tag:blogger.com,1999:blog-17232051.post6371474368093231778..comments2024-03-18T22:32:52.802-04:00Comments on Noahpinion: The Great Ricardian Equivalence Throwdown!Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger30125tag:blogger.com,1999:blog-17232051.post-67690885928482508522013-07-24T17:11:35.788-04:002013-07-24T17:11:35.788-04:00The fact that anyone is using Say's Law as the...The fact that anyone is using Say's Law as the basis of anything is evidence of a lack of progress in economic theoryAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-77495495754138982282012-02-24T15:52:20.835-05:002012-02-24T15:52:20.835-05:00Just where is that multiplier?
http://www.blogger...Just where is that multiplier?<br /><br />http://www.blogger.com/blogger.g?blogID=5576731519661024717#editor/target=post;postID=5596687422013782558<br /><br />My non-economist view. <br /><br />Demand is always there, just not enough dough.<br /><br />Creating Manufacturing Supply expands into the Service sector. <br /><br />Manufacturing Supply has a Service to Manufacturing Labor component, and then Manufacturing workers generate Service consumption with their wages. More Service consumption leads to more Manufacturing Supply consumption, leading to more Service consumption, and so on, until an equilibrium is reached.<br /><br />In this model, Manufacturing multiplies into the Service sector, and Service does not multiply.wood turtlenoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-2607089960567600552012-01-02T13:22:57.448-05:002012-01-02T13:22:57.448-05:00If a retired gardener like Luke Lea thinks somethi...If a retired gardener like Luke Lea thinks something, it must be true. Same goes for the equally-impressive Jazzbumpa. I thank the Flying Spaghetti Monster for all of their scientific contributions to economics, where would we be without such magnificant and life-altering papers?<br /><br />People, you're out of your depth trying to discuss economics. The sooner you realize it, the better of you and I will be.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-52870090254884808082012-01-01T12:21:38.654-05:002012-01-01T12:21:38.654-05:00'In 1974, Robert J. Barro provided some theore...'In 1974, Robert J. Barro provided some theoretical foundation for Ricardo's hesitant speculation. . . Barro's model assumed the following:<br /><br />families act as infinitely lived dynasties because of intergenerational altruism[10]<br /><br />capital markets are perfect (i.e., all can borrow and lend at a single rate)<br /><br />the path of government expenditures is fixed." [Wikipedia]<br /><br />Words about words. Zero empirical content. Academic decadence.Luke Leahttps://www.blogger.com/profile/11290760894780619646noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-39886463241443449422012-01-01T11:02:23.775-05:002012-01-01T11:02:23.775-05:00The deconstruction of economics would be a worthy ...The deconstruction of economics would be a worthy project: the exposure of assumptions, acknowledged and unacknowledged, with no empirical justification.<br /><br />Talk about a research program.Luke Leahttps://www.blogger.com/profile/11290760894780619646noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-70415984316079464452011-12-31T19:00:58.354-05:002011-12-31T19:00:58.354-05:00Starts with model x and adds assumption y?
This i...Starts with model x and adds assumption y?<br /><br />This is not real economics, is it?Luke Leahttps://www.blogger.com/profile/11290760894780619646noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45708508575363076092011-12-31T01:30:23.989-05:002011-12-31T01:30:23.989-05:00"a special and unrealistic case...where all s..."<i>a special and unrealistic case...where all spending is just transfers</i>"<br /><br />I think the issue is the extent to which government spending and private consumption are substitutes. We can probably all (even Lucas) agree that they are not perfect substitutes, so what Lucas says clearly isn't precisely right, but it's plausible that they are fairly close substitutes. (Maybe not all that plausible, but it doesn't surprise me, or seem wildly irrational on his part, that Lucas might believe that.) If what you care about is your overall standard of living, it might well be influenced similarly by both private and public goods. If you can spend time in a public park, you might be less inclined to buy a bigger television, and so on.Andy Harlesshttps://www.blogger.com/profile/17582263872850949568noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-4143705569179745952011-12-30T16:43:40.745-05:002011-12-30T16:43:40.745-05:00That's -
. . . little to do with reality in g...That's -<br /><br />. . . little to do with reality in general . . .<br /><br />not -<br /><br />. . . to do with reality in gebeal . . .<br /><br />JzBJazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-80885584618098834722011-12-30T16:01:38.407-05:002011-12-30T16:01:38.407-05:00Mr. Violet -
You are pining for an idealized worl...Mr. Violet -<br /><br />You are pining for an idealized world that does not exist - even in real science (which economics most emphatically is not.) <br /><br />Do you realize that Chemists have blood feuds with each other, and have come close to physical violence at international conferences over the nature of ionic properties in non-aqueous solvents?<br /><br />But, as to discussing models and not people, don't you think that when people mis-use and misrepresent models for some agenda-driven reason, they should be called out by people who know and understand? <br /><br />The degeneration of the economics profession, which you rightly decry, comes from two sources: 1) the joined-at-the-hip relationship with its other evil twin, politics; and 2) the fact that econ models have little to do with reality in gebeal, and when they differ most economists act as if it were reality that is wrong.<br /><br />Happy New Year!<br />JzBJazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-80421334019032128522011-12-30T13:16:58.310-05:002011-12-30T13:16:58.310-05:00well, it could be not so easy to stay in between o...well, it could be not so easy to stay in between of Nobel laureates while they're fighting each other...<br />anyway I guess you got distracted by the whole "controversy" who took the form of "this guy don't understand his own doctrine, that guy to not understand the former, they don't read me properly and attack me" and so on... Personally I think this is part of the degeneration of economic profession... <br />scientists should discuss models (once were called theories) not people...Anonymoushttps://www.blogger.com/profile/14377623855540455028noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-46300636399266993862011-12-30T09:13:51.905-05:002011-12-30T09:13:51.905-05:00Noah said...
" @TGGP:
You're rig...Noah said...<br /><br /> " @TGGP:<br /><br /> You're right. What Lucas is really saying is just something that doesn't make a lot of sense."<br /><br />Noah, from what I can follow Lucas' argument makes sense given Says' Law and Ricardian Equivalence, and not otherwise.<br /><br />In that case, either Lucas is using those two 'laws' (not honestly, because they don't work), or is just babbling.<br /><br />Which is it?Barry DeCiccohttps://www.blogger.com/profile/04735814736387033844noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-89927987007505490302011-12-30T08:53:34.669-05:002011-12-30T08:53:34.669-05:00Ricardian equivalence doesn't hold up to reali...Ricardian equivalence doesn't hold up to reality:<br /><br />http://bonddad.blogspot.com/2011/12/ricardian-equivalence-is-crap-theory.htmlAnonymoushttps://www.blogger.com/profile/07993720456025396144noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-9884366982945731772011-12-30T03:35:09.735-05:002011-12-30T03:35:09.735-05:00Say's Law is a total non-starter, which gives ...Say's Law is a total non-starter, which gives the argument to Krugman by default. <br /><br />There are many other perfectly good reasons to at least question the impact of stimulus, even in the context of a liquidity trap (the fragility of debt acquisition is a good starting point), as well as the problems with central planning (misallocation of capital).<br /><br />But nothing mentioned in this debate was of any use whatever.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81469483699675533952011-12-30T01:37:06.452-05:002011-12-30T01:37:06.452-05:00Right on Jazzbumpa.
I love the fact that your com...Right on Jazzbumpa.<br /><br />I love the fact that your comment is as equally no nonsense and lucid as it is likely to be ignored by the economists who frequent this blog. Modern economics is a chummy club where anyone with the temerity to advance human understanding of the real world is ostracized and the remainder prattle on about perfectly absurd theories that weren't even wrong 100 years ago. <br /><br />Speaking of which, of course RET is a great place for your average mainstream economist to start! It has neither theoretical nor empirical validity nor would the common sense available to non-economist laymen indicate it would, so nothing could be more appropriate. Never mind Keynesian uncertainty of eight decades ago. "The Keynesians" long ago abandoned such sensible ideas when they saw how cool the classicists looked scrawling PDEs on blackboards.<br /><br />Nevermind that uncertainty opens the door to the types of legitimations that dominate decision making in the real world. Nevermind how powerful the two dynamics are in the context of the massive agency problems of the real world. <br /><br />Nevermind the endless anecdotes that your average person could conjure to attest to the power of that vortex in the context of real world commercial and governmental institutions, e.g. the fact that organizing a price fixing conspiracy on one of the most important test markets in the world for deregulated wholesale electricity wasn't exactly in the interests of a wholesale electricity trader's long-term business plan didn't stop Enron from doing it, e.g. the fact that its not in private equity GPs long-term interest to screw over LPs hasn't stopped that epidemic, etc. etc.<br /><br />And what did happen when one mid 1990s Merril tech analysts suggested a midling upside for tech and internet stocks. Well, of course they found one with views more to their liking! Think he's an artist now- unless the money's run out. But at the time, I'm sure the powers that be were able to put together a very convincing PowerPoint!<br /><br />And while we're at it, never mind the same dynamic applies to individuals, e.g. in our capacity for things like procrastination, gambling, drug addition, etc. etc. etc. and on ad infinitum.<br /><br />No, but rational expectations is a GREAT jumping off point.Majorajamhttps://www.blogger.com/profile/12726411902275032723noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-11553267229098463152011-12-30T01:30:19.534-05:002011-12-30T01:30:19.534-05:00This comment has been removed by the author.Majorajamhttps://www.blogger.com/profile/12726411902275032723noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73580270005406162852011-12-29T20:29:46.695-05:002011-12-29T20:29:46.695-05:00you can't get around Say's Law by taxing p...<i>you can't get around Say's Law by taxing people in the future instead of today, because people are forward-looking and have rational expectations</i><br /><br />If Say's Law were not invalidated for other reasons, it would absolutely fall apart here.<br /><br />Have you ever heard anybody ponder what they would be doing with their money 5 or 10 years down the road if they didn't buy a big screen TV today?<br /><br />Does anyone ponder relative poverty in their old age vs taking a vacation now?<br /><br />To the extent that most people think about money at all, it's implicitly in terms of cash flow. Can I make the finance payments on this purchase and still afford to feed my cat? This is the real wold, which is apparently terra incognita to economists.<br /><br />Plus, rational expectations is the silliest idea to be taken seriously since chemists gave up on phlogiston. People act from the cerebral cortex at least as often as they act from the neocortex. This gives us wars and the herding instinct, makes bubbles and Ponzi schemes so exciting, and enables all sorts of wildly irrational behavior, like voting for Republicans or believing in Ricardian equivalence. <br /><br />Cheers!<br />JzBJazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-9040375282683174382011-12-29T19:46:33.095-05:002011-12-29T19:46:33.095-05:00Steve,
I agree, that is interesting! Have you rea...Steve,<br /><br />I agree, that is interesting! Have you read Jing Zhang's paper that combines limited enforceability with limited span of assets? She gets some very interesting results...it's in a trade context, but could be applied elsewhere, I think.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49237261300257738752011-12-29T19:12:05.309-05:002011-12-29T19:12:05.309-05:00Noah,
But you can see why it's useful to star...Noah,<br /><br />But you can see why it's useful to start with Ricardian equivalence and work from there. I see how that works, and then I think: OK this won't work if there is some friction in private credit markets, e.g. people can run away from their debts. But a tax liability is a debt too, so what if people can run away from the government too? But maybe the government has greater powers of enforcement? But what if it's the Italian government trying to collect taxes in Sicily? That seems interesting.<br /><br />SteveStephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-50140177688025174462011-12-29T18:17:39.622-05:002011-12-29T18:17:39.622-05:00Noah,
Lucas explicitly said something to the eff...Noah, <br /><br />Lucas explicitly said something to the effect of 'we know the timing of the taxes doesn't matter' right? But if people only care about NAV, then there's no reason to expect them to offset the entire NAV of a tax increase with present savings.<br /><br />In other words, the assumptions of the RET manifestly don't hold in the real world where Lucas's proclamation was directed, therefore Lucas either doesn't understand the theory or is misrepresenting it, as per PK (the whole thing's a little like a physist claiming that 'we know' that it takes one drop of gasoline to drive from Sacramento to Bakersfield due to Newton's law of energy conservation).<br /><br />So all that said, shouldn't the score be something like N/A due to Andolfatto and Williamsons comprehensive whiffs en route to the field of play?Majorajamhttps://www.blogger.com/profile/12726411902275032723noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-13126461934886410162011-12-29T17:31:50.809-05:002011-12-29T17:31:50.809-05:00Steve:
Sounds like an interesting model.
With re...Steve:<br /><br />Sounds like an interesting model.<br /><br />With regards to the current controversy, I don't think anyone was arguing that Ricardian Equivalence itself has to hold. It's pretty clear that it doesn't, necessarily...the effect of the timing of taxes will depend on a lot of other stuff, e.g. the enforceability of debt contracts, like in your model.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3613787079434920302011-12-29T17:11:48.156-05:002011-12-29T17:11:48.156-05:00Eric has a point here. See the comments on this po...Eric has a point here. See the comments on this post:<br /><br />http://www.newmonetarism.blogspot.com/2011/12/ricardian-equivalance-heat.html<br /><br />Steve WilliamsonStephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-71955860890675782342011-12-29T15:10:25.325-05:002011-12-29T15:10:25.325-05:00<sarcasm>But I thought Laffer disproved Rica...<sarcasm>But I thought Laffer disproved Ricardian Equivalence by showing that current borrowing could be paid for by future tax <i>cuts</i>.</sarcasm><br /><br /><i>Ricardian Equivalence says: if G is constant and T is cut then this will have no effect on aggregate demand because when consumers take account of the present value of future taxes they realise their permanent income is unchanged.</i><br /><br />There is a fundamental logical flaw here. Consumers are assuming that the only effect borrowing has on their permanent after-tax income is the change in their taxes. If we don't assume a priori that Ricardian Equivalence holds, then we have to allow for the possibility that borrowing and cutting taxes will affect economic growth, which will affect pre-tax incomes, and if you allow that then permanent income can change and the whole argument falls apart. Ricardian Equivalence is based on circular logic, as I've laid out <a href="http://economicreset.blogspot.com/2011/12/circular-logic-behind-ricardian.html" rel="nofollow">here</a>. <br /><br />As for Say's law, it seems to be based on the assumption that there is some physical constant determining the number of times a dollar is spent in a year. If you tax a dollar from someone who would have been slow to spend it (or borrow it, which will necessarily come from those who would have been slow to spend it) and spend it on someone who would be quicker to spend it, then spending will increase.Eric Lhttps://www.blogger.com/profile/17688525347746547529noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73410042724802213942011-12-29T14:12:29.460-05:002011-12-29T14:12:29.460-05:00@TGGP:
You're right. What Lucas is really say...@TGGP:<br /><br />You're right. What Lucas is really saying is just something that doesn't make a lot of sense.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-88115366661635009342011-12-29T12:33:43.066-05:002011-12-29T12:33:43.066-05:00The usual story I've heard for how Say's L...The usual story I've heard for how Say's Law is wrong comes from Nick Rowe, who says the reason is money. Say's Law would hold in a barter economy (but barter is so terrible we rarely resort to it even amid severe monetary dysfunction). Lucas seems to acknowledge that monetary stimulus could avoid the negative multiplier of taxation for government projects. So in that sense, he doesn't appear to believe in "Say's Law".TGGPhttps://www.blogger.com/profile/11017651009634767649noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37377788578368698242011-12-29T11:08:07.554-05:002011-12-29T11:08:07.554-05:00So I knew that Ricardo was sceptical of Ricardian...So I knew that Ricardo was sceptical of Ricardian equivalence, I learnt that from Wikipedia.<br />And now you tell me that Say didn't believe in the validity of Say's law.<br />It's all very confusing.exchemistnoreply@blogger.com