Thursday, January 29, 2015

Proving a Theory by Imagining It to be True

A highlight of the American Economic Association humor session, earlier this month in Boston, was a short talk by Zach Weinersmith. You may know his web cartoon, Saturday Morning Breakfast Cereal.

Weinersmith's talk is to economics what Spinal Tap is to heavy metal rock 'n' roll.

A couple of key quotes:

"I only have about five minutes, so I'm only going to propose one structural change to society." (at 1 min. 23 seconds)

"Having proven the theory both by stating it and by imagining it to be true, I want to move directly to policy implications." (at 6 min.57 seconds).

It's good, and you can watch the video here.

Full disclosure, I appeared earlier on the same bill, as Merle Hazard. I'm hoping no video surfaces of my bit. Hard to judge from the stage, but I do not think my five minutes went over too well. I had better keep my day job.

Tuesday, January 20, 2015

Zero Interest Rate: Like Quantum Physics

It might be, says William White, formerly the wise and prescient chief economist of the Bank for International Settlements.
When interest rates cannot go lower anymore, when they hit the Zero Lower Bound, monetary policy might work like quantum mechanics. Take this simple example from the world of physics: Classical Newtonian mechanics only work when the mass of a body is big enough. When the mass is too small, you are in quantum mechanics. These are completely different ways of looking at the world. The Zero Lower Bound might be the quantum mechanics of monetary policy. Things just do not operate in the same fashion. If you think things do operate the same way, you might make a very dangerous mistake.
This is from an interview with him last month, in the Swiss newspaper Finanz und Wirtschaft.