tag:blogger.com,1999:blog-6837159629100463303.post673402670163427130..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Qualitative economics done right, part 2Jason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger47125tag:blogger.com,1999:blog-6837159629100463303.post-38110335152850355852017-02-14T13:42:32.506-08:002017-02-14T13:42:32.506-08:00Apologies, but yes, this is a different Anonymous....Apologies, but yes, this is a different Anonymous. <br /><br />That said, I don't believe anything I said in the previous comment was in error.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-45604304904362521812017-02-14T13:38:10.476-08:002017-02-14T13:38:10.476-08:00I removed all the anonymous comments that seemed t...I removed all the anonymous comments that seemed to be from a single source that consistently repeats errors.<br /><br />If this was in error and you are a different anonymous commenter, then I apologize.<br /><br />Let me direct you to my <a href="http://informationtransfereconomics.blogspot.com/2016/03/moderation-and-comment-policy.html" rel="nofollow">comment policy</a>.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-35073526894488209032017-02-14T13:31:44.469-08:002017-02-14T13:31:44.469-08:00Any reason you removed my comment?Any reason you removed my comment?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-36192698795033736302017-02-14T12:59:53.231-08:002017-02-14T12:59:53.231-08:00Sorry, I have no time for cases of Dunning-Kruger....Sorry, I have no time for cases of Dunning-Kruger.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-88483081344127091152017-02-14T12:49:13.776-08:002017-02-14T12:49:13.776-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-28883377053043500562017-02-14T10:08:42.224-08:002017-02-14T10:08:42.224-08:00The second graph shows the change in mortgage debt...The second graph shows the change in mortgage debt (by "mortgage debt accelerator" Keen just means change in M/GDP) versus the change in housing prices. So we have "discovered" that as housing prices go up, people take out bigger mortgages.<br /><br />The first graph shows that the change in credit issued is correlated with output. This does not say whether it is causal. The graph is also created in a strange way (it compares a percentage growth with a scaled level change). In fact, if you do it properly (i.e compare percent change in private credit to percent change in RGDP), you can see that the credit slumps follow the RGDP slumps:<br /><br /><a href="https://fred.stlouisfed.org/graph/?g=cHu3" rel="nofollow">https://fred.stlouisfed.org/graph/?g=cHu3</a><br /><br />That means causality appears to go the other way from Keen's description: a shock to the economy hits and lending falls.<br /><br />Regarding the Krugman comment, that is not what Krugman said.<br /><br /><i>If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. <b>Yes, in some (many) cases lending is associated with higher demand</b>, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.</i><br /><br />https://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish/<br /><br />It's not that lending doesn't create demand (it does in "many" cases as stated above); the problem is why does demand depend on money growth -- why are we suddenly Friedman monetarist disciples looking at M2 growth?<br /><br />Regarding the formula, it's not that I didn't understand it, it's that the quote from Keen tells you he is just asserting this. "it is economically and mathematically valid ..." but <b>why?</b> Adding "mathematically" valid is also complete jibberish. Of course it's mathematically valid to write down A + B = C. I guess that the "mathematically" just distinguishes A + B = C from A/0 ++++ B {} C. The latter isn't mathematically valid.<br /><br />In any case, you shouldn't just accept graphs uncritically. It took me awhile to figure out what was being graphed because they don't make it very clear. But if you spend a little more time than none at all looking at the details, you can see that sometimes the graphs people put forward don't actually say what people say they say.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-38570081438774245872017-02-14T04:59:22.329-08:002017-02-14T04:59:22.329-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-47779889804644218872017-02-12T21:16:49.586-08:002017-02-12T21:16:49.586-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-16388710620884575392017-02-12T17:16:05.602-08:002017-02-12T17:16:05.602-08:00Anonymous,
Let's say I posited a model a = f(...Anonymous,<br /><br />Let's say I posited a model a = f(x,y,z) that had one parameter k. I then fit that parameter to data. According to you, this "barely involves theory".<br /><br />Now let k = G, a = F, x = m1, y = m2, and z = r so that:<br /><br />F = G m1 m2/r²<br /><br />That's Newton's universal gravitation law, and the "curve fitting" established the gravitation constant:<br /><br />G = 6.67408 × 10-11 m^3 kg^-1 s^-2<br /><br />But it's just "curve fitting". Newton didn't make any theoretical progress.<br /><br />Oh, wait he did.<br /><br />So maybe you see why I think you are suffering from the Dunning-Kruger effect?Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-38135931847472666252017-02-12T14:47:04.251-08:002017-02-12T14:47:04.251-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-22482122157403731652017-02-11T09:32:15.793-08:002017-02-11T09:32:15.793-08:00"Just answer my question as to whether you th...<i>"Just answer my question as to whether you think private debt matters or not "</i><br /><br />I don't know the answer to that question. If there was some convincing theoretical argument that connected to data, then maybe I could be convinced.<br /><br />The question of whether debt levels impact the macroeconomy should be exactly that: a question. Research should tell us that "yes, debt seems to matter", or "no, debt is not a causal factor". It shouldn't be assumed by fiat.<br /><br />People who study macro tend to approach the study in this strange way. Instead of developing a framework to figure out what a recession is, the assertion of what causes a recession define the framework.<br /><br />Since I'm not allowed to use physics analogies anymore, it's a bit like asserting all species extinctions are caused by meteors and working out a theory of evolution from there. <br /><br />So-called "market monetarists" tell us that recessions are caused by the expectations the central bank sets -- and then proceed to work out macro theory from that assertion.<br /><br />Godleys and Keens tell us that debt causes recessions, and then work out macro theory from that assertion.<br /><br />Of course if you assume the cause of recessions, your model is going to parrot that assertion right back. Therefore it is unremarkable that Keen's model above tells us that high debt leads to a crisis. It might be interesting if that model also looked like empirical data when debt levels are low, but it doesn't.<br /><br />Again, the framework you use to study a subject shouldn't assume things about the subject of study.<br /><br />If I thought debt mattered to macro, I wouldn't assume a model where debt mattered to macro. I might assume a model where debt was included, but had a coefficient that would be set by empirical macro data.<br /><br />For example, in Keen's models, he asserts things like Y + dD/dt ~ GDP. So much of the issues above could be avoided by using Y + c dD/dt ~ GDP and then using the empirical data to set c.<br /><br />Godley et al's stock-flow models do a similar thing by including debt without a coefficient out front.<br /><br />It would all be much more convincing if instead of saying there's a term + X, people said there's a term + c X and seeing if c isn't zero.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-90573661665216616892017-02-10T21:43:52.475-08:002017-02-10T21:43:52.475-08:00(Should have added: private borrowing was high in ...(Should have added: private borrowing was high in Greece before the crisis). Also it's not just about public debt but indebtedness to foreigners. Ramananhttp://www.concertedaction.comnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-86632381700259853852017-02-10T21:42:17.547-08:002017-02-10T21:42:17.547-08:00"Don't be obtuse.
Keen's models are ..."Don't be obtuse.<br /><br />Keen's models are about private/household/consumer debt (mortgages, credit), not government debt."<br /><br />I am not just talking of Keen's model but also Wynne Godley's models. <br /><br />Anyway, private borrowing was also high before the crisis. <br /><br />And what about the US? Are you arguing that private debt didn't matter for the US in causing the crisis?<br /><br />Don't reply with "don't be obtuse". Just answer my question as to whether you think private debt matter or not and how many people share your view. <br /><br />Ramananhttp://www.concertedaction.comnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-52558373850663585292017-02-10T18:19:23.506-08:002017-02-10T18:19:23.506-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-79653844935635094772017-02-10T17:53:16.210-08:002017-02-10T17:53:16.210-08:00Editorializing in a quote is a common practice. Th...Editorializing in a quote is a common practice. That you are unfamiliar with it does not impugn my integrity.<br /><br />So one of the model's "shortcomings" can be "inconsistent with reality" and you can still say that the model is applicable to reality?<br /><br />What is happening here is that it's one of Pfleiderer's Chameleon models. It's used to say things about the real world, but when questioned, it's just tentative musings with shortcomings.<br /><br />One or the other. Not both.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-83016436959338164652017-02-10T17:41:59.346-08:002017-02-10T17:41:59.346-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-72560118846641791142017-02-10T17:22:57.116-08:002017-02-10T17:22:57.116-08:00http://keenomics.s3.amazonaws.com/debtdeflation_me...http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/Keen2011DynamicMonetaryMultisectoralModel.pdf<br /><br />The editorial comments are from me.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-51225419046178897642017-02-10T17:07:21.348-08:002017-02-10T17:07:21.348-08:00What is the source of this quote and who the "...What is the source of this quote and who the "ed."?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-60068435881935472222017-02-10T16:47:26.182-08:002017-02-10T16:47:26.182-08:00It's fine if you want to just call them theore...It's fine if you want to just call them theoretical musings. But Keen does not say these are just musings. He says they're important results and advances:<br /><br /><i>Though this preliminary model has many shortcomings, the fact that it works at all [ed. it does not] shows that it is possible to model the dynamic process by which prices and outputs are set in a multisectoral economy [ed. we don't learn this because the model fails to comport with data]. ... The real world is complex and the real economy is monetary, and complex monetary models are needed to do it justice. ... Given the complexity of this model and the sensitivity of complex systems to initial conditions, it is rather remarkable that an obvious limit cycle developed [ed. limit cycles are not empirically observed] out of an arbitrary set of parameter values and initial conditions—with most (but by no means all) variables in the system keeping within realistic bounds [ed. they do not]. ... For economics to escape the trap of static equilibrium thinking [ed. we don't know if this the the right approach], we need an alternative foundation methodology that is neat, plausible, and—at least to a first approximation—right [ed. it is not]. I offer this model and the tools used to construct it as a first step towards such a neat, plausible<br />and generally correct approach to macroeconomics [ed. it is not because it is not consistent with the data]. </i><br /><br />If Keen had just said here's an interesting mathematical model with some weird dynamics that doesn't look anything like a real economy, that would be fine!<br /><br />But he doesn't.<br /><br />He claims that they are more than 'just' theoretical musings.<br /><br />And you can't do that without connection to empirical data.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-21233879925560306102017-02-10T15:22:07.949-08:002017-02-10T15:22:07.949-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-10412054311366718102017-02-10T15:00:05.701-08:002017-02-10T15:00:05.701-08:00I am not sure how one can construe my point that y...I am not sure how one can construe my point that you should discipline models with the empirical data with the Chicago school that famously built models with complete disregard for the empirical data.<br /><br />That's a good frame to understand how I see Keen: just like Bob Lucas, Tom Sargent or Ed Prescott with their rational expectations framework, Keen disregards the empirical data in favor of his framework. It will lead to the same place.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-73986912964887751622017-02-10T14:29:00.998-08:002017-02-10T14:29:00.998-08:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-1598557089887165672017-02-10T14:12:06.963-08:002017-02-10T14:12:06.963-08:00I should point out that obviously both of the abov...I should point out that obviously both of the above equations model events. Obviously, a recursive form is required to move beyond that.Antihttps://www.blogger.com/profile/17677035271760844211noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-28287156321259218802017-02-10T13:19:10.893-08:002017-02-10T13:19:10.893-08:00Don't be obtuse.
Keen's models are about ...Don't be obtuse.<br /><br />Keen's models are about private/household/consumer debt (mortgages, credit), not government debt.<br /><br />That is the same analogy. <br /><br />"But simple Lagrangians illustrate a lot about behaviour from symmetry breaking to confinement to asymptotic freedom and so on."<br /><br />The only reason it makes sense to use simple Lagrangians illustrate these things is that that have been demonstrated to be important empirically. We do not observe free quarks, therefore illustrating confinement with some simpler theory is useful.<br /><br />Since we do not observe periodic credit cycles or complete economic collapse, building over-simplified models to understand these things is not useful. It is not empirically certain whether credit fluctuations are a cause or and effect of other factors in the macroeconomy. Therefore it does not make sense to build simple models where credit cycles are definitively the *cause* of macroeconomic fluctuations.<br /><br />That is, unless you want to argue against the idea! Keen's models represent a really good argument <b>against</b> using nonlinear systems of differential equations and credit cycles to understand the macroeconomy. The results of those models look nothing like a real economy, therefore they must be barking up the wrong tree.<br /><br />That is a perfectly acceptable use of Keen's models.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-67653588855853935332017-02-10T12:55:55.798-08:002017-02-10T12:55:55.798-08:00Again, please stop comparing to Physics. It's ...Again, please stop comparing to Physics. It's counterproductive. <br /><br />"Again, there is no empirical evidence that debt plays a significant role in macro so its inclusion in a macro model is not necessarily progress"<br /><br />That's ridiculous. Doesn't everyone agree that Greece has a debt problem? I mean you must be the only person saying that Greece's problems aren't connected to its debt. <br /><br />It's not just Greece, even in the financial crisis worldwide starting 2007, debt has importance. I'd love to know how many people apart from you do not believe it. <br /><br />A better analogy would be a Yang-Mills theory with scalar fields around and the connection to data being parameters, the gauge group and so on. But simple Lagrangians illustrate a lot about behaviour from symmetry breaking to confinement to asymptotic freedom and so on. <br /><br />Again, I think physics analogies shouldn't be used much. Ramananhttp://www.concertedaction.comnoreply@blogger.com