we did lots of cool stuff in econ 203 today -- and it made me remember why i was so fascinated with econ back in RJ. i mean, a lot of what we've been doing over the last three quarters has been cool in its own way but it's so easy to lose track of the big picture when you're focusing in on learning the math to deal with the micro stuff. the math methods take over your life and you just forget that you're doing the math to prove something, or show something, or even just to explore something. my 203 prof, Mauro Alem, has been really great about putting what we're learning in class back in that 'what is the problem we are trying to understand' perspective, and it's really been inspiring me to pay attention and ask questions in class and that kind of thing. we've moved on to money now =) and it's all coming back to me, why money fascinated me -and most of 1A i suspect- back when mr R was teaching it to us, because it seems so counterintuitive, the way economists think about money. and yet, the model makes perfect sense within its internal logic and its set of rules, and then when you play with the rules and the assumptions all kinds of cool things happen to money and real output, it's a totally absorbing thought experiment. i was just thinking in class today that if i were ever to go into economic research, say in grad school, it would absolutely have to be something in the macro department -i'm just not really configured to care about the individual markets, i think, i like playing with the big picture and seeing how the markets interact and influence each other. at the same time it gives me a big headache because the feedback loops move in all directions and sometimes backwards through time [the power of expectations and anticipated inflation and so forth].
we also had a little Keynesian/Monetarist showdown during class, splitting into the people who believe that markets are prefect or would be perfect if information flows were perfect; and people who believe that markets can be sticky -labour markets in particular- and governments should play a role in coordinating things in the markets to make them not stick so badly. =) i'm still unclear as to which side i'm leaning toward, probably because i think both sides have compelling arguments. i believe in small governments BUT i also believe that the govt's role in the economy is to be some kind of coordinator who establishes the borders of the playing field and then gets its grubby fingers OUT of the playing field and letting the markets get on with their business. i'm still pretty much what i was when i came here --a neo-classical economist [thanks to mr R's training, mr S didn't get to me nearly as much] partly because i'm not sure about how sticky labour markets are, and also because i believe in the power of the markets when they're allowed to do their thing, as it were. the Economist has some nice definitions of what the different schools of economics are, if you would like to refresh your memory after a long time away =) i'm not quite sure i believe completely in the power of money though. i like playing around with the money models.
i certainly remember what made keynesian economics so appealling back when i was learning economics in RJ for the A levels: it was the beautiful predictability of the models. because we took snapshots of the various markets and held all other things constant while changing one variable, we were perfectly capable of predicting precise relationships between action and reaction, cause and effect. it ignores the crazy backwards sideways upside down feedback loops that exist in a model that includes expectations. i remember being able to move one supply/demand curve in one market, and then being able to follow its effects through all the other markets by lining up the various supply/demand graphs and moving them around accordingly. i had beautiful diagrams back then. but i'm not so sure they'd hold water if i went back to them now and asked more questions of them...
one more quick economic aside, along the lines of a Comppol econ type question: Cumings mentioned in lecture today that the rapidly industrialising nations of E. Asia in the 1930s, 40s, and 50s all took the central state planning approach to economic development. Harvard economic historian Gerschenkron -who is already dead- argues that it seems to be the logical thing to do -if you're an economically backward nation trying to play catchup to the other industrialised nations in the world- to let your government serve as an accumulator of capital, and then have them direct those resources in the direction that is the most efficient way for the country to develop quickly and competitively. someone needs to defray the startup costs for new industries, and provide some form of protection for the baby industries to allow them to grow a little before having to compete with the meaner, leaner international companies that have been doing what these babies have been doing for longer and better. so the govt in less developed countries in a sense can kick their economies into high gear by providing some form of coordinating role -to be the very visible hand of the government instead of allowing the invisible hand of Adam Smith's description to do its thing. now my question is, that's all very well and good to kickstart the economy, so to speak, but how do you subsequently get the government to get its butt out of economic planning?
look at the massive moral hazard that comes with governments being too intimately linked with their economies: Korea has its chaebols, Japan has its banks which will not be allowed to die, Singapore has the GLCs which for some inexplicable reason are allowed to cannibalise everything in sight and are probably the most inefficient corporations in the entire economy...how do we get these governments to let go of their industrial babies and get on with doing more government-y things, like redistribution of income and welfare and healthcare and education. huh?
ok, yet another long rant-y post. i think perhaps the time has come to end this post, right here. =)