You may recall my essay on MIT economics. Now we have Paul Krugman in response.
Robert Shiller makes some of the same points that John Cochrane was making at lunch about the way that housing markets can get out of line.
Pointers from Mark Thoma.
You may recall my essay on MIT economics. Now we have Paul Krugman in response.
Robert Shiller makes some of the same points that John Cochrane was making at lunch about the way that housing markets can get out of line.
Pointers from Mark Thoma.
Sorry for an unrelated link, but you occasionally write about what’s happening to higher education, and I thought you might get a kick out of this link from Mark Perry at AEI, “The new era of the $400 college textbook” Is that Landsburg’s Price Theory I see for, gulp, $350?
I think Robert Shiller’s work has been essentiel and well deserving of a Nobel prize, but every time he talks about “irrationality” I get mad. Maybe I’ve been drinking the kool-aid, but to me, he might as well say “the gods are angry.”
Instead he should explain specifically and precisely how these markets don’t function as well as they might. Behavioral biases might be part of the story (loss aversion in real estate is plausible), but to say they are “irrational” is the easy way out.
This seems to be a major problem with acolytes of behavioral economics (although the economists themselves are more circumspect). People are not perfectly rational, ergo markets don’t work. Or, people have psychological biases, ergo we need some sort of government policy. What is missing is the many intermediate explanatory steps. Okay, people don’t perfectly judge risk. Now what? How does that translate into aggregate effects?
Re: Krugman, he writes “a different school is in the ascendant, and deservedly so.”; “open-minded, pragmatic approach”; “has worked very, very well for the past seven years.”; “remarkably successful predictions of much-hated Keynesians”; “has been very right indeed”
Who needs evidence when one is omniscient?