tag:blogger.com,1999:blog-17232051.post3122909513197950644..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Why macro is hard (Taylor/Krugman edition)Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-17232051.post-22678866877252651432012-03-12T16:59:54.845-04:002012-03-12T16:59:54.845-04:00Surprise!! John Taylor found what he was looking ...Surprise!! John Taylor found what he was looking for; proof that Obama policies don't work.Ed Rhttps://www.blogger.com/profile/17720176132423294274noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61263341328933422242012-03-06T12:12:20.078-05:002012-03-06T12:12:20.078-05:00Amazing blog site. Part econ theory, part politica...Amazing blog site. Part econ theory, part political commentary, part entertainment. Keep up the good work Noah.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-41076817586624814012012-03-05T18:01:01.730-05:002012-03-05T18:01:01.730-05:00Why not look very very closely at the state level ...Why not look very very closely at the state level to see this in action?<br /><br />I would tend to laugh at Taylor, because if you pick an obvious state, such as Arizona, that is fairly small, suffered a huge decline in revenues, had measurable stimulus that specifically backfilled lost revenue, and faced a very hard borrowing and revenue constraint set due to politics. In this state, one sees the immediate effects of stimulus through cancelled layoffs, with those earning continuing to circulate through the local economy.<br /><br />So, why don't you start here in a small state of 6 million people with a full microfoundation set of data available and see if really happened the way Taylor postulates.<br /><br />Hint: Using my macro spidey sense, let us talk about failures in an epic sense:<br /><br />The first is that the tax rebates in the ARRA failed to increase household consumption. This doesn't seem like an incredibly controversial argument, since A) there exist decent ways to forecast what consumption would have been in the absence of the ARRA, and B) Keynesian theories predict that transfer payments make for much worse stimulus than government expenditure. <br /><br />Uh, the research has been done, thanks to the first Bush tax money mailout- high end households saved the money, low end spent it. Um, so now that we have established that a significant population of households are not ration enough to practice Ricardean Equivalence over a one year period, can we tell Taylor he is wrong?<br /><br />I could go on and on, but that rational expectations Chicago model just refuses to quit telling people the earth is perfectly spherical, when it is actually oblate.<br /><br />Now, coming from highly mathematical models of physics, you think you can model a cultural agglomeration function with a few handy dandy tools?<br /><br />Your hopes that microfoundations can prevail on an aggregate level are nearly risible, when we can't even do an adequate job of predicting unemployment rates. <br /><br />If you want true microfoundations, first adequately model micro, which still thinks in terms of the rational expectations model.<br /><br />After you leave that behind, you might have a chance to succeed.<br /><br />At the first mention of twice differentiable, or separating hyperplanes, you might as well begin discussing your Erdos number, it has more relevance.Citizen AllenMhttp://calculatedriskblog.comnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3303118149305593252012-03-05T17:18:45.053-05:002012-03-05T17:18:45.053-05:00Noah: Enjoying your blog. Some props, from an earl...Noah: Enjoying your blog. Some props, from an earlier post:<br /><br />http://www.scpr.org/blogs/economy/2012/03/05/4949/economists-are-special-breed-nerd/Matthew DeBordhttps://www.blogger.com/profile/18442090081374974449noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-62938334547177855362012-03-05T14:53:33.537-05:002012-03-05T14:53:33.537-05:00Noah: "Who's right? It's hard to kno...Noah: "Who's right? It's hard to know, and this really illustrates the main difficulty in doing macroeconomics: lack of a good "counterfactual." History only happens once; it's just damn hard to tell how things would have changed if people had made different decisions, just by looking at what ended up actually happening."<br /><br /><br />"This is why, in my opinion, the only way to build really believable and reliable models is to use microfoundations (or, if the macroeconomy is big enough to display emergent properties, to use agent-based modeling). Without those techniques, macro is doomed to be a lot more like history than science. "<br /><br />Please note that the objections in the first paragraph apply to the second paragraph, as well. You're skipping over the problem of coming up with good parameters for your agents.Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-2627777928184246462012-03-05T13:31:22.581-05:002012-03-05T13:31:22.581-05:00BTW, lots of work, going back to maybe Goodwin (19...BTW, lots of work, going back to maybe Goodwin (1951), explores the possibilities of multiple equilibria, complex dynamics emerging in standard macroeconomic models with simple non-linear tweaks.<br /><br />Goodwin, I expect, is disappeared from orthodox economics. But not all of this work is from heterodox economists. For example, John Geanakoplos, at Yale and the Cowles Commission, has written about complex dynamics in Overlapping Generations Models. You can read about some complex dynamic macroeconomic models in the Journal of Economic Behavior and Organization.<br /><br />I don't know how threatening this work is to orthodox macroeconomists, but my impression is that it is mostly ignored by many groups of macroeconomists.Robert Vienneauhttps://www.blogger.com/profile/00872510108133281526noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86557081051462992262012-03-05T12:25:13.466-05:002012-03-05T12:25:13.466-05:00"if the macroeconomy is big enough to display..."if the macroeconomy is big enough to display emergent properties, to use agent-based modeling)"<br /><br />1. There is a middle way: dynamic simulation based on *sector*-based behavioral algorithms. Like weather modeling. As far as I can tell, Steve Keen is the only person who is actually trying to do this. It's seems glaringly obvious that the macroeconomy *is* big and complex enough, so you gotta ask: why do all economists stick with their childish comparative statics drivel?<br /><br />2. As far as I can tell the only outfit even talking about agent-based macroeconomic modeling are the Santa Fe guys, and they've been talking about it for a long time without showing us anything.<br /><br />If the economics discipline were anything like a science, we'd be seeing huge resources poured into both of these. The fact that we're not reveals it be more similar to medieval scholasticism.<br /><br />So: "doomed"? It took MS centuries to die.Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33712405259184792622012-03-05T08:15:18.446-05:002012-03-05T08:15:18.446-05:00Macroeconomics should cease pretending to be an ex...Macroeconomics should cease pretending to be an experimental science and focus on becoming a more disciplined form of history -- more like cosmology and less like particle physics.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-22462204036637518922012-03-05T06:12:31.353-05:002012-03-05T06:12:31.353-05:00If you're hoping to derive macroeconomics by s...If you're hoping to derive macroeconomics by starting from the microfoundations -- that is something which in general doesn't even work in physics. It's not a coincidence that thermodynamics was discovered before the statistical mechanics that underlies it. And universality classes and effective theories are the tool of choice in condensed matter physics. <br /><br />If you say it's impossible to come up with a decent "effective theory" for macroeconomic behaviour, I think the outlook for economics is bleak.physicistnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-19584452274017089042012-03-05T01:52:47.107-05:002012-03-05T01:52:47.107-05:00Historically, going to the general from the specif...Historically, going to the general from the specific has usually been a terrible idea.<br /><br />According to the manufacturing "theory of constraints" there are a few issues that drive the profitability of a specific firm. To manage those driving constraint(s) they must subordinate all other issues to that constraint -and by definition, reduce their efficiency on those issues.<br /><br />As someone who does firm specific financial models for a living, I've learned you cannot assume parity in terminology between GAAP audited financial statements between firms. If I'm not able to accurately apply standard models between firms in the same industry, it becomes very difficult for me to imagine models that hold true across industries, much less varying types of non-industrial actors. <br /><br />As a result, while I can see going from the general to the specific i.e. going to the hospital (Macro Health System) when you are in a cancer treatment program (Micro/Specific System) it is not clear that the cancer treatment model covers all hospital visits. <br /><br />I agree with Krugman - using Micro to check Macro assumptions is useful. I just don't think you can start at Micro and work back to Macro because the number of actors you are required to model is excessive.Unknownhttps://www.blogger.com/profile/10674312242545837905noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-69783367492913050682012-03-04T22:25:35.522-05:002012-03-04T22:25:35.522-05:00"Which is not to say macro is doomed! History..."Which is not to say macro is doomed! History is not a useless way of understanding the world."<br /><br />Reassuring to see that, while you're out hunting the snark, potting pheasants is not beneath you.Alphonsehttps://www.blogger.com/profile/02441923856941011283noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-32284385108402606492012-03-04T21:19:21.595-05:002012-03-04T21:19:21.595-05:00California save money? You need to get out more.....California save money? You need to get out more... Here's a candidate topic for you (useful to you, too, since you'll be teaching soon, Congrats!): a survey of macro textbooks. Thanks!arbnoreply@blogger.com