Two Tales of Unintended Consequences of Monetary Policy – Tale 1

by Nicolás Cachanosky and Andreas Hoffmann

Even when a policy is successful in achieving its desired ends, we have to consider its unintended and unforeseen consequences, resulting from cumulative market adjustments to policy changes that make it hard to judge the overall outcome of a policy in our complex economy. The Federal Reserve and European Central Bank’s monetary policy responses to the 2008 financial crisis offer two tales of major unintended consequences. This post discusses unintended outcomes of the U.S. Federal Reserve’s crisis policies. In our next post, we address ECB policies.

Top Young Economists Consider Their Future

by Roger Koppl

Ali Wyne of the big think  blog “Power Games”  recently posted an interesting set of comments on the theme “Empirics and Psychology: Eight of the World’s Top Young Economists Discuss Where Their Field Is Going.”  George Mason’s own Peter Leeson  was among the eight “top young economists” sharing their views.

Over at New APPS, the philosopher Eric Schliesser  summarizes the eight comments. “Bottom line: due to low cost computing and a data rich environment the future of economics is data-mining (this was clear from at least four of the comments). This is especially so because the young stars have lost faith in homo economicus (due to behavioral work and the crisis).”

Eric’s summary seems about right to me. There were eight fine minds sharing eight different visions, but two related themes dominated the comments. 1) The old rationality assumption is in trouble and we don’t quite know what to do about it. 2) Economics should be more data-driven now that we have what William Brock has labeled “dirt-cheap computing.”

Can we model creativity?

by Roger Koppl

The issue of creativity has arisen in a fun discussion on Schumpeter over at The Austrian Economists. I have often heard people say that we cannot model creativity. I suppose that must be true in some sense, and yet there is much we can say about “creativity” and social institutions. Early in the Wealth of Nations Adam Smith gives us a good account of what creativity is, namely, the “combining together the powers of the most distant and dissimilar objects.” As my old friend Dick Langlois taught me years ago, creativity is recombination. I think we can have an economic theory of recombination. Indeed, the elements are out there.