Check out Nick Rowe’s latest

Nick’s one of the most creative thinkers in the field of monetary economics.  This post is brilliant.  We need more people thinking outside the box, and less doing VAR studies.


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9 Responses to “Check out Nick Rowe’s latest”

  1. Gravatar of StatsGuy StatsGuy
    14. November 2009 at 18:21

    “A socially constructed reality, like who owns what, is a game-theoretic equilibrium held in place by players’ shared expectations of how each would react to an out-of-equilibrium move, something they never of course observe in equilibrium. They follow the rules because of what they think would happen if they didn’t.”

    Take that you libertarian state-of-nature natural-rights fetishists!

    But seriously, the fact that he’s (mostly) right still leaves us with this truth: Any given equillibrium has both _distributional_ and _efficiency_ implications. The awareness that the current state is nothing more than one of an infinite number of equillibria creates a legitimacy vacuum – why should the current equillibrium be considered legitimate since it clearly favors some people (the entitled) at the expense of others?

    Modern economics seems torn between at least three answers here: Liberty, Equality, and Utility. While a great deal of the economics literature argues about Utility, I rather strongly suspect the underlying motivations are distributional (either Libertarian or Egalitarian), with both extremes trying to claim the Utilitarian high ground.

    The political sphere is no different, but we add two more dimensions – desire for Great Change, and fear of Great Change (a la Edmund Burke). Even conservative totalitarians like Hobbes like to claim that the systems they defend will, ultimately, generate the greatest good for the greatest number, while Agents of Change paint them as lap dogs of the status quo who are subsidized by those who benefit from the distributional characteristics of the current social equillibrium.

  2. Gravatar of Nick Rowe Nick Rowe
    14. November 2009 at 19:21

    Wow! Thank you indeed Scott. I’m trying to write a follow-up post, but got stuck on the math.

    StatsGuy: “The awareness that the current state is nothing more than one of an infinite number of equillibria creates a legitimacy vacuum – why should the current equillibrium be considered legitimate since it clearly favors some people (the entitled) at the expense of others?”

    Because of what we did yesterday. Because bygones are never bygones. The past social construction acts as a focal point for the current equilibrium. Whether this is good or not is another question; but it is what we do. If not where we were yesterday, then where?

  3. Gravatar of ssumner ssumner
    14. November 2009 at 20:36

    Statsguy, My brain is in such a state of euphoria after watching Brandon Jennings than I can’t focus on economics. Maybe I’ll have something intelligent to say tomorrow. (Nick’s from the UK, so he probably has no idea what I am talking about.)

    Nick, Forget about the math; any good economic idea can be expressed in words.

  4. Gravatar of Bill Stepp Bill Stepp
    15. November 2009 at 07:17

    I’m sooooo glad I never became an academic.

  5. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    15. November 2009 at 12:15

    It seems to me that Brandon Jennings has something to say about socially constructed reality. For Nick Rowe, Jennings was a star high school basketball player who wanted to turn pro after he graduated, but the NBA has a recently adopted rule preventing that.

    So, he turned down all college offers to play, professionally, a year in Europe. This year he is in the NBA, and just had a monster game. I doubt that among high school basketball players that’s gone unnoticed.

  6. Gravatar of ssumner ssumner
    15. November 2009 at 17:32

    Patrick, Good point. Barriers to entry always have some sort of perverse side effect. I might add that he’s the real deal; he’s having a monster season so far (for a guy so young and inexperienced.) As a long-suffering Bucks fan I’m in a state of shock.

  7. Gravatar of TGGP TGGP
    15. November 2009 at 19:57

    StatsGuy, you may be interested in David Friedman’s positive account of property rights.

  8. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    16. November 2009 at 08:10

    Yes, Scott, but it’s the NCAA that is now at a disadvantage. In addition to the ‘one and done’ college career (e.g. Kevin Durant) they’ve now got the Europeans to contend with.

    Simple answer; relax their exploitative cartel rules against compensation for college athletes. It wouldn’t even cost the colleges any hard cash. Just let the kids do endorsements, sign autographs, be greeters at pizza parlors and used car lots.

  9. Gravatar of Scott Sumner Scott Sumner
    17. November 2009 at 08:52

    Patrick, That sounds like a good idea to me.

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