So, who does one follow: The Nobel Laureate or the man the Federal Reserve seems to be following? Perhaps neither? We certainly cannot follow both
If you didn't accept the wisdom of the Federal Reserve before in its policies and theoretical choices, why would you accept the wisdom of the Federal Reserve after they have supposedly begun listening to Sumner? Why, indeed, does their choice matter at all to someone considering whether to believe Krugman, Sumner, or neither?
You are right - the Fed's choice does not matter if one treats economics as a subject to be mastered.
Let me clarify. This test is not for anyone studying the topic from first principles. It is for anyone who places trust in a prominent economist simply because the economist is prominent. Nobel Memorial winners and Central Bank members are the most prominent economists there are. The new Fed policy has thus caused mainstream media to focus on (read: hype) Sumner's ideas. This is unfortunate because people with a casual but growing interest in economics tend to start by reading (& believing) the writings of whichever prominent economist they come across first - remember the theories are unfalsifiable by experiment and are essentially just-so narratives - and from there, the "politics kills mind" effect may take over. Thus, this test, which pits prominent economist against prominent economist and aims to remove the halo caused by the path-dependence of which economist a person read first.
It does not always work, but if a person is genuinely curious about Economics, this test might help them wipe the slate clean and start over from first principles. My recommendation: http://unqualified-reservations.blogspot.sg/2009/07/urs-crash-course-in-sound-economics.html
Hello from Singapore.
Upvoted for practicing what you preach.
(None of the linked articles are among what I'd recommend, however. I can't say if that's because I can't understand them and am biased, or because they are mostly hot air and rhetoric.
I cannot comment on Austrian economics as I don't know what to believe about any economic theory at all, but here, in 1998, Krugman criticises it as a morality fable that doesn't, in Bayesian terms, pay rent in anticipated experience - and in modern times, he sustains his criticism of its descriptive and predictive worth. Here is some other economist's brief slam of Austrian epistemology.
Generally the Less Wrong 'mainstream' seems to dismiss it out of hand for its non-empiricism and incompartibility with Traditional Rationality.)
When it comes to monetary theory, there are no controlled experiments possible. So, one has to use deduction. Moldbug's article above on 'Crash Course in Sound Economics' is a masterpiece on the topic and thus an excellent starting point. When I introduce the topic of questioning the quality of mainstream economics to friends, I put it this way: "All the various mainstream economic theories cannot be simultaneously right. So, given the number of mutually exclusive theories and the fact that controlled experiments are not possible, one has to deduce from first principles. So, let's do that."
When one deduces from first principles, one just so happens to end up with Austrian (Misesian) Economics. The deduction is not complicated. For LessWrong members, it will be easy, I think.
Misesian Economics does make predictions (i.e., pays rent) but the predictions are about whether a certain economic policy is good or bad for the economy and whether the policy is sustainable. It does not claim to precisely predict either magnitude or timing of economic disruptions caused by bad policies, because the disruptions are dependent on economic actors reacting to both new economic information & to other peoples' reactions to the same information. Given the economic policies we are currently being subjected to, the rent, that a study of Misesian ideas will pay down the road, will likely be substantial.
For those who prefer books, I suggest reading both 'Paper Money Collapse' and 'Currency Wars', in that order. If anyone here is also studying economics (given the economic developments in the last 5 years, I imagine some might be), I would enjoy a discussion.
P.S. With all due respect to Prof Krugman, he is not only wrong about Misesian Economics, he does not even properly understand what he is criticizing. His advice about how to end the current economic malaise is incorrect and thus harmful (though well-intentioned). Those who follow the financial news would have noticed a Prof Sumner being hailed as having "saved the US economy" because his idea of NGDP-targeting has in effect been adopted by the Federal Reserve. Prof Sumner does not seem to understand Misesian Economics either and his advice is also incorrect and thus harmful (and again, I am sure, well-intentioned).
Here is a quick test one can do: Read what Prof Sumner says about Prof Krugman's theories and vice versa. So, who does one follow: The Nobel Laureate or the man the Federal Reserve seems to be following? Perhaps neither? We certainly cannot follow both, if we have any interest in even superficial coherence. And, given the importance of the topic (the wealth of billions), I think we should aim for the highest level of coherence that is humanly possible.
I looked him up after reading this post, his blog seems to have a few interesting things but nothing epic. Could someone link me to things they find particularly impressive/interesting?
(For the record I have no memory of him being mentioned before,)
On economics, these two essays are very impressive (& useful - in the sense of map matching territory):
The entire Economics sub-section at http://moldbuggery.blogspot.sg/2009/03/collected-writings-of-mencius-moldbug.html?m=1 is worth reading.
Am making my way though his non-Economics writings now. These two are impressive:
P.S. I have been reading LW for years and signed up due to this discussion. Hello from Singapore.
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From the article:
This statement is misleading economics - markets work because individuals preferences do not match the general consensus. Because of comparative advantage, there's no particular reason to expect individual valuations to ever exactly match the market rates.
Later, Moldbug notes people want accumulate money, but rejects the explanation that it is valued because it is the medium of exchange. It is confusing when the monetary object is actually of some value (i.e. gold or silver), but no one uses the gold standard any more. There's really no reason to treat fiat money as a good. And all of the discussion assumes that treating money as a good makes sense.
Finally, Moldbug's discussion of the transition from gold-standard to fiat money without discussing private currency at all seems like more selective history. All selective history is worthless - it's like throwing out all the data from an experiment that does not agree with your hypothesis.
My responses, based on my current understanding, such as it is.
Note the qualifier "marketplace clears". In the process of clearing, a market undergoes price-discovery and any arbitrage opportunities are taken and thus removed.
In a pre-monetary, fledgling economy, there could be two or more commodities which simultaneously serve as mediums of exchange. What makes one of them the choice as Money is that the economy grows to a point where there is significant surplus wealth to be stored and one of the commodities wins that competition. The win may have nothing to do with any unique attribute - randomness could easily tilt the competition a certain way. In an economy where people have generated and thus wish to save their surplus wealth, one dominant money will arise (because of the winner take all effects described). And it will be one of the mediums of exchange from amongst which the store of surplus value will be chosen. Fiat money is a good, in economic terms. It exchanges for other goods. It is currently Money cos it is used by people to store their surplus.
The purpose of the article is not a detailed historical account. It is an explanation of sound monetary economics. It's purpose and its value is in the deduction. The full history of monetary evolution is not germane to the deduction.