“In the Long Run We Are All Dead” What Does It Mean?

by Mario Rizzo 

Paul Krugman continues to invoke Keynes’s famous statement. I wish Krugman and others would give some serious thought about what it is supposed to mean and the errors it involves.   

In the first place, Keynes was complaining about the “classical” economics, that is, the ideas of the economists before him who believed that the market, if unhampered after a recession, could reduce or eliminate the unemployment associated with the business cycle.  

Of course, this puts many economists – with different ideas – in the same category and treats the issue of cyclical unemployment in a grossly simplified way. But this, in general, is how Keynes treated those who disagreed with him. Keynes, the polemicist, was without inhibition. 

Some basic methodology is in order. When economists talk about “the long run” they do not mean calendar time. Yes, that’s right. Continue reading

A Tiger Of A Mistake

by Mario Rizzo  

UCLA economist Matthew Kahn says that there is a “natural experiment” of the power of the income effect in Tiger Woods’s troubles (HT Greg Mankiw). The fall in income from endorsements should result in Tiger Woods playing more golf tournaments. The relative price (or wage) from the latter source remains unchanged while his income falls. If leisure is a normal good, then less income means less leisure and hence more tournaments. 

Possibly. But it is not a test of the labor supply theory. Why not? Economics makes predictions about markets and not individual behavior. This is a mistake often made by behavioral economists. They (and some of their neoclassical brethren) think that the individual hypothesized in the models is a “representative individual.”  

This is quite wrong. As the economist Fritz Machlup argued years ago, the individual here is an imaginary puppet whose only task is to generate predictions about market behavior. (In today’s intellectual landscape we might modify that to include predictions about aggregations of individuals in non-market contexts.)   

So whatever Tiger Woods does there has been no “natural experiment” and no test of Jacob Mincer’s labor economics. We can keep Tiger Woods out of the economics books and leave him in the gossip pages.

UPDATE: Tiger Woods says that he will reduce, not increase, his tournament participation. So I guess Jacob Mincer’s labor economics fails the natural experiment. Hmm.  Now will Professor Kahn adopt my (Machlupian) point of view?

What is Science?

by Jerry O’Driscoll  

Some recent controversies move me to take up the topic within the limitations of a blog post.  Many years ago (1956), Fritz Machlup ably addressed the issue in an essay titled “The Inferiority Complex of the Social Sciences.”  He rejected limiting the term science to particular subject matters or methods.  He concluded that “there is no epistemologically defensible borderline short of the widest meaning of scientific method, defined in the Encyclopedia Brittanica as ‘any mode of investigations by which impartial and systematic knowledge is acquired.’”  

I endorse Machlup’s broad definition of science as any systematic study of a subject.  As he observed in a footnote, the German Wissenschaft is more inclusive: “the historians of literature, the philologists, the philosophers, the mathematicians, the sociologists, they are all scientists (Wissenschaftler).” In French, science is knowledge and one can speak of la science infuse, intuitive knowledge. La science de l’art is simply the systematic study of art.   Continue reading