The Eloquence of Trotsky and Macaulay.

The comparison of these two historians and historical actors is interesting because they appear to have nothing in common except for their extraordinary eloquence. Macaulay has been accused of writing history as ratification of the present. Trotsky has been accused of roughly everything else.

Consider these examples of eloquence. Both are quoted from memory (I am the only person too lazy to respect the journalistic standards of blogging). Each is the principal example in two essays which praise the eloquence of Trotskey and Macaulay respectively. I think the essay on Trotsky is the introduction to a collection of writings of Trotsky (I think this because I can’t find it in “To the Finland Station”). The essay on Macauley is an article in The New Republic circa 1995.

“The assembly passed a resolution that there would be no negotiation with the enemy while their armies were on French soil. Danton asked ‘have you made an alliance with victory’ the assembly replied ‘we have made an alliance with death’”

A stiring line which also shows how Trotsky’s history mysticism had, by that point, driven him completely insane. Solidarity can fuse a group of individuals into a mighty historical force, but it can not make them think of the same snappy line at the same moment..

Macaulay was, of course, much more reasonable. He argued against anti semitism when arguing against legal discrimination against Jews writing “we close all honerable professions to them then denounce them for becoming money lenders.”

Again eloquent, but it seems that the two cases of eloquence have nothing in common but eloquence. One displays the beauty of reason and good sence, the other the beauty of madness.

It seems that the two cases of eloquence have nothing else in common, but they do share one other trait. They are both word for word translations of Maximilien Robespierre.

Long ago in a far country people have lived and died. Their lives were very important but they are over. They told each other stories which were not very important. However the stories were beautiful and they lived ever after.

I just read “The Cloak” by Isak Dinesen. I think that it deserves to be very old.

My First Day at Work

In my undistinguished career as a professor of economics I have had the priviledge of meeting many brilliant students. I met two at my first lecture.

First let me set the scene by describing my commute. I was working at the European University Institute situated in the Badia Fiesolana. This should be known as the world’s smallest University or as A University with a View. I was temporarily staying at the house of a colleague Alan Kirman who was at a conference. He offered me two means of transport. I could borrow his new BMW with a stick shift or his old moped. I chose the moped. This was my first week of grown up non student work and I didn’t want to start out by wrecking a BMW.

If I recall correctly, riding a moped in Italy is a terrifying experience. Also I managed to get lost. Finally I found my office but the lecture was in the nearby Villa Schifanoia (lit trans disgusting boring villa) which might or might not be the setting of the Decameron in the same way your house might or might not be the setting of the Decameron. I had prepared some lecture notes based on the idea that Europeans, like inhabitants of any other continent, might have trouble following my spoken English. However, to get to the lecture hall I had to either get back on the moped or walk carry the notes up and down a hill. Needless to say I walked. I left the notes half way up the hill.

When I finally arrived I met various eager but puzzled students including Tilman Ehrbeck and Christian Dustmann.

Tilman Ehrbeck was the first person two write a PhD dissertation under my supervision. He is very nice, very smart and very modest. He is currently a partner of McKinsey consulting having, among other things, ghost-written a German best seller. In his first year of graduate school he had a very good idea which I just understood 15 years later.

I was a bit slow but Christian Dustmann understood immediately that it was a very good idea. He is currently a professor at UCL, which is a big change compared to his previous job as a truck driver (in which capacity he made the only actually useful application of economic theory of which I have ever heard).

One of Tilman Ehrbeck’s Good Ideas.

As I will mention above, Tilman Ehrbeck has had many very good ideas including the following. He began writing his dissertation in 1989. At the time, the rational expectations hypothesis was the hypothesis which must be maintained. Like all people who I have met except someone named Adriano something, he found it implausible. However, he neither decided to accept it as the price of being an economist or to generally insult it as an alternative to doing actual research. Instead he thought that, if people use rules of thumb, really smart policy makers might try to design policy so that, in the event, the rule of thumb corresponds to rational expectations. This is a very hard challenge, since the policy maker must understand both the way in which people form expectations and the law of motion of the economy (Tilman likes hard challenges).

Just minutes ago (more because blogger ate the first draft of this post) I thought of an application of this good idea in economics. It is a case for social insurance. The argument is as follows: People tend to assume that permanent income is current income times a constant greater than one (we have noticed that income tends to rise with labor market experience). This means that policy makers should try to design taxes on labor income and unemployment insurance so that permanent income is current income times that constant greater than one. This is a bit challenging since they have to estimate that constant (what is a reasonable estimate of this constant? Hell if I know. Here is the PSID. Calculate it yourself). The application of Tilman’s idea is that, if people use a rule of thumb to forecast future incomes, policy should be designed so that it is close to an optimal forecast. Otherwise people will make systematic errors in their consumption/savings decisions which imply dead weight losses.

Not bad for a G1 no ?

Good Ideas in Economics

My belated appreciation of one of Tilman Ehrbeck’s good ideas (which I will post above) makes me think of the general topic of good ideas in economics. I think they can be classified as follows.

1. Good ideas which you can find if you read The Wealth of Nations carefully. The whole idea that this is a worth while field of inquiry has a lot to do with the fact that one of the first books in the field was brilliant.
2. Good ideas which you can find in Marshall’s principals.
3. Good ideas which are roughly implied by the work of Walras
4. Good ideas which you can find if you can translate the General Theory into economic theory
5. Good ideas which you can find if you can translate the Schumpeter into economic theory
6. F. Von Hayek is a reactionary but he had some interesting things to say.
7. This is an implication of standard neoclassical theory, that is, maximization under constraint. Therefore it is to be found in the collected writings of Paul Samuelson.
8. Milton Friendman mentioned it in passing while reflecting on the wonders of the quantity theory of money.
9. This has something to do with game theory. Von Neuman mentioned it to Morgenstern but it was formalised by Nash.
10. This has something to do with asymmetric information so check the collected writings of Joseph Stiglitz. He has published five to ten papers based on this idea.
11. Read the collected writings of Robert Solow. As a Spencer Tracy character said of a Katherine Hepburn character “there aint much of it but every bit is cherse (choice)”.
12. This isn’t really economics, it is sociology, Akerloff thought of it.
13. This isn’t really economics, it is psychology, Kahenman, Tversky or Herrnstein (see point 6 above) thought of it.
14. This idea is not found in any of the writings of the authors listed above. It is an excellent idea in economics. Clearly Kenneth Arrow thought of it. You can only hope that he never bothered to write it down.

Tilman Ehrbeck’s good idea falls into category 8.

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