Deconstruction #1: Farmer’s Formulation

Document Properties clipart - courtesy of the Tango Project“The environment I have described is one that will be familiar to most readers of this article.”
— R. Farmer, 2009

“Yeah, right.
— Oxymandias, 2012

As I’ve said previously, a big goal of this blog is to let me think out loud about macroeconomics.  I have minimal economic training, though, so finding a place to start can be a bit tricky…

Enter Roger Farmer, Distinguished Professor of Economics at UCLA, stage left.  In a recent FT article (which I found via The Economist’s Free Exchange group blog), he discusses a solution to the US semi-depression.  As far as I can make out, his plan involves buying lots of assets.

I’m actually not that interested in his plan right now.  It’s very important and all, but frankly I have no way of evaluating it (yet).  More interesting for me is the paper Prof. Farmer linked to: Confidence, Crashes and Animal Spirits.  This describes the macroeconomic model he relies on, and compares it to two other models (described as “old Keynesian” and “neoclassical”).

“Give me an infinitely long level,” quoth Archimedes, “and an immoveable place to stand, and I shall move the Earth.”  I have a similar principle: give me a sufficiently advanced academic text, and an omniscient search engine, and I shall reconstruct an entire academic discipline.  This is how I got through university – not by reading the textbook, but by reading the introductory section of next year’s textbook and working backwards.  Let’s see if that approach works here.

Over the next few posts I will be going through this paper in depth.  Firstly, I will try to understand the technical content of this paper: the terminology, the symbols, the implicit narrative.  This may take a few posts.

Secondly, I will try to reproduce as much of the content as possible.  Ideally, at some point I will upload a spreadsheet demonstrating how it all works and confirming the conclusions.

Thirdly, and very much finally, I will attempt to pass judgement on the paper.  Is it kosher?  Do the conclusions follow from the premises?  Does it in any way match reality?  Is it economically “nice”?

Stay tuned.

[Edit: I’ve found a fuller description by Prof. Farmer of his paper here.  Heady stuff.]

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