Hartar Blog

Somehow a graduation speech by Tom Sargent (nobel prize in Economics in 2001) from back in 2007 made it to Vox  two days ago and it has been reposted by several bloggers. The article in Vox did not include the full speech but just listed the 12 valuable lessons that economics has taught the world. While some have found those lessons interesting and insightful, others have criticized them as either too simplistic, partial or just wrong (among the critics, Noah Smith , Paul Krugman or Chris Dillow ). I share some of the criticism that have been raised by others but my initial reaction was different. Several of the 12 lessons that Sargent lists are about individual behavior and decision making (not even about how individual behavior affects economic outcomes). For example, "individuals face trade offs" or "many things that are desirable are not feasible" or "people are satisfied with their choices". Why is it that economics is so good at understanding indivi...

The notion that some countries are caught in a long and protracted period of low growth has received an increasing amount of attention and has been labelled "secular stagnation". The pessimism that the idea of secular stagnation has created has been reinforced by the notion the potential for emerging markets to grow is becoming weaker. The point that I want to make in this post is that one of these notions (secular stagnation) is looking backwards at the performance of advanced economies while the other one (potential pessimism about emerging markets) is looking forward and speculating with their inability to do as well as in the last decade. Let's start with a simple chart that summarizes the pattern of annual growth in the world over the last decades. Data come from the World Economic Outlook database (IMF). I have decided to include the last 13 years for the decade that starts in 2000. Two observations: growth (by decades) has been remarkably stable in the world, betwe...

The Euro area inflation came lower than expected in March and this has raised concerns about deflation (or "lowflation" as labelled by the IMF). In today's Financial Times , Jurgen Stark, a former ECB board member argues that deflation or low inflation is not a problem. One of his arguments is that there are benefits for low inflation, in particular: "It is likely we are living in an extended period of price stability. This is good news. It boosts real disposable income and will eventually support private consumption." (By the way, Mario Draghi used the same argument in his last press conference). So low inflation raises real income and it helps boost demand and output. The economic logic behind this statement is at best unclear, at worst completely wrong. Unfortunately, the misconception involved in this sentence is not that uncommon and it reflects the poor understanding of the general public (and public officials) about inflation, nominal and real variables. ...

Mario Draghi press conference yesterday was yet another exercise of creating confusion about what the ECB intends to do. Maybe what he referred to as an unanimous consensus in the ECB council is not really there or maybe the consensus is simply to keep arguing that there are risks to both sides, that the data is not clear enough, that it can be interpreted in so many ways and in the absence of certainty it is better not to act. His answers looked like the perfect parody of an economist that will always play it safe by starting with one argument and them arguing that "on the other hand" we could also be doing the opposite. Here is the best example of this: ".. my biggest fear is actually to some extent reality, and that is the protracted stagnation, longer than we have in our baseline scenario. Right now, it’s pretty severe, with levels of unemployment that – even though they have stabilised, and we see marginal improvements here and there – are very high. And the longer...