Saturday, June 02, 2007

Brad Mourns the Early End after a Promising Start
of applied lefty evolutionary economics
which occurred, for some strange reason, at about the time he and Larry Summers moved to Washington.

I had hopes thirty years ago that evolutionary game theory and related ideas could be used to reformulate ideas in the New Industrial State and the General Theory in ways that would have more rhetorical force within economics. Building on Larry Summers's key insights that markets are dominated not by the rational but by the wealthy, that rational individuals maximize expected utility while wealthy individuals maximize expected wealth, and that risk drives a wedge between those two allowed us to achieve some success in mathing-up some ideas in the "State of Long-Term Expectation" chapter of the General Theory:

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Noise Trader Risk in Financial Markets," Journal of Political Economy 98: 4 (August 1990), pp. 703-738

But I was never able to get any farther in that research program.

June 01, 2007 at 10:55 AM in Current Affairs, Economics: Economists, Economics: Finance, Economics: Macro, Sorting: Front Page, Sorting: Things of Enduring Value | Permalink | Co

Uhm Brad 30 years ago, you were in High School (good thing he doesn't claim all agents have rational expectations).

ON a slightly constructive note, Elisabetta Addis and I did attempt to correct a standard use of pseudo evolutionary arguments in favor of laissez faire here

Market Selection of Discriminators

Elisabetta Addis and Robert Waldmann

Università di Sassari and
Universit√† di Roma “Tor Vergata”

If employers derive positive utility from employing workers of some type, and are self employed owner-managers of small firms, then market selection can increase, rather than eliminate, discrimination due to taste.

*.pdf file available in an e-mail box somewhere.

It was rejected based on a referee report by a referee who was sure the result was wrong and could not give a coherent argument as to why.

So what happened to DeLong and Summers in DC ?

I think this partly fits Atrios's argument that economists are open to all sorts of heterodoxy in economic research but fall back to economics 101 the instant they start talking to non-economists (Larry Katz yes Larry Katz objected that Al Gore refused to "think like an economist). Not to mention Brad's argument that Paul Krugman has spent most of his academic career finding exceptions to the rule that protection is bad for the protecting country and had (at the time which was *not* 30 years ago) spent most of his career in public advocacy arguing that protection is bad for the protecting country. Perhaps most tellingly, in his first column on the California energy crisis, when he explained that capping the price can cause increased supply if competition is imperfect he warned that the argument was dangerous and not to be over used (bet he thought twice before sharing it with NY Times readers).

It is also important that D, S, S & W are strongly contrarian. In DC Summers debated non economists, at Harvard Andrei Shleifer sure wasn't at Chicago and at Berkeley, well someone had to escape into cyber space to be reliably on the left (cyberspace has since moved left fast wonder where he will go next ?).

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