Friday, October 29, 2010

A misleading indicator

Translation from "Un indicateur fallacieux"

We say "the debt of Greece" (or of "Spain", "France" etc.) while we talk about the debt of the Greek State (or of the Spanish, the French State). But the debt of a State and the debt of a country are two different things.

Moreover, we evaluate the level of indebtedness of a State by the ratio "gross debt / GDP", selected in the Maastricht agreements. This ratio is a chimera, a monstrous concept, because it compares a stock of an actor (the level of the gross debt of a State) to a flow of another actor (the annual output of a country, measured by its GDP). Yet we learned in elementary school that all proportion must include things of the same nature ("do not divide leeks by turnips," said our teachers). It is surprising to see so many economists discourse pedantically on such a misleading indicator.

The "gross debt" of an economic actor is less significant than its net debt, the gap between the value of its debts and the claims he has over others.

Wednesday, October 27, 2010

Edouard Tétreau, 20 000 milliards de dollars, Grasset, 2010

Translation from a French version.

This essay is a quick and pleasant reading: situations are evoked so vividly that you feel as if you were a participant.

After reading the introduction one expects a text in three parts: 1) everything that goes wrong in the U.S., 2) why they will bounce anyway, 3) how other countries will pay the kickback. But the development does not exactly obey this plan: part 2, "bounce", is reduced to an evocation of the transfusion of vitality and population coming from Mexico - and Tétreau does not answer an obvious question: if the Anglo-Saxon and protestant U.S. came into decay so that their vitality and demography depend on a Latino-Indian and catholic immigration, what will their identity become?

But he says that Americans don't care about identity: "What counts is not what you are, but what you do", repeated those he met and this "what you do" means immediate action: "Don't think, just do it," they told him.

This primacy given to action is a double edged sword. The art of engineering and practical no-nonsense are the strength of the U.S. but thoughtless action may deteriorate in activism and barren agitation - and one wonders if the U.S., becoming obese in every sense of the word, do not have lost the energy that their short history showed.

Saturday, October 9, 2010

Why economics is a science

(Translated from Pourquoi l'économie est une science)

"Economics is not a science," said the other day a friend of mine, a well known expert in computers and information systems. The image he has in mind is probably these that give these "economists" that one hears or sees in the French media, real sophists which are able to demonstrate everything and its opposite, and change their mind with always the same confidence. But this image is superficial.

"If you read Adam Smith, I answered, or Alfred Marshall, or Léon Walras, or John Hicks, or closer to us Ivar Ekeland and some others, you would see that there is an economic science. However I must confess that it took me time to understand that... "

Indeed the economics classes that I suffered at ENSAE in 1963-65 were so dogmatic that they could only convince students endowed with a docile memory - while my own memory, as restive as a skittish horse, agrees to hold only what I fully understand. Ekeland opened for me the door of economics with an article in La Recherche in 1976, while I stumbled on the limits of the interpretation of statistics.

When in 1983 I set up a mission of economic studies at CNET, engineers and researchers with whom I worked had the same prejudices that my friend. "Economics, they said, is a soft science". They believed that the economist is a dishonest lawyer whom the leaders instruct to "demonstrate" the profitability of projects they have already chosen.