tag:blogger.com,1999:blog-5362801348602268473.post9033637630459318486..comments2023-11-22T00:49:32.887-08:00Comments on Reflections on Monetary Economics: Simon Wren-Lewis Defends the Status QuoNick Edmondshttp://www.blogger.com/profile/15342983814699700396noreply@blogger.comBlogger49125tag:blogger.com,1999:blog-5362801348602268473.post-59468143306162599932014-05-13T04:35:42.782-07:002014-05-13T04:35:42.782-07:00Nick,
I gave one of the heads of the student move...Nick,<br /><br />I gave one of the heads of the student movement your email address. They are having a big conference this summer and I thought that it might be good to have someone making the case for SFC models on a panel with a DSGE representative. Hopefully they'll contact you soon. Just a heads up.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-67290613358036634612014-04-30T11:36:14.206-07:002014-04-30T11:36:14.206-07:00Epidemiology is perhaps even more like macroeconom...Epidemiology is perhaps even more like macroeconomics in that the advice that epidemiologists give directs how events unfold. Think of the foot and mouth crisis or of cholera in 1800s London.stonehttp://directeconomicdemocracy.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-84388079705496093252014-04-30T11:32:02.061-07:002014-04-30T11:32:02.061-07:00I agree that in macroeconomic (as in astronomy or ...I agree that in macroeconomic (as in astronomy or geology) you can't do experiments and can only observe "natural experiments". What I'm saying is that whenever some event or policy change takes place the macroeconomists could adjust their constant ongoing forecasts (sixth month, one year, five year, ten year and twenty year forecasts say) in the direction that they predict it will change things. I find it hard to believe that that couldn't go a long way towards sorting out the wheat from the chaff. There have been many dramatic "natural experiments" over the last few decades whilst macroeconomics has been rehashing the same old controversies. Predicting what would come of Thatcher's changes, or of the Euro, or of Latin America governments borrowing in USD in the 1980s and 1990s, or of Reaganomics, or QE, or Iceland's dramatic financialization -all of those were perfect natural experiments that any astronomer or geologist would salivate at but there was no rigorous comprehensive program by which macroeconomists proved themselves at being able to judge what consequence was going to come from them.stonehttp://directeconomicdemocracy.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-58078832107603840692014-04-30T00:13:56.228-07:002014-04-30T00:13:56.228-07:00Even clinical trials don't produce that much c...Even clinical trials don't produce that much certainty - they can't tell you whether it will work with a particular person or whether that person will get side effects - they just tell you a percentage, which even then often has a significant margin of error. But if economics could even do that it would be great. But you can't do anything like a clinical trial. For a start, expectations play a huge role in economic outcomes. How could you do a blind macroeconomics trial? And what useful thing would it tell you anyway? Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-39233577446489642192014-04-29T09:38:32.889-07:002014-04-29T09:38:32.889-07:00I don't think that opposing opinions in themse...I don't think that opposing opinions in themselves indicate that the question is indeterminate. There are different schools of medicine such as homeopathy and such like. They are only shown to be bogus by clinical trials. Astronomers make predictions but can not do experiments as such. They have to rely on observing natural experiments. Isn't macroeconomics just like astronomy in that sense? BUT macroeconomics lets the myriad of natural experiments entirely go to waste because there is no rigorous program of everyone having to pin themselves down and make formal transparent predictions that can be tested as time passes.<br />The controversies in macroeconomics seem astoundingly basic. They are really at the root of the subject. They are not so much like the details of weather forecasting -more at the level of how gross geography influences climate, whether higher altitude makes things colder or whether being an island gives a more temperate climate than being far from the sea.<br />stonehttp://directeconomicdemocracy.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-75126035662053244002014-04-29T02:44:24.183-07:002014-04-29T02:44:24.183-07:00Well yes that is the point of it but the fact that...Well yes that is the point of it but the fact that, for all the time spent on it, economists can still have very different opinions, should demonstrate that how difficult it is to determine the true answers. And, to be honest, if you were to conclude as a result that economics is utterly hopeless, you would probably not alone. There are some mainstream economists who think that heterodox economics is utterly hopeless and some heterodox economists who think that mainstream economics is utterly hopeless. Maybe they're both right.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-27010525838874293082014-04-28T12:22:33.011-07:002014-04-28T12:22:33.011-07:00But, for instance some economists did make asserti...But, for instance some economists did make assertions that the fiscal regime in Latvia would lead to a prolonged depression whilst other economists said that it would cause economic revitalization. I'm just meaning how to sort out who is able to get the direction right more of the time. If it were all utterly hopeless then economics would be utterly hopeless. But clearly some economic policies have had near miraculous results (eg post WWII German reconstruction or post independence Singapore) whilst others have been calamitous (eg Haiti ever since independence or perhaps less dramatically Argentina for the past 100 years). If macroeconomics has any point at all isn't it to determine what causes such transformations? stonehttp://directeconomicdemocracy.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-61269468648597742152014-04-28T09:31:03.224-07:002014-04-28T09:31:03.224-07:00I don't really know anything about weather for...I don't really know anything about weather forecasting. I can't imagine it's easy, but I feel that macroeconomic forecasting must be several times harder. In fact, I might go so far as to say it's probably impossible. All we can hope to do is to be able to say that Action X should make Outcome Y more or less likely.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-75254707009032862762014-04-28T08:39:41.348-07:002014-04-28T08:39:41.348-07:00Nick, Simon Wren Lewis's next post was also ab...Nick, Simon Wren Lewis's next post was also about what is and isn't the right way to do macroeconomics. I'd mulled over the point about doing tests and the comparison to weather forecasting. Weather forecasters are really rigorous and comprehensive in assessing their predictive capabilities in a way that macroeconomists seem to shirk. The comment I put on there was<br /><br />"With say weather forecasting, any forecasting model is constantly being scrutinized. Likewise I don't see why any economics program hoping for respectability shouldn't need to provide an ongoing continuous forecast for numerous different countries around the World. Let's say provide one month, six month, five year and ten year forecasts for USA, Japan, China, UK, France, Germany, Brazil, India, Indonesia, Nigeria, Russia or whatever giving child mortality rate, median wage, unemployment rate, GDP, inflation, government debt, current account deficit etc. It would need to be a formal commitment to keep up the comprehensive forecasts for the wide slew of countries otherwise it would be no true test, just an anecdotal, inconclusive mess such as we currently suffer from.<br />Economics is, I guess, really a form of engineering -it is understanding how certain policy frameworks translate into what happens in the economy. Hopefully that understanding can inform policy makers to make better decisions. But if we don't know what will have what effect, we can't move on.<br />In principle weather forecasters could make "elegant" mathematical models with ill foundered simplifying assumptions and claim that those models gave them insight even though they didn't predict the weather. We would nevertheless still want proper weather forecasts."<br />stonehttp://directeconomicdemocracy.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-37378552363613335632014-04-28T01:11:01.888-07:002014-04-28T01:11:01.888-07:00You can certainly do tests, but there are so many ...You can certainly do tests, but there are so many complicating factors, it's difficult to draw any conclusions (although that doesn't stop people trying - usually selectively to support their preferred explanation).Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-42545922989899014492014-04-28T01:08:54.503-07:002014-04-28T01:08:54.503-07:00I'm not suggesting that SFC functions should b...I'm not suggesting that SFC functions should be microfounded, just that we should think about what the underlying behaviour is at the micro level. However, overlapping generational behaviour does tend to lead to the same sort of results as typical stock-flow functions. I think it can be a useful exercise to look at, or even model, what might be going on at the micro level and see what it looks like in aggregate. This then brings in issues like ownership of housing and borrowing levels. Unfortunately, trying to work with realistic fully micro-founded functions is quite complex and the risk is that you are then forced to leave out stuff which really needs to be in there. I think they have to be separate: 1) look at what the aggregate result might look like for certain assumptions about the micro behaviour; and 2) use aggregate functions which are broadly consistent with (1).Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-33371886121478292402014-04-27T14:05:39.257-07:002014-04-27T14:05:39.257-07:00There are a lot of different countries in the worl...There are a lot of different countries in the world and a lot of different economic policies get tried out. Is there not a lot of scope for putting forecasts to the test? Just as weather forecasting has improved by being put to the test all the time and modified accordingly, couldn't the same be done for our understanding of economics? Some people did say that QE would cause inflation and some said it wouldn't. Isn't that a bit like a failed weather forecast -it shows how things should move on?stonehttp://directeconomicdemocracy.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-39550600335471082942014-04-27T12:50:36.594-07:002014-04-27T12:50:36.594-07:00Nick, is it possible for you to give some examples...Nick, is it possible for you to give some examples of microfoundations you consider useful for writing out behavior functions in SFC models? <br /><br />AntonAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-23745115719723549782014-04-27T10:52:58.694-07:002014-04-27T10:52:58.694-07:00Managing demand is tied up with controlling inflat...Managing demand is tied up with controlling inflation and yes I do see that as being part of the central bank's role.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-7939928236865937042014-04-27T09:52:08.542-07:002014-04-27T09:52:08.542-07:00Thanks. But do you think managing AD is an appropr...Thanks. But do you think managing AD is an appropriate goal (for the CB say)?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-8921463877576900962014-04-27T06:50:59.931-07:002014-04-27T06:50:59.931-07:00I think that's right. I see it a bit like thi...I think that's right. I see it a bit like this.<br /><br />Take a useful macroeconomic question, like for example: "would imposing tougher loan to value constraint on bank lending reduce the extent of business cycles?"<br /><br />To the extent there is in fact a "true" correct answer to that question, it is not practical for us to know it. We cannot conclusively demonstrate it either way. The system is too complex and involves too many unknowns. We are limited to making an informed judgement.<br /><br />Mainstream and heterodox approaches to the question will tend to differ. Mainstreamers will construct models built up from rational optimisers. Heterodox economists might take a variety of approaches, including maybe some type of SFC models. Neither approach is right in the sense of being conclusive proof of the answer because, as I say, that's just not possible.<br /><br />So the actual conclusions that come out of those models is much less important than the issues that they throw up. And different approaches throw up different issues. Necessarily, because in order to address the problem requires massive simplification and simplification requires abstracting away various complications and the different schools choose to abstract away different things. So really, it doesn't matter whether the model suggests a yes or no answer to our loan to value question; it's much more about adding to the picture of what factors might be involved. <br /><br />And the more sense we have of the different factors involved, the better placed we are to address the question. And of course none of this means that you can't view one approach as being better and more useful than another.<br />Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-82574180006498419622014-04-27T06:35:14.606-07:002014-04-27T06:35:14.606-07:00Really, just what I said to you before, that I don...Really, just what I said to you before, that I don't consider the interest rate on its own to be a very effective means of managing aggregate demand.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-7500165156530374532014-04-27T01:33:18.766-07:002014-04-27T01:33:18.766-07:00Marko, there's a bit more in that post on broo...Marko, there's a bit more in that post on broomsticks:<br />http://newmonetarism.blogspot.com/2013/12/volcker-and-bernanke.html?showComment=1386558383664#c2515015154139924669Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-65512269059777176372014-04-26T23:41:12.624-07:002014-04-26T23:41:12.624-07:00Yeah agree with you in some sense.
Sometimes bei...Yeah agree with you in some sense. <br /><br />Sometimes being wrong is not the end of it because it reminds us of how one can go wrong. <br /><br />Sometimes some people do see that there is an important problem/question even if they mess up the solution. Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-66472092510389176132014-04-26T22:50:43.261-07:002014-04-26T22:50:43.261-07:00Nick, O/T: any thoughts on Svensson's non-Tayl...Nick, O/T: any thoughts on Svensson's non-Taylor rule here? (at the top):<br />http://www.econjobrumors.com/topic/deflation-in-sweden-svenssons-advice-is-the-problem-williamsonTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-73078378238899974282014-04-26T22:00:43.387-07:002014-04-26T22:00:43.387-07:00Marko, in fairness though the "move the hand ...Marko, in fairness though the "move the hand one way to get the broom to go the other way" idea is not something Rowe brings up all the time. His argument on Noah's blog about the BoC raising rates to move inflation lower and lowering rates to move them up is pretty standard "common sense" type reasoning, don't you agree? Oh shoot, I suppose I should try to bring up one of Rowe's broom quotes so we can be precise about it... ... I think it was on Williamson's blog (who, by the way, gets catches a lot of flak today <a href="http://www.themoneyillusion.com/?p=26671#comment-340549" rel="nofollow">here</a> and <a href="www.themoneyillusion.com/?p=26671#comment-340549" rel="nofollow">here</a> and <a href="http://www.econjobrumors.com/topic/deflation-in-sweden-svenssons-advice-is-the-problem-williamson" rel="nofollow">here</a>).<br /><br />OK, here's the balancing the broom quote:<br /><br />http://newmonetarism.blogspot.com/2013/12/volcker-and-bernanke.html<br /><br />Williamson gives him a good tongue lashing there too... "You are a fully grown (tenured) professor, so act like one!!" ... (paraphrasing).<br /><br />The weird thing is, reading it now, that Rowe's broom analogy makes sense to me. Does that mean it's too late for me? Too steeped in Monetarist thought? :D<br /><br />Also commentator "Dave" brings up a broom analogy in 2010 to Williamson and Williamson remarks: "What is it with broom handles and such? Nick Rowe has a story like this too." ... so it's obviously not the first time.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-59671454622640245962014-04-26T19:56:29.996-07:002014-04-26T19:56:29.996-07:00I don't deny that some of the events and proce...I don't deny that some of the events and processes that happen - in economics , and in life - would have been considered counterintuitive in advance. I just think it's insane to assume that a counterintuitive bias would be the most successful default position. We evolved having a strong sense of intuition , presumably because it perpetuates survival of the species - it succeeds as a survival mechanism more often than it fails. " Common sense" - which may combine intuition with more conscious analytical processes - would seem to me something we should adopt as a default strategy , as well.<br /><br />Now , you may say : " Well , of course. Who would just abandon their intuition and common sense , especially regarding economics , which has the potential to effect the well-being of the entire society ? "<br /><br />Um , .....<br /><br />"I'm a right wing liberal because I have a counterintuitive view of the world"<br /><br />http://econlog.econlib.org/archives/2014/04/larry_summers_s.html<br /><br />In the same piece , he laments :<br /><br />"It really is a miracle that Milton Friedman was so persuasive. I don't know how he did it."<br /><br />Friedman was a master propagandist. Thankfully , the MMs are not , at least not yet.<br /><br />Marko<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-17375258416551234272014-04-26T18:21:57.198-07:002014-04-26T18:21:57.198-07:00Marko, you may like this:
http://thefaintofheart.w...Marko, you may like this:<br />http://thefaintofheart.wordpress.com/2014/04/26/how-to-make-a-great-stagnation-come-true/#comment-13798Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-28660826400043064472014-04-26T09:15:23.745-07:002014-04-26T09:15:23.745-07:00Marko
"simply make all of your theories soun...Marko<br /><br />"simply make all of your theories sound "counter-intuitive."<br /><br />Maybe that's the reason... but then again a lot of useful theories are counter-intuitive. It turns out that lightening and thunder aren't actually angry gods (although I'm sure it seemed to make sense that they were at first).<br /><br />MM sympathizer David Glasner takes on "common sense" on the WSJ editorial page here, and I think pretty well:<br /><br />http://uneasymoney.com/2011/08/18/why-the-wall-street-journal-editorial-page-is-a-disgrace/<br /><br />He takes on Thomas Sargent's "common sense" ideas here:<br /><br />http://uneasymoney.com/2014/04/25/memo-to-tom-sargent-economics-is-more-than-just-common-sense/#comment-98542Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-1348792429915019382014-04-26T08:53:46.877-07:002014-04-26T08:53:46.877-07:00Don't forget that in order for that financing ...Don't forget that in order for that financing to come about, somebody must save more (as an accounting matter). So it's just picking out the cause and effect. It actually comes down to saying is the amount of saving driven by the amount people want to save or the amount of financing that takes place. If it were simply an issue of pointing to accounting identities, this wouldn't be an issue at all.<br /><br />But don't get me wrong on where I stand on this. I'm not trying to promote loanable funds theories here.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.com