I am happy to bring you our most recent ppe.life interview. It is with Dr. Andreas Hoffmann, who was at Cevro in the spring to teach a course on “Financial Instability and Macroeconomic Policy”. As well as lecturing at Cevro, Andreas is a Lecturer and Senior Researcher at Leipzig University (Institute for Economic Policy). He specializes in monetary policy, financial market – and applied macro – issues as well as financial history (you can check out his CV here). Andreas is a great teacher and has been super helpful in guiding me personally as a student, so I am pretty excited to share this interesting discussion:
I’ll start with a question that I have also been asking to some other scholars. You’re a pure economist, and you teach economics at Leipzig University, yet you’re now part of the Cevro visiting faculty in the PPE program as well. Now that you have experience in both departments, what do you see as the biggest advantages of a PPE degree compared to an economics degree?
Josef Sima has set up a fantastic program. CEVRO’s PPE students get to study with a great variety of teachers from different countries covering material of an amazing breadth. That’s gotta be different. Students are continuously encouraged to make up their own mind about the world and discuss ideas from various angles.
Not surprisingly, a student with a PPE degree can reflect upon and provide a quick analysis of many relevant policy issues without much preparation.That is a great asset. CEVRO’s PPE program is also special because it attracts curious students from around the world who want to learn and discuss ideas of liberty, economics or policy issues. The people make a difference.
Regarding your own education, you received your PhD from Leipzig University, but you were able to spend a couple years of that at NYU and have Mario Rizzo as one of your dissertation advisors. Given NYU’s reputation as one of the centers of Austrian economics, can you tell us what your experience was like there?
Mario Rizzo has been an incredibly important person in my academic development. I am very thankful that he invited me to NYU in 2009 and of his continued support. At NYU, I attended Mario’s weekly “Austrian” Colloquium. It was special to be able to regularly discuss ideas with Mario, David Harper, Sandy Ikeda, Ed Stringham, Joe Salerno and Gene Callahan. I’ve also got to know Israel Kirzner, Richard Epstein, Jerry O’Driscoll, Peter Lewin and Ralph Raico at the colloquium.
NYU is, of course, a prime school for studying economics in general. You can see famous economists in action every day when you walk down the halls. The number of courses and seminars students can choose from at NYU is simply astonishing. Because I was especially interested in applied Austrian macro, I followed Mario Rizzo’s advice and attended some additional econometrics and economic history seminars. I really enjoyed NYU’s working environment, the energy there, and the discussions with other graduate students. I am very grateful for the opportunity I got.
Macroprudential policy has become a popular topic since the great recession in 2008. Many big name economists at institutions like BIS and IMF seem to think that more macroprudential regulation is what is needed to prevent future crises. In your academic writing, however, you seem much more critical (or at least cautious) of this. What worries you with the growing popularity of macroprudential regulation?
There are two reasons why I am skeptical.
First, I believe we need simpler rules in financial regulation rather than a battery of new tools we know little about. There is considerable uncertainty about the ability of most macroprudential tools in promoting financial stability. The reason is that we lack data and evidence. In fact, economists only have small samples available to study the effects of macroprudential tools. Model and parameter uncertainty are an issue. Predictions are unreliable. We also know little about how the proposed changes affect markets. People react in creative ways to new regulation. For example, the so-called shadow banking system might grow if we further regulate banking. Such reactions might also differ from country to country depending on things such as the importance of banking in a country, other regulation, or business practices.
Second, I fear that bad macroprudential regulation might undermine the proper functioning of financial markets and put a drag on economic growth. “Prudential” regulation might even become a means to channel funds to governments. Take, for example, Europe’s capital requirement regulation. There is, of course, some evidence that higher capital ratios might promote financial stability. But when the regulators actually regulated markets, they did not regulate the way some economists had prescribed. In Europe, EMU bonds received preferred treatment. Therefore, the capital requirement regulation artificially raised the attractiveness of holding government bonds relative to other investments, lowering government-borrowing costs. How convenient! That’s financial repression in new clothes.
Gunther Schnabl and I currently work on problems of financial repression within the scope of the Hayek-Foundation funded research platform “Monetary Policy and Economic Order” at Leipzig University.
I think it’s fair to say that Austrian Economics has also gained some popularity since 2008 due to its ability to give an explanation for the great recession. But it seems that post-keynesianism (particularly the work of Hyman Minsky) has grown in popularity too, for similar reasons. In your writing you’ve mentioned both, and labeled their business cycle explanations as “overinvestment theories”. Can you speak briefly to the similarities there? And do you think Austrians can learn from reading more Minsky?
To make a long story short, I consider both theories “monetary” cycle theories because in both theories the fundamental cause of the endogenous recurrence of cycles is monetary. They are “overinvestment” theories because they both consider the financing of unsustainable investment projects during the boom the trigger of the subsequent bust.
In fact, I do believe Austrian macro can learn from Minsky’s ideas. Austrian macro could benefit from focusing more on risk and leverage in explaining the cycle. Minsky also did better in describing the process of debt creation. Note that in “Monetary Theory and the Trade Cycle” Hayek is much closer to Minsky’s theory than the general depiction of Austrian business cycle theory suggests. Hayek wrote on the importance of risk and leverage, but he did not develop these ideas.
Your academic work has been published in some well respected journals, and I think you’re pretty well known in Austrian circles for being a premiere Macro guy. But you’re also known for another reason – as an actor, playing the late and great JB Say in the second Keynes/Hayek rap video, “Fight of the Century”. Can you share some of your insider’s perspective as to what that was like being on set with so many other interesting people and economists in particular?
Wow, that is really nice of you to say. The video was shot in 2011 when I was at NYU. My, then, future wife, Andrea, was well informed and told me about the possibility to be part of it. I just emailed the production team and it turned out to be a great experience.
We went there in busses and spent an entire day in the facilities of a university in New Jersey. Most of the time we were hanging out and waiting for the next turn. I had already gotten to know most of the other economists. Ed Stringham was a fun “reporter”. And it was great to be in a corner with Joe Salerno, or should I better say Mises, and help Hayek win the fight. The producer was amazing. He made it look like we actually knew what we were doing.
You are also a contributor on the blog ThinkMarkets, which has been up and running successfully for some time now. Any advice for us at ppe.life or for anyone else who wants to get into blogging?
Just do it! You guys are doing great. The one piece of advice I can give is not to care too much about blog statistics. Blogging is not only a means to communicate or discuss ideas; writing up posts also helps you organize thoughts.
Thanks so much for taking the time to answer these questions! I want to try and close this out by asking if you could leave us with a recommendation of a book, paper or you’ve been reading lately?
I have gotten to know you as a macro-guy. Therefore, Antoin Murphy’s “The Genesis of Macroeconomics” might find your interest. I have just finished reading it. On about 200 pages, Murphy discusses the contributions of eight authors, including John Law and Richard Cantillon, to macroeconomic thought and provides a number of fascinating quotes from original sources. It is a good read, written by a great scholar in the history of monetary thought.
I thank you.