Friday, January 18, 2008

Economists with three hands

I missed this NYT article by Tyler Cowen when it first appeared - it is a gem.

Economists often know much less than they pretend to know. On the one hand, but on the other hand and, alternatively......
  • Recent data from china suggests average real incomes there have been greatly exaggerated. Moreover, 300 million earn less than $1 per day. Maybe the yuan is not so undervalued!
  • While we hear a lot about predatory lending in the sub-prime crisis as much as 70% of recent defaulting borrowers committed fraud in their loan applications. Many of the people now losing homes committed serious fraud.
  • More people die in cold periods in the US than during heatwaves. Also deaths during cold periods exceed total homicides. As I noted recently life expectancy increases significantly when people move to warmer US states.
  • We don’t really know what is generating substantially greater income inequality in the US.
  • We don’t know (despite the unbounded pessimism of Allan Greenspan and Paul Krugman*) if the US is about to move into recession or continue growing steadily. A key flaw in macroeconomics – economists are lousy at predicting the trade cycle.
Sober reflection not nihilism.

* Krugman in fact seems to have softened his position but still sees the probability of a recession as very high - as evidence he cites Intrade prices for a bet that a recession will occur in 2009.

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