How economists feel about the St. Louis Federal Reserve Economic Data. Nothing like a retro viral video.  


The Three Components of Leadership

Some time ago I was chatting in the kitchen with my roommate about our extracurricular activities in college, and we got to talking about leadership. Both of us had held leadership positions that had greatly challenged us; I as the captain of my ultimate frisbee team, and she as a coordinator for solar decathlon, a team that competes in a US Department of Energy sponsored competition to design, build, and operate solar-powered houses.  While we both adequately met our responsibilities (the house was built, the games were played) both of us felt that we had, in some way, failed. 

My roommate and I aren't just ordinary roommates, brought together by a shared hobby, or a mutual friend, or a twist of Craigslist fate; we are both Venture for America fellows, participants in a two year entrepreneurship program that matches recent college graduates with startups in low-income cities. Venture for America is supposed to teach fellows how to start and grow a company by putting them "in the trenches" and forcing us to learn by doing. Most of the learning, however, comes from watching our employers, the entrepreneurs.

OMG it's @jack. If I wear designer jeans will I make a million dollars?
We aren't alone; I un-statistically estimate that 90% of all entrepreneurship-related talks hosted on college campuses, at startup accelerators, or at business community events are nothing more than first-person tales from successful entrepreneurs about their experiences founding and growing a company. Everyone in the audience listens because they believe that given enough data points, they will be able to unlock the secret of entrepreneurship, but the truth is, there is no formula. You can't become an entrepreneur by cramming for three months and taking the bar exam. You can't become an entrepreneur by completing eight years of school and five years of residency. You can't become an entrepreneur by shaking hands, kissing babies, and winning an election. Still the community of wannabes searches, throwing every CEO who naively agrees to a speaking engagement into the petri dish, poking, pulling, and dissecting in a desperate attempt to understand what makes this species tick.


One Horse Trick

A (Most Likely Incorrect) Thought Experiment (Ridiculously Wonkish)

My favorite way to approach economics (as I've written about here, here, and here) is through the equation of exchange, MV = PQ: money, multiplied by its velocity, is equal to price times the quantity of real output an economy produces. It's my favorite approach because it's both simple and complicated, obviously true but also open to interpretation. 

One of the common ways to interpret this deceptively simple equation is Milton Friedman's way, which is, in a nutshell, to assume that M has a one-to-one impact on P, and no impact on Q. Hence, monetarism. Milton based his interpretation partially on the interpretation of philosopher David Hume, who, writing before the relationship between money, velocity, price, and output had been formalized into an equation, argued that a change in M should only affect only P with a thought experiment: if everyone in England woke up one day with twice as many coins in their pocket, prices would change, but nothing else.


Marx and the American Idea of the State

I'm read some Marx on vacation, catching up on some of the essential education I feel like I skipped in college. I decided to start from the beginning, which for me means the beginning of The Marx-Engels Reader, which compiles Marx's most important writings in roughly chronological order from age 19 until his death in 1883. 

I love reading the early writings of great economists. First, it's illuminating to understand how their thoughts developed, and what deep ideas drove them towards their final contributions.  Second, there's something maliciously satisfactory about consuming their sophomoric content: essays that wander back on themselves and are sometimes inconsistent; paragraphs with more passion than substance, and pieces that never really come to a clear point. It proves that they were human once, too, and also that there's hope yet for another great to arrive.  

Why does no one talk about how Marx was a first-class dreamboat?

The particular passage that I'm reading right now is Marx's Contribution to the Critique of Hegel's Philosophy of Right: Introduction, which to be fair is a bit past sophomoric. It's best known for it's fourth paragraph: 

"Religious suffering is at the same time an expression of real suffering and a protest against real suffering. Religion is the sign of the oppressed creature, the sentiment of a heartless world, and the soul of soulless condition. It is the opium of the people."


King Krugs' Court

Ok ok, I wrote a Krugman reaction piece. I hate writing Krugman reaction pieces, although I've done it once or twice before, because it's just so… cliche.  You see, Paul Krugman is the (disputed but) undeniable King of the Econ Blogosphere, aka the Econosphere. For starters, he's the only nobel prize winner who gives a shit about the internet.  He also writes for the New York Times, and has an aptitude for headline writing that's almost uncanny for a professional economist.  Most importantly, he's opinionated and… searching for the right word… let's go with "pugnacious." His pieces either evoke hurrahs from supporters, or anger from critics. The former doesn't generate much interesting content (you can state agreement in under 140 characters, including a link) but the latter is responsible for an embarrassingly large percentage of all posts published to the amorphous mass that is the Econosphere.


5 Pocket Models of the Macroeconomy

Economists, like all academics, spend most of their time becoming experts on very specific topics. One economist might specialize in the effects of micro-incentives in third-world countries, another might focus on the applications of game theory to the organ donor market, and a third may spend years pondering the causes of a particular historical economic event. When asked about their area of expertise, they give highly detailed, properly qualified, and usually accurate answers. However, when time is short and the question is novel, as when a policymakers need to respond to new and therefore unique macroeconomic event, economists tend to rely on a handful of basic models that most undergraduates learn in Econ 101.

The particular model varies by economist. For example, Paul Krugman proudly proclaims the IS-LM to be his favorite mistress.  In his book A Term at the Fed, economist Lawrence Meyer says that he relied on the concept of the NAIRU to guide his recommendations as a Federal Reserve Board governor from 1996 to 2002.  However, because his contemporaries on the FOMC, the committee that raises and lowers US interest rates, used different concepts and models to form their opinions, they often came to different conclusions. I suspect that an accurate map of economic ideology could be drawn simply by looking at which "pocket model" economists reference when answering questions on the fly.

As the "About" section of this blog proudly proclaims, I'm a quack without a flock, which means that I use a quirky pocket model of my own creation, although its basic principles aren't too far off of the mainstream macro track. I call it "The Spaghetti Model." They say that "it takes a theory to beat a theory" and I also often think that "it takes beating a theory to make a theory," so before making pasta, I'll explain why I don't like using the other common pocket models. I'll cover four:

  1. Classical Principles  
  2. Keynesian AS-AD (Aggregate Supply-Aggregate Demand) 
  3. Neoclassical AS-AD (Aggregate Supply-Aggregate Demand) 
  4. IS-LM (Investment-Savings-Liquidity-Money)
The DSGE is not on the list, primarily because the DSGE is not a pocket model, and secondarily because another post on this blog and also the theory tab tangle with it directly. In the interest of time I've also neglected Austrian and Post Keynesian models, which are respectively right and left of the mainstream and rarely used by policymakers in power.