This morning I found an odd sort of synergy among a cluster of posts in the econblogosphere. Arnold Kling notes an interesting claim in Bill Keller’s recent NYT editorial:
“Nobody who is taken seriously as an economist is going to say ‘cancel the Fed,’ ” said Glenn Hubbard, the dean of Columbia Business School, chairman of the Council of Economic Advisers under George W. Bush, and now Mitt Romney’s chief economic adviser. “I find it very disturbing that the media is giving equal time to some ideas that are just crazy.”
Meanwhile, Robin Wells, Paul Krugman’s wife, makes a case for taking demands of OWS protesters seriously:
On Nov. 2nd, a group of students in Harvard University Ec10, the introductory economics class taught by Greg Mankiw, staged a walk-out. In an open letter, the students lambasted Greg’s course and his textbook for “espous[ing] a specific – and limited – view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today…..There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.â€
I am sure that many of us who have taught introductory economics or who have written an intro economics textbook (a much smaller subset, and I fall into both) felt a pang of sympathy for Greg when we heard about the walk-out. If you have ever faced a large lecture hall of restive intro econ students, or coped with a voluble student with an ax to grind, you can feel some solidarity: we are Greg Mankiw too.
But just how far should that sympathy extend? Is Mankiw simply the target of fuzzy-minded youth who are more intent on making a statement than engaging in reasoned inquiry? Or, is Mankiw – and much of the profession, for that matter – getting a needed reality check about the need to re-orient the way we teach economics?
However, Eric Falkenstein points out that one of the demands of OWS protesters is ending the Fed (to replace it with a fully nationalized and public institution).
A rush of questions come to mind:
- Is Robin Wells crazy?
- Does Bill Keller think that Robin Wells is crazy?
- Does Robin Wells believe that the protesters’ demands with respect to microeconomics have merit while their views on macroeconomics don’t?
- How could we make that determination?
- Are Glenn Hubbard and Bill Keller right? Is wanting to end the Fed unworthy of serious discussion?
and another series of questions on the Federal Reserve:
- Should we end the Fed?
- Should the Fed be replaced by a fully public institution?
- Abolished entirely?
- Maintain its current structure but be required to make its proceedings public?
- Be required to maintain a rules-based regime (a la John Taylor)?
For the record in answer to the question that titles this post I emphatically do not believe that Robin Wells is crazy. I also think that Bill Keller is mistaken about the Fed: abolishing it or changing its structure or operations drastically are subjects worthy of discussion including by serious economists. As to whether or how its structure or operations should be changed I’m uncertain. I definitely find a rules-based regime very appealing but I also think you’d need rules about when, how, and how often you change the rules. I also like the idea of openness but I’m not sure to what degree that would impede the Fed’s effectiveness.
With respect to the OWS movement, I think that it’s ironic, tragic even, that it’s lurching dangerously near becoming a movement about the right to camp indefinitely and without let in municipal parks.
I’m warming to Scott Sumner’s NGDP futures market idea, with NGDP targeting in the interim.. The alternatives presented by the End the Fed people seem pretty crazy to me. Back on the gold standard?? They probably view the Euro problems as a problem with fiat currency, rather than it being strikingly similar to tying the hands of a central bank with a gold standard.
[T]he students lambasted Greg’s course and his textbook for “espous[ing] a specific – and limited – view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.”
So the students want efficient systems of economic inequality?
We don’t need a gold standard to end or reduce the Fed’s role. Personally I don’t think it should be abolished entirely, just limited to ensuring clearance of payments, deposit insurance and (partial) responsibility for bank regulation. It’s monetary operations aren’t particularly useful and we really don’t need a Federal agent setting target interest rates.
“With respect to the OWS movement, I think that it’s ironic, tragic even, that it’s lurching dangerously near becoming a movement about the right to camp indefinitely and without let in municipal parks.”
Heh. Well, as I noted a few posts ago its a curious crew. We have a picture of my daughter standing beside an OWS-er at Zuccotti Park holding a sign that says “the 1% have the money, we are going to take it.” If not by gun, then by power of the state I guess. We joked it would be our Christmas card.
So we then went on the obligatory boat out to the Statue of Liberty, but upon return passed by the park only to see (unreported) violence as the police cleared it out. Mr. Reynolds has repeatedly attempted to cannonize these people. My observation is that they are variously professional protesters, standard issue malcontents and some homeless types who collectively have no clue what the issues are except “down with the man and, hey!, cool, free stuff.”
Not very inspiring.
Well is a pandering sleaze, IMO.
Economics teach usually goes like this:
Micro theory
Macro Theory
Then the more specialized stuff.
That is before you get to macro theory the requirement is to have micro theory first. To understand the theory of the consumer, firm and markets. From there you go on to the economy as a whole. It is a logical progression.
In fact, back in the late 1960s and early 1970s there was a big deal about how macro theory had gotten away from micro theory and the macro stuff was violating very simple rules established in micro theory. For example, money illusion, many “cutting edge” macro models relied implicitly on people suffering from money illusion. The issue can be seen here:
What is the difference between:
2*P(x)*X + 2*P(y)*Y = 2I
and
*P(x)*X + *P(y)*Y = I.
You’ll notice that in the first equation the 2’s on either side of the equal sign cancel out. Thus doubling prices and doubling wages does nothing to the budget constraint, and thus does not change people’s consumption decisions. That is the ultimate impact of inflation, once people figure it out you can run inflation higher and higher but you get now change in economic activity…end result stagflation.
So it isn’t that “Adam Smith’s economics” is better than “Keynes’ economics” they are complimentary and it is taught to student in a logic order. First you learn to crawl, then walk, then run. Trying to teach a child to run while skipping the first two is a waste of time.
It is like saying why bother learning basic arithmetic, lets skip right to measure theory!
Prof. James Hamilton discussed on his blog awhile ago why the gold standard wont work. Once a country has gone off of it, then goes back on to it, it becomes vulnerable to speculative pressures.
More here.
Now that doesn’t mean we can’t improve on what the Federal Reserve does.
So that deals with the Gold Standard. As for a fully public institution I don’t even know what that means. It is hard for me to evaluate what that would lead to without fully understanding what that means.
The rules based approach is one also favored by Prescott and Kydland to deal with time inconsistency. I’d probably favor that route more than the others, but good luck getting policy makers giving up power.
Not very inspiring.
As opposed to the Tea Partiers who think that fundamental change will be enacted by John Boehner and Mitch McConnell? Epic fail on both sides.