Posts Tagged ‘Paul Romer’

efficient financial markets?

Sunday, August 23rd, 2015

Economists cannot agree on whether asset markets are efficient or not. This has very important policy implications. Freelance writer Anna Louie Sussman interviews New York University economist Paul Romer for a WSJ blog.

Sussman: Are there any areas where research or refinements in methodology have brought us closer to understanding the economy?

Romer: There was an interesting [2013] Nobel prize in [economics], where they gave the prize to people who generally came to very different conclusions about how financial markets work. Gene Fama at University of Chicago got it for the efficient markets hypothesis. Robert Shiller from Yale got it for this view that these markets are not efficient and subject to too much noise. ….

It was striking because usually when you give a prize, it

mathiness in economic growth theory

Monday, June 8th, 2015

Truthiness” was coined a decade ago by television satirist Stephen Colbert. A Wikipedia article (retrieved 7 June 2015) defines it as

a quality characterizing a “truth” that a person making an argument or assertion claims to know intuitively “from the gut” or because it “feels right” without regard to evidence, logic, intellectual examination, or facts.

NYU economist Paul Romer recently coined a related term, “mathiness”:

The style that I am calling mathiness lets academic politics masquerade as science. Like mathematical theory, mathiness uses a mixture of words and symbols, but instead of making tight links, it leaves ample room for slippage between statements in natural versus formal language and between statements with theoretical as opposed to empirical content.

Paul M. Romer, “Mathiness in the Theory of Economic Growth“, American Economic Review 105:5 (May 2015), pp. 89-93.

Professor Romer thinks that “mathiness” explains the lack of progress toward a consensus in growth theory over the past two decades. His article is brief (5 pages) and ungated. I recommend that you read the entire essay, but here are two key extracts from the beginning (p. 89) and another from the end (p. 93) of the article:

Politics does not lead to a broadly shared consensus. It has to yield a decision, whether or not a consensus prevails. As a result, political institutions create incentives for participants to exaggerate disagreements between factions. Words that are evocative and ambiguous better serve factional interests than words that are analytical and precise.

Science is a process that does lead to a broadly shared consensus. It is arguably the only social process that does. Consensus forms around theoretical and empirical statements that are true. Tight links between words from natural language and symbols from the formal language of mathematicsencourage the use of words that are analytical and precise.

[…]

[With mathiness] empirical work is science; theory is entertainment. Presenting a model is like doing a card trick. Everybody knows that there will be some sleight of hand. There is no intent to deceive because no one takes it seriously. Perhaps our norms will soon be like those in professional magic; it will be impolite, perhaps even an ethical breach, to reveal how someone

Guantanamo Bay as a Charter City?

Monday, July 12th, 2010

Journalist Sebastian Mallaby has written a lengthy profile of economist Paul Romer, focusing on Romer’s obsessive promotion of “Charter Cities”. Paul Romer has solid academic credentials. He ‘invented’ endogenous growth theory in the late 1980s after earning a BS in physics (1977) and a PhD in economics (1983), both from the University of Chicago. These portions of Mallaby’s article caught my eye.

Romer is not just arguing for enclaves; he is arguing for enclaves that are run by foreign governments. To Romer, the fact that Hong Kong was a colonial experiment, imposed upon a humiliated China by means of a treaty signed aboard a British warship, is not just an embarrassing detail. On the contrary, British rule was central to the city

institutions and economic growth

Tuesday, December 1st, 2009

MIT economist Daron Acemoglu argues that differences in institutions are the reason residents of countries like Canada and Japan enjoy incomes that are much higher than those in countries like North Korea or Ethiopia.

How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically.

And yet they are far from the same.

On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it’s $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty.

The key difference is that those on the north side of the border enjoy law and order and dependable government services

more praise for Elinor Ostrom

Wednesday, October 14th, 2009

When I started studying economics in graduate school, the standard operating procedure was to … assume a particular set of rules and technologies, as though they descended from the sky ….

A typical conclusion was that rules that assign property rights and rules that let people trade lead to good outcomes. … Why would they respect the property rights of someone else? We had no idea. ….

Elinor