Thursday, July 18, 2013

How normal people see macroeconomics



Most of the time, econ bloggers and columnists write as if we were speaking to an audience that has taken a few econ classes. But the more widely read our posts and columns become, the more our real audiences fail to fit this ideal. Most people who read us are smart and educated. But smart and educated non-economists ("normal people", if you will) see econ - and especially macro - in fundamentally different ways from economists.

I've been thinking about these differences for a while, and I've reached two major conclusions:

1. Normal people see macro as inherently political.

2. Normal people see macro as being mostly about redistribution rather than about efficiency.

The first of these tendencies can be seen in this video. The video features Mike Sacks of the Huffington Post interviewing Miles Kimball and three economics writers. The interview itself is very interesting and informative (Umair Haque's ramblings notwithstanding). Miles especially does an excellent job of putting macro ideas in simple terms. Mark Gongloff is also solid.

But scroll forward to the 10 minute mark. Mike Sacks, certainly an educated and intelligent guy, admits how little he understands macroeconomics. This amuses him so much that he starts laughing at himself. Groping for the rudiments of an understanding, he instinctively tries to label economic philosophies as "liberal" and "conservative". At the end of the video, he reads Miles Kimball's bio, and finding Miles to be a political independent, moderate, and maverick, declares that Kimball is his favorite sage among those present (a very good choice, I must say, for more reasons than just the one Sacks gives).

Americans in particular have come to understand almost everything through the lens of the left-right divide in American politics. Science has obviously not been exempt from this trend, as the fights over evolution, climate science, cosmology, vaccination, and GMO crops have shown (no word yet on whether Newton's Laws of Motion are commie scum or fascist bastards). Economics, with all its public policy implications, never had any chance of escaping the tribalist wave. Even basic economic numbers are subject to partisan disagreement...at least until people are paid to get them right. And then there's the partisan bias in economic forecasts.

As for my second observation - that people understand arguments for redistribution but don't understand efficiency arguments - I have no hard data to back that one up. My observation comes from long experience and countless interactions with friends and relatives and strangers in cafes, blog commenters and op-ed writers and EconoTrolls. Among the things I've noticed are:

1. Normal people talk about economic "schools" much much more than do economists.

2. When normal people talk about the consequences of stabilization policy (monetary and fiscal policy), they often talk about the impact on the rich and poor, the benefits to big banks, and the "fairness" of the policies. In contrast, economists rarely talk about these things.

In a certain sense, the normal people's approach makes more sense than that of the economists. We are an incredibly rich economy - the world's richest large economy by far. This means there are relatively few efficiency gains to be had, but the impact of any redistribution of our titanic wealth will be enormous. Economists usually try to be impartial, shrugging and saying "Rent is rent!" when confronted with questions of distribution, or pooh-poohing welfare analysis as the province of philosphers and dorm-room discussions. They focus on efficiency because a Pareto improvement is something that everyone can get behind (in fact, that's how it's defined). In the process, they ignore the main issue that is usually on the mind of someone thinking about the economy: "What's in it for me?"

So most normal people seem to see macroeconomics as political (even if most economists don't!), and see redistribution as the main question. The result is that public discussions of macro, on the blogs and elsewhere, usually break down into tribal camps, and thinkers are often seen more as tribal champions than as technocratic advisors or sources of intellectually interesting ideas. Many people see the "-isms" of macro - "New Keyneisanism", "New Classicalism", etc. - as political advocacy rather than as dispassionate scientific attempts to explain the world around us.

If monetarists or New Keynesians (is there a difference?) suggest monetary expansion, for example, a lot of readers see it instead as a liberal attempt to use inflation to redistribute money from rich creditors to poor debtors, while a few see it as a conservative attempt to boost the profits of big banks. Only a small minority seem to consider the question of whether monetary expansion is a Pareto efficient response to the business cycle. Because of this, monetarists like Scott Sumner often spend a lot of time "punching hippies" on every issue other than monetary policy, trying to avoid being tarred as hippies themselves for their lack of fear of inflation. (Note to Sumner: This strategem has quite noticeably failed to convince most conservatives to support anything remotely resembling NGDP targeting.)

(Update: Sumner pleads not guilty to hippie-punching. Perhaps the direction of Sumner's punching is determined more by path-dependent stochasticity, and less by game theory, than I had assumed. Sumner then accuses me of strategic Sumner-punching. I also plead not guilty; I would only Sumner-punch for the sake of pure entertainment. I have my principles, after all!)

In other words, econ, like everything else in modern America, seems to have been caught up in the great war of Tribal Realities that has rent apart everything in our society. Even the most powerful and brilliant individual intellectual is like an ant compared to those titanic forces. And until the great War of the Tribes is over, our feeble attempts to show off our scattered, tiny, incomplete insights into Extant Reality will be lost amidst the tossing maelstrom of Tribal Reality. But in addition, it also means that most macroeconomists are ignoring the question most people care about - the question of "Who benefits from stabilization policy?".

Of course, I could be wrong about this. Much of my "data" is just anecdotal, after all. There's a serious selection bias at work, since those stirred by tribal passions will be more likely to leave a shrill comment on a blog, or start an argument at dinner.

What do you think?

155 comments:

  1. So you reckon economists are not tribal, just misunderstood or wrongly perceived as tribal? OK, point me to a normative statement or policy recommendation by a liberal/lefty economist (say Krugman, Delong or Wren-Lewis) that would surprise me, and ditto for a conservative/right wing economist - Cochrane/Mankiw?

    A big difference between you folks and the rest of us is that you instinctively think in graphs/ numbers, whereas we think in stories. Eg you might start drawing a demand curve (?) to explain a recession, whereas the paradox of thrift / "your spending is my income" is easier for me to grasp. Whether that contributes to actual or perceived I have no idea.

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    1. So you reckon economists are not tribal, just misunderstood or wrongly perceived as tribal?

      They're tribal to a certain degree (much more so in macro than other fields), but not nearly as much as non-economists who follow macro debates. At least, that's my impression.

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    2. I'll grant that most blog commenters are pretty tribal on macro issues -mainly trolls or cheerleaders. And I'm not the first to note that we non-economists are surprisingly sure we know better than you....

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    3. Anonymous7:20 AM

      It seems your impression of economists and non-economists is drawn from blogs. Not a representative sample of either population.

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    4. Anonymous7:21 AM

      Just to clarify: the above comment was directed at Luke not Noah.

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    5. Fair point - but like most non-economists, my conversations with my friends and family tend to be more about work, family, weather and cricket than macroeconomics. Commenters is as good a sample as I can get.

      Bear in mind, outside the US, college degrees tend to be more narrowly focussed and/or vocational. There's nothing like Econ 101 in the UK for example, so most university graduates have never taken a single economics class in their lives - possibly including Noah's mate Neil Ferguson.

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    6. I thought macroeconomists were less tribal than other economists making macro arguments. How do you explain what appear to be sharp differences in policies and predictions and endorsement of party positions or avoidance of discussion of subjects that might lead to concessions? Are austerians and inflationistas really fringe views or just hyperbole? The concentration on confidence, uncertainty, and raising rates now just smoke screen, and if they are, isn't that political?

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    7. For example, does it surprise you that "right-wing" Mankiw is much in favor of a carbon tax?
      http://www.nytimes.com/2007/09/16/business/16view.html?_r=0
      If not, then I am not sure what you are looking for.

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    8. Nathanael9:47 PM

      Hmm. The thing is, the political tribes are a bit more complicated than they may appear: there are a lot more than two.

      "Moderate right-wingers" like Mankiw, who don't deny evolution, don't deny global warming, and don't believe in the Rapture, are exactly the sort of people who will normally advocate a carbon tax. And Romneycare. Both schemes which actually reduce the income of the poor. What they will not do is support anything which breaks the power of the 1% or redistributes money to the poor.

      "Moderate left-wingers" would advocate cap-and-dividend, where the carbon permit quantity is fixed in advance, all permits must be bought from the government at auction, and the permit income is distributed equally to the masses. I would be surprised if Mankiw supported THAT.

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  2. Question from a non-economist: do economists define pareto efficiency in terms of money, or in terms of something more abstract like utility?

    I'm just curious because you could reasonably oppose a policy that made everyone richer if it made it harder for poor people to afford positional goods.

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    1. Great question; economists usually assume complete markets, so that Pareto efficiency can be defined in terms of money. I don't much like this approach:

      http://noahpinionblog.blogspot.jp/2013/03/markets-in-almost-nothing.html

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    2. Good to know. thanks!

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    3. Anonymous7:03 AM

      And if you consider inequality to have bad social effects in itself, after Wilkinson and Pickett, the idea of a money-measured 'Pareto efficiency' becomes even more problematic.

      And then if your ethics isn't purely utilitarian...

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    4. Dear anonymous, Not if one's preferences for redistribution reflects one's willingness and ability to pay for it. See Hochman, H.M., and James D. Rodgers (1969) “Pareto Optimal Redistribution.” The American Economic Review 59/4 Part 1: 542-557.

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    5. Nathanael9:43 PM

      Assuming complete markets is one of the most astoundingly stupid assumptions economists make. It's blatantly false, and it leads to obviously ridiculous conclusions which are contrary to observed reality.

      It's one of the reasons economists are considered to be political hacks.

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  3. Anonymous7:08 AM

    No, economists participate in cults instead. They sacrifice their supply if goats to their advisors for the 'job market', then they swear celibacy for 'tenure' and failing to find large ceramic jars to live in they dismiss policymakers instead for obstructing their view of the sun.

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    1. Anonymous7:23 AM

      Tribalists take offense when realists call them out. They instinctively react with ad hominem.

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  4. Anonymous7:29 AM

    I'm not sure this is quite right - economic debates conducted by politicians focus at least as much on economic aggregates (growth, unemployment/jobs, inflation) as they do on redistribution explicitly.

    It's much easier to get agreement to grow the cake than to give more of it to one group rather than another. This indicates that aggregates are what people (/the median voter) cares about when making voting decisions.

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    1. Nathanael9:41 PM

      Workers get really angry when they're told "the pie is bigger", but they find that they are getting a smaller slice, while their boss has not only all the extra pie from the bigger pie, but also some of the pie the worker used to be getting.

      No, people don't care about aggregates. On average, people care, bluntly, about their personal situation and that of their friends. They care about that in a pretty sophisticated way, though -- one which has complex risk assessment baked in, much more complex than most economists are capable of doing.

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  5. Jorge Bielsa7:31 AM

    You ask for our opinion and I will give you mine: I agree 50 % with you, and I would add that I have got exactly the same selection bias as you have.
    My 50% of disagreement is, as Luke says, that I do not believe that the most part of the would be experts are non-partisan or dispassionate scientist. I am NOT thinking in conspiracy theories or secret contracts for special interest. It is simply that expert's fame, diffusion and good appointment comes after the (convenient) opinions are spread and not the other way around. It is a very stable equilibrium which is very difficult to scape from.
    So, I am 100% one of the labelled "normal people" despite I am an Economist (I stop here the "matrioska's game").
    Finally, there is a large gap between being worried about redistribution in general and the "What's in it for me" approach. The latter is not a redistribution case but a selfish vision. I wish there were really a general distribution and redistribution worries in the general public.

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  6. Hm. You seem to be uncertain whether economists have been sucked into the tribal political wars (SS's hippie-punching), or whether they are "ignoring" the issues most people care about, or even whether they should be considering issues beyond "efficiency"--and you seem to be defining "efficiency" in the very limited way that I think the econ 101 textbook I've been reading defines it early on, whereby one guy getting 10 trillion dollars worth of utility and everybody else getting 0 would be more "efficient" than if nine trillion dollars worth of utility (I think you can't measure utility in dollars, but whatever) were divided roughly equally among everyone--isn't there something called "distributive efficiency", that has to do with diminishing marginal utility? In any case, the post overall is kind of confusing, but I think that overall normal people are right. Then again, I think I'm normal...

    I also agree with the first commenter that it would be helpful if you offered an example or two.

    Is it possible, Noah, that you are writing too much too quickly?!

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  7. Anonymous8:12 AM

    "Only a small minority seem to consider the question of whether monetary expansion is a Pareto efficient response to the business cycle."

    IMHO there just aren't Pareto optimal solutions in the real-world. Take free trade: there are winners and losers and the losers are supposed to be able to be able to compensated for their losses by some but not all of the winnings of the winners. But this is only true if you ignore real-world effects, like networking costs (putting an industry out of business in one country has hidden costs because that country will no longer have that industry), irrationality (maybe the steelworker just wants to be a steelworker and not work at Walmart's with supplements from the government making up for the lost wages), the cost of risk (everything else being equal, there is less risk having two countries with 50% of two industries than two countries each with 100% of one), etc. etc. In every economic policy solution there really will be losers. Pareto optimal solutions only exist in theory.

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    1. Nathanael9:39 PM

      I suppose you could get close to Pareto optimal solutions with massive government intervention in the economy, central-planning style, assuming you had sufficient intelligent bureaucrats (which you don't).

      But it seems like a stupid goal anyway. There are basically no Pareto-improvement changes in reality, and you can be on the Pareto frontier and have a really awful situation. ("Everything we might do to help other people will make Hitler unhappy. So we can't change anything, because Hitler will be less happy.")

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  8. Non-economists find the economists' belief that there could be some wholly value-neutral, non-political "science" of who gets what, and who does what, irritating at best, and laughable at worst. Pareto efficiency is a very conservative political notion - as Pareto himself acknowledged.

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    1. Pareto Efficiency does not represent to sum total of all concepts of efficiency. Deciding "who gets what" is not a scientific decision, it is a philosophical one that falls into a class of economics called "Social Choice Theory". But once a Social Welfare Function is established, then you go for efficiency.

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    2. "then you go for efficiency". But should you? The most efficient competitors are generally the most fragile and the most subject to catastrophic collapse. Biologists and Ecologists understand this quite well. Considering that we are probably one of the most NON specialized animals ever to evolve and we are facing changes never before seen in our history as a species, shouldn't we be thinking more about the things that allow some animals to survive periods of sudden changes to their environments? Things like redundancy and diversity, not to mention adaptability?

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    3. NNT, is that you??

      Let's be sure not to equivocate on the word "efficiency". Pareto Efficiency is satisfied when you can make everyone better off without making someone worse off. Talking about fragility is irrelevant, since fragility deals with risk and risk is built into the model.

      I'm not a subject matter expert here, we're just talking about two different things. Pareto Efficiency has basically been defined to be something that is always desired.

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    4. I think the point of confusion is the difference between saying that Pareto improvements are always good (which is hard to deny coherently, although people try anyway) and saying that being on the Pareto frontier should be a goal in itself, which is wrong. It's entirely possible that a Pareto efficient outcome might be inferior to a Pareto inefficient one. The ideal outcome is by definition also Pareto efficient, but there are many Pareto efficient outcomes which would be quite horrible.

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    5. The problem with Pareto efficiency is that there are usual millions of possible changes that make everyone better off but no one worse off, but you still have the problem of distribution. (You also have the problem of relative distribution. For example, a lot of people would rather get less than let others get more. They are more happy with some efficient solutions than others.)

      You also have a conflict with concepts like justice. For example, having the government or insurance policy make good on stolen property while letting the thief keep what he or she steals may be Pareto efficient, but it goes against common concepts of justice.

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    6. Nathanael9:35 PM

      Once you have paid attention to the following strong results in psychology, animal behavior, anthropology, and history
      (1) most people consider *fairness* and *justice* to be critically important to their personal well-being;
      (2) most people are very conscious of relative position within the primate hierarchy;

      then you will realize that there are no Pareto-efficient improvements.

      Every improvement changes the relative position of people, and as a result is not Pareto-efficient in human psychology, which is concerned with relative status and with fairness.

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  9. I disagree, though I think you raise some good points.

    But let's start with why should we care about a disconnect (supposing it exists)? Does it matter that the public image of macro/economists differs from their internal perception? Maybe bloggers and econ journalists are the ones highlighting the tribal feuds and doing a disservice to their quieter (less feuding) colleagues. Or maybe the public forms its views of macro from what it sees in the real world ... namely, policy and changes in prices/rates, taxes, benefits, etc.

    I suspect the latter is a lot of the macro image and then it's not surprising that policy (and distribution) comes into focus ... macro policy formulation and implementation has many political influences. Ivory tower (Internet basement) economists tend to forget that politics mixes with economics to make policy.

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  10. Anonymous9:06 AM

    Newton's first law is conservative, the second is liberal, and the third is independent. Obviously.

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    1. Anonymous5:19 PM

      That about sums it up

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  11. Anonymous9:23 AM

    Congratulations!!! You may be the first macroeconomist to admit you have a problem. Only 11 more steps to go!! Normal people see macroeconomics as political because macroeconomics *is* political. Like every pontificationg politician, macroeconomists proclaim that they can cure "our" ills by just pushing this button or pulling that lever. Full faith in institutions and the people and culture be damned. The sheep simply don't understand the brilliance of macroeconomists and if the sheep would just follow the ideas of the shepard then all would be well.
    None of this should really be taken as an insult. There may be a use for macroeconomics. After all, even Al Capone needed flunkies to carry out his dasterdly deeds.
    Really was a great post though, Noah. There may be hope.

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    1. Anonymous1:48 PM

      "macroeconomics *is* political."

      So are climate change and evolution. What is your point? That scientific research on the topics should be guided by political preferences? Finally, can you name a few macroeconomists who have proclaimed "that they can cure "our" ills by just pushing this button or pulling that lever.""

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    2. Anonymous2:33 PM

      The only people who see politics in macroeconomics are the ones who want it to be there. Now go take off your tinfoil hat before it burns your hair off.

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  12. I'm a layman who's read many Econ books, and I perceive macro to be very tribal. I think this is because the more vocal economists (columnists, bloggers) tend to justify their ideology with macro lingo. I'm thinking specifically of Krugman and Yglesias when I say that.

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    1. Anonymous11:12 AM

      That's because you have no idea what macro research is, and (like most of the public) have no idea that modern research isn't disseminated through books.

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    2. Most people know macro-economics through its popularizers. It's like the sciences. You might know science through Carl Sagan or Konrad Lorenz or Steven Hawking, not because you spent N years getting a PhD in the subject. Who are the economics popularizers? They are the politicians, their aides, flunkies and sponsors, various ideological flacks, the people who produce political advertisements, political columnists, miscellaneous "journalists" and so on. There are also the people trying to sell you something.

      In other words, there is no need to be surprised at most people know about economics.

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  13. The follow up question is why don't normal people care about micro at all?

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  14. It is a bit paradoxical, since contrary to Haberger's triangles, Okun gaps are quite huge, possibly as huge as the redistribution effects of macroeconomic policy: a few percents of GDP each year and hysteris effects due to loss of human capital. The passion of redistriution arguments in this case has more to do with the ongoing confusion between macroeconomists.

    PS: This is only now that you that see that Scott Sumner is a just closeted hippie :) :
    http://www.themoneyillusion.com/?p=18914

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    1. Nathanael9:32 PM

      The problem is that maldistribution CAUSES unemployment. So restribution is one way of fixing the Okun's law problems, too....

      This is plain to see if you remember that there is one really, really well-established empirical result on the boundary of microeconomics and macroeconomics:

      The marginal propensity to spend goes down as people get richer. It goes down pretty fast, too.

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    2. Anonymous2:34 PM

      Harberger triangles are in fact much larger than Okun gaps.

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  15. I think your are right, and that about redistribution, economist should all agree that lump sum transfers are the best way of doing them.

    We should therefore let the world know that the vast majority of economists support the unconditional basic income as the favorite policy to make redistribution, without affecting the efficiency of markets (unlike subsidies would, for instance), and by sticking to the general rule that one objective (redistribution) should be met with one instrument (basic income), as opposed to using looooots of looots of small policies to help the poor in small given situation.

    Note that this sentence is remarkably long, that's because I'm french, in the top of being a universal-basic-income-enthusiast troll sorry about it.

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  16. What about market participants who are directly effected by monetary policy, and understand it vis-a-vis their trading/purchasing experiences?

    Sure that's tribal.. but I wouldn't look down on people who garner understanding from a different discipline.

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  17. The way I see it, tribes are really just the set of possible Social Welfare Functions. While economists "create" the SWF, the tribe itself is just a heuristic category created by the proles as a convenient identification tool (Oh, that's what that SWF means? I like _that_ guy, I want to be on _his_ team, I want _that_ kind of society).

    At some point, the SWF creator takes on the role of tribe-leader and it becomes partisan. You have to defend the legitimacy of your SWF if you expect people to vote for it.

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  18. Except for robots, I know of absolutely nothing that can take a 100% non-judgmental and impartial (in economics jargon, positive) view on a subject. Pretending to act otherwise is simply delusional. Take a look at Paul Krugman. Ain't it absolutely obvious that his opinions are profoundly grounded on left-wing thinking? Or any other Republican conservative, for that matter.

    It would be unwise to return to political economy, as suggested by Marx, but we should be very much aware that no economist or journalist or philosopher is neutral.

    So no, I don't believe that labelling economists is a bad thing, as it isn't a bad thing if a journalist claims to be right or left wing. That way, we can filter through the normative and focus on the positive information. Economics is, after all, a social science, so knowing where you come from might be a good starting point to decipher what you are writing about.

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    1. Paul Krugman "left-wing" it all depends on what your center is. Left-wing of you seems likely, left-wing of Gingrich and other nuts sure, but by Portuguese standards (to take a European example based on your name) or by French or Italian or even British standard: not particularly left-wing at all.

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    2. Patrick, of course. By American standards, that is. The Portuguese spectrum falls way to the left so I don't think it would be a good benchmark. Our christian-democratic party, CDS/PP, supposed to be at the right end of the spectrum, promotes nothing but Gov intervention and a big State, although now and then they claim for less taxes. In fact, we have no real libertarian, right-wing party. Right-wing parties are mostly conservative and, although they might look like fiscal hawks, they intend on doing so through more taxes and same spending.

      On the other hand, for most Americans all Europeans are a bunch of socialists. Even I, who am clearly a libertarian claiming for less Gov, was called a socialist by a fellow American when I said that the State could help the cash-strapped citizens in terms of healthcare or education, and only those.

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    3. There's a lot of truth in that. The Soviet Union had plenty of economists, and they were quite concerned with efficiency, and getting rid of the inefficiencies of capitalism. If you've ever read any of there work, you'd recognize them as yet another tribe using, or perhaps torturing, the same vocabulary.

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    4. Nathanael9:30 PM

      Mario, libertarianism was originally an outgrowth of socialism, so perhaps you shouldn't be surprised....

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    5. Mário:

      "Even I, who am clearly a libertarian claiming for less Gov, was called a socialist by a fellow American when I said that the State could help the cash-strapped citizens in terms of healthcare or education, and only those."

      Exactly. That's why it's often not terribly useful to call people left-wing or right-wing.

      Krugman seems left-wing to many people because the current Republican party is a nut house where Bernanke and Mankiw don't fit: most republicans think Bernanke is a sort of communist! and remember the uproar when CEA head Mankiw talked about offshoring! The present Republican party's craziness is what makes Krugman left-wing, it's not Krugman's ideas and opinions.

      In actual fact, Krugman served the Reagan administration, opposed the "left-wing" idea of the Euro, backs the "right-wing" idea of Portugal leaving the Euro now, etc..

      Anyway I pray for a miracle (or Keynesian economics) for the Euro Zone...

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    6. Patrick, the idea of Portugal leaving the Euro is an idea backed by the Communist Party, only. No right-wing or center party subscribes that, and personally I believe that it would be a terrible thing to happen. Portugal should have never entered the Euro but now we shouldn't leave. Our policy makers are too irresponsible to run a central bank and a currency, as the last 30 years prior to joining the Euro have shown.

      As for Krugman, regardless of where you're standing, I think he's clearly left-wing, period. A good example is what he wrote about Detroit's bankruptcy. Upon an undeniable stream of progressive policies conducted by the Democrats for over 50 years he was capable of blaming the free markets while keeping a straight face. Really?!

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  19. I think your premise is just wrong. If you were to separate economists into political 'tribes' their policy recommendations would follow the tribal division almost exactly. There is Republican and Democratic policy and the economists who line up to defend those policies are reliably partisan.

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    1. I think your premise that his premise is wrong, is wrong. Regarding your assertion, evidence? I happen to see clear distinctions between political parties and economic "tribes". Alas, the plural of anecdote is not data.

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    2. Anonymous2:39 PM

      It's like I'm watching a stupid-off in real-time.

      Only idiots believe the supposedly "non-idiot version" of the "plural of anecdote" ridiculousness. Of course anecdotes are data. They're just not *reliable* data.

      And I have no idea what minka's idea of "almost exactly" is, but it's "almost certainly" different than mine.

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    3. I'm trying to figure out why

      "Of course anecdotes are data. They're just not *reliable* data."

      needed the ad hominem qualifier, when your post only exists to make that point. Even without adjective "reliable", my post is pretty clear.

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    4. If you need examples, you are politically ignorant. It is one of the things that is truly annoying about the field of economics: the level of obtuseness the power of politics.

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  20. With regards to the perception of macro economics, I think that it is true that the general public sees it as inherently political. Furthermore, I think this is mostly justified given the exposure "normal" people have to the field. While there are no doubt plenty of detailed, thoughtful, non-partisan papers published in academic journals, nobody but economists really read them.

    Just as most people's impression of astrophysics is informed by Carl Sagan and Neil deGrasse Tyson, most people's impression of economics is formed by a handful of bloggers and the occasional economic paper that is thrust into the limelight by pundits and politicians.

    Carl Sagan and Neil deGrasse Tyson may have (had) axes to grind about the amazing beauty of the universe, but their positions are not generally thought to be controversial, nor do they have many direct policy implications (aside from the importance of funding the sciences, which come to think of it, has become political lately).

    Economics (macro... who even hears about micro), on the other hand, is an inherently political field because it is not only about what's going on with this beast called "the economy", of which we are all participants, but also how can we affect it for better or worse. Layer on the fact that a large number of bloggers and pundits/politicians are clearly driven partly or wholely by ideology rather than science, viewing every piece of data or modelling result through libertarian (or whatever) coloured glasses, and one can hardly be surprised by the perception of "normal" people. Add another layer of most of us having some inherent slant in our tendencies and the new found ability to completely surround ourselves in opinions that agree with our own, through the miracle of modern media and the internet, and we can make sure that most economic theories have been gated though several layers of politics before they reach the light of day.

    We may not know how many planets are orbiting any given star out there, but there isn't much controversy about how to go about trying to find out. But when people can't agree on whether the failure of dire predictions of dangerous inflation have anything to say about the economic hypotheses that yeilded them, or whether or not those predictions actually failed, or even how inflation should really be measured because, by god, my predictions have to be right, then it is pretty hard to not see the ideological motivation.

    Again, there is lots going on behind the scenes in economic academia, but in terms of what most people observe, it is primarily political.

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    1. Politics and economics go hand in hand, and this is apparent by the writing of prominant economists. Liberal leaning economists (krugman, reich, roubiini, stiglits) want more infrastructure spedning, higher taxes for high income earners, more welfare programs, and redistribution. Republican leaning economists want negative freedoms, lower taxes, monetarism, less regulation, no minimum wage, unconditional bank bailouts, etc

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  21. A couple of quick comments.
    1) Um, the title of this post suggests that macroeconomists are not normal people.
    2) I once wrote a guestpost only to be shown later that bloggers discussing the post were far more focused on pegging my "tribal identity" than in understanding the economics. It was rather amusing but it was also something of a letdown.
    3) I have shown Scott Sumner a number of research papers demonstrating that positive monetary policy shocks decrease inequality, and in my opinion, he gives the issue scant attention, is generally dismissive of it, and usually comes up with silly criticisms of the econometrics. One possible explanation is that to acknowledge monetary policy has such distributional consequences would interfere with his apparent political posturing via "hippy punching".

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    1. "1) Um, the title of this post suggests that macroeconomists are not normal people."

      True statements aren't suggestions, they are Extant reality. :) Of course I'm a computing professor who loves finance ... which probably disqualifies me from the tribe of 'people'.

      Delete
  22. ArgosyJones1:58 PM

    "1. Normal people see macro as inherently political."

    I'd go a lot farther and say that normal people see all econ as inherently political. And I don't think they're wrong, exactly. Inasmuch as they are likely to encounter it in their lives it is likely to be used as a justification or rejection of some law or government policy. Most often there are economists on both sides of any given controversy. People think it's political because it's tied up in government policy debates.

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  23. I find it amusing how many 'normal' people on this thread have made the claim "I perceive economists as tribal, therefore economists are tribal."

    Just in case it wasn't clear, the point is that your perceptions are strongly biased by the subset of (macro) economists who interact with non-economists the most.

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  24. Ignoring the distribution of resources in favor of some limited notion of efficiency is itself a political choice, and a massive one that economists are deeply invested in, judging by their decades-long resistence to any suggestion that something might be wrong with the labor/capital balance.

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  25. If, say, 'free trade' justified with macroeconomics to a skeptical public who fear for their jobs, and if those fears are then realized and their standard of living goes down, and if they are then told that they really are better off and who are they going to believe, macroeconomics or their lying eyes, why, yes, people will see macro as mere political cover.

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    1. The trickle-down argument is that is the middle class waits long enough they eventually reap the benefits of this.

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    2. Nathanael9:27 PM

      Once the middle class murders the upper-class in a Communist Revolution and takes their stuff, I suppose then they will reap the benefits of free trade. :-P Somehow I doubt that was what the free-traders meant, though it's the sort of crazy "heighten the contradictions" argument Marx would have made.

      Delete
  26. The media and politicians pick and choose economic analysis to back their previously-chosen viewpoint. That is how minor findings like Reinhart and Rogoff’s 90% debt-to-GDP threshold become an article of faith to one side or the other of the political debate (even when subsequently disproven).

    It is not surprising that non-economists perceive tribal affiliation and politics in macroeconomics, because what they are seeing is filtered through that lens.

    So for example, from http://www.freakonomics.com/2012/07/25/the-secret-consensus-among-economists/
    "Let’s start with Obama’s stimulus. The standard Republican talking point is that it failed, meaning it didn’t reduce unemployment. Yet in a survey of leading economists conducted by the University of Chicago’s Booth School of Business, 92 percent agreed that the stimulus succeeded in reducing the jobless rate. On the harder question of whether the benefit exceeded the cost, more than half thought it did, one in three was uncertain, and fewer than one in six disagreed."

    I have seen some very politically conservative economists lose their “tribal affiliation” because of the politicization of what should have been a fairly technocratic response. Now, they identify as Independents and vote for the lesser of two evils.




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  27. CA, thank you for humouring someone who has never taken an economics class. That is the kind of example I had in mind.

    Does it surprise me? Not really, because a carbon tax on gasoline in the UK was introduced by a Conservative government (Ken Clarke) and is supported by the always interesting and often right Tim Worstall ( a libertarian UK economics blogger). Does it make me think more highly of Mr Mankiw ? Yes, my only caveat being I don't know how much he is advocating something he doesn't think will actually happen - I have no idea, so I'll assume he's in good faith.

    What would really surprise me is if he came out in favour of a tax that hurt the rich, or in favour of redistribution.

    Now, can you find me something that a liberal /lefty says that would surprise me?

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    1. http://www.slate.com/articles/business/the_dismal_science/1997/03/in_praise_of_cheap_labor.html

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  28. It's easy for economists to see things in a purely positivist perspective when they make more money than most of the people that are affected by economic policy. Eonomists want more productivity and efficiency yet it's the middle class & low class that bear the brunt of this in the form of inflation lagging wages.

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  29. I'd add that "normal people" think all economics is just pure theory, when in reality 80% of the published research is empirical. With the exception of The Incidental Economist (which I'm not sure actually has an actual trained economist writing for it), almost everything discussed on econoblogs are theory rather than empirics.

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    1. ramsey9:41 AM

      This is true of micro, but if we're talking about macro then it's not true. Macro isn't as neatly divided into theory vs. empirical work, but most research in macro is pretty theory-heavy.

      Also, let's face it, theory is more interesting.

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    2. Nathanael9:21 PM

      It doesn't help that there is precisely zero empirical research in intro-level microeconomics courses. The theory of the firm spread by those courses is delusional.

      I'd love to see some solid empirical micro research, but most of the stuff I know about, regarding advertising and product differentiation, is published in journals other than the "economics" journals. The only area where I've personally seen lots and lots of empirical research published in econ journals is environmental economics (externalities and regulatory structure stuff).

      Delete
  30. I don't see how economics could be perceived as anything but political. It is after all about the satiation of desires.

    But why not ask instead, What is it about Keynes that some folks (conservatives typically) find so troublesome. Like, specifically, what?

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    1. yea Politics & econ are inseparable. Kugman, for example, is an avowed liberal and it's evident just by reading a few of his blog entries. His blog is even titled conscience of a liberal.

      Delete
    2. Nathanael9:18 PM

      Keynes proved with historical evidence, and demonstrated a coherent model for, the fact that giving private bank executives and financiers control over money, and therefore the power to run the economy, was NOT going to be good for everyone.

      Now, you might think this was obvious. And it is. But the private bank executives and financiers had been spreading the propaganda line that it was better for everyone if they were allowed to run everything. They are STILL spreading this propaganda line. They are very angry at anyone who harms their propaganda campaign.

      Why? Well, if people let them control the money supply, they end up "ruling over hell". Veblen describes their psychology well. They care about relative status and the control gives them relative status.

      They obviously find it very troublesome that someone (Keynes) has pointed out that their self-serving prescription of "let us run everything" is a bad idea for everyone else.

      Now, why do *poor* right-wingers find Keynes so troublesome? Because they are delusional and imagine themselves to be "temporarily embarassed millionaires". Pretty much every time an actual survey is done on what they believe, this is the result. :-P

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  31. I don't know if I count as "normal" in that I had a few college econ courses (3-4?), more courses in finance, and I work in an area that involves micro. I'd like to guess I'm closer to "normal" than "economist." But maybe I'm kidding myself.

    I definitely agree on the first point, though. And I don't think it's something that has exclusively happened to economists from the outside. The necessarily intersection between economic policy and politics makes economists natural political advocates, and the best known economists among normals are also pundits. Worse, so much of macro is unknown or not understood such that the policy views economics commentators (at least where I encounter them, which is not in formal papers) often seem to be able to be adequately explained by their political biases.

    I don't agree with the second assertion. At least as to myself. I do agree that I often hear people focusing on redistribution, although that may in fact just be an offshoot of the tribalism. Those people who disagree with me are just lying to enrich themselves, after all.

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  32. Anonymous5:34 PM

    As an economists, a.k.a. non-normal, I mostly agree with Noah. However, I also sympathize with the political lens outsiders see the field through. After all, the market economy does not exist in an institutional vacuum. And most, if not all, of those institutions are constructed in the political realm. It seems to me that the non-economist public interest revolves around these institutions, not the technical workings of the economy itself. While this is an incredibly important topic, there is very little consensus about how to properly model institutions, since this topic opens the door for ideology.

    For example, I don't think that Paul Krugman's arguments about how to end the recession have been tribal; they've been technocratic. If there is a drop in aggregate nominal spending, prices are sticky but inflation is low, and nominal interest rates are stuck near zero, then it is simple fact that someone must be made willing to spend more in the short term to support real GDP growth. This can take the form of unconventional monetary policy (QE to push the yield curve down, or forward guidance to increase expectations of inflation) or standard fiscal policy (government borrows and spends to fill the gap). That is not a liberal or conservative idea, it is a mechanical reality of a macro-economy with frictions.

    Tribal liberals do a great disservice when they (mistakenly) conflate fiscal stimulus, which simply increases aggregate nominal spending, with public goods or public investment. Yes, it is high time we make public investments, and yes, we might as well kill to birds with one stoneby dovetailing fiscal stimulus with public goods. However, by shifting topics to the public provision of public goods, the argument is now open-ended as to what constitutes a worthy public good, and the mechanism for building a consensus is the political arena. This is what the average reader really cares about, and this is why even self-identified non-economist "Keynesians", often don't understand what that even means. Hence you hear tribal liberals who support fiscal stimulus but are worried about money printing.

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    1. Anonymous5:53 PM

      Agreed. -Corb

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    2. Anonymous4:16 AM

      "Paul Krugman's arguments about how to end the recession "

      But his solutions are unlikely to be Pareto optimal. There will be winners and losers, especially over a 10-year time frame.

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    3. Actually depends on how you define "winner" and "loser". Semantic point but it should be said.

      Delete
  33. Anonymous5:52 PM

    Interesting piece. If he hasn't yet done so in the comments, I'd ask Noah to define what he means by things like 'politics,' and 'left' and 'right'.

    Here's what I gather: Noah sees politics as the more applied take on the subject; hence, a look at how ME affects the poor, or banks. And, hence the partisan tribalism as opposed to a more pure, more nuanced, and more "dispassionate" look at people and how they allocate their resources. So, politics in this context for Noah is taking ME and using it in order to advance or waylay an agenda.

    However, I'd be more inclined to call this a leftist take on macroeconomics, where the left can be described as normative in contrast to a more realistic, or "dispassionate" right. This of course describes a spectrum where fascism is an aspect of the left and not the right.

    Don't get me wrong, the right can be idealistic, as we often see in the (twisted) social conservatism of the southern American States. But such a concession only suggests that the spectrum itself is a bad idea. It does not suggest that being political about economics necessitates reducing it to the left-right binary.

    Noah would perhaps agree that the spectrum is a broken tool. Where he and I disagree (maybe) is on whether 'normal people' are capable of viewing economics as a non-normative depiction of human nature.

    Bottom line: I hate it when politicians reduce complex ideas into partisan numb. I don't hate it when normal people -- sometimes politicians -- take variously competing ideas from the academic sphere, and act on them.

    Corb
    @corbettball on Twitter





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    1. However, I'd be more inclined to call this a leftist take on macroeconomics, where the left can be described as normative in contrast to a more realistic, or "dispassionate" right. This of course describes a spectrum where fascism is an aspect of the left and not the right.

      This does not seem to me to come close to describing reality.

      For a quick counterexample, see Greg Mankiw's recent Journal of Economic Perspectives essay...

      Delete
    2. Anon's post is off the mark. Whenever policy prescription takes place, there is a normative judgement being made, Left OR Right. Dispassionate/nuanced/realistic =/= non-normative.

      Furthermore, economic rationale for redistribution does *not* depend on some sort of subject-level, "how I effect the world" observation. That analysis could be described as equally "dispassionate" as the Right's.

      Delete
  34. Bill Ellis5:53 PM

    I think you nailed it. The way you put it altogether really crystalized it for me.

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  35. One further observation: It can hardly be called tribalism when so many people from diverse 'tribes' - label them left, right, liberal, conservative, Democrat, Republican if you like - think that macroeconomics is pseudoscience being used to justify policies antithetical to their interests.

    Now, if Noah wants to go with 'classes' rather 'tribes', we might be having a different conversation.

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  36. I think that most people don't distinguish the difference between economic's knowledge and what they want to do with it.

    As much as Krugman says economics is not morality - most people have a morality and want the economics to follow it. For example - many people want those who made bad decisions to be punished for them which they consider far more important than aggregate efficiency. Similarly Krugman is highly concerned with the suffering of the unemployed. While the tight money proponents are highly concerned with the suffering of the moderately-well-off-retirees.

    'Optimizing' macro (usually) means optimizing the aggregate output. But most people want to optimize their own personal wealth, even if it results in a poorer society (we could name a few dozen corrupt national governments...). Truly Pareto optimal policies (where *everyone* wins) are rare. And even then, so people win more than others.

    Honestly, thinking about aggregate economies is just not 'normal'.

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  37. Anonymous7:42 PM

    Random thoughts which may not be correct but seem worthy of a good drive-by lurking:

    1) Economics is inherently political because economics and politics are both about who gets what. All policy prescriptions implicitly or explicitly benefit some groups at the expensive of or relative to others; that's why political factions exist.

    2) Economists are inherently political because they are embodied agents with interests of their own, huge sunk costs, career path dependence, the occasional mortgage and family, and the same needs and insecurities as everyone else.

    3) Pareto-efficiency is a definition of efficiency that nicely precludes the one thing that actually would make most people better off. Because Pareto efficiency leads to non-optimal outcomes, optimality gets redefined as Pareto optimality. That's inherently political because it takes as a given the legitimacy of the existing allocation of wealth; establishing this legitimacy is normally the task of conservative intellectuals.

    4) Since predictive models are less comprehensible, while descriptive models are less predictive, there is scope for shenanigans. Combine this with selection of which things to measure and which which to attribute to exogenous variables and you cannot be sure of anything. It's too easy to pretend to believe things you couldn't possibly think, and perhaps even to fool yourself.

    5) While it does seem like people have tribal circuitry and typically go bananas when this gets tripped, it does not follow that all tribes (or EconoTrolls, if you will) are equally wrong about everything.

    6) Economists in the public eye do not, by and large, tell the story of the historical development of the market system, as for example Richard Dawkins might do with the development of mammals or George Dyson might do with computers or kayaks. Instead, they write books and articles passing off their own biases as objective science. This is at least disingenuous, even if they think they're helping to make the world a better place by doing this. In short, they posture in public, which is what public figures do.

    7) Public opinion of economics is not necessarily uninformed. Lots of people have taken economics in college, maybe several classes, but they've also taken history, international studies, physics, computer science, so they don't, by and large, see economics as a theory of everything. Some people have even experienced how things work in the real world. If Economists don't see themselves as others see them, it does not mean that the others are automatically wrong.

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    1. bjdubbs7:21 AM

      All of this is very reasonable. I would bet that 100% of economists would impatiently agree with it. But that still doesn't stop economists from agreeing with anonymous 2:07 AM below. Which is why it's perennial blog fodder.

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    2. Nathanael9:11 PM

      "7) Public opinion of economics is not necessarily uninformed. Lots of people have taken economics in college, maybe several classes, but they've also taken history, international studies, physics, computer science, so they don't, by and large, see economics as a theory of everything. "

      Yeah -- I had an actual liberal arts education. My favorite was biology, though I decided I'd go mad if I were doing research in it. I admit the social science side of my education was a bit weak, mostly econ and religion. I love history and study it intensively as an amateur, but academic-quality history was too tough, too rigorous, for me and I had to drop out of several courses. I decided I couldn't manage the rigor of anthropology either.

      Economics, by contrast, was easy. I could do work equal to or better than my professors without a hell of a lot of work, thanks to a background in the methodologies and attitudes of hard science and history.

      Economists are often, frankly, pretentious. Economics is not a rigorous subject even by comparison to the other *social* sciences, and yet it often pretends to be more rigorous. Math doesn't make you rigorous, guys.

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    3. Anonymous2:40 PM

      You must have had incredibly terrible professors at whatever directional school you went to. I guarantee you can't do work as good as my colleagues, you arrogant twat.

      Delete
  38. Macro models require vast oversimplifications. That requires assumptions about how the world works. That in turn reflects values which are political, rather than purely economic, beliefs.

    It is also striking how economists can't seem to even agree on what constitutes each model (see the comments on your post on Japan a few days ago.) Hence the belief that economists just make stuff up.

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  39. Anonymous2:07 AM

    On the tribal issue, one of the things I've realized after many random talks with non-economists is that they really don't think Economics is a science. They seem to label everything that deals with social stuff as ideological crap that only works to justify your own agenda. And if I'm honest, the remark has some bearing if we consider the other social sciences , but Economics is different . And that's a thing econ-people should brag about more often. Yes, there are some crazy people inside the profession and universal answers don't exist ; but these differences inside the profession are minuscule if we compare it to the ones in the other social sciences.

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    1. Nathanael9:06 PM

      The other social sciences are much, much better at giving accurate, scientific descriptions of reality than economics is.

      Hands down better.

      I'd believe a random historian, archaeologist, anthropologist, sociologist, political science professor, or even psychologist (and a lot of them are crazy) before I'd believe a random economics professor. The political bias is FAR worse in economics.

      The problem is not that economics has more quacks spreading proven-wrong theories... the problem is that in the other social science subjects, when your theory is proven wrong, you get ostracized, you can't publish in journals, and your students don't get good jobs.

      In economics, when your theory is proven wrong, you get big money, you get published in prestigious journals, you get awards, and your students get big money jobs. This is a credentialling failure.

      Delete
  40. Noah,

    "Normal people talk about economic "schools" much much more than do economists."

    That's because you and other professional economists (like me) have a different definition of an economist. To people in the street, Paul Ryan, George Soros, Rick Santelli, hell even Noam Chomsky are "economists", and hence the need to put them in schools.

    For you and me, economists are Bernanke, Barro, Krugman, and there's not such a great need to put them into schools (the "differential equations" school, the "natural experiment" school, the "mass regression" school?!?), even though they have political views.

    By putting economists into schools you're pretty much saying you can't tell an economist from a fraud.

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    1. Anonymous6:59 PM

      Great comment, Patrick. The obsession with 'schools' is just those minor groups trying to create a false equivalency between their blatherings and modern economic research. The more 'factions' you can create, the more your inane opinions seem just as legitimate as someone doing credible empirical work.

      Delete
    2. By putting economists into schools you're pretty much saying you can't tell an economist from a fraud.

      Great comment, now getting tweeted...

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    3. Nathanael9:01 PM

      However, the economics profession has proven that they can't tell an economist (I'd call Noah or Brad DeLong an economist) from a fraud (I'd call Mankiw a fraud).

      There are too many frauds who are tenured professors with famous textbooks and prestigious awards....

      Delete
    4. Anonymous2:42 PM

      What you call anything is not important to anyone. Once you realize that, you'll go away and we'll all be better off.

      Delete
  41. Anonymous6:22 AM

    If macroeconomics is simply about efficiency, that is, if it very explicitly proclaims indifference to the well-being of society, then, of course, it has nothing to do with politics. But if among its main goals is to assist us in increaesing well-being, even sacrificing some efficiency along the way, macroeconomics will have to deal with politics. Why? Because all such decisions are bound to be judgemental, that is, inherently political.

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  42. What painting is that on top of the page? This one: http://2.bp.blogspot.com/-EHiDfT-P6W0/UefF8m_FrWI/AAAAAAAAEFE/QJIi3mclMfI/s1600/godswar.jpg

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  43. Jamie8:50 AM

    I used to be a management consultant. When I think of economists, I tend to draw analogies between economists and the providers of other professional services such as consultants, lawyers and medical doctors. Here are a few observations.

    Professionals tend to assume that what they are selling to ‘normal people’ is specific technical advice. However, what normal people buy is someone to TRUST. The interviewer in the Miles Kimball clip is looking for someone to trust. He doesn’t trust the shrill voices on either sides of the political debate, and he doesn’t trust economists who peddle very specific policy lines and who talk using technical jargon, so how should he make up his mind about important economic issues? When I read an economics blog, the main questions in my mind are not technical questions such as ‘is redistribution more important than efficiency’ or ‘should interest rates be raised or lowered’? Rather they are ‘do I trust this person’ and ‘is this person helping me to think for myself about economic issues’? In the main, I don’t think that academic economists understand this.

    One of the key mechanisms for developing trust is the use of a common descriptive mental model. When we visit a medical doctor, we expect to communicate using a shared model of the human body and common terminology. The difference in understanding between the professional and the normal person is in the precision and detail of the model, but not the nature of the model itself. Normal people use descriptive models to understand pretty much everything from the solar system to a car engine; from earthquakes to the geography of Europe. Unfortunately, most economists do not appear to think in terms of descriptive models. For example, I understand that most models of the economy do not include banks or money. To a normal person, that sounds like a medical doctor who has a model of the human body which excludes the heart and blood. Result: lack of trust.

    Economists could learn more about normal people by asking them about which economists they trust and why; and which economists they don’t trust and why; and why they read certain economics blogs but not others; and why they trust medical doctors (or just about anyone else apart from politicians and bankers) more than they trust economists. When I use the term ‘normal people’ here I am excluding anyone who thinks about economics as a religion whether with ‘the private sector’ as god and ‘the government’ as the devil, or with ‘the workers’ as god and ‘capitalists’ as the devil.

    I hope that Noah will continue to blog about this. In an ideal world, the silent majority of economists and the silent majority of normal people would find a way to get beyond the shrillness of the ideologues and the jargon of the technicians.

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  44. Noah: "They [economists] focus on efficiency because a Pareto improvement is something that everyone can get behind (in fact, that's how it's defined)."
    Really? It strikes me that most economists focus on Kaldor-Hicks improvements and then assume the redistribution fairy compensates the losers.

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    1. Nope. Kaldor-Hicks is a method of ensuring Pareto Efficiency, so everyone's still happy.

      Delete
    2. No, actually. It is _potential_ Pareto efficiency where _in principle_ the winners could compensate the losers so that no one is worse off. In practice, that rarely occurs. Because requiring Pareto outcomes would be sand in the gears of increased efficiency, it is regarded as "too stringent" by most economists who sweep the distributional aspects under the rug to be dealt with by those whom they disdain.

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    3. Nathanael8:59 PM

      Yep. Kaldor-Hicks "improvements" generally worsen life for the 99%.

      Kaldor-Hicks "improvements", since most of them make almost everyone worse off, are a very bad idea,.... unless you've first established a system of wealth redistribution.

      In short, they're OK if you have a 92% top income tax rate, a 90% top estate tax rate, and a generous welfare system, but if you don't, stay WELL away from Kaldor-Hicks "improvements", since they make things worse.

      Delete
  45. ramsey9:30 AM

    (Haven't read through the comments, so sorry if this point has been made already).

    I think that this is mainly a consequence of what sort of economists most people encounter. Most economists you see on TV, the radio, or the internet are either politically motivated, actual spokespeople for the government, or business economists. In the blogosphere you also have heterodox economists trying to take their message directly to the public, not to mention that the internet's techno-libertarian roots make it fertile soil for Austrians.

    When was the last time you saw an academic economist talking about an academic topic intended for a general audience? This simply isn't what you see outside of the classroom, and journalists rarely report on academic conferences. There are a few books that try to popularize academic economics, but they are in the great minority.

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  46. Where is government in the DSGE models? or any model - is it part of the model or does it enter as an exogenous shock?

    Isn't it a rather shocking admission to say economists don't think of economics as political? What kind of human activity isn't political? it's a tautology right? unless you want to study the economy of rabbits or trees.

    And not only that, economic history is full of great economists who clearly were political, if economists today are not political, what happened? this is an interesting story all on its own. Who took the political out of the political economy?

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    1. Anonymous9:57 AM

      (1) You know about the field of political economy, right?

      (2) Not considering politics or redistribution in a PARTICULAR paper does not mean that one does not recognize that those factors are important. Scientists don't test EVERY theory in the same experiment.

      (3) Economic history is ALSO full of great economists who were NOT political. And those who WERE political were great economists because of their economics, not their politics.

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    2. How does government *being* an exogenous shock make any sense?

      Tautology doesn't mean what you think it means...a tautology is any premise that is always true, e.g., (A | -A). But to definitively respond to "What kind of human activity isn't political?" first requires a definition of political! My answer would be that *most* human activity is not political.

      Delete
    3. Anonymous11:21 AM

      Not seeing the _discipline of economics research_ as political is different than not seeing politics as an important part of the economy. How obtuse can you get? You'd have to seriously misread everything above to get to there.

      Delete
    4. Nathanael8:56 PM

      "(2) Not considering politics or redistribution in a PARTICULAR paper does not mean that one does not recognize that those factors are important. Scientists don't test EVERY theory in the same experiment."

      In practice, most of the macroeconomic papers which fail to consider redistribution needed to consider redistribution in order to make *any sense whatsoever*, so it DOES mean that economists don't recognize the importance of redistribution.

      Krugman seems to think that redistribution is some sort of "separate problem" from global economic malaise. Well, *it isn't*.

      Think about this: if we took all the money currently in circulation and redistributed it evenly -- same amount of money -- would we still have a recession? No. We would NOT.

      Why? The poor people would spend their money on useful goods and services immediately.

      The rich people who have it now are spending it on hoarding metals in warehouses, or paying each other for land, or just putting it in bank vaults.

      Savings does NOT equal investment, it never has, it never will. This is a common economic fallacy -- the people who promulgate it are ignoring hoarding of banknotes, and if you point it out they'll admit that they're ignoring hoarding of banknotes. They're just assuming all the money goes into banks and that the banks invest the money. This is an unjustifiable assumption.

      They are making other subtly wrong assumptions and therefore missing other ways in which money in the hands of the 0.1% can "leak out" of the real economy, into a closed-loop bubble of speculation which never actually employs anyone and does not create any new physical capital.

      Delete
  47. This is so true and so frustrating.

    That is why even though I am generally center-left leaning, I would be willing for government to completely give in to the right in order to implement sound monetary/fiscal stimulus.

    The global macro situation is so dire, that it would make sense to have stimulus be in the form of pure government shrinking, business boosting, inequality growing, tax cuts.

    Tax cuts financed by money printing would go a long way in solving the global economic slump. I don't care if it disproportionately helps the rich if it also creates jobs for the unemployed. Once jobs are at an acceptable level globally and the economic pie has grown to an acceptable level then we can get back to the debate of redistribution and providing government services. It will be politically easier anyways for government to increase services when revenues are higher.

    As a millennial, I know too many unemployed or severely underemployed friends. Having a good job is much more important than anything else to to us. We will gladly pay our high student debt if we can get good jobs. Being unemployed/underemployed for a decade cost us much more than having to pay even an $100 000 student debt.

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    1. Nathanael8:49 PM

      "Tax cuts financed by money printing would go a long way in solving the global economic slump. I don't care if it disproportionately helps the rich if it also creates jobs for the unemployed. "

      But it won't. At least not in the US. That's exactly the problem. The 0.1% have made out like bandits, and unemployment remains high.

      They (the 0.1%) are simply not spending their money on hiring people. They're also not spending it on buying goods which would require factories to hire people. They're also not spending their money on services which would require hiring people. And they're not hiring servants.

      The 0.1% are putting their money into commodities speculation (hoarding), for example, which makes everyone worse off:

      https://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=all

      And so forth. Some of the 1%ers' money literally gets hoarded in the form of banknotes, other money goes into storing grain and metals in warehouses... some of it is going into speculating on land, buying up empty houses (and leaving them empty)...

      ...very little of it is going into increasing employment.

      If we solve the *allocation* problem, then we can solve the Keynesian "shortage of aggregate demand" problem. But we cannot solve the "shortage of aggregate demand" problem without solving the allocation problem, because we've been allocating the money to people who refuse to solve the "shortage of aggregate demand" problem.

      Delete
  48. "Macroeconomics" and Keynesianism have always been a monstrous hoax and average people are starting to catch on. The entire scam was eviscerated by the Austrians decades before the publication of "The General Theory". The fact that neither Keynes nor old nor young Keynesians ever address or engage even basic Austrian analysis is substantial proof that they are scared to death of it.

    Mr. Hayek: You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you’re doing good to the people in general. The politicians didn’t want to hear anything more than that – to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential. November 1977.

    http://www.youtube.com/watch?v=N364sN5E0hQ

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    Replies
    1. Anonymous11:24 AM

      Bob, take your pseudoscience bullshit back to GMU and the other creationists of economics.

      If you think that "Austrians" have anything of value to say, you're not living in this century. Try the previous one.

      Delete
    2. LOL, Anonymous. XD

      Delete
    3. Anonymous12:46 PM

      Pretty sure Bob is just having a very slow Friday and needed some entertainment. Surely no one with the mental capacity to read would espouse such nonsense. Decent trolling attempt but a tad too obvious.

      Delete
    4. Such detailed and substantive responses. My 40 year search for a single Keynesian familiar with basic Austrian concepts continues........

      Delete
    5. Anonymous2:13 PM

      You are absolutely right Bob, although its quite hard to familiarize oneself with an academic discipline that refuses to profer any formal models. So really the blme is on your tribe. I always assumed most Austrian Economics proponents were just people who suck at math.

      Delete
    6. Like Murray Rothbard who had a degree in math from Columbia?

      http://mises.org/rothbard/mes.asp

      Thanks for demonstrating such profound anti-intellectualism and academic incuriousity. And that you've lost the argument.

      Delete
    7. Anonymous3:39 PM

      Thats great! A guy with a degree, still doesn't explain the lack of formal mathamatical models in Austrian theory. I see a nice morality tale that just sits so nicely with some people's views of how the world should work, not an academic discipline.

      Honestly if more models were produced the holes in logic would just be that much more apparent.

      Delete
    8. And that you've lost the argument.

      What argument?

      Delete
    9. You cannot have mathematical functions unless you can insert a constant into the equation with the variables. When predicting human behavior, there are no constants to insert into a function. You should learn that. It's not very complicated.

      Delete
    10. Anonymous6:51 PM

      Spoken like a true mathematical luddite! I Still haven't heard what your problem with Keynsian economics is...

      Delete
    11. Anonymous6:55 PM

      What a bizarre, mathematically-illiterate statement. Too much Rothbard really does dull the mind, I suppose.

      Delete
    12. It's not very complicated.

      You know what else isn't very complicated? Austrian economics. In fact, it's quite simple and beautiful. Everything you know is a priori, and the messiness and uncertainty (just imagine the anxiety!) of empirical verification is rendered completely unnecessary.

      Happy day!

      Delete
    13. Nathanael8:44 PM

      Hayek claimed that buying an overcoat would increase unemployment.

      The Austrians don't even have coherent morality tales, they have stupid, ridiculous, self-contradictory morality tales.

      Delete
  49. Alex A.1:15 PM

    "They focus on efficiency because a Pareto improvement is something everyone can get behind"

    I can't handle the quality of puns, image headers and memes coming out of this blog. I literally laughed out loud at my desk and had to explain myself to a coworker.

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    1. Anonymous2:26 PM

      Not quite sure I completely understand it so please elucidate where necessary.

      is it because this would be an outward shift in consumption on a PPF?

      Delete
    2. Alex A.3:40 PM

      Lol, a Pareto improvement is *literally* something that everyone can get behind.

      Imagine a student asks Noah the following questions:
      -----------
      Q: Why are you drawing an aggregate demand curve on the blackboard?

      A: Because an aggregate demand curve is what everyone wants.

      Q: Why do economists focus on efficiency?

      A: Because a Pareto improvement is something everyone can get behind.
      ---------
      Do you get it now? It's like hiring John Cleese to provide spy gadgets to James Tobin.

      Delete
    3. Nathanael8:42 PM

      There are so few Pareto improvements in the real world that they're irrelevant.

      For instance, you might imagine that giving everyone all the food they need (say, magically produced from a cornucopia) is an improvement for everyone.

      Nope!

      There's always that guy who rejoices in his *relative* status, who is only happy if he can watch the starving peasants outside his window while he's eating Christmas dinner. For him, feeding the poor worsens his psychological happiness.

      I have begun to suspect that this is the psychology of most of the 0.1%.

      Delete
  50. Newton's laws? Maybe not. But the 'Conservapedia', at least, has established that relativity is a Liberal plot. As only Liberals, obviously, measure things in relative terms.

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  51. Anonymous3:37 PM

    I'm confused. How do you tell an economist from a non-economist?

    ReplyDelete
  52. I have some difficulty with an early sentence "Most people who read us are smart and educated." Well, what do we mean by "smart" and by "educated".

    Is "smart" defined to include an ability to consider all evidence, regardless of messenger, using unbiased logic and frameworks where available; generally using the scientific process to test hypotheses, considering probabilities, and leaving room for uncertainty. Many people appear unable or unwilling to think that way about most topics. Is someone "smart" even if they lash out emotionally when presented with contrary evidence?

    What is "educated"? Does that mean having graduated college? Do we consider someone "educated" who skated through an average college with average grades in an easy subject and who went on to passively enjoy pop culture without furthering any meaningful education? What about the longshoreman, a high school graduate who is a voracious reader of a broad array of subjects?

    Being "smart" or "educated" is contextual. Someone may be a brilliant, hyper-rational computer coder but be unable to think clearly about economics without becoming extremely emotional and completely unwilling to apply rational frameworks. Smart in one area, pretty stupid in another. A PhD physicist may be highly educated but know nothing about economics, having formed all notions out of a cauldron of emotion and personal distaste for "business".

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    1. Nathanael8:39 PM

      What Noah means is that he gets damn good comments -- readable, interesting, thoughtful, and providing references he hasn't seen before -- rather than incoherent babble, regurgitations of misspelled talking points from Fox News, or Viagra spam. The latter is actually what you usually get as blog comments.

      I think that's a good working definition of "smart" (interesting thoughtful comments) and "educated" (providing references Noah hasn't seen before).

      Delete
    2. Thank you. As I asked, "Is someone "smart" even if they lash out emotionally...?" Why the reference to Fox News?

      As I read your snark about "misspelled" and "incoherent" comments I thought you must be writing about mine. The "incoherent" part I can understand. Perhaps the writing style is poor. But the misspelled part I don't get.

      Anyway, leaving out your unnecessary "babble" about Fox News and Viagra, we have your working definition. It seems pretty good to me at first glance. In the *context* of this blog a "smart" and "educated" post would provide novel and interesting commentary. Yet Noah's post is lamenting the fact that "smart" and "educated" people are *not* providing such commentary. Hmmmm...

      Delete
  53. Noah, I think this is far simpler than you seem tempted to conclude it is. People (a) are by-and-large incapable of understanding the technical details of economics to any appreciable degree and (b) are vaguely aware that the consequence of proposed economic programs can involve the shifting of money to some number of discrete groups who do (or who can employ advisers who do) understand technical economics in detail. (Monetary policy's effects on banks is probably where this is most obvious.) It's rather natural they would conclude it's all TAGWAR.

    Let me put it to you this way: Pretend you were out to dinner with nine friends and only one of the ten could do basic math. Naturally you would defer to that person to calculate the tip and everyone's share. But what is the chance it wouldn't occur to some or most of you that she were putting one over on the table?

    I start with my observation (a) above from my own anecdata, specifically from two high school econ classes, one that I took and one that I taught. When I taught history, it seemed that while the subject could come naturally easier or harder to this student or that, still pretty much each student could reach some level of competence if he or she did the homework, and the students who did the most homework were the ones who tended to understand it best. In econ, though, there was this weird ratio going on, that about 25% at most of the class seemed actually to get why supply curves slope upward, and the rest who could recite the rule but didn't quite have it in their bones.

    It's of course probably really that I'm misremembering having taken high school and was lousy at teaching it, but the following strikes me: There was zero correlation between my students who did well in history and those who did well in econ. Instead it seemed a complete random walk which student, whether he had led his class's test scores or whether she had only passed with remedial extra assignements, would click on that first week of econ class. And when I try to explain to my friends, even the remarkably smart ones, I still seem to perceive about the same 25/75 ratio of people who understand why the absence of booming sectors suggests a recession is cyclical rather than structural. Again, nothing definitive, but my suspicion is (i) that only a minority of people are constitutionally capable of understanding econ in a technical way and (ii) rather strongly clung to.

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    1. Nathanael8:36 PM

      "about 25% at most of the class seemed actually to get why supply curves slope upward, and the rest who could recite the rule but didn't quite have it in their bones."

      Well, they don't slope upwards. Short-run supply curves are flat.

      Because you economists draw your graphs backwards, that makes them "vertical". Which is really confusing, especially to students who haven't been told that you're drawing your graphs backwards...

      Most students have a lot of trouble with the fact that economists draw their supply-and-demand graphs backwards. Swap your axes and watch the number of students who do well in class double or triple.

      As for long-run supply curves, they're stepwise constant with an upward trend. If you draw it with the independent variable (price) on the x-axis, it looks like a staircase going up and to the right. This is trivially easy to explain to students: as the price of a good goes up, more people open factories, so they supply more.

      Again, drawing the graphs backwards confuses the heck out of most of the students.

      Delete
    2. Nathanael,

      You make a good point about the axis swap. It is annoying. Students are learning to put the independent variable on the horizontal (x) axis and then they get to Econ and it seems to be swapped.

      That said the supply curve slopes upward when you switch the axis.

      Also, introducing the stepwise part in an introductory course is distracting. A continuous monotonically increasing function is easier to draw, easier to describe, and easier to work with mathematically.

      The difficulty with these (rudimentary) concepts is more fundamental than the graphical presentation.

      Delete
  54. I would like to thank you for your insight and the opportunity to engage in intellectual conversation. With respect to the posting, I agree with your insight concerning how the (generally) bipartite camps/tribes of macroeconomic theory correlate with conservative and liberal ideologies, especially in the minds of non-economists. However, I think questions of efficiency and fairness burden both economists and non-economists alike, but we must distance ourselves from the traditional principles of efficiency to understand the rational nuances of why this behavior is manifest. The concept of Pareto efficiency assuredly encapsulates a logically acceptable distribution of well-being in a society. Fairness, on the other hand, concerns itself with the just, morally dignified distribution of well-being. However, can these two principles ever produce the same outcome? Provided society's aggregate well-being is derived from the voluntary, mutually beneficial exchange of self-interested agents, then the answer is yes. However, as we already know, the socially optimal level of well-being perpetuates as unattainable as a result of unmitigated distortions in the market system, which results in individuals being strictly worse off and therefore an unjustified and morally appalling outcome. On a grand scale, how do we correct these shortfalls to ensure society reaches this ideal? The question ultimately intersects both the domain of macroeconomics and government. This is why we see macroeconomic decisions filtered through the political lens, and you see this whether or not you have received academic training or not. Until the macroeconomy becomes disentangled with the political sphere, I cannot espouse a reason for even hoping that the partitioning of macroeconomists will taper off in the short run. Best wishes!

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  55. Noah: "In other words, econ, like everything else in modern America, seems to have been caught up in the great war of Tribal Realities that has rent apart everything in our society. Even the most powerful and brilliant individual intellectual is like an ant compared to those titanic forces. And until the great War of the Tribes is over, our feeble attempts to show off our scattered, tiny, incomplete insights into Extant Reality will be lost amidst the tossing maelstrom of Tribal Reality. But in addition, it also means that most macroeconomists are ignoring the question most people care about - the question of "Who benefits from stabilization policy?"."

    One very important feature of macro (as you almost realized, when you referenced getting paid for accuracy helps) is that one doesn't have to be correct in macro to prosper. John Cochrane can forecast hyperinflation for a decade, and still be a professor at Chicago (with the power to crush students and influence what gets published).

    R&R, at Harvard, can publish sh*t and be defended by Harvardites.

    There are sneering comments at the liberal arts, where supposedly there are not correct answers, but macro is there, as well.

    ReplyDelete
  56. Anonymous3:51 PM

    I don't know any normal people that read economic blogs.

    Just sayin...

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  57. But with the right kind of network (intellectual ---> virtual ---> synchronization ---> social), those tiny intellectual powerhouses can find a more organized, resonant network powerful enough to disrupt what some people think are titanic forces. They're only titanic if you want them to seem titanic.

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  58. I'm not sure if it was Galbraith who said: "Economics does not usefully exist apart from politics", but whoever it was, they are correct.

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  59. Nathanael8:32 PM

    Good blog entry.

    Nobody "normal" gives a damn about Pareto efficiency.

    Redistribution -- people care about that. Look at the psych studies, the anthropology studies, and the animal behavior studies. Fairness is a primal human drive. (Another primal human drive is hierarchy, which is what makes the situation complicated.)

    Furthermore, game theory shows us that a "yes, I will sabotage both of us if you are unfair" strategy is a good strategy in repeated games (such as the economy is), and is in fact the only way to keep most players fair.

    Animal studies on "defectors" and "cooperators" strengthen the evidence for this (as well as providing a lot of other subtle and interesting insights which you REALLY ought to read if you want to understand economics or politics).

    As a result, the way to improve everyone's lot is to redistribute wealth in order to create greater equality... up to a certain point, when people start craving hierarchy more (the animal studies actually talk about what that point is). And to dramatically punish fraudsters and thieves... except for tolerating a certain low level of it (and the animal studies actually talk about what that point is).

    "In a certain sense, the normal people's approach makes more sense than that of the economists."
    I'm glad you recognize this...

    "But in addition, it also means that most macroeconomists are ignoring the question most people care about - the question of "Who benefits from stabilization policy?"."
    So, pay attention to that question and become the most respected economist in the world. Most respected by normal people, not by economists, that is. :-)

    "Cui bono" is always the right question in a social science.

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    Replies
    1. Nathanael,

      Excellent post and non-partisan, since it supports redistribution up to a point ("left") and also explains that WFA (waste, fraud, and abuse) are damaging (an issue popular with the "right).

      Delete
  60. Anonymous3:16 PM

    Or to put it more succintly: Laypeople view macroeconomics as explicitly about "whose ox is being gored," while academic macroeconomics is implicitly about "whose ox is being gored."

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  61. Anonymous11:33 AM

    Well I'm a 'normal' person by your definition (although not by many). As I see it the politicization of economics has largely been done by politicians - we are presented economic arguments and there is an assumption that they are oppositional because the politicians are opposing one another. In fact both sides in the UK support a capitalist reality and therefore steer well clear of any kind of 'redistribution' arguments. They choose rather to focus on different ways of stablizing - as you say this has clear outcomes - good/bad in terms of balancing the books/stablizing. What no-one queries (either politicians or economists) is whether this will actually benefit the majority of people - because if we step beyond the bounds of economic benefit and start questioning that then maybe we would put a bit of a crack in that great big capitalist reality glass dome.

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  62. Anonymous11:46 AM

    I resent your implicit assertion that economists are not normal people. Perhaps unfortunately, we are...

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  63. Macro is inherently political. "Economics" was original called "political economy." This explains why economists like Walter Bagehot got it right with a book in 1873 called Lombard Street while economists practicing a highly mathematical scientized discipline today like John Cochrane got the 2009 economic meltdown so catastrophically wrong.

    Moreover, political economy is mainly about redistribution of the profits of production. That's an inherently political struggle. If you don't understand this, look at the range of the GINI coefficients among first-world countries.

    Keen gets it right in his book Debunking Economics. The sophisticated math of today's economics is designed to cover up the fact that today's discipline of neoliberal Chicago School-influenced economics is primarily a smokescreen for the rape of the bottom 99% by the top 1%. Belief in counterfactual fairytales like "efficient markets" and "homo economicus" and "game theory" is a religious faith systematically contradicted by actual experiments with real game theory (in tests of the Prisoner's Dilemma with real prisoners in real prisons, the players unexpectedly tend to cooperate, contrary to the predictions of game theory, exactly as the RAND secretaries did in the original game theory experiments in 1955 at the RAND Corporation) and agent-based mathematical models showing that merit-based markets fail to the produce the most efficient results (randomized selection produces the most efficiency, contrary to all expectations).

    Contemporary economics boasts all the scientific credibility of Dianetics, while retaining the intellectual seriousness of masked Mexican wrestling.

    ReplyDelete