Comparing the Difficulty of Undergraduate and Graduate Economics Programs

[Shackleford]

I'm sympathetic with the Tea Party. However, I know you like to spend money we don't have. I suppose you think we should shoot for 20 trillion dollar national debt. The greater the deficits the better! Woo hoo!

What is an unrestricted market? What about no sense of basic rights?

Certainly, you have that option in the market. You go down the street. It's a lot more simple and often times immediately effective in the private sector. The only case where you lack this is in a monopoly. Choice and competition!

You're approving of government policies and legislation that the bureaucracy facilitated. For the most part, I "trust" the post office to deliver my mail, but, again, they need another billion-dollar bailout this year. Why is it that FedEx and UPS don't need bailouts? Just because a task is completed does not mean a bureaucracy is efficient and unencumbered. The private sector has a natural impetus to be profitable, the federal government does not. It simply sucks out more tax payer money. Do you know the story about Milton Friedman going to India for the building of railways?

Totalitarian regimes can operate for a while, but it is not sustainable. What's that old adage about socialism?

You're missing my point. Some banks don't care about carefully investing our money because they know the government will bail them out. The government should not have to do so. If a bank ran off with your money, would you reinvestment with them? Would you also maybe want the government to prosecute them for their infringement on your rights? Would you also better investigate a bank next time to see how they are investing your money and if there is a reasonable chance of them skipping town? Would you also be aware of the fact that it is ultimately your responsibility what you do with your money?

If you're happily living in China, then you're being insulated. How many children do you want to have? What kind of wages are you making? Do you get to put however many Yuan you want on the international market? Of course, don't answer these questions.

 

[twofish-quant]

Okay. Then how about you pay for my graduate education. I will make it easy on you. I will go wherever you want me to go and study whatever you want me to study. Deal?

Already happening.

I put my money in a bank and any time you take a loan, you are using my money. Also, some of the funding for the university comes from the government which comes from the taxes that I pay.

Personally, I like it that way. I'm not an expert in what you should study, and the decisions about how you should use my money are made by people (loan officers, grant committees, and legislatures) that are supposedly better at figuring out what you should do than I am. As long as I get my money back with some interest, I'm not picky about the details.

Things fall apart if that happens not to be true.

If you have a flat tire, buying a battery won't fix it. Buying an upgrade HD radio will not fix it. I think you get the idea. You have to first correctly identify the problems and deficiencies in the system. You first do that by clearly identifying the goals and objectives of such a system.

Where it gets tricky is that people have different goals and objectives. If the bank doesn't give me back my money, I get *REALLY* annoyed. If the bank doesn't give me back your money, I'm less annoyed. If they bank doesn't give me back your money so that it can give me back my money, and it's done in a non-obvious way, I'm not really going to care.

It gets even trickier, because part of politics is to convince people that their goals should be something. If you have an effective leader, he or she can convince people that they *should* do something. This power can be used for great good or great evil.

Just to give an example of conflicting goals. I am a US citizen so that if some one moves jobs from the US to France, I'm going to be annoyed. The trouble is that I'm likely to feel differently if I'm French.

Well, again, you're mis-characterizing the situation.

I'm stating the situation as I saw it first hand. One problem that you will have convincing me is that if you start arguing something that I think is utterly ridiculous based on personal experience (i.e. the sky is pink) I'm going to tune out. This is the problem that a lot of people in Austrian economics and U Chicago have right now.

Curiously it's also the problem some Marxists have. You have some Marxists that are so convinced that Marxism can't be wrong, that they can't really interact with people that believe otherwise.

There were far more banks than not that did not require a bailout.

The trouble was that everyone owned money to everyone else, so once a few banks go, then everything falls apart. A owes B owes C owes D owes E owes A. Once E goes, everyone else gets dunked.

You rewarded extremely poor investing and behavior. You let them get away with it.

The moral hazard problem.

1) The problem is that you really didn't have a choice. It's like shooting someone for stepping on your toes. If you shoot them, they aren't going to have a chance to learn not to do it again.

2) Also things were so interconnected so that innocent bystanders were hurt. If you have a situation in which everyone gets dunked, then there is no learning.

There were no consequences. You can expect this to happen again.

If you don't have massive government oversight, yes. There is now massive government oversight. Maybe it will work.

If you just had to have a bailout, then it should have been a direct bailout to those whose money was lost as well as the creditors. The next step would have been to let the failed banks fail.

Except that everyone owned everyone else money. If you could stop the world economy for a few years to figure out who owned what to whom, then maybe this would work.

The other problem is that if you think that your bank is about to fail, then you will go in and withdraw all of your money and put it into a mattress. People were doing that, but the trouble is that if everyone withdraws all of their money and puts it into mattresses you will have massive bank failures, and another great depression.

This *almost* happened.

You cannot protect everyone from the devastating and unfortunate events in life. To want to do so is just as foolish as those who make the mistakes that lead to such situations. It helps to perpetuate such bad behavior and systemic flaws.

I find that people that say this tend to be people that think they are immune to bad things. As it was, a lot of people that did nothing wrong got hurt by losing their jobs. It could have been worse.

One reason, I don't believe that "it's my money" is that I think I understand the system to see how you, I and everyone else was bailed out.

The banks did not bail me out.

Yes they did.

They bailed out those who pissed away people's money. Don't look at like it's for my good. Actually, I think Wells Fargo bailed out Wachovia, which was my bank at the time.

And the Federal Reserve bailed out both Wells Fargo and Wachovia. You go to the Wachovia ATM, put in your card. What you got was freshly printed Federal Reserve Notes that the Fed paid Wachovia in exchange for mortgage securities that no one else would buy. Once people relaxed, then Wachovia and the Fed could resell the securities and make a profit, but for few months or so, the Federal government was the only buyer and they did this through the TARP funds that Congress approved.

You mean the government intervened and through legislation, regulation, and policy demanded mortgages be given to those who could not afford it?

And those that could. Again this is the sort of "the sky is pink" argument that people in the financial industry just don't believe because it doesn't match personal experience.

If you think that government is inherently evil, I think you could probably come up with a system that works, but arguing "the sky is pink" argument isn't going to do this.

!And, the securitization of mortgages did not help. When many of those mortgage loans defaulted, it had a massive ripple effect in the market. And when the insurer for all of those, Goldman Sachs if I remember correctly, could not pay off those insurance claims, thus the bailout was needed.

Pretty much, but if you didn't have government intervention, those bad mortgages would have gotten issued anywhere. It's not a bad thing to start with a conclusion "government is evil" and come up with arguments that support it, but you have to realize that you are doing it.

I'm not sure what the Austrians are saying. I'll have to look into it.

Or make something up. The problem is that the Austrians aren't saying anything. It's like how Marxists reacted to the fall of the Soviet Union. It was an impossible event, so it takes time to figure out how the event is going to be impossible.

Government intervention helped to get us into this mess and you claim government intervention saved the day. Such counter-productiveness.

So the obvious thing is no government intervention. Except that without governments, there are no markets. You seem to believe that markets work just fine without governments constantly tweaking and intervening, and I just don't think so. The argument is that things were fine and without the evil government, we wouldn't have had a mess.

Again, I think about what my world would be like without governments, and it would be a disaster. Without strong regulation, finance becomes a matter of who can tell the biggest lies.

I never said government was evil. I don't expect money from the government. I work for my money.

Sure, but to give your money to you involves a million other people. If I didn't save my money or pay taxes, the money to pay your salary wouldn't be there, and you wouldn't have a job.

You know damn well I could hide it in the mattress. But, if I do that, then the banks have less with which to invest. I know the argument.

Actually, if everyone pulls their money out to hide in the mattress, you'll find that the banks all collapse. That's what damned near happened.

Here's a hypothetical situation. Say you invest in my business. It succeeds for a while but ultimately fails. Should the government reimburse you?

It's not hypothetical. It's quite real. It really depends, but...

If I put my money into an insured checking account which then gets loans out the money, the answer is hell yes.

If the bank is run by idiots, then maybe I can go to another bank, but 1) it's not obvious to me if the bank is run by idiots and 2) this doesn't work if all the banks are run by idiots.

So it's easier if the government guarantees my money, and then you pay a bureaucrat to make sure my interests are represented in the bank.

 

[twofish-quant]

However, I know you like to spend money we don't have.

There's this "having money" thing again.

Money is a collective illusion. A lot of things make sense if you remember that.

I suppose you think we should shoot for 20 trillion dollar national debt. The greater the deficits the better!

A lot of this is timing. A year ago, yes. Right now the US is getting out of the ditch so if you flood money into the system, you run the risk of inflation.

If I sound unsure is that I haven't thought this through completely. The risk that you run with economic stimulus is that you may end up spending your money on things that have no tax benefit in the long run, which is what happened in 2001.

The thing that worries me is a downward spiral. Less spending -> less productivity -> less taxes -> less spending.

There's also the political aspect. Right now a budget that massively increases spending is not going to get through the House. So it's sort of pointless to have this argument now. It's more relevant in 2012 when everyone is up for election.

Certainly, you have that option in the market. You go down the street. It's a lot more simple and often times immediately effective in the private sector. The only case where you lack this is in a monopoly. Choice and competition!

Except that you often find that you have only the illusion of choice. For example, if you choice funeral homes, you see lots of different funeral homes, but ultimately you'll find that most of them are owned by SCI. The same sorts of things happen with banks. You *think* that you are making a choice between banks, but they all are connected to the same markets so there isn't much of a real choice.

Also there are times when you don't have enough information to make a choice. Sometimes you don't have the power to make a choice. Suppose you go to a bank and want to invest $500M. You can negotiate the terms and conditions of the loan. Now try that with $50. It's not a real market.

Markets are really cool things. I love working in them. They seem like magic sometimes, but that makes people think that they are magic.

You're approving of government policies and legislation that the bureaucracy facilitated.

Some were good. Some were stupid.

For the most part, I "trust" the post office to deliver my mail, but, again, they need another billion-dollar bailout this year. Why is it that FedEx and UPS don't need bailouts?

Because they can charge more, cut service, and fire people, whereas the post office has to go through a massive effort to raise rates, cut service, and fire people. Also FedEx and UPS has the post-office as a backstop. The other problem is that the Post Office isn't allowed to make fundamental infrastructure investment. If FedEx wants to spend $$$$$ on improving computer systems, they can whereas the Post Office can't.

We can let FedEx and UPS do stupid things because it's not the end of the world if they go under.

Amtrak has the same sorts of issues. Chinese state-owned enterprises usually don't.

What has any of this to do with banking I have no idea....

Just because a task is completed does not mean a bureaucracy is efficient and unencumbered. The private sector has a natural impetus to be profitable, the federal government does not.

Horse hockey. You can create a market in which works through the profit motive, but that's not easy and it's not natural.

It simply sucks out more tax payer money. Do you know the story about Milton Friedman going to India for the building of railways?

No. What any of this has to do with what we are discussing I have no idea.

You're missing my point. Some banks don't care about carefully investing our money because they know the government will bail them out.

A bank has 200,000 employees. What does it mean for 200,000 people not to care.

The government should not have to do so.

Disagree

If a bank ran off with your money, would you reinvestment with them?

It wouldn't matter.

Would you also better investigate a bank next time to see how they are investing your money and if there is a reasonable chance of them skipping town? Would you also be aware of the fact that it is ultimately your responsibility what you do with your money?

Gets really inefficient here. I don't have the time or energy to be a bank examiner, and if I go to a bank demanding to examine their books, they will most likely either not give me the information, or give me tens of thousands of pages that I can't understand.

And if I can't do it, your average person has no hope.

 

[twofish-quant]

If you're happily living in China, then you're being insulated.

One thing that seriously concerns me is that I think that Americans are much more out of touch with the world that Chinese are. The assumption that Americans tend to make is that because the US has a lot more press freedom (which is true) that they can get a more accurate idea of what the world is like that Chinese in which the news is very heavily censored.

Curiously, I've found educated Americans to be far, far more out of touch with the world than educated Chinese.

First of all, I've found that Chinese people tend to be more intelligent about news than Americans. In the words of one of my friends "the difference between Chinese and Americans is that we know our government is lying to us."

Second, Chinese people can very easily get sources of information about the US, whereas Americans are pretty clueless about China. Most educated Chinese know some English, and most educated Chinese know someone that has lived abroad for long periods of time.

Finally, the US is the most powerful country in the world. You can't ignore the US if you live in China. Whereas you can live in the US and pretty much ignore China.

How many children do you want to have? What kind of wages are you making? Do you get to put however many Yuan you want on the international market? Of course, don't answer these questions

Let's not talk about me specifically, but about the average returnee.

1) Family planning involves paying a fine. It's a huge fine if you are a peasant, but for someone that has a job in a Western company, it's trivially small.

2) Most returnees make as much money in China as they do in the US. And you can get a job in China.

3) If you can open an account in HK, then you can move CNY 20,000 per day between USD and CNY. Since the CNY is appreciating, everyone is trying to get out of dollars and buying CNY.

What I find scary long term is the brain drain that is happening with US and China. Physics Ph.D.'s tend to work in areas with massive government funding, and if you cut funding, you lose a lot of talent.

 

[Pyrrhus]

I couldn't have said it better (thanks to the above posters). Bottomline is, if you want to do economics professionally then forget about the Austrian School of Economics. In fact, even most places won't hire you as a professor if you can't do mainstream economics, and most universities teach mainstream economics.

By the way, graduate degrees matter in economics. An undergrad is not seen better than a Master, and a Master is not seen better than a PhD. The reason is PhD graduates will tend to have more Math, and thus be able to do more sophisticated mathematical modeling in comparison to Master and Undergrad. Actually, undergrads in economics are not even looked at favorably even by economic graduate schools. In fact, economic graduate schools tend to recruit students with degrees in math, physics, and engineering. The basic idea is that is less difficult to get an economic intuition than to learn all the required mathematics. In terms of paying jobs, PhD>Master>Undergrad as well.

Also, "brand" is important in economics degrees (to some degree). A PhD from University of Chicago is looked very favorable by both hiring universities, and professional jobs.

The difference (generally) between Economics programs and Applied Economics program is mathematical rigor. Both are actually similar, but Econ programs will tend to cover more in detail.

 

[inknit]

I recommend this forum:http://www.urch.com/forums/phd-economics/

 

[twofish-quant]

I'm going to try to keep my comments focused on the career and academic aspects of economics degrees and avoid getting into an economics argument. Economic arguments are interesting but they belong in another forum and you can find someone else with similar views to argue with :-) :-) :-)

I couldn't have said it better (thanks to the above posters). Bottomline is, if you want to do economics professionally then forget about the Austrian School of Economics. In fact, even most places won't hire you as a professor if you can't do mainstream economics, and most universities teach mainstream economics.

On the other hand, banks don't care what your ideology is. They just care that you can make them money. One reason I like working on Wall Street is that it's much less ideological than academia. Personally, I happen to thing that some of von Mises and Hayek's ideas are both brilliant and profitable. Others are total non-sense. One reason I like my job is that because I'm "close to the action" I see things and this helps me make up my mind which ideas are useful and which one's are non-sense.

For example, I've read some papers by award winning economists, and thought to myself, this is utter b******t, because it just doesn't match what I'm seeing. On the other hand, some of von Mises and Hayek's ideas *do* "make sense" and so I try to use and develop those ideas. If you stay in academia, you just read about markets. If you get a job (even if it isn't in finance) you have to live the market.

If you do go into economics graduate school, it will help to know why people teach what they teach. Economics graduate schools are pretty heavily mathematical, not because those techniques teach you anything insightful about the economy, but because it so happens that learning what the unit root test or what a GARCH model does let's you crunch data for financial institutions. And you can think of crunching data as something like cleaning toilets (or debugging software). Think of economics grad school as a vo-tech trade school.

Just to reinforce the point about ideology. If your resume came across my desk, the most important thing about it would be how good your computer programming skills are. The fact that you like Austrian economics would be irrelevant as long as you can work will with people that have different views. If you try to get a job in academia, it would be the kiss of death.

Personally, there are two other reasons I like working in markets.

1) stuff happens. In academia, someone writes a long winded paper, and then expects people to disagree to writing another long winded paper, and this can go on for decades. In industry, you come up with an idea, some trader will say b******t, and that's the end of the discussion. Part of the reason for this is that in markets, things happen fast. Sometimes you need to make a decision in seconds, and there is no time to write long papers.

2) stuff matters. One reason I try to be "nice", is that if it turns out that he is closer to the truth than I am, then I'm going to seriously mess up my life and the lives of a lot of other people. The possibility that I'm totally wrong keep me "nice" to people that disagree. Of course, it also works the other way.

In academia, the stakes are less high, so people tend to be less "nice" to each other.

By the way, graduate degrees matter in economics. An undergrad is not seen better than a Master, and a Master is not seen better than a PhD. The reason is PhD graduates will tend to have more Math, and thus be able to do more sophisticated mathematical modeling in comparison to Master and Undergrad.

Which means that in the pecking order, Ph.D.'s in physics and math often in a better position than finance or economics Ph.D.'s. If you've done lattice gauge theory and modeled proton decay, you are going to demolish 99% of economics or finance Ph.D.'s when it comes to math skills.

Of course this is a little silly. One problem with economics is that most economists secretly (or not so secretly) want to be physicists, so there is a lot of physics envy. This results in cargo cult economics, and one reason I like Austrian economics is that Austrians think that equations are a bad thing. So you come up with stochastic models of mortgage defaults, and no one bothers actually talking to the borrower or going to the house.

If you get nasty you can use a complex model to beat someone over the head. (How dare you say that it's a stupid idea to lend to people with no income, the model with 100 differential equations that you don't understand says its fine.) A surprisingly large number of people will just freeze when you show them lots of math.

Actually, undergrads in economics are not even looked at favorably even by economic graduate schools. In fact, economic graduate schools tend to recruit students with degrees in math, physics, and engineering.

And for many jobs, investment banks tend to recruit people with graduate degrees in math, physics, and engineering over people with those degrees in economics and finance.

Weird, isn't it?

The basic idea is that is less difficult to get an economic intuition than to learn all the required mathematics.

At which point you might ask why don't you just get a physics, math, or statistics degree.

Indeed.

This also points out why von Mises and Hayek aren't "sexy." They are actually quite good writers so that you can read them and understand their main point very quickly. The trouble is that if anyone can do it, then it means that it doesn't give someone a chance to make money by showing how smart they are because they are the only one that understand X theory.

Also "street cred" beats everything. If you really do understand something important, the tendency is not to write a paper, but rather to keep it secret so that you can make money off of it.

Also, "brand" is important in economics degrees (to some degree). A PhD from University of Chicago is looked very favorable by both hiring universities, and professional jobs.

But then you have to understand why brand is important. A lot of Wall Street stuff is basically toilet bowl cleaning, but if you say that your toilet bowl cleaner are graduates from the University of Chicago, then you can sell your products. Getting your economic models designed by a graduate of Harvard or the University of Chicago is a lot like getting your purse designed by Hermes or Gucci.

It's just ***better***.

Also, a lot of what professors do is basically to be corporate shills. If a lobbyist tries to convince a congressman that it's a good thing that investment banks make more money, that doesn't sound great, but if you can get *BIG NAME PROFESSOR* to write a report saying that it's a good thing that investment banks make more money, well that looks cool.

Of course, if a professor really thinks that banks are evil, then you take that report and toss it in the trash, and if you know that said professor is going to write a report saying that banks are evil, well said professor is not going to get consulting contracts.

The cool (and scary part) is that while you can argue that the *system* is unethical, no one person is doing anything unethical.

There's no shame in being a corporate shill, but if you are interested in understanding markets, they may be you should think of something else to do.

One problem is that you have so many professors that have made careers explaining how the pre-collapse system is wonderful, that they are totally unable to explain the collapse.

The other problem is that if your job all along was to tell politicians and bankers how smart and wonderful they are, and you've concluded from the collapse that politicians and bankers are evil, then you'll suddenly find them not listening to you.

 

[kramer733]

I don't understand why shackelford who has little experience in economics and finance compared to somebody who worked in a financial industry is arguing with somebody who has a phd in physics and WHO HAS WORK EXPERIENCE.

 

[Skrew]

I don't understand why shackelford who has little experience in economics and finance compared to somebody who worked in a financial industry is arguing with somebody who has a phd in physics and WHO HAS WORK EXPERIENCE.

Why wouldn't shackelford argue? Twofish's economic(social) ideology is based completely around his personal worldview. It hardly is objective.

Economic policy is a means to an end and usually people who support differing economic policies want different results.

The core argument isn't actually over which economic policy is better, the argument is over what version of society is better...

 

[MECHster]

I don't understand why shackelford who has little experience in economics and finance compared to somebody who worked in a financial industry is arguing with somebody who has a phd in physics and WHO HAS WORK EXPERIENCE.

If Richard Feynman was alive he`d slap you square in the face.

 

[magicarpet512]

And here is a very interesting article to wrap up The Great Debate of twofish and shackelford! Written by the 2008 Nobel Prize for Economics winner Paul Krugman. It really puts into perspective the history of clashes between Austrian & Keynesian economics. I think twofish would side with this article more than shackelford would, but its an interesting read; and you all can judge for yourselves!

http://www.sfb504.uni-mannheim.de/~grosskop/teaching/440/economics.pdf

 

[kramer733]

If Richard Feynman was alive he`d slap you square in the face.

If it's square in the face, wouldn't he punch or facepalm me instead?

 

[MECHster]

If it's square in the face, wouldn't he punch or facepalm me instead?

No. It'd be a slap.

 

[Pyrrhus]

Of course this is a little silly. One problem with economics is that most economists secretly (or not so secretly) want to be physicists, so there is a lot of physics envy. This results in cargo cult economics, and one reason I like Austrian economics is that Austrians think that equations are a bad thing. So you come up with stochastic models of mortgage defaults, and no one bothers actually talking to the borrower or going to the house.

If you get nasty you can use a complex model to beat someone over the head. (How dare you say that it's a stupid idea to lend to people with no income, the model with 100 differential equations that you don't understand says its fine.) A surprisingly large number of people will just freeze when you show them lots of math.

This is a problem with economics. It seems anyone with some insight can write a paper, and justify it because of the math. I've seen professors in Economics publish up to 11 papers per year... This is in contrast to natural science where 1-2 papers is typical. Does 11 papers > 2 papers? of course not, especially when the 11 papers are all theoretical based on some idea by some professor. In Economics, there's a disconnect between observed reality and hypothetical reality. This disconnect is significant. Sometimes, I still find problems with it. Before, I went into economics, I did my BS in Engineering. Coming from a Natural Science background where "experimentally verified" is paramount, it is difficult to stomach some of the papers I read in economics...

 

[Shackleford]

Well, I decided not to argue anymore with two-fish because we have different political and hence economic worldviews - or vice versa. The more I look at the explanations and theory of Austrian economics, the more it makes sense to me. It seems entirely reasonable and rational. The Keynesian simply want to arrogate more power to government under the guise of extricating an economy from a deep recession/depression. They are simply statists. The government always takes from one, or many, and gives to another according to its whims.

By the way, the Austrians, in particular Peter Schiff, back in 2006-2008 predicted with accuracy the impending financial crisis. He was ridiculed constantly by other "economists" and "financial experts" all over TV. It doesn't matter what two-fish's professional experience is. That doesn't automatically lend merit to her arguments. Clearly, that is not generally true for experience to produce correct results.

Second coming of Keynes:
http://mises.org/daily/3583

Peter Schiff:

http://www.youtube.com/watch?v=Z0YTY5TWtmU&feature=related

 

[Shackleford]

I don't understand why shackelford who has little experience in economics and finance compared to somebody who worked in a financial industry is arguing with somebody who has a phd in physics and WHO HAS WORK EXPERIENCE.

Well, I have been working in economic development for the past couple of years. I'm an old undergrad senior.

I couldn't have said it better (thanks to the above posters). Bottomline is, if you want to do economics professionally then forget about the Austrian School of Economics. In fact, even most places won't hire you as a professor if you can't do mainstream economics, and most universities teach mainstream economics.

By the way, graduate degrees matter in economics. An undergrad is not seen better than a Master, and a Master is not seen better than a PhD. The reason is PhD graduates will tend to have more Math, and thus be able to do more sophisticated mathematical modeling in comparison to Master and Undergrad. Actually, undergrads in economics are not even looked at favorably even by economic graduate schools. In fact, economic graduate schools tend to recruit students with degrees in math, physics, and engineering. The basic idea is that is less difficult to get an economic intuition than to learn all the required mathematics. In terms of paying jobs, PhD>Master>Undergrad as well.

Also, "brand" is important in economics degrees (to some degree). A PhD from University of Chicago is looked very favorable by both hiring universities, and professional jobs.

The difference (generally) between Economics programs and Applied Economics program is mathematical rigor. Both are actually similar, but Econ programs will tend to cover more in detail.

So, you think I should relegate my study of economics to hobby? If I went anywhere for Austrian/free market, it would be George Mason.

 

[inknit]

Well, I have been working in economic development for the past couple of years. I'm an old undergrad senior.


So, you think I should relegate my study of economics to hobby? If I went anywhere for Austrian/free market, it would be George Mason.

The department is wholly owned by the Koch brothers (yeah, that's some real science), plus a masters in econ from anywhere in the US, let alone GMU is not worth your money or time.

Your interest in Austrian economics will be better sated by rummaging through the internet blogosphere where economically illiterate know-nothings are free to spew their ideological drivel.

 

[Shackleford]

The department is wholly owned by the Koch brothers (yeah, that's some real science), plus a masters in econ from anywhere in the US, let alone GMU is not worth your money or time.

Your interest in Austrian economics will be better sated by rummaging through the internet blogosphere where economically illiterate know-nothings are free to spew their ideological drivel.

You have not refuted their merits, simply ridiculed and vilified.

 

[Pyrrhus]

You can learn Austrian economics. Nobody will stop you. It is your choice. However, you should make sure to learn mainstream economics, so you do not end up isolated. I am sure GMU also teaches mainstream economics (I checked the courses at the site, and looks like yes... At least the math is there!).

 

[Shackleford]

You can learn Austrian economics. Nobody will stop you. It is your choice. However, you should make sure to learn mainstream economics, so you do not end up isolated. I am sure GMU also teaches mainstream economics (I checked the courses at the site, and looks like yes... At least the math is there!).

When you say mainstream, do you mean the mathematical tools for modeling? I wouldn't imagine GMU teaching the mainstream "theories" very much, other than to contrast to Austrian/free market.

 

[Ryker]

Peter Schiff:

http://www.youtube.com/watch?v=Z0YTY5TWtmU&feature=related

I don't have anything to add to the discussion other than that the behaviour of some of the economists in the videos here was despicable. You can disagree with someone, but laughing in one's face on national television - you can't really go much lower than that. By which I don't mean that all economists are like that, of course.

 

[Shackleford]

I don't have anything to add to the discussion other than that the behaviour of some of the economists in the videos here was despicable. You can disagree with someone, but laughing in one's face on national television - you can't really go much lower than that. By which I don't mean that all economists are like that, of course.

It's at best very unprofessional. It's almost like they had an agenda to attack any criticism of the house of cards. I notice that a lot on the alphabet networks, frankly, for a number of issues.

 

[twofish-quant]

I don't understand why shackelford who has little experience in economics and finance compared to somebody who worked in a financial industry is arguing with somebody who has a phd in physics and WHO HAS WORK EXPERIENCE.

Because sometimes having a Ph.D. in physics and work experience is a bad thing.

I've been brainwashed into thinking that investment banks are cool. If it turns out that people that think that Wall Street is a parasitic organism that society would be better off without are right, then I'm never going to see it.

Sometimes an outsider can see things that an insider can't.

 

[inknit]

Economics isn't all about the study of free markets vs central planning as you make it out to be.

Economics can range from fields as diverse as evolutionary game theory, neuroscience and its relations to decision making, auction theory, experimental econ.

And I also think you need to make a distinction between ideology and methodology. The truth is most economists believe that the invisible hand of the market is indeed the best mechanism for allocating resources. In fact, economists receive a lot of heat from other social scientists, namely sociologists, for being too supportive of unfettered free markets. But again, they do realize that there are times when the government needs to step into correct for market failure such as when marginal social cost is actually greater than the private social cost (externalities), public goods contributing to the free rider problem, and also when sellers are knowingly deceiving buyers (information asymmetry). Austrians, on the other hand, tend to cling to their dogma of laissez-faire capitalism purely on ideological grounds, even when modern empirically supported economic theory suggests that intervention is necessary.

Sorta random, but this is a great paper to read for anyone interested in econ. It deals with market failure, specifically on the notion of information asymmetry. It's by Nobel Prize-winning economist George Akerlof.


http://hydrogen.its.ucdavis.edu/eec...s-readings/akerlof-the market for lemons.pdf"

 

[twofish-quant]

Why wouldn't shackelford argue? Twofish's economic(social) ideology is based completely around his personal worldview. It hardly is objective.

And part of my world view is that "objective" is not always "better."

The core argument isn't actually over which economic policy is better, the argument is over what version of society is better...

It's more complicated than that. There are things in economics that you can have somewhat objective arguments over. If you think that google stock will rise, and I think it will fall, that's something that can be objectively resolved.

One reason that economics graduate school is taught the way that it is is that a lot of the stuff that you learn involve things that you really can't have subjective arguments over. We can reasonably argue over whether or not the federal debt is a good thing, but we really can't reasonably argue over the size of the federal debt.

Also politics is interesting, one trick is to use objective tools for subjective outcomes. Even if I could mathematically *prove* that increasing government spending would fix unemployment, the Tea Party people would be nervous about increasing the size of government because they would be worried (and justifiably worried) that this would be an excuse to move the government in a subjective direction that they disagree with.

 

[Shackleford]

Let's not confuse fundamental political philosophy with the mechanics and operation of the markets. From the state of nature, people groups form government for the purposes of law and order and protection. They sacrifice some "rights" towards that end. Do not confuse those essential functions of government with the alleged necessary interventions afforded by government. In most cases they are not interventions. The government is merely effecting its essential functions. The most succinct example is asymmetric information as you so euphemistically put it, which is fraud. Friedman said having the courts of law consider cases of fraud is a desirable function of the market. I would say it's an essential function of government. However, this does not support, generally speaking, any government intervention. Modern empirical evidence does not support intervention being necessary. How does the government intervene? The two primary methods are fiscal stimulus and monetary policy. Before the Federal Reserve was created, there existed booms and busts in the market. Clearly, the actions taken by the Fed have not been the solution to such things. Asserting that fiscal "stimulus" is inefficacious seems almost axiomatic to me. The government takes large amount of money, or capital, from individuals and spends it as it sees fit. There is already an inherent inefficiency as it works its way through the government bureaucracy. At absolute best, which is practically impossible, the money would be spent dollar for dollar. In this case, it's simply redistribution.

 

[twofish-quant]

I think twofish would side with this article more than shackelford would, but its an interesting read; and you all can judge for yourselves!

The odd part is that this happens not to be true. I very strongly disagree with the conclusion. One thing I *like* about Austrians is that they focus on the "microphysics" of economic institutions and they avoid using numbers when possible.

Also, one of the things that I very strongly disagree with Krugman on is that I'm a huge fan of Ronald Reagan and Milton Friedman. For that matter, I'm a big fan of von Mises and Hayek.

 

[twofish-quant]

This is a problem with economics. It seems anyone with some insight can write a paper, and justify it because of the math.

And often the math is crap.

Before, I went into economics, I did my BS in Engineering. Coming from a Natural Science background where "experimentally verified" is paramount, it is difficult to stomach some of the papers I read in economics...

Which is why investment banks often hire physicists and engineers over economics majors. If you write a paper and it turns out to be wrong in academia, nothing seriously bad happens to you. If you are seriously mistaken about how markets work, then you lose a ton of money and end up on the street.

 

[Shackleford]

And part of my world view is that "objective" is not always "better."



It's more complicated than that. There are things in economics that you can have somewhat objective arguments over. If you think that google stock will rise, and I think it will fall, that's something that can be objectively resolved.

One reason that economics graduate school is taught the way that it is is that a lot of the stuff that you learn involve things that you really can't have subjective arguments over. We can reasonably argue over whether or not the federal debt is a good thing, but we really can't reasonably argue over the size of the federal debt.

Also politics is interesting, one trick is to use objective tools for subjective outcomes. Even if I could mathematically *prove* that increasing government spending would fix unemployment, the Tea Party people would be nervous about increasing the size of government because they would be worried (and justifiably worried) that this would be an excuse to move the government in a subjective direction that they disagree with.

You mean in an unconstitutional direction? You do know that the Constitution limits the scope of the federal government, right?

 

[ParticleGrl]

The most succinct example is asymmetric information as you so euphemistically put it, which is fraud.

Not all asymmetric information is fraud. For instance, an employer might not be aware of how hard a potential hire is willing to work (will the employee shirk his duties?) Even if the employee is 100% honest about his/her work ethic, the employer can't be sure of his honesty. One model for why college degrees are so important is that they signal a baseline productivity to potential employers, helping to defeat some of the information problems of the labor market. Sitglitz and others won nobels for studying this.

The key point is that the information dynamics of a market can shape outcome.

Modern empirical evidence does not support intervention being necessary. How does the government intervene? The two primary methods are fiscal stimulus and monetary policy.

No. Not even close- the primary method the government shapes markets is regulation. Compare the stock market, where companies have to disclose financial information regularly to all involved, to largely unregulated markets like exotic financial derivatives, where no disclosures have to be made. In the last few years, which of the two markets have been more problematic?

You mean in an unconstitutional direction? You do know that the Constitution limits the scope of the federal government, right?

What part of the constitution do you feel limits the governments ability to pass regulations/stimulus spend?

 

[inknit]

Let's not confuse fundamental political philosophy with the mechanics and operation of the markets. From the state of nature, people groups form government for the purposes of law and order and protection. They sacrifice some "rights" towards that end. Do not confuse those essential functions of government with the alleged necessary interventions afforded by government. In most cases they are not interventions. The government is merely effecting its essential functions. The most succinct example is asymmetric information as you so euphemistically put it, which is fraud. Friedman said having the courts of law consider cases of fraud is a desirable function of the market. I would say it's an essential function of government. However, this does not support, generally speaking, any government intervention. Modern empirical evidence does not support intervention being necessary. How does the government intervene? The two primary methods are fiscal stimulus and monetary policy. Before the Federal Reserve was created, there existed booms and busts in the market. Clearly, the actions taken by the Fed have not been the solution to such things. Asserting that fiscal "stimulus" is inefficacious seems almost axiomatic to me. The government takes large amount of money, or capital, from individuals and spends it as it sees fit. There is already an inherent inefficiency as it works its way through the government bureaucracy. At absolute best, which is practically impossible, the money would be spent dollar for dollar. In this case, it's simply redistribution.

I also have serious doubts about the effectiveness of fiscal stimulus due to 'crowding out' effects. In essence, if government spends money without raising taxes, it must borrow loanable funds, which which increases interest rates, and that decreases private consumption and investment, which are components of GDP (Y = C + I + G + X -M).

So you can guess what happens when G increases, while C and I decrease. These kinds of debates about macroeconomic policy continue today, but I was referring to government undertaking microeconomic policy to correct for market failure. And I also agree with you that we should be skeptical of government intervention at the micro level. If we consider the government bureaucrats who are instituting the measures themselves as economic agents maximizing their own utility functions, then we must take that into account when formulating policy. The study of this phenomenon is a field of economics known as public choice theory.

 

[twofish-quant]

Let's not confuse fundamental political philosophy with the mechanics and operation of the markets.

Let's not, but you'll never get people to agree on fundamental political philosophy. Getting people to agree about just enough so that no one gets killed is tough enough already. Something that you will have to get used to is that in any sort of pluralistic society, people are just going to disagree about some things.

This gets even messier because we are in a global economy and different countries and societies have different ideas about what is right. One reason that I have the views that I do is that I spend a lot of time around Europeans that have some basic differences in political thinking than Americans.

Friedman said having the courts of law consider cases of fraud is a desirable function of the market.

You have to realize the limitations of courts. Courts take a *long* time to act, and in some situations, you need to make decisions in hours. Also courts operate post-facto. If someone steals your money, they may end up in jail, but your money is still gone and you aren't getting it back.

Then we have the tricky problem of deciding who gets to be judges, and what the law is. One thing that's interesting is about the financial crisis is that no one ended up in jail, because everything everyone did was legal, and it was legal because the people that ran things had to power to set up laws to make what they were doing legal.

Also, if you can't afford a lawyer, and the other side has millions to spend on a legal team, then forget about winning the case. If you have two mega-corporations fighting each other, then it's a fair fight. If you have a mega-corporation fighting me, then I'm going to lose since they can afford better lawyers.

Modern empirical evidence does not support intervention being necessary.

*Very strongly disagree*

This is one of those "I was there, and you are wrong" sorts of things. Naturally since you aren't me, I don't expect you to change your mind based on that argument. But what's important to me is that while "I was there, and you are wrong" won't convince you, it will convince me.

At some point if someone keeps telling you that the sky is pink and they really see the sky being pink, then it's not resolvable.

Before the Federal Reserve was created, there existed booms and busts in the market.

And after 1929, the booms and busts decreased to the point where they were much more manageable.

Clearly, the actions taken by the Fed have not been the solution to such things. Asserting that fiscal "stimulus" is inefficacious seems almost axiomatic to me.

As I said, I don't want to get into a long discussion about this, because there are other people that you can argue with, but what seems obvious to you is far from obvious to me, and I'll just point out why it's obvious to me that you are wrong, and if you want to argue the point there are a lot other people that you can discuss this with (i.e. Brad Delong's website).

The government takes large amount of money, or capital, from individuals and spends it as it sees fit.

The US government can do one thing that individuals can't and that is to print federal reserve notes. One thing about federal reserve notes is that people will take it for payment. If I go up to a hot dog stand, and I offer my watch for a hot dog, they won't take it. If I can convert the watch to federal reserve notes, they will.

Part of where things almost went to hell, is that when you go to your ATM and you see that $1000 is there, most of that really isn't in the form of cash. About $50 is actually in cash, and 50% of that is in the form of real estate loans. There is the illusion that all of that is in cash, because if you ask for $1000 then the bank will sell the loans and get notes.

If it can't, then we have really big problems. Normally, people will buy real estate loans for cash, but we had about a month in which no one did. At that point the only group that would exchange real estate loans for cash was the Fed, and it can do that because the Fed can print notes.

There is already an inherent inefficiency as it works its way through the government bureaucracy. At absolute best, which is practically impossible, the money would be spent dollar for dollar. In this case, it's simply redistribution.

If people take all of their money and then bury it into the ground and don't spend it, then economic activity just stops. Does money exist if no one spend it? I don't think that does. Even if you are putting money in the bank, then *something* is happening with it.

Also you can imagine a situation in which everyone takes their money, puts into this giant pile and burns it. At that point no one has any real money left.

Both of those things happened...

People loaned money to build crap houses, and when it turns out that the people couldn't pay back, that loaned money ceased to exist. Once people got scared, they started burying money into the ground and everyone stopped spending. They stopped spending, because they were worried that they would need money in the future, and once that happened economic activity stopped which made people more scared.

So what the government did was to replace the missing money with printing press, and it also spent money when no one else would.

Any how, if you want to argue more on this issue, you should head over to Brad Delong's blog and someone will argue there. I'm probably not the best person to argue with on this issue because trying to argue that the money supply is fixed is like trying to convince me that the sky is pink or the Earth is 6000 years old. It's so *obviously* wrong based on my day to day experience, that I have difficulty arguing the issue.

 

[Ryker]

You have to realize the limitations of courts. Courts take a *long* time to act, and in some situations, you need to make decisions in hours. Also courts operate post-facto. If someone steals your money, they may end up in jail, but your money is still gone and you aren't getting it back.

Well, in all fairness, the bolded statement isn't true in general. Yes, you aren't getting your money back if the corporation that stole it doesn't have it anymore, but apart from that, you are. Other than that, I pretty much agree with most of what you are saying.

 

[Shackleford]

I also have serious doubts about the effectiveness of fiscal stimulus due to 'crowding out' effects. In essence, if government spends money without raising taxes, it must borrow loanable funds, which which increases interest rates, and that decreases private consumption and investment, which are components of GDP (Y = C + I + G + X -M).

So you can guess what happens when G increases, while C and I decrease. These kinds of debates about macroeconomic policy continue today, but I was referring to government undertaking microeconomic policy to correct for market failure. And I also agree with you that we should be skeptical of government intervention at the micro level. If we consider the government bureaucrats who are instituting the measures themselves as economic agents maximizing their own utility functions, then we must take that into account when formulating policy. The study of this phenomenon is a field of economics known as public choice theory.

I listened to some of a lecture today, by Roger Garrison I believe. According to capital-based macroeconomics, consumption and investment are inversely proportional (my words). He then noted the C I G macroeconomic equation. It makes more sense to me that individual consumption and investment are mutually exclusive and hence inversely proportional. You invest/safe to yield a greater consumption in the future, and how this back-and-forth changes determines economic growth. So, burying it in the ground only yields economic potential. Saving outside of the "system" is such a dirty word in Keynesian economics.

 

[Shackleford]

And you don't see a problem with arbitrarily printing notes?