Should the Fed take over the IMF?

[Wonkish1]

People that are voting yes to this question shouldn't be taken seriously in a sub forum like this.

[Wonkish1]

Agreed. This is a spectacularly stupid post. However, unfortunately, I've committed myself not to use stupidity as criterion for removing posts on this board.

Ag you still haven't answered what type of micro econ professor you are? What kinds of classes do you teach? Is it all Intro to Micro or are you more in a sub field?

[Wonkish1]

Given what else I have revealed on this forum, you might as well ask me what my real name is ))

Ok, researchwise, political economy, mostly. Teachingwise, advanced micro theory (both graduate and undergraduate), sometimes also public finance.

Other than that you were a Econ professor I don't know anything else about you so you at least have nothing to worry about from me.

Interesting though, good to know. Surprised you don't jump into threads and comment a little more often.

[Wonkish1]

I do, when it is fun ) Unfortunately, too much macro/finance talk here - both, especially finance, have a tendency of boring me fast .  Also, when things get outright imbecilic, as they sometimes do, I am forced to merely insist on decorum: doing anything else might involve myself breaching it ))

So can you give me some examples of topics you would find fun. I'll keep it in mind for the future because I tend to like talking to people that have a lot to offer more than talking to people that are just going to put there small partisan talking point line in and then run off.

[Wonkish1]

Political economy, decision theory, experiments, and quite a bit more ))

How are you defining "political economy" because if I'm not mistaken that is a term that can mean wildly different things?

Decision theory as in more like game theory or more like behavioral economics?

What kind of experiments?

[Wonkish1]

Modeling political institutions, mostly.
All economics is behavioral. Both games and individual decisions are fun.
Econ experiments of all sorts.

Interesting.

Not to poo poo something in your post, but care to explain to me how the laws of compound interest are "behavioral"?

[Wonkish1]

The formula for compounding interest only makes sense if you understand what the interest is, doesn't it? What if we can forecast changes in interest rate over time, we will use a different formula, won't we? The formula by itself is not economics (no formula is): it's the meaning that makes it interesting.

Not really. Interest rates can be fixed, but that is besides the point. The formula(without even imputing specific interest rates) most definitely is economics and it can be applied to a host of things like growth, inflation and prices, etc. Just in the case of growth we can apply it many different ways. We could look at the effect on one country or compare two. So lets compare to. Lets say we have country A and B and the spread between the two's growth rates never equals 0. Now lets say both countries started with the exact same GDP and population(and thereby the same GDP per capita). If we were to figure out that over time A always averaged at least slightly higher growth rates than B we could safely assume that as time approached infinite eventually the standards of living of even the some of the poorest people in A would be higher than some of the most well off in B.


Just pointing out that there is at least some mathematical(and non behavioral) laws of economics(and I would argue that there is a ton of mathematical(non behavioral) laws in mathematics.

[Wonkish1]

Derivatives can also be applied to a host of situations, but that doesn't make them economics. And I don't know, how many times have I written 2+2=4 in solving econ problems - but that's not econ either. By itself, this formula is as applicable to many phenomena that has nothing to do w/ economics (this is just a computation of some quantities growing at a constant rate: could be physics, could be biology). Only knowing when to apply it makes it economics: and that's about behavior.

I just don't agree with you! You can run around saying that the behavior is the key condition for econ. And I can run around saying that the math is a key condition, but the truth is that for most things you need both. To underestimate the effect that the math has on future behavior is I think completely missing the point.


How about inflation? MV = PY is a completely mathematical construct and correctly shows the relationship between the money supply and inflation. Explain to me how that is behavioral in nature.

How about fractional reserve banking? The formula for maxing out the depository leverage in banks is entirely mathematical and isn't dependent upon behavior at all(except for maybe the fed increasing monetary base). That formula can accurately predict the point in the money supply where it has fully leveraged out its base.

I could go on and on! Also I would argue that behavioral analysis is only as much as a factor in economics as people engage in the way you don't expect them to. When the math is pointing to expected behavior and they engage in that then the math is the driver. Example: Fed lowers base rates. Mortgage rates come falling down dropping the price of home ownership down. The mathematical economist would argue that home buyers would sky rocket approximately to the degree that cost of servicing that mortgage falls. Sure enough the behavior followed exactly that. So what was the driver there? Human behavior driving the economy or the effect of mathematical laws changing human behavior?

[Wonkish1]

Well, I guess, that's exactly why I had to study econ and math for most of my life: to appreciate the distinction ))

Math is an indispensable tool in econ, of course (in any science, for that matter). It is impossible to even understand most basic modern research in econ without firm grounding in math. If you were to find yourself in my class, you'd, probably, think I am doing math, not econ: I am making abstract mathematical statements and proving theorems most of the time. I am, mostly, a hardcore theorist - I never really work on data, unless I have myself generated them in the lab. But I know enough math (happen to have been a math major in college) to know it is not what I am doing )))

Math, by itself, is just a sequence of logical statements. But the sequence has to start somewhere. In the end, underneath everything, if it is an economic model, there would have to be some theory of how the world is - and, hence, since we study consequences of human actions, a theory of human behavior. MV=PY is an accounting statement: it's not economics on its own. For it to be econ, you have to appreciate what is M, V, P and Y - and, depending on your theory of what humans do, these things will change.

Naive fascination w/ math is not uncommon when people start studying economics. I know where you are coming from: been there, done that myself ))

The funny thing is depending on how you are exactly looking at it we may be arguing semantics on the topic. Essentially, saying all economics is behavior is like saying that all of physics is matter, motion, force, and energy; okay fine! The understanding that it is the laws of gravity(for instance) that will govern the coming together of two objects and that is a mathematical formula doesn't negate the fact that in order for the formula to work you have to actually have 2 objects of matter. But also doesn't change the fact that without the mathematical formula all you have is 2 objects, no explanation of why they came together, and no subject that is known as physics either.

So if your distinction is that economics is the mathematical study of behavior, markets and trade and that the subject of that study is behavior, markets, and trade but the study of and the laws that govern markets are mathematical then I'll somewhat agree with that distinction.

But if you are coming to the conclusion that all economics is the mathematical rationalization of behavior I very emphatically disagree. At a fundamental level the laws of economics(whether discovered yet or not) govern markets and trade like the laws of gravity and wind resistance acting on a feather descending to the Earth.


Also MV=PY is a governing relationship of the money supply and inflation just like Newtons laws of motion. Would you call Newton's 3 laws of motion not physics? Of course the laws themselves are not matter, energy, motion, or force, but that is why its the *study* of those things not actually *those things.*

[Wonkish1]

Also MV=PY is a governing relationship of the money supply and inflation just like Newtons laws of motion.

Well, this just shows two things: you don't understand the meaning of the above expression and you don't understand the Newton's laws, or, for that matter, what are the laws of nature in general.

V, by definition, is equal to PY/M - that's what velocity of money is, so the equation is, by itself, just a definition of V. It's not an experimental observation (like the laws of nature). It's "true" in the abstract, just from definition of V, but it does not, by itself, tell us anything about how the world is. Without further content, it would be perfectly consistent with anything whatsoever happening in the world, even with increase in money supply leading to deflation (if V were decreasing, for instance, or if Y were increasing). By itself, it can't be used to distinguish between the views of yourself and those of opebo )) This equation is not the content of the quantity theory, but, rather, an artifice used to explain it.

PS Obviously, economics is not mathematical justification of human behavior: human behavior needs to mathematical justification. It is an attempt to understand behavior (and its consequences), not the other way around. And, of course, knowing and using math makes that understanding easier.

In this case your just wrong. You provide the formula for defining velocity of money, but the velocity of money also represents the degree of which reserve leveraging has occurred in the economy. An equation can always be set to have a component equal to the rest, but so...! It is a governing relationship and I do understand the laws of nature.

Of course that formula can distinguish the difference between me and Opebo because he doesn't even believe in its existence nor its effects.



Your PS makes absolutely no sense!