Google Books has a word cloud for my book. Not sure about "however" being so prominent...
I was pleased to see the following encouraging news about the long term health of the UK economy:
And I was saddened to see the response:
Personal borrowing fell by £600m in July, taking the total owed by individuals down to £1.457 trillion.There was a drop in both mortgage debt and other forms of borrowing such as bank loans
Today's news will not make happy reading for policy makers who have taken significant steps over the last year to encourage greater volumes of lending throughout the economy
Whether or not economists could, or should, have predicted the financial crisis, there is an unprecedented urgency and demand for the profession to make itself a little more useful than it currently is. This working paper argues that economists have two main tools at their disposal, both of which are shockingly under-utilized. The first is counterfactual analysis - the ability to construct alternative histories to robustly assess what has transpired to be. The second is scenario building - the creation of alternative futures to interpret and respond to what is to come.
This is the abstract for a working paper of mine published by the Mercatus Center - you can download it here. Back in February I rather rudely dismissed Leigh Caldwell's attempt at counterfactual reasononing, and asked the following: "Has anybody provided a coherent and rigorous account of what might have happened without large-scale intervention?"
The paper above is based on talks I've given at the University of Oxford in February and for the Helsinki School of Economics in April, and is my attempt to start a discussion. It's highly speculative and I welcome feedback.
Update: Tyler Cowen asks, "I would be curious to hear your counterfactual version of how matters would have proceeded, without the financial bailouts". My paper above draws heavily on Tyler's own counterfactuals (plus the speculative work from Jeff Hummel).
Update II: Bryan Caplan asks: "Suppose there had been no bail-outs, and everything that's happened since happened anyway. How many pundits would claim that the world we now see around us was indeed the foretold Armageddon?"
Update III: Leigh Caldwell answers,
However one principle of science is that you can only disprove a theory, never prove one. It would be more scientifically convincing to tell us how to spot that the scenario is not happening.
There's a distinction between the positivist hegemony and "science". I accept that the vast majority of scientists are fully wedded to positivism but (a) I'm not; (b) non-positivist science isn't necessarily "faith". The distinction between faith and science is a modernist construct, so if you reject modernism (as I do) we're talking about different things. I don't accept that controlled experiments are the only way to learn about causal processes, and I think that the importation of scientific techniques associated with the harder sciences into economics is perverse. The main point of the paper is to get us away from making predictions *and* falsifiable statements subject to refutation. So there's a whole heap of methodological issues bubbling under the surface.
By this standard, a couple of the examples in this paper are suspect... I can't for the life of me see how corporation tax causes wage rigidity, nor how it has any major impact on corporate flexibility. Raising the retirement age has an equally vague connection with the intended outcome.
Leigh makes a couple of criticisms such as the one above. They are considered, insightful, and to that end I don't feel a need to quibble. To clarify the above the general point is to look at policies that make businesses more "adaptable". Admittedly this is vague but I'm claiming that a reduction in corporation tax and increase in the retirement age would help businesses cope with labour markets that are in an adjustment phase. I'm delighted that someone is playing along with the construction of scenarios, and Leigh's comments on the Great Depression are well worth reading.
I've resisted commenting thus far because this is such a futile "debate", but I did want to point out Philip Booth's post at the IEA:
I concur that on paper the NHS looks fantastic, but to be "a supporter" you need to do the following:
I could trade personal anecdotes about how much I detest living in a world of highly socialized healthcare, but these tit-for-tat exchanges don't move the debate forward. Only a rational conversation built on philosophical principles and an understanding of basic economics will. But I am deeply disturbed when people not only defend the NHS on nationalistic grounds, but brand intellectual opponants as "unpatriotic". Road to Serfdom...
That's part of the blurb for Walter Block's "Privatization of Roads and Highways". I don't know Walter personally but everyone I know who does points to someone that combines a deep knowledge of his material (covering the historic, legal, and philosophical aspects of any economic policy) with a genuine charm and wit. His inventiveness jumps off the page, so I'm looking forward to reading his thoughts on this topic in one place and I encourage others - especially those instinctively skeptical of his position - to consider his arguments.