The Robert Barro Controversy

Robert Barro (Harvard University) recently wrote an op-ed for the New York Times titled "How to Really Save the Economy."  In it he describes the U.S. economy as anemic and calls for austerity to fix the problem.  Not that fiscal austerity will create economic growth, but that a more fiscally stable government would promote investment.  He writes, "What drives investment?  Stable expectations of a sound economic environment, including the long-run path of tax rates, regulations and so on."

Robert Barro (photo: Luis Rodas)

For some time now, I've wanted to write an article attempting to address the question, 'Why isn't the U.S. a good place to invest anymore?'  Many of our banks and corporations have lots of cash, but they do not believe that they will get a good return on their investment right now.  How do we fix that problem?

Keynesians would argue that government should simply make up the difference in aggregate demand to return the economy to the edge of the production possibilities frontier.  I've never liked that argument very much as I think the production possibilities frontier to be a bit of an economists' fantasy.  I think Barro's analysis of the problem in terms of tax and regulatory environment are good takes on the investment situation.  I don't know that I agree with his solutions (Federal VAT tax in lieu of Federal corporate and inheritance taxes), but I've seen much worse in recent months and years.


Paul Krugman (Princeton University) called Barro's work lazy!  Tyler Cowen (George Mason University) wrote that a negative approach to the Solow model might be what Barro is writing about.  I think Cowen's referring to a negative approach to the Solow residual.  I think the exogenous growth model (Solow model) actually defines tax policy as only affecting short term growth, whereas Barro was writing about short and long term growth (I think).

Greg Mankiw (Harvard University) on Paul Krugman's response.

Because Krugman's column was so dismissive and smug, it really got under my skin.  Most of the comments were even worse.  One individual wrote "Perhaps he cannot make a coherent argument."  He's one of the most frequently cited economists today!  This is ridiculous!  I added this comment at his site:

"Robert Barro was writing in The New York Times, not the American Economic Review. He was writing for an audience that doesn't necessarily understand all of the nuances of academic economics, but still desires to be part of a serious discussion of our future from that point of view.


You, more than most, should be able to recognize that his column falls well within the scope of his previous works. He has been writing about the effect that government spending has on the economy and the monetary system since the 1970's. He sits alongside Ben Bernanke, Thomas Sargent, Frederic Mischkin, Allan Meltzer, John Taylor, and a handful of others as an eminent monetary economics scholar.


You show Dr. Barro extreme disrespect in this article. He may have been writing for the lay person, but you should have been able to tie his column to his previous work because of your background in the field."

Krugman also recently authored another, even more controversial, column on the anniversary of 9/11.

First Week Done!

The weather has been so beautiful in northern Virginia and it's such a picturesque setting here on the George Mason University campus.  I've gone to all of my classes at least once.  Almost all of them seemed very interesting except my Introduction to Computing.  Hopefully that one will, at least, not be a lot of work to get an A.  My Money & Banking class is one that I've been looking forward to perhaps the most since I began my studies anew at Saint Paul College.  Much of the class will be spent looking at monetary economics, which has become my speciality, but also on the business of banking which I still have much to learn.  The first class was a crash course in monetary economics, and  I answered every  question that was directed at the class.  The second class was a crash course in the banking industry and I only answered one question.

My statistics class seems as though it will be quite demanding, if only because the homework is quite involved.  There is a complicated process to turning it in and complicated statistical methods.  The Intermediate Macroeconomics course is being taught by another graduate student, which seems typical of night courses.  Naturally the quality is less, but I do not think it will be nearly as poor as my Intermediate Microeconomics class, which was taught by a graduate student that seemed to be disinterested and didn't even  seem to have a strong grasp on the subject.  My professor, Mark Liu, is relying heavily on the basic Greg Mankiw Principles of Macroeconomics text.  He is excited about the subject and it is a very collegial class.  There are several students within  the class who are very good at the subject (read: probably better than me) and they participated in a very active fashion.  One of them who was probably the best, walked out after the break.  He seemed quite bored by the class, but every answer he gave was exactly correct.  He sounded like a spontaneous textbook.  I would say that this class has terrific potential for me.

One new feature for studets is a website called ratemyprofessor.com.  It allows students to rate their professors in several categories: "easiness," "helpfulness," "clarity," and "hotness."  The last category is described as "just for fun."  The values are 1 being poor and 5 being excellent.  There are obvious problems with this site, meaning that professors that teach difficult classes or whose classes are difficult to pass will likely receive more negative reviews by spurned students.  Naturally, the negative of that statement would also be true.  Still, this site has gained traction by the amount of reviews that it receives, and most numerical reviews are also accompanied by written reviews so the reader can understand the reasoning behind  the negative and positive reviews.  Here is how some of my professors have performed.

A Fun Way To Rank Economists!

Comparing economists is a bit like comparing apples and oranges.  There is so much diversity in the topics that they approach, and different approaches that they take.  A lot of places like JSTOR rank them by citations, IDEAS ranks them with a compilation of 31 methodologies.  According to their rankings, Andrei Shleifer of Harvard is number one.  I love ranking anything!  I think this goes back to my childhood love of baseball statistics.

There are so many awards that economists can have.  The Nobel Prize is probably the top award in the field, but the John Bates Clark Medal, and being President of the American Economic Association are both highly regarded as well.  Acquiring a great job is the best thing that can happen to any economist, so heading a central bank or any economics department are both extremely prestigious honors as well.

I started entering all the living economists names that I could think of into Google Trends to see who is the most searched for name at Google in 2011.  I think it's an interesting addition to the ways of ranking economists because it shows searches and general awareness.  Here are my results:

As you can see Paul Krugman has a pretty comfortable lead.  He is the trend setter in this exercise with a 1.00 that everyone else's scores are based on.  Why not?  The guy has the bully pulpit of a New York Times column to work with, not to mention all the best-selling books he's written and a Nobel Prize.

Both number two Manmohan Singh and number three Ben Bernanke fill important government positions which land them in the news regularly.  They both still appear on this list because they are both trained economists that later became the Prime Minister and Chairman respectively.


Top Economists in Google Trends:


1.  Paul Krugman, Princeton University (1.00)
2.  Manmohan Singh, India (.58)
3.  Ben Bernanke, Federal Reserve Board (.44)
4.  Amartya Sen, Harvard University (.38)

5.  Alan Greenspan (.28)

6.  Thomas Sowell, Hoover Institute (.26)
7.  Nouriel Roubini, New York University (.22)
8.  Joseph Stiglitz, Columbia University (.20)
9.  Walter Williams, George Mason University (.18)
10.Robert Hall, Stanford University (.12)

10.Justin Lin, World Bank (.12)

12.Brad DeLong, University of California, Berkeley (.10)
12.Simon Johnson, M.I.T. (.10)
12.Mervyn King, Bank of England (.10)
12.Jeffrey Sachs, Columbia University (.10)
16.Gloria Arroyo (.08)
16.Greg Mankiw, Harvard University (.08)
16.Robert Merton, Harvard University (.08)
16.Robert Shiller, Yale University (.08)
20.Gary Becker, University of Chicago (.06)
20.Agustin Carstens, Bank of Mexico (.06)
20.Tyler Cowen, George Mason University (.06)
20.Peter Diamond, M.I.T. (.06)
20.Austan Goolsbee, University of Chicago (.06)
20.Elinor Ostrom, Indiana University / Arizona State University (.06)
26.Esther Duflo, M.I.T. (.04)
26.Steven Levitt, University of Chicago (.04)
26.Gene Sperling, National Economic Council (.04)
26.Jean-Claude Trichet, European Central Bank (.04)
30.Michael Spence, Hoover Institute (.02)
30.Olivier Blanchard, M.I.T. (.02)
30.Mark Carney, Bank of Canada (.02)
30.Robert Lawrence, Harvard University (.02)
30.Robert Lucas, University of Chicago (.02)

30.Kenneth Rogoff, Harvard University (.02)

30.Lawrence Summers, Harvard University (.02)

If you notice a name that I have forgotten, just go to Google Trends and put in Paul Krugman's name first, separate with a comma, and then any additional economists (up to five at a time).  Put their name in quotes ("Paul Krugman") as to search for the term, and not the individual names Paul and Krugman.  I didn't list many economists that received 0's because I am not doing this exercise to embarrass anyone, it's just for fun.  Please post any new results in the comments section.

There were a hand full that I removed for having (what I felt were) abnormally high scores.  John Nash of Princeton received a 1.14.  I realise he is famous from A Beautiful Mind and game theory.  I'm going to skip him for the technicality that he is a mathematician but really it's because I don't understand his score at all.  John B. Taylor of Stanford received a .78, if just listed as John Taylor.  I removed him because he was not his top Google search, but rather third behind a musician and a football player.  Peter Phillips of Yale received a .24 but has the unfortunate position of having a member of the British royal family sharing his name, which skewed his results around the time of the recent royal wedding.  James Hamilton of University of California, San Diego received a .18, but the economist was not the top site listed in his Google search, and the same for Kevin Murphy (.28) of the University of Chicago and James Robinson of Harvard (.14).  Surely these economists receive and deserve recognition as well.

Here are also some other fun comparisons to make:

The "Marginal Revolution" Authors

Capitalism versus Socialism

Keynes versus Hayek

The Problem of Pop Economics

I like books and I love economics books.  So I'm regularly going to used book and antique stores.  Occasionally I find something worth picking up.  A few weeks ago I was in Williamsburg, Virginia and purchased Social Values and Individual Choice which is Kenneth Arrow's (Stanford University) major work.  I started out by going to new book stores.  That's where I bought my first economics book, The General Theory of Employment, Interest and Money by John Maynard Keynes.  The problem is that outside of that work and Adam Smith's An Inquiry Into the Nature and Causes of the Wealth of Nations, there really isn't any serious scholarship in that section.  It is filled with what I call Pop Economics.

I wish I could say some book stores are better than others, but chain book stores are so dominant now on the market and their selection does not vary very much between stores.  It also does not help that the economics section is often mixed in with the business section, which is a similar but definably different type of book.  Business books can be good or bad, but they are generally much more practical rather than theoretical oriented.  Both can be good, but their approaches are different.  The result of this mix, and the prevalence of these pop economics book is a very confusing book shelf at our local book stores.  This causes problems for the individual who simply wants to start learning the basics of economics.

The economics section of the book store is generally littered with Pop Economics books.  At times serious economists write these books, which make it even more difficult for the lay person to discriminate.  One of my personal heroes, Milton Friedman, can be considered guilty of this.  He mixes politics and economics rather freely.  Perhaps his most famous book, Free to Choose, mixes these two almost completely.  Milton Friedman is one of the most important monetary economists ever to live.  He and Anna Schwartz wrote some of the defining statistical abstracts of monetary history, for which he was awarded the Nobel Prize in 1975.  He also is a social theorist has a whole string of books starting with Capitalism and Freedom that run in that vein.  He always admitted in interviews that these were different types of books, scientific and political.  In both genres, he was very good, but to the lay person it is difficult to tell them apart.

So what is the problem?  The problem is that if a lay person decides that they want to learn a bit about economics, but is not willing to invest enough to take an economics class, they will likely head to the economics section of their local chain book store.  And what should they purchase?

This section will feature attractively covered books, just like any other section of the book store.  The same principles that make a book more likely to be bought by Joe Q. Public apply to the Business/Economics section as they would to the Self Help, Memoirs, Historical Romance, or any other section of the library.  With titles like Freakonomics, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, and The Rational Optimist: How Prosperity Evolves, how would one choose a book to introduce them to economic ideas?

There may be one obvious choice: Economics in One Lesson by Henry Hazlitt.  This book is as political as any book in the entire section.  Mr. Hazlitt's "lesson" is actually one sentence followed by applications of the lesson.  This is the lesson: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." (Hazlitt, 13)  Even his lesson is shortsighted and wrong.  Economics is the study of human choices amongst scarce resources.  The rest of the book is practical applications of that lesson.  A buyer of this book will have been duped if the he thought that he was purchasing an introductory economics book as the name suggests.  Economics in One Lesson is a fine (political) book.  I do not mean to disparage it, but anyone mistaking it for an introduction to economics will be sorely mistaken.  The title is so misleading that it is hard to believe that this was not the intent.

On the other side of the political spectrum, The Shock Doctrine, by Naomi Klein is an indictment of free-market economics.  She suggests that tactics used by modern day globalists including the United States government use exogenous shocks such as war to introduce radical economic changes.  Her main target of the book is Milton Friedman.  She attempts to link human rights violations from the Augusto Pinochet regime in 1980's Chile to Friedman because Friedman gave Pinochet economic advice.  Friedman was a free market capitalist, but he also believed that the only way to achieve free-markets was through voluntary, democratic means.  There are other examples of shocks that coincide with economic changes given in the book such as the Iraq war, the Falkland Islands war, and somehow she manages to sneak Hurricane Katrina in there too.  Somehow she doesn't cover the shocks that don't lead to free-market capitalism such as the revolutions in Cuba or Russia.

What led me to this subject was a video that I watched on YouTube about Henry George's Progress and Poverty.  The video is below and it shows a man giving an introduction to the book.  The book is a mess of an economics book, but it's important because it was the first Pop Economics book.  It was one of the best selling books of the entire 19th century and it has significant parts of economics wrong.  First of all, it uses the labor theory of value, which is wrong.  George wrote this book in San Francisco in 1879.  The "marginal revolution" happened in 1871 in Austria and England which George would possibly had read of if he were actually an economist.  Henry George was never trained as an economist, but rather he was a journalist.

A confused man speaking about what he believes is economics because of reading Progress and Poverty.

This is the common thread of many (not all) of these Pop Economists: they are journalists or general writers.  Henry George didn't learn about the subjective, marginal theory of value and possibly didn't even know about the water-diamonds paradox.  Henry Hazlitt was an individual that was passionately interested in economics, and likely would have attended school for the subject but for financial difficulties.  Does that make his efforts worthless?  Hardly, but his book is misleading just the same.  It is a title written to sell books rather than give the reader an idea of the contents of the book, which is dishonest.  Naomi Klein is simply a reporter that observes inequality and correlates that with injustice and seeks to engage those she perceives as responsible for that inequality.  Never mind if her facts are wrong or if her economics are wrong.

There are many academic economists that engage in this as well.  Generally, their economics are much more sound but they still make mistakes such as Steven D. Levitt (University of Chicago) mistaking correlations for causations in Freakonomics.  Tyler Cowen (George Mason University), Paul Krugman (Princeton University), and Nouriel Roubini (New York University) all have written books in this variety and all are respected within the economics field.  Is there anything that should preclude them from writing?  No, definitely not.  They should be encouraged to write.

Then, again, what is the problem?  The problem is the lay person consumer walking up to the business/economics section at the Barnes & Noble and staring at that section and walking out with a book like Hazlitt's that they think will help them... only to get a political lecture.  I think that every book store should keep a copy of a basic economic book on the shelf.  N. Gregory Mankiw (Harvard University) has written a widely used book, Principles of Economics.  Thomas Sowell (Stanford University) has written a good and clear book titled Basic Economics, which is intended for the lay person.  I have occasionally seen this book on the shelves at the chain book stores, which is very good.

The business and economics section should be less confusing for the lay person because economics is an important subject for everyone to know.  If the marginal effort of them trying to find a basic book on economics is larger than their expected marginal value, then we as economists can predict that the consumer will not bother.  That would be a sad outcome.  Economics can make a confusing world less so and once the basics are learned further lessons about Freakonomics, Discover Your Inner Economist, and other such books can be more useful and enjoyable.