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February 26, 2009


vj angelo

I have always questioned the thought process behind the mod mentality in these ort of times. I distinctly remember Princess Diana being heavily criticised for spending in the last recession. Never made sense to me. In a recession those with the money should spend and lot's, and should be encouraged to do so. Criticising people for doing exactly what we all need is a terrible approach. The popular media has alwyas been particularly guilty of this approach

Luis Enrique

I really like your last points, that things like invention and entrepreneurship need not be rational in the narrow sense. That Carroll paper looks very interesting too.


I've always believed that genius ( of whatever kind) relies heavily on "outliers". You can't teach genius - its the leap in understanding or ability. Lots of people of genius have quirks - think of George best and Gazza in football, or Van Gogh in painting - all slightly outwith the normal. But without that quirk gene ( self destruction here) would they have had genius? I doubt it


The tendency of Economics to make a meal of the most commonplace observations on life is such rib-tickling fun.

Danny The Dog

Sounds to me like swarm intelligence.

First there is a spread of resources, this is the only tool the swarm has to start with, (its irrational start point) to look for the weak point, when the weak point is found there is a convergence and the weak point is opened up to a wider and bigger access.

And it worked both ways in the current unpleasantness, we had one swarm on the inside pushing the weak points out and the wall of money (directed by another swarm of people) coming in the other side finding its way to those weak points.

D iversity

A lovely post.

Looking back, I liked Patrick Minford's piece just because it began to formalise what had seemed common sense.

Apart from changes in the likelihoods of future events, both epidemic spread of expectations based on incomplete information, or plain incompleteness of information in the Austrian style, can lead to the piles of assets that can only be sold below valuation/claims that cannot be collected in full which make a recession inevitable. Does not "animal spirits" as such get knocked out by Ockham's razor?


Why do you think Steve Gerrards won't have fallen? I could make a perfectly good argument that it has (what will he do when he no longer plays - probably be a talking head on TV or a football manager - and a fall in potential advertising revenue will reduce the pay for both those jobs).


... Steve Gerrard's permanent income ...


Not sure you've used a good example here. He's got every reason to worry about his permanent income.

According to Sport magazine Stephen Gerrard has invested heavily in new luxury property development over the last two years - as per Arsenal he's probably up shit creek on those investments in the short term.


Pointing out things that conventional economics gets fundamentally wrong is like fishing in a barrel, and lately it's started to feel a bit like kicking somebody when they're down. However, another dimension of whether the ubiquity of animal spirits is really a bad (or even an irrational) thing is that "animal spirits" ultimately refers to behaviors which have proven empirically successful over a very long run.

It's only recently, maybe 30-50 years depending on where you start counting, that we've had any theoretical tools to even describe what the rational origins of that behavior might be. Only 150 years since we figured out that there might even *be* any rational, rather than theological, origins in the first place.

The classic and trivial example is the difference between iterated and non-iterated prisoner's dilemma. But the general principle -- that behavior which is non-maximizing for a single agent in a finite game can be hugely advantageous for a population of agents in a non-finite game -- turns out to be very broadly applicable.


Daniel Gross has shown that bubbles leave a benign legacy; those condos in Miami may be worth only a fraction of what they cost, but they put roofs over folks’ heads
Always keep focused on the opportunity costs.

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The tendency of Economics to make a meal of the most commonplace observations on life is such rib-tickling fun.


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