13 of 21 people found the following review helpful:
5.0 out of 5 stars
'don't touch that dial...', November 28, 2004
This review is from: Learning Economics (Paperback)
This thoughtfully written book by a MIT PhD is a pleasure. That doesn't mean it is easily read but it does mean that if the reader sticks with it much will be learned.
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18 of 63 people found the following review helpful:
3.0 out of 5 stars
Economists need to start using the Cauchy and not the Normal Distribution, December 26, 2005
This review is from: Learning Economics (Paperback)
Kling's approach in this book is very good.He takes a number of real world events and problems and shows how applying economic thinking and analysis sheds significant light on how and why the problem exists.Once the problem is specified and its economic ramifications investigated,possible (partial) solutions can be suggested.Unfortunately,all of these solutions appear to involve laissez faire based on an implicit appeal to Say's Law and the supposed workings of flexible prices and wages.This is the major shortcoming in the book.There are several other flaws in this book.I doubt whether it can be represented as being the ultimate economics textbook for the 21st century.I will go over two of these flaws.First,we consider the author's views on thinking linearly(as Kling correctly points out,this is how economists are taught to think in graduate school)versus nonlinearly.His discussion is not so much wrong as incomplete.It is incomplete because he appears to be completely unaware of the work done by Benoit Mandelbrot in showing that a wide range of economic data ,especially price data and changes in prices over time ,follow power law distributions that can best be approximately represented by Cauchy probability distributions and not the normal probability distribution,which is still used as the foundation for all courses in economic statistics and econometrics.For instance,the Black-Scholes equation and the Capital Asset Pricing Model(CAPM) simply assume a normal distribution without any goodness of fit test.The result is major forecast errors. Instead of the mild risk of neoclassical decision theory you get the wild risk of Mandelbrot's chaotic,fractal approach.Second,Kling appears to have little or no understanding of the basic foundation for Keynes's arguments as expressed in the General Theory(1936).Keynes's position has little or nothing to do with how elastic money wages and real wages are.Keynes's fundamental point was practically the same as made by Daniel Ellsberg in his seminal 1961 article in the Quarterly Journal of Economics-decision making under conditions of uncertainty or ambiguity(incomplete,vague,conflicting information,data,or knowledge) is significantly different from decision making under conditions of risk(the mild risk of the normal probability distribution).The result of such decision making under ambiguity or uncertainty will be a significant decrease in the amount of spending on private and public investment spending ,in both the short run and the long run ,that is necessary to obtain and maintain a full employment level of output intertemporally over time.The supposed elasticity or inelasticity of relative prices and wages has nothing to do with Keynes's conclusions,as asserted by Kling.
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