Alex Tabarrok recently discussed an article that criticizes philosophers for dwelling on the past:
Hanno Sauer on why philosophers spend far too much time reading and writing about dead philosophers:
Ironically, this post appeared directly after a Tyler Cowen post suggesting that the Quantity Theory of Money is still important. Almost all of the best work on the QTM is written by dead economists.
I am not well informed on philosophy, but one of the biggest problems in economics PhD programs is that the teaching focuses heavily on recent work, and too little attention is paid to macroeconomists that did their work 100 years ago. Students work with a limited set of models, which often reflect a single approach to macroeconomics. Thus in recent decades, the rental cost of money approach (focused on interest rates) has pushed aside the price of money approach and the quantity of money approach. Yes, these two alternative approaches have problems, but so does the interest rate approach. More importantly, they also contain insights that help us to better understand the world, insights that might be missed by those that solely focus on interest rate-oriented models.
In my view, a grad program in macro should spend 1/3 of the time teaching the history of economic thought, 1/3 of the time teaching macroeconomic history (i.e. the historical data), and 1/3 of the time teaching modern models of macro. Perhaps if they had done so in recent decades, then economists would have understood much earlier that a tight money policy by the Fed was driving the US economy into recession in late 2008.
I have a book coming out this year (tentatively entitled Alternative Approaches to Monetary Economics), which attempts to address this issue. In my view, it is not possible to truly understand a field like macro unless you see it from multiple perspectives. Unfortunately, the wisdom of macroeconomists like Irving Fisher, Ralph Hawtrey and George Warren has been largely forgotten. Even Milton’s Friedman‘s ideas are fading into the past.
Here’s Irving Fisher and his son:
READER COMMENTS
Spencer
Sep 23 2022 at 9:05am
The distributed lag effect of long-term money flows, the volume and velocity of money, the proxy for inflation, is exactly 24-months (and has been for over a century).
During the GFC, bank credit peaked on 10/22/2008 @ $9245., then bottomed on 3/24/2010 @ $8602., and didn’t exceed the prior peak until 2/1/2012 @ $9249.
Bank credit may have just peaked on 8/24/2022 @ $17333. Stagflation will be with us for a while.
Spencer
Sep 23 2022 at 9:24am
Yes, the old economists are much easier to understand. The good old economists were literate. Powell lacks perspective.
Link: George Garvey:
Deposit Velocity and Its Significance (stlouisfed.org)
“Obviously, velocity of total deposits, including time deposits, is considerably
lower than that computed for demand deposits alone. The precise difference
between the two sets of ratios would depend on the relative share of time deposits
in the total as well as on the respective turnover rates of the two types of
deposits.”
But Powell sums up all deposits together and claims M2 is worthless: “We have had big growth of monetary aggregates at various times without inflation, so something we have to unlearn.”
Garrett
Sep 23 2022 at 9:28am
I’ve always found it helpful to understand the historical context around theories. For example this post of yours does a great job explaining several important ideas in monetary economics. I also think it’s useful to study dead ends in subjects with a focus on why people went in those directions and why they’re wrong.
My layman’s view of philosophy comes from an ex girlfriend who majored in it in undergrad. It seemed like she had to study and discuss lots of old ideas that we now know to be wrong, but the focus was on engaging with the ideas as if they were true. This came off to me like a waste of time. A lot of philosophy comes off as pretending that physics, neurobiology, and economics don’t exist.
Michael Sandifer
Sep 23 2022 at 10:42am
As an outsider, it seems many economists I follow spend way too much time discussing Smith, Hayek, Mises, Keynes, and a few others. There’s not much need to talk about them, if one simply incorporates whatever was valuable about their models into one’s own and/or compares and contrasts occasionally, but I don’t see much use in the latter. I don’t see relatively little discussion about directions forward in theory.
Scott Sumner
Sep 24 2022 at 2:13am
But how can they know what’s valuable in their models if they haven’t read them?
Michael Sandifer
Sep 25 2022 at 9:44pm
Scott,
As Mark Z points out further down in the comments, most physics students don’t read Newton or Einstein. Their models are incorporated into the modern physics curriculum. And as I pointed out, theoretical physicists don’t need to read Newton or Einstein, because they are deriving similar results from string theory at a more fundamental level of analysis than Newton or Einstein could have.
The point is, physics does a better job of consolidating knowledge and moving on than economics, partially because it’s much easier to conduct controlled experiments in physics, and partially because economics theory is too often polluted with ideology, along with statistical methodology being overrated and often misused, etc. It is fair to say economics is harder from a model-building perspective, but also fair to say that economic theory is faddish in ways that are indefensible.
Michael Sandifer
Sep 25 2022 at 9:50pm
Perhaps it’s better to say, who cares what Smith, Hayek, or Keynes thought? They were all famously right and wrong about various things, at various times. What are the useful explicit models that come out of their work, and if they’re so useful, why isn’t everyone using them, without need for prompting?
Even on this blog, which seems authored by many smart, rational, mostly non-ideological economists, there’s the sense of a cult of Hayek, for example. Among liberals, there’s a cult of Keynes, or many different cults of Keynes.
zeke5123
Sep 23 2022 at 11:57am
Taleb presented the idea of Lindy — the rule basically is that what has lived longer is more likely to continue living. For example, I would bet that Apple is more likely to be around in the next five years compared to a new start up.
Likewise, I am quite certain that the Republic will be more relevant in the next hundred years compared to a new work in philosophy.
It is the simple truism that what has been has to a certain sense stood the test of time suggesting there is some quality and staying power, whereas new things haven’t and therefore more likely to fail.
None of this means that which was will be (e.g., Kodak). But good rule of thumb, not just for companies but also for ideas.
Ghost
Sep 24 2022 at 11:18am
This applies to art too.
A trivial example – UK audiences were asked repeatedly, at intervals of several years, to rank the greatest albums of all time.
The winner – different each time – was a recent hit. It vanished or descended sharply in the ranking by the time of the next survey.
In second place each time, “Revolver” by the Beatles.
Henri Hein
Sep 23 2022 at 2:23pm
I would expect good mathematicians to study Euclid and Euler, and good physicists to study Newton and Einstein. If you don’t have an idea about how previous thinkers in your field arrived at their models, it’s difficult to properly evaluate the current ones and think critically about new ones.
Michael Sandifer
Sep 23 2022 at 7:45pm
Physics students need to study Newton and Einstein to a degree, but not physicists. Physics has moved far beyond Newton and Einstein. String theory is the cutting edge, which also involves cutting edge math and alternative ways to arrive at the Newton and Einstein models from more fundamental levels.
Sure, the empirical study of economics is much more challenging than that of fundamental physics, given that the latter offers so many more opportunities for well-contolled experiments. Still, it should be disturbing that, apparently,more progress isn’t being made advancing economic theory.
Mark Z
Sep 24 2022 at 4:59am
In the sciences, the consensus is actually that you really don’t have to read ‘the classics.’ I wouldn’t be surprised if most Nobel Prize winning physicists had never read a page of Newton (Einstein maybe; he wrote a pretty accessible book on relativity that’s still popular). Same in biology. No one has to read Darwin unless they want to as an extracurricular activity; even RA Fisher has been distilled down to a few equations in genetics textbooks.
I guess this makes one wonder why some fields are different. I suspect that the harder sciences are much more clear on what constitutes genuine progress, so one can trust that one’s professors and their professors have distilled what’s true and useful across generations, whereas ‘softer’ fields leave more room for bias, error, and leave much more room for disagreement over even the fundamentals, so there is no single consensus to be passed down, so early works must be revisited. I’m not sure which type of field economics more resembles.
Henri Hein
Sep 26 2022 at 1:24pm
Yes, I meant as students. I should have said “have studied,” not imply continual engagement. I obviously don’t believe physicists should brush up on their Newton every day on their lunch break.
I also understand that they don’t study the previous models in their originals. I don’t care so much about that. I would still expect them to understand those models and theories, and the proofs or reasoning behind them.
What I mean to say, I would be disturbed to learn string theorists don’t understand Newtonian physics.
Thomas Lee Hutcheson
Sep 24 2022 at 9:56pm
You approach is useful, as not everyone when to university when Freedman was an upstart challenger of the vulgar Keynesian orthodoxy. 🙂
Mark Brady
Sep 24 2022 at 10:50pm
“In my view, a grad program in macro should spend 1/3 of the time teaching the history of economic thought, 1/3 of the time teaching macroeconomic history (i.e. the historical data), and 1/3 of the time teaching modern models of macro. Perhaps if they had done so in recent decades, then economists would have understood much earlier that a tight money policy by the Fed was driving the US economy into recession in late 2008.”
Agreed. And each semester when I teach my upper-division (undergraduate) Macroeconomic Analysis course, I spend serious time on the history of economic thought and economic history (and make sure that they appreciate the difference between the two approaches).
Like Alessandro Roncaglia, whose A Brief History of Economic Thought is required reading for my course in the History of Economic Thought, I identify with what the author calls the competitive view in contrast to what he calls the cumulative view.
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