Skip to main content

The Borges Problem part II

Nick Rowe writes a post called Macroeconomics and the Celestial Emporium of Benevolent Knowledge.

It is a conjunction of a bunch of themes he has touched on in the last few weeks, including the great debt debate and categorization.

I asked him:
In your previous post, you advocated adopting the most "useful" way of dividing up the world into categories. But what does that mean? Useful in terms of teaching students, reaching the layman, articulating theory amongst other economists, calculating statistics, conducting policy?

Are you saying that economists should have multiple "categorical universes" in their head? Or is their "one ring to rule them all" way of dividing up the universe that you are trying to tease out?

One useful reason for having one standardized way of splitting the world into categories is it makes conversation easier. Having multiple ways adds subtlety but confusion.

I am learning that the core of economics (or at least near to it) is about words. We create meanings for things in the real world using some of our existing words, and this creates categories, but since other words can also be used to create similiar-though-not-overlapping categories, we have to choose between categories. This process comes prior to mathematical econ, since the math needs categories like C and I before mathematical phrases can be put together. 
The last bit about mathematics reminds me of an exchange I had with Daniel Kuehn a while back about the use of words and math in economics. 

Here is Nick's response:
I'm not sure on the answers to all your questions. Even if we all agreed on what the true theories were, we might want one theory for one purpose and a different theory for another purpose. And each theory would have its own most useful set of categories.

Yep, it might make conversation harder. But maybe some conversations would be impossible if we had to stick to one set of categories that didn't fit the topic at hand.
I can't disagree with him. Is this an argument in favor of heterodox economic? After all, entire schools can form around a divergent way of categorizing the world. Should economists be fluent in multiple economic viewpoints? The blogosphere is surely a great place for that. Actually, this reminds me of a recent Perry Mehrling post on which I participated. Here is Mehrling:
...it is important to emphasize that each of these heterodox schools exist, and persist, because it is organized around some essentially correct insight about how the banking system works... The problem is that, so far as I can see, each of the heterodox schools has part of the truth, not the whole thing. The same could be said about the orthodoxy against which the heterodox schools define themselves... We don't therefore want to choose which school to belong to; rather we want to determine which of these correct insights provides the most useful explanatory frame for whatever issue is currently at hand. Today it might be one; tomorrow it might be another. That is what the debate is about, or should be anyway.
See an earlier and related post.

Comments

Popular posts from this blog

Stock as a medium of exchange

American Depository Receipt (ADR) for Sony Corp You've heard the story before. It goes something like this. There's one unique good in this world that serves as a universal vehicle by which we conduct every one of our economic transactions. We call this good "money". Quarrels often start over what items get lumped together as money, but paper currency and deposits usually make the grade. If we want to convert the things that we've produced into desirable consumption goods (or long-term savings vehicles like stocks), we need to pass through this intervening "money" medium to get there. This of course is fiction—there never has been an item that served as a universal medium of exchange. Rather, all valuable things serve to some degree or other as a medium of exchange; or, put differently, everything is money. What follows are several examples illustrating this idea. Rather than using currency/deposits as the intervening medium to get to their desired final...

Yap stones and the myth of fiat money

At first glance, the large circular discs that circulated on the island of Yap in the South Pacific certainly seem quite odd. Too big to be easily transported, the stones are often seen in photos resting against their owner's houses. So much for velocity. Yap stones have been considered significant enough that they have become a recurring motif in monetary economics. Macroeconomics textbooks, including Baumol & Blinder , Miles & Scott ( pdf ), Stonecash/Gans/King/Mankiw , Williamson , and Taylor all have stories about Yap stone money. Why this fascination? Part of it is probably due to the profession's obsession with the categorical divide between "money" and "non-money". In dividing the universe of goods into these two bins, only a few select goods end up in the money bin. That an object so odd and unwieldy as a three meter wide stone could join slim US dollar bills and easily portable silver coins in the category of money is pleasantly counterintu...

Chain splits under a Bitcoin monetary standard

The recent bitcoin chain split got me thinking again about bitcoin-as-money, specifically as a unit of account . If bitcoin were to serve as a major pricing unit for commerce on the internet, we'd have to get used to some very strange macroeconomic effects every time a chain split occurred. In this post I investigate what this would look like. While true believers claim that bitcoin's destiny is to replace the U.S. dollar, bitcoin has a long way to go. For one, it hasn't yet become a generally-accepted medium of exchange. People who own it are too afraid to spend it lest they miss out on the next boom in its price, and would-be recipients are too shy to accept it given its incredible volatility. So usage of bitcoin has been confined to a very narrow range of transactions. But let's say that down the road bitcoin does become a generally-accepted medium of exchange. The next stage to becoming a full fledged currency like the U.S. dollar involves becoming a unit of account...