This post represents something of a milestone for the Stubborn Mule. A few months ago I passed the one year anniversary of the Mule (the first post was published on 18 May 2008). Now I have reached the 100th post. To celebrate, and in recognition of the fact that older blog posts tend to disappear under the pile of newer ones, I will take this opportunity to revisit some of these older posts.

Drivers of Australian Inflation

Back when the global financial crisis was little more than a sparkle in a sub-prime lender’s eye, outside the bond markets anyway, we were still worried about inflation. In Australia, the rate of inflation for the 12 months to March 2008  hit 4.3%, which was outside the Reserve Bank’s target range of 2-3%. Setting a pattern that was to continue, I attempted to illustrate the drivers of inflation graphically. In this case, I produced a “heatmap” (a form of “treemap”) showing the sub-categories of the Australian Consumer Price Index.

Australia and the Global Financial Crisis

A lot of the posts on the Stubborn Mule have touched on aspects of the global financial crisis, including Moody’s Colossal Bug, How Big Are Australian Banks?, AIG and DZ Bank: Dumb and Dumber and Shoots Are Greener in Australia?. But the single most popular post on the blog is Australia and the Global Financial Crisis. Written back in October 2008, not long after the collapse of Lehman Brothers, this piece aimed to explain what caused the financial crisis and why, even then, Australia seemed to be faring better than much of the rest of the world. Over the coming years there will doubtless be many millions of words written about the causes of the crisis, but in the meantime, on most days, this post still gets more hits than any other on the blog.

Olympic Medals per Capita

Another popular post, this was actually a follow up to another post which looked at the Beijing 2008 medal tally on a per capita basis and by the size of each country’s economy. The Olympics were still underway and I decided to improve the first post by having the ranking charts update live as medals were awarded. I did this with the help of the data sharing site Swivel: I wrote a little script to regularly poll the official Olympics site for medal awards, post the results to Swivel and Swivel would then update the charts embedded in the blog. A little later, I did the same thing for the Paralympics.

Sydney Petrol Prices

Back in the middle of 2008, with petrol prices soaring, there were many complaints that petrol retailers were gouging motorists with their petrol pricing. In this environment, which led to the misguided and short-lived “FuelWatch” scheme, I decided to test the relationship between crude oil prices and prices at the petrol pump. Needless to say, there was a very close relationship between the two. As oil prices fell, the sting went out of this issue, but for old time’s sake, here is an updated version of chart showing the results of my simple regression model.

Regression Model of Sydney Petrol Prices (unleaded)*

I Hate Personality Tests

Written after attending a training course at work, this post was a bit of a rant about HBDI and other similar personality tests such as Myers-Briggs, which I consider to be simplistic tools designed primarily to generate revenue for the companies that produce the tests and are closer to astrology than science. I can feel my blood pressure rising again now…

The Future of Microblogging

I was something of an early adopter of the internet phenomenon that is Twitter. When I wrote this post, I had been using Twitter for a little over a year and the total number of twitter users had just passed 2 million and looked like it might be levelling out. Now Ashton Kutcher alone has more than 3.6 million followers and overall Twitter has more than 5 million users. Although many people have become more familiar with Twitter, this post still draws in readers looking to find out more about microblogging. In the post I also look at the open microblogging platform Laconica and at identi.ca, the original example of a microblog built on Laconica. While I do still use my identi.ca account, it’s hard to escape the lure of Twitter.

Why I Always Buy the Same Sandwich

Another early post, this was inspired by my reading of Dan Ariely’s excellent book “Predictably Irrational”, which is all about the fascinating field of behavioural economics. One of the subjects Ariely discusses is the phenomenon of  “self-herding”, which basically means people tend to get stuck in a rut doing the same things over and over again. In my case, I used this concept to explain why I kept buying the same sandwich. More than a year later, I still buy the same sandwich. I still plan to revisit the subject of behavioural economics at some point in the future.

So, having recycled all those electrons, I am off to start planning the next 100 posts.

* Data Sources: Sydney Petrol Prices from the Australian Automobile Association, Brent crude oil prices and A$/US$ exchange rates from Bloomberg.

I never formally studied any economics at school or university, but in the years since I have become increasingly interested in the subject. I am sure that is evident from many of the posts here on the Stubborn Mule. What I did study was mathematics and, although there can be internal debates within the subject of mathematics, in the end it is usually clear what is right and what is wrong. No such luck in economics, particularly when economists attempt to understand the working of the world from the broadest perspective: macroeconomics. The level of controversy, debate and antagonism in the field of macroeconomics is quite extraordinary.

In July, The Economist’s cover story asked what was wrong with the field of economics. The leader was accompanied by an article entitled The other-worldly philosophers, which narrowed in on macroeconomics. It quotes  Willem Buiter of the London School of Economics describing macroeconomics as a “costly waste of time”, while prominent economist Paul Krugman described most macroeconomics of the past 30 years as “spectacularly useless at best, and positively harmful at worst”. The article goes on to explore the tensions between free-market  supporting “freshwater economists” and the more interventionist “saltwater economists”. Following a detente of sorts over recent years, the global financial and economic crisis has inflamed the antagonism once more.

In the May issue of The Monthly Magazine, former banker and author of “The Two Trillion Dollar Meltdown”, Charles R Morris wrote of macroeconomics:

macroeconomics is not a science. Its methods are gross and error-prone, and its models of economic reactions bear only a distant relationship to those in the real world. The theoretical apparatus of economics – its ‘laws’ – are mostly imaginative constructs that can rarely be confirmed with any precision, and stem more often from ideologies than from careful observation.

The issue of ideology is a crucial one. Any macroeconomic theory has implications for government policy, particularly monetary and fiscal policy. Further, almost all monetary and fiscal policy, even “doing nothing” has implications for wealth transfer from one segment of society to another. All things being equal, high interest rates are bad for borrowers and good for depositors. Inflation is good for borrowers and bad for lenders (update: this is really an over-simplification: see comments below). Some policies may benefit wage earners, but create costs for businesses, others may help importers but hinder exporters. With so much real money at stake, it is no wonder that ideological biases are so significant.

Once much of this debate would have been carried to the halls of academia, only reaching the rest of us in the form of those ideas which filtered through to influence the government of the day. These days it is all readily accessible online to anyone who is interested and many of the participants engage directly with the public on their blogs. I do not pretend to have all the answers (or even very many answers), so for now I will simply list just a few of the blogs and websites I have come across in my own quest to better understand this contentious field of study.

Billy Blog

Bill Mitchell is a professor in economics at the University of Newcastle (Australia). He describes himself as a “modern monetary theorist” and focuses on the mechanics of money. On his blog, he argues forcefully that much of the thinking of mainstream macroeconomics, particular that of a neo-classical bent, has not come to terms with the implications of “fiat money” and are steeped in gold standard thinking. This position leads him to advocate strongly for the importance of government spending, particularly to support full employment, and dismiss concerns about budget deficits threatening government solvency. While this may sound Keynesian, Mitchell dislikes the The General Theory of Employment, Interest, and Money and distances himself from aspects of Keynesian thinking which can itself be caught up in misunderstandings of the mechanics of money. While Mitchell does not shy away from expressing his ideological views, he would also argue that his thinking does indeed begin with careful observation.

The Conscience of a Liberal

With the Nobel Prize for Economics in 2008 and a number of popular books under his belt, Paul Krugman is the best known of the economists in this list. Krugman’s approach to macroeconomics is more firmly in the Keynesian tradition than Mitchell’s and he has been a passionate advocate online and on television for extensive economic stimulus packages, as well as an ardent critic of much of the way that bailout of US banks was handled. Like Mitchell, Krugman dismisses concerns about escalating government debt.

Maverecon

Having been a member of theBank of England’s Monetary Policy Committee, Willem Buiter has direct experience of the real world operation of monetary policy. In his blog he criticises the whole enterprise of macroeconomics, attacking both the neo-classical and the neo-Keynsian schools of thought. Buiter has more time for “heterdox” economic thought that attempts to deal with the messier realities of the economy, such as inefficient markets, illiquidity and irrational behaviour.

Von Mises Institute

Many economists, Krugman included, dismiss the Austrian school of economics as an oddball fringe distraction from the real business of economics. However, the Austrian way of thinking has a surprisingly strong hold on the thinking of a number of people outside the economics profession. I suspect that this is due, in part, to the fact that a number of the school’s classic books such as Hazlitt’s “Economics in One Lesson”, are easily accessible to non-economists. Among the recurring themes of the Austrian school are the evils of fiat money, fractional reserve banking and the intervention of central banks in free markets. While many of their arguments that get them to these stark conclusions initially have superficial appeal, I have not found that they stand up to closer scrutiny. Presumably this is why they are not taken very seriously by most professional economists. Either that or all professional economists are either deluded fools, or swayed by vested interested or both, which I am sure would be the Austrian’s counter-argument. Indeed, another thread running through the Von Mises Institute blog and other Austrian school writings is an acrimonious tendency to ad hominem attacks on their opponents, particularly Krugman.

Econbrowser

Written by James D. Hamilton, Professor of Economics at the University of California, San Diego and Menzie Chinn, Professor of Public Affairs and Economics at the University of Wisonsin, this blog has a strong focus on data analysis, which clearly appeals to me. Nevertheless, their attitude towards government debt does show signs of the sort of gold standard thinking that Bill Mitchell criticises.

The Daily Reckoning and Money Morning

I have grouped these two blogs together as they seem to share a number of contributors and have a similar style and outlook. Many of the writers are Austrian school fellow travellers and like nothing more than a rant about the evils of fiat money, except perhaps a rant on why the banking system is a giant Ponzi scheme. I primarily visit these sites if I am looking for a bit of an adrenaline boost or an argument.

Steve Keen’s Debtwatch

Steve Keen is another iconoclastic opponent of neo-classical economics. His book Debunking Economics was an attack on the traditional underpinnings of neo-classical macroeconomics. Most of the writings on the blog focus more on his concerns about the growth in private sector debt in Australia and the US. The concerns lead him to his pessimistic view of the prospects for the Australian housing market, a view he is best known for in the mainstream press and one I have discussed elsewhere.

Photo credit: p22earl on flickr (cc licence).