Tuesday, 16 September 2008
New blog address
I'm moving my blog to: http://www.economics.ox.ac.uk/students/james.reade/J_James_Reades_Website/Blog/Blog.html, hope you can head there instead of here, as I don't intend on writing any more stuff on here (at least until I change my mind again).
Friday, 27 June 2008
The role of economic theory
I'm nearing the end of three conferences in various parts of Europe (it's a hard life being an academic at times), and the mix of papers at these conferences has meant that I've listened to a lot of papers that are purely theoretic, and a lot of papers that are purely empirical, and some others that are somewhere in between.
Being an applied person myself, my initial reaction to purely theoretical papers is: what's the point? For a paper to be of any use, my first thought goes, it must be empirically validated.
Of course, the problem here is, can a theory be empirically validated? And the answer is, a lot cannot. I listened to a paper this morning by Gerhard Illing on 'dancing banks', asking about the effect of bailing banks out that are failing in times of financial turmoil. This kind of people, theoretical in nature, cannot really be empirically validated, unless it so happened that some country already operated the kind of regime that Illing proposes, and another didn't.
Perhaps he could get hold of data for different countries, and try to measure how likely each country was to bail out its failing banks, and then get data on the amount of liquidity at various points in inter-bank financial markets, and try to come to some conclusions. However, measuring how likely a country is to bail out its banks is very hard indeed: it doesn't happen too often, and the actions of countries usually differs from words, as no government will say it's prepared to bail out failing banks, as this would encourage reckless behaviour.
So, there's clearly a number of papers for which empirical validation is impossible, particularly papers proposing reforms in governance, and other prescriptive papers.
This doesn't excuse papers like this one on the effect of financial markets being imperfect. These Dynamic Stochastic General Equilibrium (DSGE) models make great predictions about the economy, about policy, and wider, yet rely on very flimsy relevance for the real world.
Such models claim to have "structure", and this is their great claim in the light of the Lucas critique of 1976, which pointed out that simple regression models may be undone in structural change because underlying parameters, such as those of personal preferences of individuals, change.
But what if these models have the wrong structure? Then they are no better than what came before, and no more illuminating than a simple regression model. And do they? For one thing, they assume a representative agent: i.e. everyone is the same and has the same preferences.
Yet in microeconomics, regression models are perfectly acceptable if they claim to explain less than 30% of the observed variance in a given data series; the reason? Unobserved heterogeneity between individuals. So if so much heterogeneity exists, precisely in the kinds of studies that the above DSGE models use to choose the important parameters for their models, how can these same DSGE models assume a representative agent?
The simple fact is, these models make far too great claims on far too important things given their total lack of empirical validation. Theory is by no means useless, it is vitally important, but when empirical validation is possible, it should be carried out.
Being an applied person myself, my initial reaction to purely theoretical papers is: what's the point? For a paper to be of any use, my first thought goes, it must be empirically validated.
Of course, the problem here is, can a theory be empirically validated? And the answer is, a lot cannot. I listened to a paper this morning by Gerhard Illing on 'dancing banks', asking about the effect of bailing banks out that are failing in times of financial turmoil. This kind of people, theoretical in nature, cannot really be empirically validated, unless it so happened that some country already operated the kind of regime that Illing proposes, and another didn't.
Perhaps he could get hold of data for different countries, and try to measure how likely each country was to bail out its failing banks, and then get data on the amount of liquidity at various points in inter-bank financial markets, and try to come to some conclusions. However, measuring how likely a country is to bail out its banks is very hard indeed: it doesn't happen too often, and the actions of countries usually differs from words, as no government will say it's prepared to bail out failing banks, as this would encourage reckless behaviour.
So, there's clearly a number of papers for which empirical validation is impossible, particularly papers proposing reforms in governance, and other prescriptive papers.
This doesn't excuse papers like this one on the effect of financial markets being imperfect. These Dynamic Stochastic General Equilibrium (DSGE) models make great predictions about the economy, about policy, and wider, yet rely on very flimsy relevance for the real world.
Such models claim to have "structure", and this is their great claim in the light of the Lucas critique of 1976, which pointed out that simple regression models may be undone in structural change because underlying parameters, such as those of personal preferences of individuals, change.
But what if these models have the wrong structure? Then they are no better than what came before, and no more illuminating than a simple regression model. And do they? For one thing, they assume a representative agent: i.e. everyone is the same and has the same preferences.
Yet in microeconomics, regression models are perfectly acceptable if they claim to explain less than 30% of the observed variance in a given data series; the reason? Unobserved heterogeneity between individuals. So if so much heterogeneity exists, precisely in the kinds of studies that the above DSGE models use to choose the important parameters for their models, how can these same DSGE models assume a representative agent?
The simple fact is, these models make far too great claims on far too important things given their total lack of empirical validation. Theory is by no means useless, it is vitally important, but when empirical validation is possible, it should be carried out.
Thursday, 12 June 2008
God and politics
According to this chap in the New York Times, the presidential campaign should be godless.
However, I'm very much with the writers of the first two comments (Bob S and Peter Kerry Powers). Why should religion be a private thing?
Certainly secularism, and in particular materialism, are anything but private: you deserve this, go on, treat yourself, etc., abound in the adverts. Why do the gods of democracy, and consumerism, get preference over God himself?
And why, if you've got good news, or a severe warning for others that you believe is based on firm evidence, should you not tell others about it? The government in the UK has told us that using our mobile phones while driving is dangerous, is that somehow immoral of them? On what "evidence" did they make that decision to implement a law and fund numerous advertising campaigns?
On another note, it's good to see Rick Warren inviting homosexuals into his church, thankfully showing God's love to people that are still loved by God just as much as anyone else. Far better to see than the abhorrent comments from Pat Robertson and John Hagee that are cited there.
However, I'm very much with the writers of the first two comments (Bob S and Peter Kerry Powers). Why should religion be a private thing?
Certainly secularism, and in particular materialism, are anything but private: you deserve this, go on, treat yourself, etc., abound in the adverts. Why do the gods of democracy, and consumerism, get preference over God himself?
And why, if you've got good news, or a severe warning for others that you believe is based on firm evidence, should you not tell others about it? The government in the UK has told us that using our mobile phones while driving is dangerous, is that somehow immoral of them? On what "evidence" did they make that decision to implement a law and fund numerous advertising campaigns?
On another note, it's good to see Rick Warren inviting homosexuals into his church, thankfully showing God's love to people that are still loved by God just as much as anyone else. Far better to see than the abhorrent comments from Pat Robertson and John Hagee that are cited there.
Sunday, 8 June 2008
Ian McEwan and Revelation
Bit late, but last Sunday Ian McEwan, the novelist, wrote a very long article in the Guardian on prophets of doom, those who predict the end of the world.
Naturally, I had a lot of issues with the article! Not least, that it associates Christianity with people that regularly predict the end of the world. Now at first sight, that might seem a little obvious: of course that's what Christians do, isn't it? Well, just the week before, I listened to this sermon given by Julian Bidgood at St Ebbes church, and if you listen, you'll actually hear him mocking those that make such predictions, notably a chap called Michael Drosnin, who has apparently made numerous predictions about when the end will happen.
The issue is that Jesus explicitly tells Christians not to bother predicting. In Matthew 24 and 25 Jesus goes into great lengths on this, with a number of parables, not least that of the Ten Virgins, where the punchline is (25:13): "Therefore keep watch, because you do not know the day or the hour". So Christians, at least those following the teachings of Jesus (which is a fairly good description of a Christian really), should not be going about making apocalyptic predictions.
Another thing that bugged me about McEwan's article is the description of the God of Old Testament in the following way: "slave-owning, ethnic cleansing, infanticide, and genocide urged at various times by the jealous God of the Old Testament". I suspect infanticide comes from the bit about Isaac in Genesis 22, which is undoubtedly quite shocking, but the point is that the infanticide doesn't actually happen, and that God was testing Abraham. Slave-owning? There's little doubt that happened in the Old Testament, as it did in the New Testament (see the search here for all references in the Bible to slavery). Yet does that mean God urged it?
The other issue is that of the God of the Old Testament somehow being the angry vengeful God, but the New Testament God being one of love, peace, happiness etc. But that just doesn't stack up. The God of the Old Testament is the same God as the God of the New Testament, and in fact, one wouldn't make sense without the other. Jesus' death and resurrection can only be made sense of by looking at the Old Testament and reading that Jesus was long predicted, to be the savour of God's people. I've heard people say that basically the Bible is the Old Testament with the answers in the back.
But enough for now, I'm not a bible scholar, and in fact I need to get on with preparing a bible study right now....
Naturally, I had a lot of issues with the article! Not least, that it associates Christianity with people that regularly predict the end of the world. Now at first sight, that might seem a little obvious: of course that's what Christians do, isn't it? Well, just the week before, I listened to this sermon given by Julian Bidgood at St Ebbes church, and if you listen, you'll actually hear him mocking those that make such predictions, notably a chap called Michael Drosnin, who has apparently made numerous predictions about when the end will happen.
The issue is that Jesus explicitly tells Christians not to bother predicting. In Matthew 24 and 25 Jesus goes into great lengths on this, with a number of parables, not least that of the Ten Virgins, where the punchline is (25:13): "Therefore keep watch, because you do not know the day or the hour". So Christians, at least those following the teachings of Jesus (which is a fairly good description of a Christian really), should not be going about making apocalyptic predictions.
Another thing that bugged me about McEwan's article is the description of the God of Old Testament in the following way: "slave-owning, ethnic cleansing, infanticide, and genocide urged at various times by the jealous God of the Old Testament". I suspect infanticide comes from the bit about Isaac in Genesis 22, which is undoubtedly quite shocking, but the point is that the infanticide doesn't actually happen, and that God was testing Abraham. Slave-owning? There's little doubt that happened in the Old Testament, as it did in the New Testament (see the search here for all references in the Bible to slavery). Yet does that mean God urged it?
The other issue is that of the God of the Old Testament somehow being the angry vengeful God, but the New Testament God being one of love, peace, happiness etc. But that just doesn't stack up. The God of the Old Testament is the same God as the God of the New Testament, and in fact, one wouldn't make sense without the other. Jesus' death and resurrection can only be made sense of by looking at the Old Testament and reading that Jesus was long predicted, to be the savour of God's people. I've heard people say that basically the Bible is the Old Testament with the answers in the back.
But enough for now, I'm not a bible scholar, and in fact I need to get on with preparing a bible study right now....
Saturday, 31 May 2008
Fuel prices
So in that barometer of public opinion, a number of Facebook groups have appeared moaning about fuel prices.
They all seem to fail to notice that the rising price of fuel has little or nothing to do with the government - oil prices are rising, duh! Fuel prices have rocketed from about 80 or 90p only a few months ago to around £1.15. Now in that time, yes the government has raised fuel duty, but if I'm not mistaken, the rise was by 2p. So that leaves another 20+ pence contributed by the rising price of oil.
And really, why should the government lower the tax it puts on fuel? Why should the government encourage car usage? The answer, simply, is it shouldn't. We already use our cars far too much as it is, with everyone having a car each - the levels of congestion on the roads show that really, we don't need to use our cars any more than we already do. It's simply laziness and selfishness driving the current desire for lower fuel duties. Do we really care about the environment when it comes to the crunch? Clearly not...
And the haulage companies? All I can say is, stop moaning. I have no sympathy. There just isn't enough oil in the world to go round, and it usually works in the world that if something becomes too expensive, you adapt - you stop buying, or you move away from it. If a business isn't profitable, you move out of it. At least, that should be the response. But as Ronald Reagan once said: "The government's stance on taxation can be summed up as: if it moves, tax it, if it continues to move, regulate it, and if it stops moving, subsidise it". The government will probably end up subsidising nauseating truck drivers...
They all seem to fail to notice that the rising price of fuel has little or nothing to do with the government - oil prices are rising, duh! Fuel prices have rocketed from about 80 or 90p only a few months ago to around £1.15. Now in that time, yes the government has raised fuel duty, but if I'm not mistaken, the rise was by 2p. So that leaves another 20+ pence contributed by the rising price of oil.
And really, why should the government lower the tax it puts on fuel? Why should the government encourage car usage? The answer, simply, is it shouldn't. We already use our cars far too much as it is, with everyone having a car each - the levels of congestion on the roads show that really, we don't need to use our cars any more than we already do. It's simply laziness and selfishness driving the current desire for lower fuel duties. Do we really care about the environment when it comes to the crunch? Clearly not...
And the haulage companies? All I can say is, stop moaning. I have no sympathy. There just isn't enough oil in the world to go round, and it usually works in the world that if something becomes too expensive, you adapt - you stop buying, or you move away from it. If a business isn't profitable, you move out of it. At least, that should be the response. But as Ronald Reagan once said: "The government's stance on taxation can be summed up as: if it moves, tax it, if it continues to move, regulate it, and if it stops moving, subsidise it". The government will probably end up subsidising nauseating truck drivers...
More bad news from FIFA HQ...
It seems the plan to promote mediocrity was passed "overwhelmingly" by FIFA delegates. The plan is 6+5, limit the number of foreign players in your football team to 5. One of the reasons why apparently this was a good thing was that it would help national teams do better, because now their players won't be part of big squads at the best Premiership teams.
But instead, their players will be playing against bit-part players in crummy local leagues, or lower down the English footballing pyramid, if they like the money and the English countryside. How does this help national teams around Europe and the world?
And how do we square the English representative being against it? England is purported to be the team suffering most from foreign influence, having failed to qualify for Euro 2008. Yet it's only a couple of short years since England were touted as one of the favourites (wrongly!) for the World Cup in 2006. How fickle footballing commentators are, and how good it is that (apparently) the English footballing bodies understand a bit of economics.
Economists are overwhelmingly free-trade, as Greg Mankiw points out, for a number of reasons, not just that it gives a country a share of a bigger pie, but also philosophically. And it's pretty implausible that football is somehow immune from this kind of economic analysis. The overall output of English footballers will be greater with foreign competition, in terms of goals/quality football/silverware etc., because they have to produce it to survive. And this will rub off on the national team.
Football is notoriously unpredictable (part of its appeal), and fortunes can change quickly, particularly if badly managed (by an English manager in England's case!), which has more explanatory power for England's current malaise than foreign dominance: England failed to qualify for TWO World Cups in the 1970s, when the number of foreign players in England was minuscule.
As a final aside. The economics department in Oxford is foreign dominated. My masters class had at most 10% of students being English, and the ratio doesn't improve at Ph.D or postdoc (although perhaps slightly when you get to tenured staff). Is that a cause to introduce some idiotic 6+5 rule? Supervisors must have at least 50% of their students being English/domestic?
The quality would fall drastically as the best students from around the world then could not enter Oxford, and supervisors would be forced to take on poorer quality English students. I've benefitted massively from rubbing shoulders with students from all around the world of a very high quality, something that might not otherwise have been the case had UK academia had someone like Sepp Blatter as its figurehead.
But instead, their players will be playing against bit-part players in crummy local leagues, or lower down the English footballing pyramid, if they like the money and the English countryside. How does this help national teams around Europe and the world?
And how do we square the English representative being against it? England is purported to be the team suffering most from foreign influence, having failed to qualify for Euro 2008. Yet it's only a couple of short years since England were touted as one of the favourites (wrongly!) for the World Cup in 2006. How fickle footballing commentators are, and how good it is that (apparently) the English footballing bodies understand a bit of economics.
Economists are overwhelmingly free-trade, as Greg Mankiw points out, for a number of reasons, not just that it gives a country a share of a bigger pie, but also philosophically. And it's pretty implausible that football is somehow immune from this kind of economic analysis. The overall output of English footballers will be greater with foreign competition, in terms of goals/quality football/silverware etc., because they have to produce it to survive. And this will rub off on the national team.
Football is notoriously unpredictable (part of its appeal), and fortunes can change quickly, particularly if badly managed (by an English manager in England's case!), which has more explanatory power for England's current malaise than foreign dominance: England failed to qualify for TWO World Cups in the 1970s, when the number of foreign players in England was minuscule.
As a final aside. The economics department in Oxford is foreign dominated. My masters class had at most 10% of students being English, and the ratio doesn't improve at Ph.D or postdoc (although perhaps slightly when you get to tenured staff). Is that a cause to introduce some idiotic 6+5 rule? Supervisors must have at least 50% of their students being English/domestic?
The quality would fall drastically as the best students from around the world then could not enter Oxford, and supervisors would be forced to take on poorer quality English students. I've benefitted massively from rubbing shoulders with students from all around the world of a very high quality, something that might not otherwise have been the case had UK academia had someone like Sepp Blatter as its figurehead.
Tuesday, 27 May 2008
Not more...
So the BBC's done some research, and there aren't too many English players playing in the Premiership. The number has "alarmingly" dropped away this year, to 170 players. It might be worth noting this is 9 players less than 2002-03 season, something not mentioned at all in the report.
So, naturally, people talk about how we need quotas, and Sepp Blatter talks about his protectionist plan to have 5 domestic players in each team, and 6 overseas, as being the big solution. How exactly will that help? Basic economics says if you protect, you promote mediocrity. If we have quotas, yes it will mean English players will play, but will it make them any better?
The answer has to be: no. They'll play against lesser opposition. Fabio Capello's point is not really emphasised: the quantity of English players is down, but the quality is high. If we have quotas, soon we'll have the quantity, without the quality, because the players won't be tested in their domestic leagues against the best players in the world. English players will become complacent with their positions in teams because they can't be threatened by foreign competition.
Another very good point is also not picked up on, made this time by the Premier League itself. England failed to qualify for TWO World Cups in the 1970s, when the English league was filled with English players. The poor showing in the Euro Qualifiers has nothing at all to do with the number of foreign players in England. 10 were on the field in the Champions League Final last week, just to give an example.
However, FIFA appears to be pressing ahead with its protectionist plan, and disappointingly, the only argument against it that is cited is European regulations. Thank God for European competition regulations...
So, naturally, people talk about how we need quotas, and Sepp Blatter talks about his protectionist plan to have 5 domestic players in each team, and 6 overseas, as being the big solution. How exactly will that help? Basic economics says if you protect, you promote mediocrity. If we have quotas, yes it will mean English players will play, but will it make them any better?
The answer has to be: no. They'll play against lesser opposition. Fabio Capello's point is not really emphasised: the quantity of English players is down, but the quality is high. If we have quotas, soon we'll have the quantity, without the quality, because the players won't be tested in their domestic leagues against the best players in the world. English players will become complacent with their positions in teams because they can't be threatened by foreign competition.
Another very good point is also not picked up on, made this time by the Premier League itself. England failed to qualify for TWO World Cups in the 1970s, when the English league was filled with English players. The poor showing in the Euro Qualifiers has nothing at all to do with the number of foreign players in England. 10 were on the field in the Champions League Final last week, just to give an example.
However, FIFA appears to be pressing ahead with its protectionist plan, and disappointingly, the only argument against it that is cited is European regulations. Thank God for European competition regulations...
Subscribe to:
Posts (Atom)
