As for the reason for my pessimism, well, yes, [macroeconomists] can make tons and tons of models, but how do we choose between those models? We seem to have done a generally crappy job of that. It seems to me that if macro theory is not disciplined by empirical verification of the microfoundations, then theorists can just make a universe of theories to describe anything and everything, and the theories that get accepted will simply be picked by consensus, "common sense" intuition, and sometimes even politics. So I decided to focus on understanding how financial markets work, in the hope that that will help discipline macro models.
Or, put in the pugilistic tone of the blogosphere: If I wanted to spend my life doing clunky math to describe worlds that don't exist, I would have stayed in physics and been a string theorist. ;)
(Of course, this is a bit tongue-in-cheek. I do intend to do some macro modeling at some point. And it's doubtful I would have been able to become a string theorist even if I'd wanted to, because almost zero people get jobs in string theory anymore, and I was good at physics but maybe not that good.)
But it's hard to ignore the parallels between what's been happening in particle physics and what's been happening in macroeconomics. In both fields, almost everybody reached a consensus on an approach to use (string theory in physics, DSGE in macro). In both fields, theory diverged from empirical verification and took on a life of its own. And in both fields, a small group of dissenters decided to take their grievances to the public, resulting in a lot of negative attention and outside pressure.
In physics, those dissenters were Lee Smolin, a theoretical physicist at the Perimeter Institute, and Peter Woit, a math lecturer at Columbia. In 2006, Smolin published The Trouble With Physics and Woit published Not Even Wrong. Both are critiques of string theory - both the theory itself and the academic culture that has grown up around it. If you are interested in this sort of academic dispute, or in philosophy-of-science in general, I'd recommend both books (if you already know some physics, start with Woit's; otherwise, start with Smolin's). Woit also writes a blog on the subject. (Update: Lawrence Krauss, a theoretical physicist at Arizona State, is also a public critic of string theory; his book, which I have not read, is called Hiding in the Mirror. A number of famous physicists have been publicly critical of string theory, including Richard Feynman, Sheldon Glashow, and Robert Laughlin.)
Long story short: The problem with string theory was really a problem with particle physics. Our existing theories work too well. Every single thing that's come out of particle experiments in the past 40 years has agreed with the Standard Model to the nth decimal place. Of course, the Standard Model is pretty ugly, so people have been working on ways to make it more mathematically and conceptually simple (i.e. "beautiful"). Problem is, without new unexplained experimental observations to guide us along, that's an insanely hard task. Physicists have tried one beautiful theory after another for 40 years, nothing worked, and string theory just happened to be the one that most theorists converged on and decided was the best bet.
Unfortunately, string theory hasn't worked out either. Maybe there will be a breakthrough, but right now the situation doesn't seem to be looking so good. For one thing, much of the math that has come out of string theory has been pretty ugly itself. (Update: Actually, plenty of beautiful pure math has come out of the search for string theory, leading to two Fields Medals that I know of. The "ugly" part is that string theory so far doesn't have simple, beautiful equations like successful theories in the past.)
More importantly, though, string theorists haven't been able to get their theory to make any testable predictions. Usually this kills a theory, but physicists have stuck with string theory for quite a while now. Why? Smolin and Woit attribute it to the culture of the profession. I have a more prosaic hypothesis, which is that theoretical physicists basically have nothing to do, and are using string theory to keep their skills sharp until the day when the world needs them again...
More importantly, though, string theorists haven't been able to get their theory to make any testable predictions. Usually this kills a theory, but physicists have stuck with string theory for quite a while now. Why? Smolin and Woit attribute it to the culture of the profession. I have a more prosaic hypothesis, which is that theoretical physicists basically have nothing to do, and are using string theory to keep their skills sharp until the day when the world needs them again...
In any case, whether or not because of the public shaming by Smolin and Woit, string theory's star has dimmed quite a bit. The media has stopped hyping the theory so much. And there is a sense that confidence in the theory has also fallen within the profession itself - not because of the rebel authors, just because of the general going-nowhere-ness of the theory. Universities have basically stopped hiring string theorists.
In macroeconomics, the public insurgency has been led by Krugman, DeLong, Quiggin, and a few others. The complaint against DSGE (or "Lucasian macro," as Krugman labels it) has been similar to that against string theory: Lucasian models, say the insurgents, failed to predict the crisis, and failed to predict which policies would be the most effective in combating the recession that followed. If theories can't predict things, say the rebels in both fields, they should be junked. In macroeconomics, like in particle physics, the rebels claimed that a stifling culture of intellectual conformity is inhibiting the search for new approaches.
Now here's another striking parallel. In both controversies, a handful of defenders of the existing paradigm have resorted to arguing that theories shouldn't need to make predictions.
In physics, Lenny Susskind, one of the inventors of string theory, has invoked the "anthropic principle" to defend non-predictive theory. Remember back in elementary school, when you'd ask some kid some question - "Why did class get out early today?" - and he'd say "So you would ask! Hurr hurr hurr!" That's the anthropic principle. It says that the laws of physics are the way they are because if they were any different, you wouldn't be here to study them. Susskind has argued that string theory's failure to make definite predictions is OK, because the anthropic principle fills in the gaps. Even though string theory allows certain laws of the Universe to be dang near anything at all, those laws are the way they are just because they had to be that way for you to ask why! Most string theorists, I should mention, are not on board with this idea. The empirical culture of physics is very strong and very old. Nevertheless, the anthropic argument has won string theory some bad press among the wider populace, since if it's true (and hey, it might be true!), it basically means that all the high energy particle theorists are no longer needed and can just go home.
In macro, no one invokes the anthropic principle, but there have been several reasons given why DSGE models - or the DSGE paradigm - should not lead to definite predictions. The first big argument is that economic models should not have to be validated by empirical data. Models' purpose, some economists say, is not to explain observed phenomena, but to "clarify our thinking" - in other words, to work out the logical implications of assumptions that we choose a priori to accept as true, based on our common sense or whatever. The second defense is that since macroeconomists have created a huge number of models that describe a huge number of different possible ways that the economy could work, any outcome that happens was successfully predicted by macro theory. Obviously, neither of these arguments is very scientific! Other "supporting" arguments include A) the (logically false) notion that financial market efficiency makes economic predictions impossible and B) the gross misuse of George Box's quote that "all models are wrong."
As in the case of anthropic string theory, these protestations fail to hold much water with the public, which naturally asks "Then what are we paying you guys for?", while also pissing off any economist who believes in the Francis Bacon notion of science.
As in the case of anthropic string theory, these protestations fail to hold much water with the public, which naturally asks "Then what are we paying you guys for?", while also pissing off any economist who believes in the Francis Bacon notion of science.
This cycle of theoretical stagnation --> comfortable professional consensus --> internal revolt --> outside pressure seems to be common to a lot of scientific disciplines. However, there are a few big differences between the two insurgencies I've described, all of which suggest that Lucasian macro will be around long, long after string theory has disappeared behind the event horizon of history.
For one thing, physics is suffering from being too good. Our existing theories may be ugly, but they work devilishly well. This means that if physicists decide to abandon string theory, they will just dream up something else, possibly using many of the very mathematical insights that they gained from working on string theory! In macro, on the other hand, we basically have no theories that work well (or if we do, we don't know which ones they are!), so if we give up on DSGE, we're stumped...and people don't like to be stumped. Second, while demand for high energy particle theorists appears to have collapsed, demand for macroeconomists continues to be incredibly strong. Finally, economics as a profession does not have the experimental tradition that physics has, which means that not making predictions is a much less severe public relations blow to a physics theory than to an econ one.
For one thing, physics is suffering from being too good. Our existing theories may be ugly, but they work devilishly well. This means that if physicists decide to abandon string theory, they will just dream up something else, possibly using many of the very mathematical insights that they gained from working on string theory! In macro, on the other hand, we basically have no theories that work well (or if we do, we don't know which ones they are!), so if we give up on DSGE, we're stumped...and people don't like to be stumped. Second, while demand for high energy particle theorists appears to have collapsed, demand for macroeconomists continues to be incredibly strong. Finally, economics as a profession does not have the experimental tradition that physics has, which means that not making predictions is a much less severe public relations blow to a physics theory than to an econ one.
So Lucasian macro will survive even as string theory evaporates. Yet with millions unemployed, it seems a lot worse to be ignorant about the economy than to be ignorant about black holes and the birth of the Universe. The Macro Wars have higher stakes than the String Theory Wars, at least in principle.
OK, back to work. Posting will be pretty sparse for the next month, while I finish up my dissertation.
OK, back to work. Posting will be pretty sparse for the next month, while I finish up my dissertation.
This is a really fine post, Noah. There is a tendency toward scholasticism in a variety of fields, not limited to economics and theoretical physics. Enough similarities appear to suggest a general theory of sorts.
ReplyDeleteAs for DSGE, it is interesting to me that the formal parallelism between these models and Walrasian GET trumps the obvious we-are-on-another-planet distinction between "representative" and multifarious agents. This tells me that what is at stake is not logical coherence as such, but hanging on to the umbilical connection to the formalism of constrained optimization, come what may. This seems to be deep within the DNA of the profession. Attraction to this formalism -- and perspective on life -- serves as a key recruitment filter, and subsequent training drills home the notion that this is the indispensable core of what makes economics economics. The real threat to DSGE will come not from disgruntled macroeconomists, but from the steady erosion of the micro-formalistic base, due to behavioral econ, neo-institutionalism and non-Walrasian impingements of all sorts.
I'm very into health, nutrition, and longevity. It's interesting how you can find similar fighting in these areas. Here's a quote from, "The China Study", by T. Colin Campbell of Cornell, one of the top professors in nutrition science. Campbell headed the Cornell-Oxford China Study, the largest epidemiological study in history:
ReplyDeleteThe battle between the status quo and dietary prevention camp was intense. I remember attending a lecture at Cornell University during the late 1950s when a famous researcher, Ancel Keyes, came to talk about preventing heart disease by diet. Some scientists in the audience just shook their heads in disbelief, saying diet can't possibly affect heart disease. In those first decades of heart disease research, a heated personal battle flared, and open-mindedness was the first casualty.
-- Page 121.
A big part of this is that few sciences are close to pure math, where you can prove something 100%. There's no controversy about the Pythagorean Theorem, or any math, because you can prove it 100% -- given the assumptions. But (at least in pure math) there's no discussion of how the assumptions might differ from real word phenomena, and how to best make inferences to the real world. That's outside of the field of (pure) math.
With the less hard sciences, the evidence is often not simple and completely clear-cut. It requires a lot of good intuition and supporting evidence and understanding to interpret well. Some people are very snooty or limiting about the evidence they will consider -- at all, even in a weighted, intelligent way, so they operate a lot more blindly and inefficiently (hold for quotes from the Pauls). Others aren't inefficient or biased, they just know different evidence and have different expertise. As a result of all of this, even very smart people can strongly disagree.
– Paul quote 1, Krugman (Steve Williamson might say, the good Krugman, 1991. Apologies to Star Trek):
More important, however, I suddenly realized the remarkable extent to which the methodology of economics creates blind spots. We just don't see what we can't formalize.
at: http://web.mit.edu/krugman/www/howiwork.html
– Paul quote 2, Romer:
In evaluating different models of growth, I have found Lucas's (1988) observation, that people with human capital migrate from places where it is scarce to places where it is abundant, is as powerful a piece of evidence as all the cross-country growth regressions combined. But this kind of fact, like the fact about intra-industry trade or the fact that people make discoveries, does not come with an attached t-statistic. As a result, these kinds of facts tend to be neglected in discussions that focus too narrowly on testing and rejecting models.
Economists often complain that we do not have enough data to differentiate between the available theories, but what constitutes relevant data is itself endogenous. If we set our standards for what constitutes relevant evidence too high and pose our tests too narrowly, we will indeed end up with too little data...
– Journal of Economic Perspectives, Volume 8, Number 1, Winter 1994, Page 20.
"In macro, on the other hand, we basically have no theories that work well (or if we do, we don't know which ones they are!), so if we give up on DSGE, we're stumped...and people don't like to be stumped."
ReplyDeleteA post would be nice explaining the reasons you think Krugman and Delong are wrong when they claim a set of Keynesian models have basically worked very well indeed as phenomenological models.
I find weird the notion that Krugman, DeLong, and Quiggin are leading the insurgency. Do Post Keynesians and other heterodox economists not exist? I'm thinking I could do with reading more of Lars Syll.
ReplyDeleteOn SW blog one time I posted the idea that a good model has testable assumptions, testable with empirical data, and I got torched. One has to take a long, darwinian, view of this. models and ideas survive the test of time because they are empirically verified. The rest is theology or superstition. "Punctuated Equilibrium" in the ecology of ideas i think is a good way to think of it.
ReplyDeletebtw, i think climate science has the same issues these days.
Noah, you fail to mention that the majority of high energy theorists have never been string theorists- there are huge efforts in lattice QCD, phenomenology, etc. String theorists may have slightly been a plurality, but they've never been a majority. Most high energy theorists have been slowly making all those standard model predictions that get verified. When your theory keeps working, look for new places to test it so you can hopefully see it fail.
ReplyDeleteAre there macro-economists constantly trying to push different ways to test DGSE models?
Are there macro-economists constantly trying to push different ways to test DGSE models?
ReplyDeleteHAHAHAHAHAHAHAHAHAHAHA
That's a knee-slapper
No.
TEST DSGE? What are you, a communist? WHY DO YOU HATE FREEDOM???
ReplyDelete;)
It was meant to be a bit of a rhetorical question designed to draw a more clear distinction between the two fields.
ReplyDeleteIt was meant to be a bit of a rhetorical question designed to draw a more clear distinction between the two fields.
ReplyDeleteOh, I know. It succeeded. :)
One factor might be age. If economics is more dominated by sixty years old people, then it could be really, really hard to change. Those guys have got a lot invested, have control, and have no incentive to change. Note - I've mentioned before that the incentives in economics are rather important.
ReplyDeleteI AIM to be a sixty year old bomb thrower. Meanwhile, I have to earn a living. Speak for yourself.
DeleteNoah, you write: "Models' purpose, some economists say, is not to explain observed phenomena, but to "clarify our thinking" - in other words, to work out the logical implications of assumptions that we choose a priori to accept as true, based on our common sense or whatever." A rather awkward fact is however, that one of the public insurgents against DSGE that you mention, Krugman, uses exactly that arguments himself.
ReplyDeleteAs I wrote on my blog the other day:
"Although I certainly agree with Krugman’s harsh judgement on microfoundations of macroeconomics – and it goes for both the “new-Keynesian” and new-classical variety – I am however not convinced by the argument that “trying to embed your ideas in a microfounded model can be a very useful exercise — not because the microfounded model is right, or even better than an ad hoc model, but because it forces you to think harder about your assumptions, and sometimes leads to clearer thinking”.
Why? Because it smacks to much of l’art pour l’art.
I mean, if people put that enormous amount of time and energy that they do into constructing macroeconomic models, then they really have to be substantially contributing to our understanding and ability to explain and grasp real macroeconomic processes. If not, they should – after somehow perhaps being able to sharpen our thoughts – be thrown into the waste-paper-basket (something the father of macroeconomics, Keynes, used to do), and not as today, being allowed to overrun our economics journals and giving their authors celestial academic prestige.
Krugman’s explications on this issue is really interesting also because they shed light on a kind of inconsistency in his art of argumentation. During a couple of years Krugman has in more than one article criticized mainstream economics for using to much (bad) mathematics and axiomatics in their model-building endeavours. But when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models. This shows up also in the citation above, where he refers to the work he has done with Eggertsson – work that actually, when it comes to methodology and assumptions, has a lot in common with the kind of model-building he otherwise criticizes.
On most macroeconomic policy discussions I find myself in agreement with Krugman. To me that just shows that Krugman is right in spite of and not thanks to those models he ultimately refers to. When he is discussing austerity measures, ricardian equivalence or problems with the euro, he is actually not using those models, but rather simpler and more adequate and relevant thought-constructions in the vein of Keynes.
As all students of economics know, time is limited. Given that, there has to be better ways to optimize its utilization than spending hours and hours working through or constructing irrelevant macroeconomic models just beacuase they “sometimes leads to clearer thinking.” I would rather recommend my students allocating their time into constructing better, real and relevant macroeconomic models – models that really help us to explain and understand reality."
http://larspsyll.wordpress.com/2012/03/14/krugman-only-gets-it-partly-right-in-the-microfoundations-debate/
Speaking as a former string theorist: There are a couple of things wrong with your depiction of it.
ReplyDelete1) It didn't arise out of an effort to make the math of the Standard Model simpler, it arose (or rather, was revived) out of an effort to fit gravity in to quantum mechanics (something we've been trying to do since Einstein).
2) Theorists didn't "just happen" to converge on it; as far as we can tell there are only a few ways to fit gravity into QM; string theory is the most successful (in terms of the size and self-consistency of the mathematical theory that grows out of it), followed by Loop Quantum Gravity and distantly followed by some others.
3) The math coming out of it has emphatically not been "pretty ugly" -- in fact it is only the power and beauty of the mathematics associated with string theory that have kept it alive in the face of its lack of predictive power (which makes it much like DSGE in that regard). Some of the mathematical outgrowths of string theory have been the Monstrous Moonshine theorems (which involve number theory), and a new way of looking at the Geometric Langlands program.
4) As to the lack of hiring of string theorists -- part of it is the lack of predictive power (but I should point out that universities are still hiring mathematicians, which is what I believe string theorists should be classified as until they actually get predictive). The larger part, in my opinion, is explained by the classic overinvestment -> sector underperformance economic story.
On a personal note, I left the field in part because of the lack of hiring and in part because of the rise of the anthropic non-explanation.
"The second defense is that since macroeconomists have created a huge number of models that describe a huge number of different possible ways that the economy could work, any outcome that happens was successfully predicted by macro theory."
ReplyDeleteA time-honored strategy; we leave it to the event to show the oracle infallible.
"Obviously, neither of these arguments is very scientific!"
The word "scientific" does not have a clearly defined meaning. (And please, don't cite Popper without a license.) The problem with the arguments under discussion isn't that they aren't scientific, it's that they aren't sensible. We want predictive power and rightly see claims that we shouldn't want it as evasions.
Am I reading the link at the Woit blog correctly? There were only 10 or so university jobs for the entire High Energy Physics community last year?(!) What about Physics in general?
ReplyDeleteIt didn't arise out of an effort to make the math of the Standard Model simpler, it arose (or rather, was revived) out of an effort to fit gravity in to quantum mechanics (something we've been trying to do since Einstein).
ReplyDeleteThat's what I meant. I was including the notion of unification as "simplified math"...which of course is intellectually sloppy of me, but I think it takes some time to explain the difference.
The math coming out of it has emphatically not been "pretty ugly"
I was referring to the fact that the theory itself is defined only in terms of perturbations. You're of course right that a lot of cool, and beautiful, pure math has emerged as a byproduct of the string theory research program. So again, I was just speaking in shorthand.
universities are still hiring mathematicians, which is what I believe string theorists should be classified as until they actually get predictive)
Yup, I meant physics departments.
On a personal note, I left the field in part because of the lack of hiring and in part because of the rise of the anthropic non-explanation.
Good to know! Glad an actual string theorist stopped by... :)
The word "scientific" does not have a clearly defined meaning. (And please, don't cite Popper without a license.) The problem with the arguments under discussion isn't that they aren't scientific, it's that they aren't sensible. We want predictive power and rightly see claims that we shouldn't want it as evasions.
ReplyDeleteIs there a Popper-citing license? How does one obtain it?
Sensible...scientific...sure, we both get what we're talking about here. ;)
Noah, criticizing DSGE for failing to have predictive content is like criticizing the English language for the same reason. You should evaluate DSGE modelling not by its ability to have empirical testable implications, but by the ability to be clear and consistent about what it is saying etc. All DSGE is is the recognition that in order to account in a consistent manner for the behavior of an economy you need to take into account that it evolves over time (is dynamic), that there is uncertainty (it is stochastic) and that resource constraints etc. have to be satisfied (it is in equilibrium). If you think either of these is a bad assumption that takes us to bad places than by all means abandon the whole project. I think not even Krugman would argue that.
ReplyDeleteThis doesn't mean that you cannot (and should not) evaluate particular versions of it. Is the RBC model as proposed by Kydland and Prescott a good way to explain the data? What about a sticky prices as in Woodford? What about if you add financial frictions? Macroeconomists spend a great deal of time trying to bring these models to the data the best way they can, with calibration, estimation, you name it. Macro if anything is way more empirical nowadays than it used to be and if you look into top journals there will be fewer and fewer macro papers without any sort of data analysis.
Now, there is little consensus about what works. Does this mean that macroeconomists are dumber/worse scientists than physicists? Or just that macroeconomics is much much harder? Or that we don't get the kind of budget they get to do their little experiments? Note that you can worry about all of these things without ever thinking that you would be better off giving up on "Lucasian" macro.
1. Equilibrium = resource constraints are satisfied? No. It means markets clear.
Delete2. I think of DSGE as including individual optimizing behavior.
3. "Lucasian macro", as I see it, really includes more than just a DSGE setup. It includes things like rational expectations, dynamic consistency, and the acceptance of calibration as a source of parameter values. Of course, that's just my definition...Lucas never sat down and wrote any hard-and-fast laws of macro modeling.
4. Calibration isn't a way to bring models to the data.
5. By what method(s) do macroeconomists choose which model to use when analyzing current macroeconomic conditions? As I see it, this is the critical question.
6. I agree that macro theory is on the wane and empirics are on the increase, and I think that this is a very good thing.
7. Why is there "little consensus about what works"? I think if you think about that question hard enough, you'll realize that it's related to point #5, above.
8. Are macroeconomists dumber/worse than physicists? NO. But culture matters, and I think that macro does not have quite the same sort of skeptical, data-driven culture that physics does. That is just because of history.
9. Is macro harder than physics? Well yes, if you were to expect the same kind of results. We're never going to get a Standard Model of Economic Behavior, as David Card says.
10. I don't advocate giving up on Lucasian macro, I advocate exploring alternatives. People are already doing that, of course! Tom Sargent essentially gave up on rational expectations and has been working on learning-based models. Bob Hall writes papers that are not entirely DSGE. Representative agents, once a pillar of the Lucasian approach, have fallen out of favor. Multiple-equilibrium models and sunspot models are subtly challenging the basic idea of equilibrium. New forms of preferences, like hyperbolic discounting, allow for dynamic inconsistency of preferences.
So there is lots of work being done that I would characterize as non-Lucasian. But it hasn't taken over the field yet, and I see little reason to expect that it will, just as the Diamond-Dybvig model of bank runs was ignored in the runup to the bank runs of 2008. Why? Because macro, as a profession, does not yet have a good method of model selection. If data cannot tell you which model you should be using, then you can make a trillion models and it won't help a thing. That's where we are, really.
"All DSGE is is the recognition that in order to account in a consistent manner for the behavior of an economy you need to take into account that it evolves over time (is dynamic), that there is uncertainty (it is stochastic) and that resource constraints etc. have to be satisfied (it is in equilibrium)."
DeleteMy reaction was stronger than Noah's here - everything you wrote in brackets doesn't correspond to what went before. Evolving over time, is not what I mean by dynamic (that we evaluate responses as they happen - if it is "evolving" then the model parameters will not be constant - so we need to model HOW the parameters will change), as far as I'm concerned uncertainty is something different than stochasticity and yes as others have pointed out equilibrium is not the same thing as meeting resource constraints (in fact do these models actually HAVE resource constraints - I mean apart from the labour supply and accumulated capital?).
that resource constraints etc. have to be satisfied (it is in equilibrium)
ReplyDeleteHaving resource constraints is not the same thing as being in equilibrium.
"Am I reading the link at the Woit blog correctly? There were only 10 or so university jobs for the entire High Energy Physics community last year?(!) What about Physics in general?"
ReplyDeleteNot much better. I got my phd from a top 5 school, historically something like 3/4 of our alumni left the field after a postdoc. My cohort got hit particularly hard by the recession- I don't know a single person in any subfield of physics who was able to stay in the field after one postdoc. We have always graduated more phds than there were jobs, but the recession has increased the phds and decreased the jobs.
"Or just that macroeconomics is much much harder? Or that we don't get the kind of budget they get to do their little experiments?"
ReplyDeleteI'm not sure this is true. Given the relative demand for physicists vs economists (maybe 1/4 of graduates of top physics grads get a full time job doing physics anywhere vs. pretty much all economists get a job doing economics somewhere) it would seem likely to me that there is more money floating around in economics than physics. Sure, we build some big experiments in physics, but we build them over decades.
How macroeconomic modeling COULD push our understanding of business cycles forward:
ReplyDeleteSuppose that we want to understand the causes of recessions. Presumably, recessions can occur in possible worlds besides our world. The frustrating fact about our world is that, economically speaking, it is really, REALLY complex, which makes studying the causes of particular recessions in our world a very difficult task. Every recession in our world occurs in the midst of countless other economic developments.
Consider, then, possible world X. X is not our world--indeed, it is obviously not our world. In X, every person maximizes a well-defined objective function that precisely corresponds to their considered preferences over every conceivable option, for example. What is neat about X, though, is that it is simple. Eveything that happens in X conforms to relatively few general laws. Consequently, a recession occuring in X is much easier to study than a recessiin occuring in our world.
Can a recession occur in X? If a macroeconomist develops a model (a mathematically-formulated, internally consistent description) corresponding to X in which, for whatever reason, growth slows, unemployment rises, etc., then perhaps it can. Some macroeconomists may complain--"but irrationality is a key property of recessions, meaning your theory of recessions can't be right." Some other may respond, "no, people in our world may well be irrational, but that is not necessary for recessions to occur." As much as possible, empirical evidence in the form of not only quantitative data and statistical relationships, but also qualitative 'stylized facts', should constrain these discussions. What shouldn't constrain these discussions is the question of whether people in our world in fact maximize a well-defined objective function, etc. etc. That's simply not relevant. What ought to be debated is the suitability of X for studying recessions, not whether X is a good approximation for our world--we know it isn't, not by a long shot.
If, in our model, recessions appear to stem from from the interaction of nominal rigidities with collapses in aggregate demand, the next step is to produce other models corresponding to other worlds, e.g., Y, which is also very simple, but which is different from X along many of the same dimensions wherein X differs from our world. If recessions of the same sort play out in many such worlds, we may conclude that this understanding of recessions is not necessarily bound to the worlds in which we've been studying it--that is, that it is an understanding that might be true of recessions in our world, too.
Macroeconomists may develop many such understandings. For example, one class of models may characterize recessions in the way just described, while a second may characterize them by way of productivity shocks. In order to determine which account is superior, we look not to differences in the worlds in which we've embedded these accounts, but to differences in the accounts themselves. E.g., in the former account, it is essential that nominal aggregates be correlated with real aggregates, while this is inconsistent with the latter account. By observing that, in our world, such correlations exist to a significant extent, we see the superiority of the former account to the latter. On other dimensions, the empirical contrasts may play out differently.
This is not the only way to do macroeconomics. It may not even be the best way. It isn't even, in my view, the way macroeconomic modelers practice their craft, at least not consistently. But it is one way to do macroeconomics, and it seems like a pretty sensible way in light of the obstacles preventing economists from executing more conventional research strategies (controlled experiments, for one) most of the time.
I bet, in fact, that many macroeconomists would agree more or less with my intepretation of their trade, but unfortunately I don't think they explain things this way to non-specialists. They also, as you observe, take their models way too seriously much of the time. It is important not to confuse the world you've chosen for purposes of research convenience with the real world. Physicists don't look at the success of their microscopic predictions, only to generalize that the rest of the world works just like the settings that obtain in their laboratory. And, of course, successful economic predictions are many, many, many orders of magnitude less compelling than successful physics predictions. Apologies for being long-winded.
ReplyDelete"They also, as you observe, take their models way too seriously much of the time. "
DeleteYep, that seems to be where Krugman is way up on some other people who will remain nameless. He KNOWS his models are just toys.
But it seems to me, that there is a problem with your account. It lies in these sentences
"What shouldn't constrain these discussions is the question of whether people in our world in fact maximize a well-defined objective function, etc. etc. That's simply not relevant. What ought to be debated is the suitability of X for studying recessions, not whether X is a good approximation for our world--we know it isn't, not by a long shot."
This sounds derivative from Friedman. I don't thin it is quite right. The fact that a fictional world may have recessions, doesn't mean that that fact is relevant in drawing parellels to our world. Recessions in this world may have a completely different genesis as recessions in our world. Ultimately, the inaccuracies built in to the model WILL matter to some extent or another. I don't see a good apriori way of knowing how much.
I agree. That's why robustness over possible worlds is important. None of these worlds is our world, not even a decent approximation, but if they differ from each other along the same dimensions that they differ from our world, we can be confident that what is giving rise to recessions in these worlds is not some peculiar feature of them not shared by our world. If it can happen here, maybe it is what is happening here. If it walks like a New Keynesian recession, and talks like a New Keynesian recession, it may well be one, even if our world sharply diverges from the worlds of DSGE, rational expectations models. Again, there are other ways to learn about these things, but this isn't such a bad way when properly understood and properly practiced. As for Friedman, I like to think this is more or less what he meant in the Methodology, even if he didn't explain himself in the way philosophers of science would have liked him to.
DeleteYou seem to depict the anthropic principle as somehow an integral part of string theory. This is totally false, string theory in no way requires it. The anthropic principle is used as an explanation of one particular and hugely nagging problem in theoretic physics (not so much string theory), namely the cosmological constant problem. Basically, the cosmological constant we observe is much much smaller than what we would expect from the (otherwise extremely successful) quantum field theory.
ReplyDeleteThe anthropic principle explanation basically says that the question "why is the cosmological constant in our universe so small" may just be the wrong question, rather the correct question could be "why are we living in a universe with a very small cosmological constant". The first question is one don't know how to answer, but the latter one can have a very simple answer: because we could not live in any other universe, as it would not be sufficiently stable. The reasoning is very similar to why conditions on earth are precisely correct for us to live here. That was a question that would be asked several centuries ago, and usually answered with "God". However, now we know there are many, many planets, and we just happen to live on one that allows us to live here and ask these questions. That's the anthropic principle. If you really think about it, it's certainly not an unreasonable explanation. In fact, it is the only explanation we have for the cosmological problem. You may not like it, and almost nobody likes it, but that does not mean it cannot be right. (Einstein also did not like quantum mechanics, but it happens to be correct.)
BTW the only way string theory comes into it is for it to work is to have sufficiently many multiple universes (just like the explanation for earth is that we need a lot of planets). And string theory is a frameworks where that question is at least possible and testable. So it's the anthropic principle explanation that needs string theory rather than the other way around.
So the anthropic principle is not string theory. It just happens that it was proposed by a string theorist. So using the anthropic principle to criticize string theory is really an ad hominem attack.
Richard I think this very interesting. But what exactly is your point?
DeleteThis seems a bit orthogonal to the discussion.
oops
DeleteNot quite sure how this ended up here - it was meant to be a reply to Richard H. Serlin above.
Anonymous,
DeleteI think you should read what Noah wrote again - more carefully. You are attacking a straw man.
Yup. Susskind used the anthropic principle to defend string theory's failure to come up with a unique prediction for the vacuum. The principle is not a part of the theory.
Delete"Is there a Popper-citing license? How does one obtain it?"
ReplyDeleteIt took me three years of full-time study to get mine. It's not something to be undertaken lightly.
"Sensible...scientific...sure, we both get what we're talking about here. ;)"
Here and elsewhere you're speaking loosely, which is something that philosophers doing philosophy never do.
The analytic philosophy community spent roughly the first half of the twentieth century trying to rigorously define "scientific." That attempt ended in failure.
The towel was officially thrown in by a two-part paper that appeared in the Review of Metaphysics in 1957. Its title is "Prospects of a Modest Empiricism," by Israel Schffler. Consult the paper if you want to know the gory details.
Meanwhile, making the extra effort to make your writing precise would make everyone's life easier, including yours.
Here and elsewhere you're speaking loosely, which is something that philosophers doing philosophy never do.
Delete???
Scientific means--for our purposes--solving problems by means of careful observation of the real world. As opposed to solving problems based on making up pleasing stories.
There is a big mistake in your comparison, mostly due to the role the two frameworks play in the different sciences. If you ask a string theorist what string model would describe the world, he would probably laugh and explain that that is a question they are very far from being able to answer. If you ask a macro economist what microfoundation model to use, he will come up with one or perhaps a few. The thing is, string theorists acknowledge they don't understand enough to apply it to the real world, while many economists don't want to acknowledge this fact. Related, string theory is a very small part of high energy physics and cosmology, while microfoundations dominates macro economics. So saying "almost everybody" is very much incorrect when talking about string theory, as opposed to microfoundations. String theory really is a side path, an IMHO worthwhile attempt to answer very, very hard and deep questions about the origin of our universe, that requires combining the verified theories of GM and QM, and in fact the best attempt so far. The best model for our real world is still GM for some part and the Standard Model for other parts, and those form the basis of the vast majority of research in this part of physics (in fact even from string theory itself). Nobody says that any model of the real world is required to be derivable from string theory. On the other hand, microfoundations wants to be the basis of macro economics, and several macro economists say that it should be the basis of any macro model. I think that is a huge difference.
ReplyDeleteCorrection: where I said GM of course I meant GR (General Relativity).
DeleteThe thing is, string theorists acknowledge they don't understand enough to apply it to the real world, while many economists don't want to acknowledge this fact.
DeleteYes. This is why I like the academic culture of the particle physics field better than the culture of the macroeconomics field.
Well, one reason anyway.
Noah
ReplyDeleteHow might the 2nd Law of Thermodynamics be applied to the universe of dollars and dollar-denominated financial assets in existence?
String theory has gone through years of immense breakthroughs since the mid 1990s and it is the most valuable part of the human intellectual knowledge. The coherence and unity of the theory, much like its relevance for the actual observable phenomena, went up dramatically.
ReplyDeleteIt's a shame that there still exist people who are completely incapable of understanding this simple point and who are even willing to listen hardcore cranks such as Mr Smolin or Mr Woit who have about as deep understanding of physics as yourself and who have contributed to science about as much as you puppy has.
By parroting these nonsensical conspiracy theories, you are only helping to strengthen the impression that economists are uncultural superficial uneducated morons.
the most valuable part of the human intellectual knowledge.
DeleteNice.
I'll let my commenters take this one. :)
Just looking at the picture and without reading the post or any other comment, I agree with Lumo and conlude that this is a perfect copy of my favorit troll site in the net ...
DeleteTrolls just wanna have fun ... (whistling a certain tune) :-)
Just added this site to my ignore list ;-)
By forever and have fun
Dilaton
So, after doing a little research, I found that Lubos Motl used to be a string theorist. He was an assistant professor at Harvard (!!!), and either left or was given the axe after three years, apparently because of A) massive aggressive right-wing quackery and harassment of individuals, and B) failure to publish very much (4 working papers in 3 years). He then returned to his homeland, the Czech Republic, five years ago, where he now maintains a blogm attacking critics of string theory and spouting various right-wing nonsense, and has apparently quit physics entirely. He is now notorious for personally and persistently harassing people in the physics and math communities whom he dislikes, as well as their friends and significant others.
DeleteWhen I posted his comment on my Facebook wall with the caption of "Look, an actual string theorist came to my blog and trolled me!", some mathematician friends immediately commented "It's probably Lubos Motl, everyone hates that guy...also he's not a real string theorist, he's a washed-up string theorist who just goes around insulting people."
Nice to see you, Lubos! Do drop in from time to time. ;)
Lubos is quite right. If you had one percent of his physics knowledge you would know this.
ReplyDeleteFortunately, you have 100% of his physics knowledge, being his sock puppet...
Delete