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| Life among the Econ |
This is a nice executive summary of the latest discussion of modls, I mean models [pdf], among Krugman, Summers, DeLong, Wren-Lewis ... and I'd like to add Robert Waldmann (link below).
My opinion is here and it best aligns with Krugman's. The key point is that neither I nor anyone else can use your intuition until you put it in math (or other formal system like supply and demand curves). Language is simply not up to the task.
In fact, Robert Waldmann (in comments here) points out correctly that the implicit model suggested by what Summer's says is quite weird:
The challenge for Fed hawks is to explain how unemployment slightly below the NAIRU can cause sharply acceleration inflation when unemployment far above the NAIRU didn't cause noticeably decelerating inflation. That requires a kinked Phillips curve which is not standard at all.
Waldmann is fine with a coherent story, but says even that low bar hasn't been met:
Krugman says "show me the model". I don't. I say tell me the story. "Once account is taken of the impact of a currency collapse on consumers’ real incomes, on their expectations, and especially on the risk premium associated with domestic asset values, it is easy to understand how monetary and fiscal policymakers who lose confidence and trust see their real economies deteriorate" is a list of topics and an assertion that it is easy to tell a story. it isn't a story.
I love the quote at the top! I immediately thought of Jared Diamond's speculation about the collapse of the cult of the stone heads on Easter Island (i.e. stone heads = modls).
ReplyDeleteI am not sure that I agree with you or Krugman. Demanding a model gets you the clever kind of models that economists build which get you results such as the Great Depression was people taking one big vacation. I know that is probably unfair. But let me take some of the models that Nick Rowe is very good at building. They look extremely plausible, but they elide over the stuff that is important in my view. Economics is very context dependent and there is different story to be told for each episode. For example, understanding current business cycle dynamics in in terms of the inventory cycle recessions of the early postwar recessions is a nonstarter. Your work actually supports that. In some ways your work appeals more to my intuition than the type of models that Krugman demands mainly because I know his models are wrong. There is no such thing called the loanable funds market, banks do not lend out deposits, and savings do not funds investment. It like physicists building models with let assume magic fairy dust pervades all space. By some fluke it may come to some plausible sounding conclusions, but would you be persuaded? By all means call for models, but then those models have to be subjected to the same scrutiny that the non-model assertions are. Krugman routinely brushes aside objections to IS-LM asserting that it "fits the facts." So, you are ok with a junk model as long as there is a model? Sorry for the rant. i do think that you are doing a great job, otherwise I wouldn't be wasting my time on your blog.
ReplyDeleteRant away!
DeletePart of the reason I chose to reference Life among the Econ is precisely the reasons you state.
But garbage that's clear because it's mathed up is better than garbage that's just gut feelings.
And if you think most of Econ is working fine, then this won't help much. But if you think it's mostly garbage ... :)
OTOH, mathing up garbage can make it sound more profound. There is a story, it may have been about Euler, who spouted some nonsense mathematical equation in the Russian court and claimed that it proved that God created the world out of nothing. ;)
DeleteThere is a lot of mathed up garbage around. Look at some of the CBO projections. (To be fair to the CBO, Congress often tells them what assumptions to make. But the CBO should at least include some error estimates. Accurate forecasts 75 years into the future? GIGO!)
Hi Bill,
DeleteThis "apparent profundity" is not limited to math ...
http://www.wisdomofchopra.com/
Random Deepak Chopra phrase generator ...