tag:blogger.com,1999:blog-17232051.post4844474948696446954..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Is macro doomed to always fight the last war?Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger76125tag:blogger.com,1999:blog-17232051.post-41078892914770298892014-02-22T16:54:56.018-05:002014-02-22T16:54:56.018-05:00The consensus of economist or politicians? I would...The consensus of economist or politicians? I would suggest most economists wouldnt have advocated dismantling Glass-Steagle.BlueNut2000https://www.blogger.com/profile/02434432632223756370noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-57268947652825120322014-02-21T05:47:33.186-05:002014-02-21T05:47:33.186-05:00Andrew,
think about it - what does this phrase &q...Andrew,<br /> think about it - what does this phrase "so that quantities, prices and actions all line up" - actually mean. What are they all lining up WITH? Are you saying that all markets are clearing (prices and quantities demanded and supplied lining up). In which case - what about the labour market - then unemployment (including frictional unemployment!) is impossible in equilibrium. But the Fed is explicitly targeting positive unemployment. And what about the process of price change - are prices determined by black box markets or do agents set them for strategic reasons? Do you understand how this might make a difference between a "solved" model and a proper dynamic model, where agents determine their offer price and produced quantity in ways that may be inconsistent with what other agents expect. If you think about competition and production lags, it should be clear that firms do not consider the entire demand for what they are producing, but their estimate of their own market share. And particularly with new entrants, the penalty for excessive pessimism is less than the penalty for excessive optimism (because competitors will fill demand that cannot be met on time). So really modelling the way agents think and act in a particular local situation, is quite different from "solving" models, and the dynamics will be significantly different, EVEN if the "equilibrium" market condition is unchanged.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-63533415759248333382014-02-21T05:13:40.097-05:002014-02-21T05:13:40.097-05:00Andrew - I mean that this "solving" is n...Andrew - I mean that this "solving" is nonsense. There are only limited interactions between (many and heterogenous agents) - solving is introducing a process that doesn't in reality exist. There is no walrasian auctioneer, there are not complete markets, there is not perfect knowledge and plans are contingent so that consistency is not a meaningful concept. Is that clear enough?reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-87100414213033823652014-02-20T00:23:00.962-05:002014-02-20T00:23:00.962-05:00I'm not an MMist, but I have to agree with Don...I'm not an MMist, but I have to agree with Don's broad point here: right or not the MMists do have an explanation for why the downturn in housing turned into a recession which I think qualifies as an alternative explanation more worth mentioning than fear of Obama's socialism.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37096724234580030312014-02-18T15:23:18.278-05:002014-02-18T15:23:18.278-05:00And the big criticism is (from memory) that econom...And the big criticism is (from memory) that economists were in general saying that deregulating the financial markets would stabilize them.Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40459310033074215652014-02-18T13:41:07.022-05:002014-02-18T13:41:07.022-05:00All macro economists need to know is that TOO MUCH...All macro economists need to know is that TOO MUCH DEBT AND TOO MUCH STATE SPONSERED RISK TAKING makes fat tails much more likely. That is all macro needs to know the rest is bullshit for academics to write papers about to get a paycheckJameshttps://www.blogger.com/profile/15211759382579305536noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-23096568498547659932014-02-18T13:26:53.338-05:002014-02-18T13:26:53.338-05:00Understanding how an economy works and the correct...Understanding how an economy works and the correct interventions is different than having the political will and consensus to do what needs to be done. Economic policy has been captured by Malefactors of Great Wealth who use their power to enrich themselves at the expense of the rest of us. We know that policies that would make the distribution of profits more equal and fair would increase demand by giving the poor more pocket money to spend. Since they poor spend everything they make, demand would increase. Those types of policies are blocked. They are fought tooth and nail by Malefactors of Great Wealth who want much more for themselves and even less for the poor. We can't even get an increase in the minimum wage. Another reason for less in equality: an economy with less inequality is more stable. <br /><br />Take the example of smoking. We know that smoking causes lung cancer, emphysema and other harmful effects. The solution is to quit smoking. If someone continues to smoke and gets cancer and emphysema, the solutions become far less clear. <br /><br />What has happened to economics is similar. We know that increasing inequality is bad for an economy and that it is self reinforcing. The wealthy use money to corrupt the rules and capture even more wealth. Now that we have entered territory where inequality has damaged demand, economic tools such as monetary policy become impotent; fiscal and regulatory policy have been captured and thus not effective. The economy becomes more difficult to fix.<br /><br />Economic models built during the Great Moderation may be useful under a narrow set of economic conditions. Now that we have strayed beyond the boundaries, these models are not much help until the economy returns to Great Moderation conditions. We need to reevaluate the policies of the Great Moderation that led to a stagnation in wages that led to this mess.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12870801430817967432014-02-18T13:10:51.425-05:002014-02-18T13:10:51.425-05:00@Anonymous: "patently DID not", I'd ...@Anonymous: "patently DID not", I'd agree with. As to whether it could have, that's a whole different question. Market Monetarists have made a strong case that the Fed mismanaged the economy in 2007/8, and caused an unnecessary multiyear recession.<br /><br />You can't use recent history to distinguish between "it is not possible to control the car to stay out of the ditch", vs. "the driver fell asleep at the wheel, the car is easily capable of avoiding the ditch, all we need is a driver who is paying attention."Don Geddishttp://don.geddis.org/noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12935357015010313022014-02-18T11:52:57.665-05:002014-02-18T11:52:57.665-05:00Excuse the butting-in, but there is another concep...Excuse the butting-in, but there is another concept of equilibrium in physics that is based on entropy and information that has particular relevance to the microfoundations debate. One way to use "equilibrium" would be to say all microstates consistent with the macrostate are equally probable. Another way would be to say the EMH is the statement that price data is maximally uninformative in equilibrium. You can actually derive supply and demand diagrams from this:<br /><br />http://informationtransfereconomics.blogspot.com/2014/02/a-physicist-reads-economics-blogs.htmlJason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-48107965196752360182014-02-18T10:04:39.314-05:002014-02-18T10:04:39.314-05:00sorry, I don't understand. of course DSGE mode...sorry, I don't understand. of course DSGE models are "solved". what else do you have in mind? also, the solution to an agent's problem (be it a firm, consumer etc.) in these models is exactly their response to the current state. so I'm not sure what you mean by that either. and of course they are dynamic models... individuals consider the future when making decisions, economic variables evolve over time... maybe i'm just missing something.<br /><br />also, equilibrium in economics is a solution concept - it is the final tie that bring everything else together consistently, so that quantities, prices and actions all line up. it doesn't really make much sense to talk about equilibrium outside the context of a model. you can talk about how a model is useful or not for describing a feature of the economy, but it doesn't really make much sense to talk about "tending to an equilibrium" or "out of equilibrium". again it does not mean "in balance" or "at rest" like it does in physics. Andrewnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-51623456730826336562014-02-18T09:43:04.394-05:002014-02-18T09:43:04.394-05:00"if monetary policy has the power to accommod..."if monetary policy has the power to accommodate whatever happens to occur in that sector."<br /><br />Which patently it does not. Apparently the finance sector can cause the car to run into a ditch.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-44140132609769498662014-02-18T07:37:20.407-05:002014-02-18T07:37:20.407-05:00It is very difficult to criticise DSGE openly, eve...It is very difficult to criticise DSGE openly, even though it is obviously farcical. Its total dominance as an unquestionable paradigm means you have to submit to it. Once you have tenure you can start looking at actually what goes on in the world, but by then you will be too busy and have too much sunk cost invested to start again.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-71255532282140590302014-02-18T05:13:50.214-05:002014-02-18T05:13:50.214-05:00Well by historical standands we now have a shortag...Well by historical standands we now have a shortage of houses. You really should think about the fact that when you buy a house, you buy the land with it, and land is part of your perceived wealth. And the reason that land prices ballooned has something to do with lending policies. Which is finance.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40471622670456575592014-02-18T04:34:24.489-05:002014-02-18T04:34:24.489-05:00I'm sure both PK and Dean Baker have pointed o...I'm sure both PK and Dean Baker have pointed out that part of the reason why there was a housing bubble was that Fed was forced to lower interest rates because of the lack of alternative domestic real investment opportunities, mainly due to the trade deficit and a consistently (from a trade point of view) overvalued USD. Any model that assumes that prices adjust to clear markets, must deal with generation long currency misalignments.<br /><br />A currency misalignments part of financial markets, or not?<br />reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-79914029458783707932014-02-18T04:23:27.450-05:002014-02-18T04:23:27.450-05:00Math Bo. Andrew,
you do realise of course the DSG...Math Bo. Andrew,<br /> you do realise of course the DSGE models are "solved". They don't actually model agents dynamic response to the current state as a proper dynamic system would. The Dynamic bit in DSGE is a bit of a pretend.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10350825976851232712014-02-18T04:07:19.632-05:002014-02-18T04:07:19.632-05:00Math Bo.
"The underlying assumption is that t...Math Bo.<br />"The underlying assumption is that the markets are coordinating individuals through the vector of prices. Equilibrium is indeed a spontaneous phenomenum (Hayek), "<br /><br />1. There is no empirical reason to believe that this actually works like that. And it certainly should not be an assumption built into the models. I simply do not believe that the economy tends to a GE (and if it is not stable - then how is it in any sense "Equilibrium" and how is it reachable?)reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-42648173251649755292014-02-18T02:02:40.442-05:002014-02-18T02:02:40.442-05:00Credit market frictions is the "last war"...Credit market frictions is the "last war"? What do credit market frictions have to do with a credit bubble and bust? Seems more like people who have over-committed to exogenous money continuing to avoid the obvious credit cycle issues written about by Minsky, Fisher and the Austrians.Tomnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-570191477627454272014-02-17T22:07:49.373-05:002014-02-17T22:07:49.373-05:00If the ship is not built for the open (dynamic) se...If the ship is not built for the open (dynamic) sea. It is not sea worthy. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-17541298436753900482014-02-17T22:04:56.561-05:002014-02-17T22:04:56.561-05:00(Water in equilibrium.) (Water in equilibrium.) Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81546995834498129402014-02-17T22:03:34.008-05:002014-02-17T22:03:34.008-05:00Does macro refuse to venture out on the dynamic se...Does macro refuse to venture out on the dynamic sea or stay in flat water? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-47950773422049900612014-02-17T22:00:03.219-05:002014-02-17T22:00:03.219-05:00Which side is Macro on any way? Which side is Macro on any way? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-57326084584420448342014-02-17T19:51:57.886-05:002014-02-17T19:51:57.886-05:00Noah, I have to disagree with a major point of you...Noah, I have to disagree with a major point of your post. Where are these economists who are getting busy on the new models? <br /><br />Right now, we see the usual suspects (Prescott, Mulligan, Mankiw, Cochrane, Williamson, House etc.) pointedly not 'marking their beliefs to market'. Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34741614954437722792014-02-17T19:50:08.248-05:002014-02-17T19:50:08.248-05:00Not only that, but 'you' have to figure ou...Not only that, but 'you' have to figure out these timeless rules given very limited data, in a world where many things are changing. Talk about the Lucas Critique!Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-28173081532872925722014-02-17T19:38:50.125-05:002014-02-17T19:38:50.125-05:00Equilibrium is a consistency requirement in econom...Equilibrium is a consistency requirement in economics, it is not a statement of stability. A system of over and undershooting can be an equilibrium outcome (for a nice example, see Kiyotaki and Moore 1997). Furthermore, general equilibrium effects are emergent properties (I just noticed Math. Bo. making this point) - though maybe these terms should be properly defined... <br /><br />Jargon is specific to the particular discipline it applies to. Terms are allowed to mean different things in different jargons.Andrewnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-48135271647871680362014-02-17T19:35:50.296-05:002014-02-17T19:35:50.296-05:00Wall St's behavior could have fooled me. And ...Wall St's behavior could have fooled me. And how many economists were sounding the alarms before the Crash?Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.com