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Tuesday, May 27, 2008

How Do These People Get a PhD?

The economics mainstream and the Austrian heterodoxy often fiercely dispute the 'scientific' status of the views of the other camp. The Austrians accuse the mainstream of being wedded to unrealistic models that bear little, if any, relation to economic reality.

The mainstream, on the other hand, labels the Austrians (and other heterodox flavors) as being insufficiently rigorous, failing to cast their theories in a formal model that clearly explicates the predictions of a theory and that leaves its implications ambiguous.

But, for the moment, let's set that dispute aside. Whatever the merits of either team, I have not infrequently been struck by how feeble is the grasp of some tenured economists on any sensible theory at all. I once took a course -- at a university I will leave unnamed in the interest of not humiliating a pleasant man -- where the money and banking professor explained the persistence of inflation, in response to a student query, by offering an analogy to home appliances. "Think," he said, "of how, over time, your refrigerator wears out and becomes less and less valuable. Well, the same thing happens with money."

I really couldn't believe my ears. How could someone have earned a PhD in economic and yet put forward such a ridiculous explanation?

6 comments:

  1. By that logic would a 20 dollar bill printed in 1990 buy less today than one printed in 2008?

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  2. And it would be warmer.

    Gene, that is absolutely shocking. The PhD part isn't so bad--after all, you could get a PhD in economics and specialize in game theory and have no clue about money--but you said he was teaching a class on money and banking??!! That is inconceivable.

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  3. Conceive it, Bob, conceive it.

    ReplyDelete
  4. Money, hailing from the world of ideas, expands in harmony with the expanding universe, while a loaf of bread, in the concrete world, does not. So, over time, an endlessly expanding anount of money buys the same loaf of bread. The price goes up, the value of the money goes down. Q.E.D.

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