June is John Maynard Keynes Month

June 5th is the birthday of both John Maynard Keynes and Adam Smith. What an auspicious day to be an economist!

Keynes, a Depression-era macroeconomist, has come back into popular (popular for an economist) focus after this most recent economic crisis. His solution to depressed markets could be grossly simplified as fiscal expansion. If governments spend more, total output will increase.

In fact, looking at the Keynesian Cross model, even a modest increase in aggregate demand will lead to a much larger boost in output. The story is delightfully simple. Imagine today the government gives you 10 bucks to build a dam. You take that 10 bucks, save maybe 2 dollars, and spend the other 8 on Carls Jr. Carl then takes your 8, saves a dollar from it, and spends the other 7 buying more beef. The rancher saves a bit, spends the rest on fertilizer, and so on and so on. We see that from that initial 10 dollars, the money goes a long way in generating transactions.

Of course we learn this the first week of Intermediate Macroeconomics I. Week two, with its IS-LM and A Sad World models, shows us why this doesn't work and why we should all be good little monetarists. Still, enjoy your time in the sun, Mr. Keynes! June is your month!

Last thing I want to share, hip hop artist Slim Thug giving props to Sir John. Skip to 1:40 for the coolest moment macroeconomics will ever have.

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Seminar! Seminar!

Our very own Zheng Cao and Daniel Stone will be presenting a paper on choking under pressure in the NBA this Friday, 1pm in Kelley 1001. You're all welcome to come and show support and pretend you understand economics for a while until the speakers get to the punchy conclusion. Afterwards we may have an econ club meeting to elect the new president, or I'll just assume power.

Thinking about Grad School? Me neither!

But in case you decide 3 more years of sadness is in your future, an anonymous senior level cabinet official professor from the department linked me to this page full of advice on applying to grad school.

My favorite tidbit is: "Get to know some professors well. Professors will be very excited that you want to get a Ph.D. in economics. Don't be afraid to approach them. Listen to their advice."

In other words, come to the econ club meetings more often! Get to know the professors better, gamble on whether they'll pay for the food, and banter nonsensically about things tangentially related to economics!

That's the beauty of it - it doesn't do anything!

Lately some econ buddies and I have discovered that we really don't know how to define exactly what economics is. You know when you're in an econ class, but why exactly is uncertain. Vaguely it has something to do with limited supply and infinite demand. The solution is always where marginal benefit equals marginal cost. There damn well better be some calculus in it at some point.

So we have a laundry list of "You know you're in an econ class when..." but no real answer as to what economics is. My peers have been offering me some really neat explanations, but I prefer to pound economics into two realizations:

1. Economics is life sans bullshit.
Every important facet of human life will eventually be studied by an economist, and they will strip it down to its integral parts. While most people have some misguided notion that econ students study the stock market all day, anyone who has sat through Prof. Grosskopf's efficiency class and has listened to students' research proposal knows that economics studies everything imaginable. Some people are studying airports. I'm looking at tobacco ads. A bunch of guys are doing baseball. People who have never opened an econ journal or read Freakonomics might be puzzled to see the scope economists encompass. Economics is varied and everywhere.

More importantly, economics does away with the bullshit that accrues when other fields study issues. Sit in on a business class and listen to them talk about value. For them, value = quality / price. What is quality? Personal value to customer. How is that different from the value on the left side of the equation? Hell if I know, because to an economist, value = price you're willing to pay. Bam. Simple.

Here's another example. Ask a person what goes into their decision to buy goods. They might go on all day about why this product is good, why this one's a bargain, why these ones are crap, why they're addicted this those, etc etc. To an economist, it's just D^x(P_x, P_y, I) Booya, a demand function.

Economics takes a subject and does away with the frills, gimmicks, and buzzwords. What's left is what's essential. There is a methodical, mathematical cleanliness to economics that you just won't get from other social sciences or business disciplines. If there is a relentless difficulty to economics, it's because you cannot escape it with bullshit.

Which leads me to my second conclusion:

2. The World operates on bullshit.
My econ degree makes me feel helpless and frustrated. Economists know the answer. Fiscal policy is ineffective in the medium run. Externalities can be solved with the Coase solution. Businesses should operate until marginal cost equals marginal benefit. There are no profits in the long run.

So why the hell do I find myself arguing with the newspaper every morning? Why are politicians doing silly things, and why can't I get a job after graduating? I can only conclude that this is because the world actually operates on bullshit. All the useless variables I've spent my education learning to assume away is actually the most important part of the function.

It turns out, kiddos, that you won't be paid the marginal product of your labor; it's who you know. Politicians will whimsically order some parts of your life and not others. Businesses actually want you to use buzzwords. You will not need calculus.

It's a rather cynical conclusion. Studying econ has told me that economics is right, but ignored and possibly useless. We come after the fact, so some other discipline will come up with a new idea, and economists can explain why is succeeded or failed. Getting people to listen to our own ideas, or maybe even just coming up with original ideas on our own, is a harder, meaner feat.

I'm hoping to be proved wrong, though, and I heard someone in our department recently got an internship with the Fed, so there might be hope yet. Also they keep telling me that economics majors make money after college, so maybe there is a demand for less bullshit.

May is Karl Marx Month

Cinco de Mayo, more than just a Mexican holiday, is also the birthday of Karl Marx, notorious political economist and Evil Santa Look-a-like. When I was in the 10th grade, we had to read the Communist Manifesto for an English class. At the time, I was also working in retail and a member of a union, UFCW Local Chapter 555, so it was an exciting time to be a budding communist.

Then I took 11th grade Economics and promptly forgot about class struggles and command economies. Looking back, I wonder how communist economics would be taught in a true econ class using models and mathematics instead of just rhetoric. It's too bad Oregon State doesn't offer a course on heterodoxical economic models.

May is an important month for working people. May 1st is International Workers' Day, when unions and left-wing political groups take to the streets and protest for better living standards for the working class. Even though May Day started in Chicago, it has lost popularity. in America. Labor demonstrations remain very aggressive in the rest of the world, with protests turning violent in cities such as Athens, Macau, and Berlin.

Karl's grim specter of Communism hasn't completely left the world even after the end of the USSR. Workers around the world have yet to buy into free market liberalism and remain skeptical of its promises. Although I haven't been an active member of my union in years, I'm going to make an effort to wear red this month to show at least superficial camaraderie for my working brothers and sisters.

Natural Level of Output: A less-than-sober argument

Yesterday afternoon a few members of the econ club had our usual unofficial meeting at McMenamins on Monroe, something of a tradition every Friday at 4 (you're all welcome to join, of course). Our guest of honor was Professor Stone, who entertained us with stories about academia, the person he lives with (his wife), and the Broncos. We hope he comes back to us soon.

Fellow economics major Ben Price and I got in an argument about medium-run macroeconomics. I've heard macroeconomics called a moon science by other econ majors around the country, but I still accept that these are the best models we have at describing the macroeconomy. At the very least, they're worthwhile classes that I enjoy occasionally being awake in.

Ben, my esteemed interlocutor, disagrees more intensely about the assumptions of macroeconomics. Today, after a few beers and Cuba Libres, Ben challenged the idea of a natural level of output, which Oliver Blanchard identifies as that level of output economies return to after a change in fiscal or monetary policy. Ben demanded proof of such a natural rate, asking for real world data that I usually find distracting and unimportant to economics.

For me, the intuition behind a natural level of output is solid. Imagine a simplified economy where all people did was pick bananas all day. There is a limit to how many bananas can be picked, and that limit is hard to change. We can only be so efficient at banana picking. A government can come in and try to tinker with our output, telling us there's more hours in a day, or inflating the value of a banana to encourage us to work harder, but these are short run solutions. In the end, our bodies are only so good at picking bananas.

A macroeconomic natural level of output figures in the same way. Economies can only be so productive before artificial means of accelerating an economy such as expansionary monetary or fiscal policies only provide short run gains. In the medium run, when people can adjust price expectations and therefore reevaluate the values of goods, economies return to their natural levels.

Makes sense, right? Of course, I don't feel the need to prove any of this with data. It's a moon science!

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