delusional.

It should be added, though, to Friedman's credit, that he is not nearly as crazy as many conservatives -- both economists and politicians -- who want to balance the budget today while in a recession. He points out that it's just hard to understand why anyone wanted to balance the budget during the Great Depression except that that was just the funny mentality of the period.

And I'm not sure yet which way I come down on the issue -- I don't know nearly enough about it and I feel it's just one of those really difficult questions which in the end is not that important. The Fed wasn't nearly as independent at the time and things CERTAINLY would have gone much better had Hoover gone off of gold sooner, had Hoover stepped in to stop the banking crisis like FDR did immediately after taking office, and had Hoover not convinced himself he had to balance the budget at all costs. And the Fed was extremely aggressive in cutting the discount rate at the start of the crisis -- it just wasn't enough...

4 comments:

  1. The whole concept of "rational consumers" is laughable; frankly, it nicely dovetails with that of "rational economists." They are, indeed, ruled by their biases and guts (such as they are).

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  2. DUH!!! Cut the Gawd D--- Principal on all outstanding mortgages with lesser amounts for older mortgages and higher % during the latest crunch time. Far less costly and damaging than what is being done now.

    Banks?? Do it or get Nationalized so the all $$ boys get butchered. They all ought to be decorating lamposts on Wall St and Politicians complicit in this affair on Pennslyvania Ave in D isney C entral. BASTA Carlos 666

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  3. It is absurd to say that a president or even a government can be responsible for any trend in the economy. To paraphrase Bob Prechter, governments pass laws after a crash to prevent the crash that has already occurred and then after being a hindrance to economic growth the whole way up, the government steps in at the top and repeals all the regulations that were enacted at the bottom.

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  4. The International banks and the UN got the first 800B. This is the first and most significant money transferred from US citizens to the reat of the world's banks. Do we call it treason? See the
    following: http://www.cosmicflyswatter.com/?p=734
    The US citizens need to wake up and replace all
    Republicans, Democrats, and all others in the
    leguslative branch who will not have a singular
    puropse of maximizing individual economic freedom.

    ReplyDelete