Tuesday, April 12, 2016

Jason Smith —

Let's tell a story of disruption in the free market of ideas [similar to that told by Matt Yglesias about Tesla].

Economic theory is obsessed with better serving their high status customers: the political elite. To that end, they've gotten very good at producing models that seem very rigorous and serve their interests from banks (controlling the economy via monetary policy) to politicians (fiscal policy that involves giveaways to corporations or people depending on the political persuasion).

A new "competing" theory (information equilibrium) enters the marketplace of ideas that is simpler and in an abstract sense inferior to existing economic models. In the information transfer framework there literally is just one equation, it considers most macro aggregate movements to be noise, and it gives up on understanding economic agents.

Of course economics Phd's could take easily take it up, but that could undercut their existing status relationships and institutions.

Since the information equilibrium model is so easy to use (again, literally one equation), it enlarges the market of people capable of performing economic analyses. Where previously you needed a Phd in economics to set up a DSGE model (unless you are John Handley), now any high school graduate with a bit of calculus can join in.…
Information Transfer Economics
Jason Smith

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