The Worst Economist of the 20th Century

I got pinged a while ago by an old student of mine, Karan Khilwani. He had a fairly interesting question to ask: who, in my opinion, would qualify as the worst economist of the 20th century?

I have, on reflection, a clear pick, whom I’ll get to in a bit.

But here’s my thinking behind my pick: economics is (to me) useless unless it is applied. I haven’t gone for bad economic theory per se, but bad outcomes as a result of some policy being implemented.

What I am trying to say is, economics as practiced is what I have judged, not economics as theorized.

With that caveat, I have a clear winner: Chairman Mao.

From the Wikipedia article on the Great Leap Forward:

“The Great Leap Forward (Chinese: 大跃进; pinyin: Dà Yuèjìn) of the People’s Republic of China (PRC) was an economic and social campaign by the Communist Party of China (CPC) from 1958 to 1962. The campaign was led by Chairman Mao Zedong and aimed to rapidly transform the country from an agrarian economy into a socialist society through rapid industrialization and collectivization. These policies led to social and economic disaster, but these failures were hidden by widespread exaggeration and deceitful reports. In short order, large internal resources were diverted to use on expensive new industrial operations, which, in turn, failed to produce much, and deprived the agricultural sector of urgently needed resources. A significant result was a drastic decline in food output, which caused millions of deaths in the Great Chinese Famine.”

As an economic experiment, it is hard to argue with the notion that this was pretty catastrophic for pretty much everybody.

From further on in the same article:

“The exact number of famine deaths is difficult to determine, and estimates range from upwards of 30 million, to 55 million people. Because of the uncertainties involved in estimating famine deaths caused by the Great Leap Forward or any famine, it is difficult to compare the severity of different famines. However, if a mid-estimate of 30 million deaths is accepted, the Great Leap Forward was the deadliest famine in the history of China and in the history of the world.”

As a consequence, for me, it is hard to look beyond Chairman Mao for the title of the worst economist of the 20th century.

Which, of course, begs the question: does that make Deng Xiaoping the best economist of the 20th century?

 

Update, via Marginal Revolutions: “One of the best books on the beginnings of the reform era, with a special focus on whether the Soviets could have chosen a Chinese path (no, too many embedded interest groups, so does that mean Mao is underrated?).”

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A Short Explanation About Yesterday’s Video

Economists, and students of economics, are fond of using the quote “In the long run, we’re all dead”, attributed to John Maynard Keynes.

Except, the quote wasn’t used (at all) by Keynes in the spirit in which it is often quoted by folks today – the exact opposite, in fact.

But when we do talk about the long run, we economists (or students of economics) would do well to understand that there are many definitions of the long run. And in the longest run of all, yes, we are all well and truly dead.

And that’s one of the reasons behind choosing that video yesterday. Also, a tip that I myself learned only recently: tapping on the right of the screen on your phone in the YouTube app fast forwards the video by ten seconds, and pressing “L” on the keyboard has the same effect on your computer.

Thanks to the reader who pinged asking about it!

A Promise, An Update, and A Request

Exactly one year ago, this blog came out of hibernation.

I had started EFE in June 2016, with an aim of popularizing economics. The blog, back then, was about writing simple, easy to understand articles about economics. The idea was to write stuff so that folks would have an easier experience navigating this often complex subject.

As with most things I have tried to start in life, it started well enough, but petered out fairly quickly. I wrote on the blog off and on, but without either a plan or a commitment. The biggest problem was that I was trying to substitute for some really good stuff already out there. Going up against the best – substituting for them –  is difficult. And so the blog lay (mostly) dormant.

The Promise

But on the 13th of June, 2018, I put up five links that I thought were worth reading. And, I am proud to say, from that day on until today, I have been putting up a post a day (at least). Rather than trying to go up against the best in the business, I have simply tried to link to them – complement them.

It’s ironic. One of the most popular posts on this blog is an article about substitutes and complements.

But for the past year, all I’ve done is read, and share some of what I read. There hasn’t been too much method or thought applied to the sharing – if I liked reading it, I shared it. The one thing that I did change was that February of 2019 onwards, I started adding some context to each link, and tagging each post with the topics discussed therein.

The Update

Beginning this week, though, in celebration of it being one year of getting off my posterior and showing up everyday, there is a change to this blog. Long overdue, but some housekeeping, and a semblance of order.

From here on in, Monday will be links about India. Tuesday will be links about technology. Wednesday will be articles from other parts of the world, while Thursday will be about economic theory. Friday will be assorted stuff (keep an eye out for an article about poop tomorrow, for example). Saturday will be tweets I found interesting, while Sunday will be a link to a video I found interesting.

If you want to read a collection of articles related to each topic listed above, simply click on Links, in Categories on the right, and take your pick (Monday through Friday). Alternatively, search for a word and see if I have linked to an article about that topic. Heard of chaebols, for example?

Each article will help you learn a little bit more about the world, and therefore about economics (or is it the other way around?). Keep at it for a while – a week, a month, a year – and you’ll find that you know more than you did before. Learning compounds, and it truly is a miracle.

There will also be a weekly (at least) article on a book I have enjoyed reading, or a podcast episode I would like to recommend to you. These are separate categories in their own right in the Category drop-down menu.

The Request

Please subscribe, if you haven’t already. Subscribing is very easy: simply click on “follow blog via email” at the top right of this page. Alternatively, read this article about what Feedly is, and consider reading more than just this blog. I’d recommend the latter, if you’re asking.

Also, please help spread the word? The blog is free, and will be updated daily, and if you think anybody might benefit by reading five handpicked articles daily, please point them in the direction of this blog by sharing this post.

And lastly, please do not hesitate to send interesting links, videos and tweets my way. My email address is ashish at econforeverybody dot com, and this is my twitter handle.

Thank you

Finally, thank you for reading this far, and (hopefully) for reading the blog in general. It means a lot.

 

 

Links for 22nd March, 2019

You might have been hearing/reading about MMT recently. Today’s set of links is really one place to read a lot of back and forth between two economists about what MMT means in practice – plus an additional bonus link, and a Twitter thread.

You absolutely should read each of these links if you are a student of macro. You probably should read these links if you are interested in the economy – but in this case, feel free to skip some of them. I leave it to your judgment.

  1. “OK, Lerner: His argument was that countries that (a) rely on fiat money they control and (b) don’t borrow in someone else’s currency don’t face any debt constraints, because they can always print money to service their debt. What they face, instead, is an inflation constraint: too much fiscal stimulus will cause an overheating economy. So their budget policies should be entirely focused on getting the level of aggregate demand right: the budget deficit should be big enough to produce full employment, but no so big as to produce inflationary overheating.”
    Paul Krugman gets the ball rolling by explaining what Abba Lerner’s work was all about, why it made sense then, and perhaps doesn’t now.
  2. “Outside of the so-called liquidity trap, Krugman adopts the standard line that budget deficits crowd out private investment because deficits compete with private borrowing for a limited supply of savings.The MMT framework rejects this, since government deficits are shown to be a source (not a use!) of private savings. Some careful studies show that crowding-out can occur, but that it tends to happen in countries where the government is not a currency issuer with its own central bank.”
    Stephanie Kelton responds by pointing out what she sees as the flaws in Krugman’s argument. I have had difficulty in understanding this part myself, which is why I have highlighted it.
  3. “So let’s be clear here: Are MMTers claiming, as Kelton seems to, that there is only one deficit level consistent with full employment, that there is no ability to substitute monetary for fiscal policy? Are they claiming that expansionary fiscal policy actually reduces interest rates? Yes or no answers, please, with explanations of how you got these answers and why the straightforward framework I laid out above is wrong. No more Calvinball.”
    Of the questions that Krugman raises by way of response, it is the second one that strikes me as being at the heart of the issue. Expansionary fiscal policy reducing interest rates boggles the mind – well, my mind, at any rate.
  4. “#3: Does expansionary fiscal policy reduce interest rates? Answer: Yes. Pumping money into the economy increases bank reserves and reduces banks’ bids for federal funds. Any banker will tell you this.”
    I have read Stephanie Kelton’s response, and re-read it, and I find myself confused even then. Expansionary fiscal policy, she says, does reduce the federal funds rate. I found this confusing…
  5. Until I read this twitter thread by Paul Krugman…

    As it turns out, the route taken by the government to conduct expansionary fiscal policy matters. You learn a little more macro every time you read about it.

Links for 12th February, 2019

  1. “Each of these imbalances is important and needs to be rectified. One has to do with the differing levels of per-capita consumption of basic public goods and services. The other has to do with the differing levels of stock of infrastructure leading the differential growth accelerating potential development. These are two distinct  policy goals and following Tinbergen Principle warrants two distinct policy instruments. Eliminating the Planning Commission and replacing this with NITI Aayog merely as a think tank leaves us with only one instrument; namely Finance Commission. This approach if not reviewed can lead to a serious problem of increasing regional and sub-regional inequities.
    Who better than Dr. Vijay Kelkar to tell us more about Niti Aayog 2.0? You might want to look up the Tinbergen Principle if you do not know about it already. (Via Mostly Economics)
  2. “Last year, at the end of the summer melting season, the team drew lines on the stakes marking the height of the ice, as researchers have done here for decades. Now, looking at a stake nearly a year later, Nikolay Kasatkin, one of the institute researchers, and Dr. Shahgedanova saw that more of the wood was visible. With the end of melting still a couple of months off, parts of the Tuyuksu were already about three feet thinner.”
    The NYT does excellent work tracking climate change, and this article is only the latest in a long string of articles entirely worth reading. Best viewed on a desktop.
  3. “ICICI directors shouldn’t get a free pass from regulators. Otherwise, they’ll just show up at other boards, perpetuating a culture of CEO worship that’s at odds with their role as stewards of public shareholders. Indian investors deserve better.”
    Andy Mukherjee doesn’t mince words while talking about the lack of oversight at the board level in ICICI Bank. What might the situation be like at other banks in India?
  4. “It can be easy to think of a calendar as a scientific given, or a reflection of the laws of the universe. In fact, as these holidays remind us, there are as many ways to track time as there are cultures and languages. Each calendar reveals something about how the people who created it relate to the world around them while also preserving rich cultural identities and memories.”
    A nice read from the NYT about the way different cultures track time – as it turns out, there are many ways to measure it – the lunar and the solar calendars happen to be just two of them.
  5. “India’s first education policy was framed in 1968 based on the famed Kothari Commission report, the second in 1986 and the third—a revision of the 1986 policy—in 1992.The official cited above said it’s not as if the previous policies were implemented quickly. In fact, making eight years of education compulsory was part of the 1968 policy but it was implemented only in 2009 through the Right to Education Act.”
    A depressing read, particularly for me, but the state of India’s NEP today mirrors much of India’s inaction on this in the past.

Links for 11th February, 2019

  1. “We probably would not have planes, trains, or automobiles if we had insisted on today’s safety levels during the early days of those technologies’ development—likewise, we should have laxer safety standards for new emerging technologies.”
    Worth reading this for many reasons. Don’t miss the bit about the need to change ideological commitments on the basis of rationally-arrived-at conclusions, for example. But that excerpt above is a great way to understand the concept of, and the importance of, opportunity cost.
  2. “I want to make it clear that although enriched environment dominated the 20th century, IQ gains are not destined to persist like the law of gravity. Factors that were immediate triggers of IQ gains included more adults per child in the home, more and better schooling, more people at university, more cognitively demanding jobs, and better health and conditions of the aged. There are signs that these are beginning to show diminishing returns.”
    The Flynn effect is one of the more interesting things you can learn about – and having learnt about it, it might interest you to know that the Flynn Effect may now be reversing.
  3. “They’re having a fight about the wall except the wall is the English Channel: half of these people want to turn the English Channel into a wall to keep out their version of the Mexicans.”
    An interview with Anand Giridharadas about the perils of philanthropy. Worth reading, not necessarily to agree with everything he has to say, but to think about was in which he may be right.
  4. “So, for example, if people don’t take into account the macro consequences of their borrowing, then they could borrow collectively at the same time, which might be rational from an individual perspective but that collective borrowing leads to future problems such as a foreclosure problem that has spillovers for everyone in the economy. When people borrow individually, they may not take into account those spillovers. And so, again, from a macro perspective, people might over-borrow.For all of these reasons, a possible result conceptually is that if and when credit expands, it is possible for households to over-borrow, to overstretch from a macro kind of social perspective. And that over-borrowing, that overstretching during the boom phase of the credit cycle, can then come back to hurt on the downside and lead to a deeper recession than it would otherwise have been.”
    This much is straightforward for a student of macroeconomics – but the rest of the interview with Atif Mian is worth reading for how he teases out the mechanisms of thinking about the follow-up questions in the context of today’s economy. If you want to learn how to think like a macro-economist, this interview will help.

Links for 8th February, 2019

This will be an intertwined, five part series, born out of a rabbit hole I fell into, and spent an evening over.

  1. “As we try to understand the world of the next three decades, we will desperately need economics but also political science, sociology, psychology, and perhaps even literature and philosophy. Students of each should retain some element of humility. As Immanuel Kant said, “Out of the crooked timber of humanity, no straight thing was ever made.””
    Fareed Zakaria isn’t too impressed with the state of economics today, and says that a more holistic approach is needed. Holistic is a fancy-schmancy word that is far too over-used – but essentially, his point is we need to read wider (ahem), and be rather more aware of the fact that math is way overrated.
  2. “Managing globalization, supporting a healthy middle class in an era of artificial intelligence, and incentivizing the preservation of the planet must be among the central challenges, if not the central challenges, of our era. If not from economic analysis, it is hard to see where resolutions will come from. Everyone, whether they like economics and economists, or whether they resent and distrust current economics, has a stake in the discipline being relevant and successful going forward.”
    Yes, but what about the opportunity cost of abandoning economic theory? That in effect, is what Larry Summers says in this essay, penned in response to the original. Sure, economics has its flaws, and sure, it has had to evolve over time, but surely that is a good thing?
  3. “The problem, however, is that there is also the unprofessional How Tax Reform Will Lift the Economy: We believe the Republican bills could boost GDP 3% to 4% long term by reducing the cost of capital. It seems that every Yellen is offset by Holtz-Eakin, every Rajan by a Taylor, every Shiller by a Barro, every Krugman by a Boskin, and so on. And how is a Fareed Zakaria or a Binyamin Appelbaum supposed to disinguish those who have knowledge from those who have only ideology, or indeed from those who can and do switch their approval and disapproval of policies on and off upon changing demands from changing political masters?”
    Well, yeah, maybe, says Brad DeLong, in response to the question posed by Larry Summers above, but Fareed may have a point, still. Economists are nowhere near as consistent as they ought to be, and that ought to count against us.
  4. “Rather than suggesting coherent policies, Moore and Laffer seem to hope that a much more rapidly growing economy will provide the resources to address all these problems, and they seem to believe that this growth will follow ineluctably from the lower taxes and deregulation that lie at the heart of Trump’s agenda. It would be wonderful if that were possible. Maybe rah-rah partisans really believe it is. But more likely, it is just wishful thinking. ”
    N. Gregory Mankiw highlights some of the problems that Brad DeLong gets so upset about in a wonderfully provocative article.
  5. “On the other hand, economists do turn out to know quite a lot: they do have some extremely useful models, usually pretty simple ones, that have stood up well in the face of evidence and events.”
    Paul Krugman, who writes as well as anybody else, ever, in the field of economics – if not better – makes the point that simple economic models are surprisingly easy to understand and teach, and they work.