Saturday, April 23, 2016

Policy recommendations and wishful thinking

There was a bit of a blow-up earlier this year over Gerald Friedman's analysis of Bernie Sanders' economic plans. Paul Krugman, Christina and David Romer, Brad DeLong and others (including yours truly) said that Friedman was being overly optimistic about the effects of stimulus - some said he had overestimated the remaining output gap, others questioned the use of "Verdoorn's Law" to predict that stimulus can increase productivity growth to very high levels. Others, like JW Mason and Dean Baker, defended Sanders.

To me, it seemed that the coup-de-grace was delivered by Justin Wolfers:
When I pointed Mr. Friedman to this critique of his analysis, he simultaneously accepted and rejected it 
He accepted it, telling me that “I may have made a mistake.” 
But he also rejected this critique, arguing that his figures are based on an alternative view of the world, stating: “To me, when the government spends money, stimulates the economy, hires people who spend, that stimulates more private investment. That remains, and at the next year, you’re starting at the higher level.” He admits that this “is not standard macro,” and described it as the understanding of an earlier generation of economists — a sub-tribe of Keynesians he called “Joan Robinson Keynesians.”
When you get someone to admit they made a mistake in their analysis, it seems like it's over. Friedman admits he made a mistake and then says that his conclusion was right anyway, because we can go find some alternative assumptions that make his original conclusion hold. To me this is transparently assuming the conclusion. That's a big no-no, and while a lot of macroeconomists probably do this, it looks really bad to admit to it!

(I'm also starting to realize that "Joan Robinson" is a sort of an invincible rhetorical refuge for lefty macro types, the way "Friedrich Hayek" is for righty macro types.)

But anyway, the fracas quieted down, but now it's back. Friedman and allies are no longer saying that their analysis is "just standard economics", since they had to switch to non-standard economics to make the conclusions come out the way they wanted. The line now is that Krugman, the Romers, et al. are just a bunch of pessimists, who are unintentionally playing into the hands of conservatives.

Here's Friedman, writing at the INET website:
Professional economists tend to embrace an economic theory that government can do little more than fuss around the edges. From that stance, what do they have to offer ordinary people for whom the economy is not working? Not a whole lot...The angry reaction to my report revealed that by some combination of rationalization and the dominance of neoclassical microeconomics since the 1970s, liberal economists have virtually abandoned Keynesian economics.. 
There is, of course, a politics as well as a psychology to this economic theory...The role of economists and other policy elites (Paul Krugman is fond of the term “wonks”) is to explain to the general public why they should be reconciled with stagnant incomes, and to rebuke those, like myself, who say otherwise[.]
And here's Mason, being interviewed in Jacobin:
The position on the other side, the CEA chairs and various other people who’ve been the most vocal critics of [Friedman's] estimates, has been implicitly or explicitly: “This is as good as we can do.”...“No you can’t.” That’s the other side here: all the reasons for why you can’t do anything. Just give up! Then this notion that Republicans make everything impossible is just another bit of ammunition for “No you can’t.”... 
Right now, we have a system that says as soon as wages start rising, you have to throttle back demand. In many ways, the people running the show don’t necessarily want very fast growth. They prefer an economy that’s sort of sputtering along because it’s one that involves a lot of insecurity and a lot of weakness for working people. When there’s a chronic oversupply of labor people can’t rock the boat.
On Twitter, Mason clarified that when he talks about "the people running the show," he meant the Republicans, not Krugman, the Romers, et al. Basically, he's accusing mainstream liberal economists of unintentionally playing into the hands of conservatives.

Krugman was not happy about this, and blogger ProGrowthLiberal was pretty mad:
The claim that economists like Christina and David Romer bought into the New Classical revolution is both absurd and dishonest...[W]e critics do admit we are below full employment and we have been calling for fiscal stimulus. On this score, the latest from J.W. Mason is even more dishonest than the latest from Gerald Friedman. Guys – you do not win a debate by lying about the other side’s position.
I think PGL is going a little far here - Friedman and Mason aren't lying about their liberal opponents' positions. They aren't claiming Krugman, et al. are New Classicals, only that in the current political and economic situation, they might as well be. Also, Jacobin appeared to put words in Mason's mouth.

But anyway, I don't like what Friedman and Mason are doing. I think economists have a duty to look at the facts as objectively as they can, regardless of their emotions and desires. You shouldn't prefer Model B over Model A just because one leads to "hope" and the other to "hopelessness". 

Suppose you're a doctor, and your patient has knee pain, so you prescribe some anti-inflammatories. The inflammation goes away and the knee pain gets somewhat better, but doesn't go away entirely, and you conclude that inflammation wasn't the only thing that was causing pain. You don't prescribe a 10x dose of the original anti-inflammatory just because doing otherwise would mean abandoning hope. That would be silly! Even if the patient has an evil boss who doesn't want him to recover, you still don't recommend the 10x dose of anti-inflammatories.

Friedman and Mason seem to be arguing that our belief about the facts should be driven, at least in part, by our desire to avoid a feeling of powerlessness. They also seem to be saying that if the facts seem to support conservative policies, even a tiny bit, we should reinterpret the facts.

I don't like this approach. It seems anti-rationalist to me, and I think that if wonks behave this way, they'll end up recommending lots of bad policies. 


  1. The problem, from my point of view, is that Friedman still hasn't shared his model. This is especially important because Romer^2 have given us reason to suspect he made a rather simple error in his analysis.

    If you make a broad philosophical/political statement about the role of macroeconomics in 21st c. capitalism, then, yes, we can have a philosophical/political debate. Kalecki, Robinson, or whoever -- you can throw them all in. But if you generate a numerical estimate, before anything else we need to see the equations that produced it. Then we can have our discussion. It's unacceptable that Friedman hasn't done this.

    As you know, I'm no fan of mainstream macro, but the starting point has to be transparency. Put your cards on the table.

    1. Peter - thanks. This was your point from day one.

      Noah - If the interviewer put words into JW's mouth, maybe I did go a bit too far. But JW seems to claim Brad DeLong thinks we are at full employment, which is certainly not the case. Now if he and Gerald Friedman are not talking about the Romers but rather talking about Robert Lucas - I have to wonder why they would suggest Lucas is a liberal economist.

    2. "As you know, I'm no fan of mainstream macro, but the starting point has to be transparency. Put your cards on the table."

      Why hasn't there been an analysis of Hillary's plan. Instead there's a one-sided fight over a paper the Sanders campaign didn't commission. Yes the policy guy pointed to it, but none of the economists who support Sanders did. Neither Baker nor Mason pointed to it. We learned about it not from obscure press reports, but from Krugman and the Clinton campaign who highlighted it much more than the Sanders campaign did.

      It was all a campaign ploy.

    3. Anonymous11:55 AM


      Sanders implicit embraced it. When Hillary pointed out in two debates that mainstream liberal economists disagree with his plan, he simply retreated into "But hundreds of economists support me". But up to that point the only policy paper released was Friedman's. And this was after the Wolfers follow up with him. Just like the economists, Sanders knows the conclusion that needs to be reached ahead of any actual analysis. Which is the whole problem with his liberal tea party approach to any policy making.

    4. PGL - My only reference to Brad DeLong in that interview was a direct quote, saying that it is impossible to return output to the pre-recession trend -- that the output losses in 2009-2010 are permanent. You are substituting your fantasy of what you think he ought to say for what he actually does say, and then you accuse me of lying.

  2. Anonymous9:45 PM

    "Policy recommendations and wishful thinking"...... more like policy recommendations and ideological thinking.

  3. Anonymous9:59 PM

    " They also seem to be saying that if the facts seem to support conservative policies, even a tiny bit, we should reinterpret the facts. "

    Now you're just blatantly pulling stuff out of your passive-aggressive ass , Noah , and , naturally , it stinks.

    Let it go. Your establishment candidate , Hillary , will be our next prez. There's no danger of a return to the FDR-type , golden-age economic policies of shared prosperity ( and higher taxes on the elites ) that the bipartisan establishment has worked so hard to undo. The money-grubbing will remain good , at least until the next election in 2020.

    Beating this dead horse at this point just amounts to gloating. It's very unseemly , but - coming from you - not surprising.


    1. This is just emotive political anger. Who cares, man? I'm talking about what role economists should take in the policymaking process, not who will become president.

    2. Anonymous1:34 AM

      This is a socialist version of an ejmr bro huh? Stay mad Marko.

  4. Honestly why would anyone positively cite Joan Robinson - she literally endorsed the economy of North Korea, possibly the worst ever, for all time. I'm not saying that automatically makes her wrong about everything - but it harms her credibility so much that one wonders why they don't cite plenty of other more credible post Keynesians.

    It's also simply not true that Krugman thinks fiscal stimulus can do little - look how much he enthusiastically talks about the massive spending during the build up to WW2 in America, and how much that boosted output and ended the depression.

    1. HAHAHA wow, thanks for the Robinson North Korea tip! Amazing.

    2. On the other hand, she was on the correct side of the Cambridge capital controversies (along w/ Sraffa), wherein the oft-cited Samuelson and Solow declared unconditional surrender.

      Doesn't make her political views *right* in any sense, but it aids her credibility in re: econ theory. Whether that benefits Friedman's model... who knows? as others have pointed out, the model apparently isn't public [yet?].

      As for Krugman: He still believes in the loanable funds model. And apparently thinks all heterodox econ is scorn-worthy, post-Keynesian included.

    3. I'm never quite sure if Post-Keynesian rebuttals are written by bots. "Cambridge capital controversies!" "Loanable funds model!" etc.....

    4. Then why hasn't Krugman criticized Hillary's plan for $55 billion a year over five years? Combined with the trade deficit, this will require a lot of monetary policy to reach full employment, risking further asset bubbles.

      No doubt Krugman will criticize her after she's President and drops her spending plans as her husband did. And Hillary will listen to Krugman just as Obama did.

    5. Actually, Britonomist (and the rest of you), all you have done is show that you are abysmally ignorant. Joan Robinson made her commendation in 1964 after visiting Pyongyang and Seoul. While you may not believe it, at that time real per capita income in North Korea was far higher than it was in South Korea, and Robinson accurately reported that Pyongyang was rebuilt and looking in good shape while Seoul was not, with there having been essentially no growth in the South in the 1950s under the super corrupt Syngman Rhee whom the US had installed. Growth began in the South after he was overthrown by Park Chung Hee in 1960. When Robinson was there was about when the gap between the two in favor of the North was at its greater. After then, the South would catch and then far surpass the North, now abysmally far behind.

      If you want to poke at her for political misjudgments do so regarding her period of admiring Mao, although she got off that by the time she died in 1983. As it is, it remains a crime that she did not receive the econ Nobel, which could have been uncontroversially given to her for her 1933 Economics of Imperfect Competition without any controversy.

      Barkley Rosser

    6. As late as 1977, Robinson predicted that North Korea would "absorb" South Korea. That is late enough that an intellectual should have at least begun to question North Korea's statistics and productivity.

    7. rosserjb, that might be a good excuse for a journalist, but not an economist. Most economists argued that an economy like North Korea's, so heavily centrally planned and prone to corruption, would be eventually heading for an absolute disaster - she on the other hand was far more enthusiastic about how effective such heavy central planning could be. She lost that bet, hard, as China and North Korea showed.

    8. Of course, Britonomist, although as an economist, North Korea was definitely far ahead of South Korea economically when she visited, and lots of western economists in the early 60s were still reporting the USSR growing more rapidly than the US economy, such as Paul Samuelson, who continued to do so for quite some time. It was not until the late 70s early 80s that the full stagnation of the Soviet model became fully clear, with this the model North Korea was following.

    9. Now the fact that she was forecasting NK would absorb SK in 1977 looks more foolish than her 1964 report. By then the South did have higher real per capita income and certainly larger aggregae GDP than the North with its much larger population. But this piece is one paragraph long, not a full report, and she had not been back to visit, with the data still somewhat murky, and the South only having taken the lead just a few years earlier. Three other points on that time period are that the South was a military dictatorship only barely freer than the North, and its economic policy was a hard form of indicative planning that resembled the full-oout command planning of the North. The South was more capitalist with its privately owned chaebols, encouraged by Park, but with strong state direction coming through the state-owned banks. Although growth was rapid in the South in the 70s it had distortions like those from full central planning, in particular overemphasis on the chemical industry. The system was not all that different from the one in the North. I would also note that two years earlier, North Vietnam and "absorbed" South Vietnam, although the latter had a higher real per capita income, which I suspect was influencing her view of things in 1977.

    10. Anonymous3:10 AM

      "AHAHA wow, thanks for the Robinson North Korea tip! Amazing."

      Yes, that would get you a few more brownie points from Krugman et al. Aren't you great!

      But what about actually reading what Robinson has said. I am almost certain you have not even read a page of Robinson. Unless it is a corrupted form (with rep agents etc) in modern textbooks.

      Where do you think the theory of monopolistic competition came from?

    11. Anonymous3:14 AM

      Don't even begin to compare the contributions of Robinson and Krugman.

    12. Right, you just gave Noah more ammunition against anti- Post Keynesian crusade. "omg, North Korea!" when yes, in the mid-60s North Korea was far ahead of South Korea. Though yes, her embrace of Mao was retrospectively very poor, and 1977 should have been late enough to renounce North Korea.

    13. Also, if we're using a similar criterion, every single mainstream economist should never cite Milton Friedman for anything. After all, his influence extended to Chile under Pinochet, who was not only a brutal authoritarian dictatorship, but also economic growth was incredibly sluggish. Real GDP per capita grew more under Allende's 3 years than under Pinochet's 17 years, and Chile grew more slowly than almost any neighboring country, and probably was only outdone in the entire Western Hemisphere in terms of sluggishness by Haiti.

      Real GDP per capita 1970: $973
      Real GDP per capita 1973: $1622
      Real GDP per capita 1990: $2388

      Compare that to Brazil and Argentina (both of which had military dictatorships during this period), and which started at a similar point in 1973: $767 for Brazil and $2083 for Argentina, and ended up in 1990 at: $3086 for Brazil and $4332 for Argentina.

      But it's funny all the revisionist history we get about Milton Friedman. I guess he's the Jesus of Econ who can do no wrong. Anyways.

    14. Anonymous12:41 PM

      Thanks for bringing in some facts Rosser. South Korea has relied a lot on quantitative controls including credit rationing rather than price adjusting mechanisms such as interest rates. Perhaps Joan Robinson envisaged SK going the way of the Philippines (which followed an Anglo-Saxon model under much US colonial and other influence) rather than Japan and Taiwan, which followed a path which resembled in many ways a command economy.

  5. Friedman's analysis did seem a little funky, putting so much emphasis on growth.
    "real GDP per capita will be over $20,000 higher in 2026 than is projected under the current policy"
    This means people will be spending $20,000 more/year, on average, than they would have under the "alternative" if you can even pretend to predict that as well. This is the future people, it's the definition of confounding variables.
    I liked Sander's plan, but the specificity of the outcomes in Friedman's analysis seems disingenuous. If you're only running a model with one set of parameters, I don't think that's particularly instructive. I mean, you want to see how the policy behaves in wide variety of circumstances. So as soon as you say "this policy creates outcome A" we know you are being pretty simplistic.

  6. Looks to me like Friedman is assuming a high positive multiplier from government spending. That's an assumption with considerable empirical support (although you have to be quite specific about times, circumstances and kinds of government spending). One can make other assumptions. The "show me the model" line ("we are just neutral technocrats") is not an adequate rejoinder, since all economic models are riddled with assumptions (some but not all with some empirical support).

    1. It's not just a high multiplier. It's a multiplier in levels, rather than growth rates - in other words, Friedman is saying that if the "multiplier" is 2, then $1 more of government spending today creates $2 more of output, every year, forever.

      That's not usually how it's done.

    2. Add to that the premise that one can just ignore potential output is odd for a forecast over a decade. Yes the output gap is not zero but is it really 18%? We have yet to a real consideration of this from Gerald Friedman and his defenders.

    3. @ Noah

      "Friedman is saying that if the "multiplier" is 2, then $1 more of government spending today creates $2 more of output, every year, forever."

      As far as I understand we do not really know if Friedman is making that claim because Friedman has not shared his model, as Peter Dorman said above.

      Implicit in the claim is the idea that a temporary fiscal stimulus can have a permanent effect on the level of GDP. I agree "that's not usually how it's done". But I don't think the idea that a temporary fiscal stimulus can possibly shift the economy from a bad equilibrium to a good equilibrium can or should be dismissed out of hand. But you do not engage with this idea. Instead, by accusing dissenters to be driven by feelings rather than reason, your post directs attention to non-substantive matters.

    4. Friedman confirmed that interpretation when interviewed by Justin Wolfers. Wolfers specifically brought up the Romers' criticism.

    5. I thought about this for awhile, and I have to ask you to go through a verbal model (until we get Friedman's mathematical model): Why is this wrong?

      If the government spends $100 billion into the economy with a multiplier of 1 in 2017, does that income suddenly disappear in 2018? Or is that a part of the wages of workers, profits of businesses to then hire more workers or make an investment in capacity for 2018? It seems to me that the $100 billion will continue circulating through the economy until A) it is taxed back out of the economy / $100 billion is cut elsewhere, B) national savings increases by $100 billion, or C) imports go up by $100 billion . But assuming that the government doesn't enact any other austere fiscal policy, and that the $100 billion doesn't induce people to save more or import more, how exactly is that money taken out of the economy?

  7. >>It seems anti-rationalist to me, and I think that if wonks behave this way, they'll end up recommending lots of bad policies.

    We've run that natural experiment, actually. See: The Republican Party since, at least, 1980.

  8. Smith reminds me more and more of Bobo Brooks and Ross Douchehat. Maybe he's fishing for some work at the New York Times.

    1. Do you think everything is just all politics, all the time??

    2. Anonymous11:59 AM

      The Revolution cant fail Noah, it can only be betrayed by kulaks and wreckers and intellectual fifth columnists like you and the shill Krugman.

  9. Biden hits back at the No Hope Clinton campaign:

    Biden hits back at Clinton's criticism of Sanders

    By NOLAN D. MCCASKILL 04/21/16 11:11 AM EDT

    Vice President Joe Biden may think America is ready for its first female president, but in this Democratic presidential primary, he prefers some of Bernie Sanders’ messaging over Hillary Clinton’s.

    “I like the idea of saying, ‘We can do much more,’ because we can,” Biden told The New York Times in an interview published Thursday.

    Clinton, a former Obama administration official, has criticized Sanders on the trail for his bold proposals, suggesting that his policies aren’t pragmatic.

    “I don’t think any Democrat’s ever won saying, ‘We can’t think that big — we ought to really downsize here because it’s not realistic,’” Biden said. “C’mon man, this is the Democratic Party! I’m not part of the party that says, ‘Well, we can’t do it.’”


  10. I just read the Mason interview you link to and his original piece that he was being interview about. He appears to be arguing for a form of strong Keynesianisn where lots of fiscal stimulus and toleration of higher levels of inflation would lead to lower unemployment and higher growth that may be close to what Sanders claimed was possible ( but for different reasons).

    Mason is probably wrong about this - but where does he say anything to indicate that he thinks that "our belief about the facts should be driven, at least in part, by our desire to avoid a feeling of powerlessness." as you claim ?

    1. David and Christina Romer wrote a paper back in 1988 that argued for what you called strong Keynesianism as a way of increasing the share of income that goes to wages. Maybe progressives should focus on that particular paper rather than tag them as "establishment economists".

    2. Maybe we should respond to what people actually write instead of trying to assign them to teams.

    3. Yes people sure shouldn't say anything like "The position on the other side, the CEA chairs ... has been implicitly or explicitly: “This is as good as we can do.”" even if it were true while it is a totally false claim about CEA chair C Romer.

      You are quite right to criticize your Jacobin interview. I agree with your comment here as I too disapprove of it.

  11. Why don’t economists simply shut up for a while?
    Comment on Noah Smith on ‘Policy recommendations and wishful thinking’

    You say: “You shouldn’t prefer Model B over Model A just because one leads to ‘hope’ and the other to ‘hopelessness’.

    Let us put it more bluntly: economists should not do political economics. The distinction between political and theoretical economics is of utmost importance. The main differences are:
    (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
    (ii) In political economics anything goes; in theoretical economics scientific standards are observed.

    Theoretical economics has to be judged according to the criteria true/false and NOTHING else. Scientific truth is well-defined as formal and material consistency (Klant, 1994, p. 31).

    Political economics (= non-science, opinion) and theoretical economics (= science, knowledge) are based on different modes of thinking: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)

    The pseudo-inquirers of political economics use economic theory as a means to push an agenda. Thus, they corrupt economics. Political economists like Smith, Ricardo, Marx, Keynes, Hayek, or M. Friedman have produced not much, if anything, of scientific value. What we have is Walrasianism, Keynesianism, Marxianism, and Austrianism. Neither of these approaches satisfies the scientific criteria of formal and material consistency.

    The task of theoretical economics is to figure out how the actual monetary economy works — not less, not more. Political economists of all colors have failed at this task. The current discussion between G. Friedman, Romer, DeLong, Krugman, Mason and other agenda pushers is a case in point.

    J. S. Mill had a clear idea of the economist as scientist: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (2006, p. 950)

    He forgot to add: economists who have not done their scientific homework are asked to keep their opinions for themselves because we have already more than enough of this low-IQ stuff.

    Egmont Kakarot-Handtke

    Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL
    Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
    Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.

    1. "The goal of political economics is to push an agenda".

      Alas this is how we got Lawrence Lindsey and Art Laffer. I prefer Joe Stiglitz and Dani Rodrik.

    2. re AXEC

      "no man is an island"

      Similarly, science cannot be separated from its motivation. That motivation is what drives scientists to pursue science. The scientific method modulates that motivation into (sometimes) productive output.

      That distinction rings clear and true in Krugman's reponse to this post.

    3. Say what you will about Keynes or Friedman, but they actually made up a lot of new ideas that were revolutionary to how Economic thinking was done. Now, in Friedman's case, those ideas turned out to be empirically wrong (Monetarism, NAIRU, PIH), but can you really say that the PIH was a way to try to infuse a metaphysical assumption of predestination in order to argue on behalf of Libertarian principles? Probably not, but if yes, you'd also have to attack Marshallian Economics 101 for promoting a "Just Deserts" or "Meritocracy" vision of (micro)economics, as people are just supposed to earn their marginal product..

  12. The problem is that a lot of economists have chosen the theories currently driving our economies because they like the way they feel. There is a certain pleasure some people take in telling others that things are as good as they can get and they should stop whining as they get less and less.

    Friedman is making a simple symmetry argument based on things we know for certain about economic behavior. We know that government policy can produce long term alterations in overall economic growth. For example, the current austerity kick seems to have a hysteresis effect that has resulted in slower growth even though we are no longer cutting government spending at the same rate. Friedman argues symmetrically that it is possible that a burst of government spending might lead to accumulating long term growth. Given the current reluctance to invest due to limited consumer demand, one would expect an induced increase in consumer demand to lead to higher investment rates which could then feed further demand.

    The particular model Friedman chose may have serious flaws. This doesn't make his general conclusion wrong, unless one is arguing that there is no possible mechanism for increased growth. That's the feel good position prevalent in the field, but it is not based on anything scientific or empirical. We know, for example, that higher growth is possible. We were growing more rapidly within recent memory and even faster some decades before then.

    Economists should take a look at the way physicists do this. They know that their two great theories - the standard model and general relativity - are wrong. This doesn't mean they aren't useful, and it definitely doesn't mean that a lot of stuff they predict is incorrect. The theories that get discarded should be the ones that don't work, not the ones that make us uncomfortable.

    1. Kaleberg

      You cannot compare “the standard model and general relativity” with the proto-scientific state of economics. Economists have not even arrived at something like the Law of the Lever which Archimedes has developed 2200 years ago.

      The representative economist, and this includes you, cannot tell the difference between income and profit and this means that he does not understand the pivotal phenomenon of his subject matter (2014), which in turn means that he has NO idea how the economy works.

      It is #TopStupidity when incompetent scientists argue that the two most advanced physical theories are “false”. Economics is false already at the scientific kindergarten level of supply-demand-equilibrium.

      Schumpeter tried in vain to put some lipstick on the pig: “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.” (1994, p. 9)

      Economics is scientific junk from supply-demand-equilibrium to DSGE.

      Egmont Kakarot-Handtke

      Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
      Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

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  14. urban legend4:24 PM

    This has been a very strange dust-up.

    Had the opening salvo said Friedman was being "overly optimistic," most of us who follow these things but are not professionals probably never would have heard about it. Instead, what we got were accusations like puppy dogs and unicorns, accompanied by no actual counter-analysis. Your denatured description making the initial attack on Friedman sound like a sober professional quibble is putting a very heavy thumb on the scale.

    It also seemed very strange for them to use as a reference point for a plan with massive stimulus over a five year period either the CBO projections, which assumed no fundamental policy changes, or the Jeb Bush plan with massive regressive tax cuts, elimination of ACA, no fiscal stimulus and no credible theory for encouraging growth.

    Putting Friedman up against the CBO, we would see a range of annual growth projections over a 10-year period between 2.1% and 5.3%. OK, critics, so if 5.3% is outlandish where should it be -- that is, the growth rate under a program of annual stimulus or stimulus effects through cost savings (healthcare, college) and income re-distribution somewhere between half a trillion and a trillion dollars? Should it be only 2.5%? 3.5%? 4.5%? We have seen the criticisms, but they all seem to be based on reasoning from the outside in. Nobody has stepped up to the plate and gone through a similar or alternative process, and showed where his projections were wrong.

    The argument the Romers later made that we are close to output capacity because we are close to full employment seems, from all the data and not just the most favorable data to the argument, patently absurd. The still-high U-6, the still-very low employment rate, relatively stagnant wages, the very high involuntary part-time rate and the very high long-term unemployment rate, plus the precipitous drop in the employment rate over a very few months from late 2007 into 2009 (greatly weakening the cultural shift or demographic excuses), make the official unemployment rate look like an outlier statistic. Sure, Republicans are zeroing in on those weak stats while hiding their central role in causing them, and we don't want Obama to look too bad so Clinton can run on building on his legacy, but that doesn't mean those stats can be ignored when assessing potential growth.

    The argument that stimulus may cause a big spike in the growth rate and then drop back to a zero effect and revert to the pre-existing growth rate seems bizarre, too. I guess that's the assumption built into the preferred model, but when in American post-1929 history of stimulus spending has that happened? Doesn't the theory of a multiplier generating new economic activity apart from the direct stimulus effect negate the zero-permanence proposition?

    If Friedman had been part of the Ivy League/Nationally Ranked Universities club of major economists, surely the first step would have been a pleasant letter to him questioning his results. The going-public first step was an uncivil way of going about it, so from the outside it seems clear that it was fueled by a political agenda and Friedman has easily won the civility side of the dispute. The sarcastic assault was the kind of help alienating the intelligentsia wing of the Sanders constituency that Clinton needed like a hole in the head.

    That Friedman said something in defense that might go overboard or be subject to criticism is really quite irrelevant to the main issue. It has seemed weird, however, to see the honcho Keynesians saying, yeah, Keynesian policy is really, really good, but not that good -- but we don't know and can't be bothered to analyze just how good it can be.

    By the way, while I like Sanders infrastructure proposals over Clinton's, I voted for and have strongly supported Clinton from the outset. The Berniebro set annoy me as much as they probably annoy you. Bit I'm better than John Roberts: I really do call them as I see them.

  15. Disclosure: I'm not an economist.

    Which model should I trust? When should I revise it? When should a revision be acceptable?

    I think that these questions can be answered easily.

    * Trust any model that can meet your threshold for accurate prediction.
    * A model should be revised when it no longer makes accurate predictions.
    * A model should be accepted when it accurately predicts the test-case that motivated its revision, and all of the test-cases it previously predicted accurately.

    So I echo the sentiment of some of these other comments. "Show me the model!". Otherwise, what the heck are we talking about?!

    1. Anonymous3:03 AM

      Good points, and under this criteria Verdoorn apparently performs very well.

      When people stop saying "standard economics tell us..." we will start to make progress in economics.

    2. Dane Van Dyck

      Science is NOT about trust or credibility or belief, science is about proof. The criteria of proof are well-known: logical and material consistency.

      The royal road for non-economists to economics starts with profit theory, see: ‘How the Intelligent Non-Economist Can Refute Every Economist Hands Down’

      Egmont Kakarot-Handtke

    3. Fortunately for Post Keynesians, they fall outside Egmont's critique of profit. Lots of work has been done to explain how prices are actually set (administrative mark-ups, or "fixprices" i.e. cost+profit and not via marginal cost or marginal revenue, etc.). Kalecki goes on to talk about "profit-led vs. wage-led economies". (see here for a brief summary: )
      . Now one may not be satisfied with the way PKs divide sectors by "Capitalists", "Workers" and "Rentiers", but that is done more for the purposes of simplicity.

    4. Kain

      Not so! The profit theories of, for example, Keynes, Kalecki, Minsky, Keen are different. They cannot all be correct at the same time. But they can all be false. And this is actually the case. See ‘Heterodoxy, too, is scientific junk’

      Egmont Kakarot-Handtke

    5. Of course they can be different and correct at the same time (not necessarily saying that they are, though I believe they are - not sure at about Minsky's definition, but Kalecki and Keen look correct). Think about equations for GDP.

      The OECD defines GDP as "an aggregate measure of production equal to the sum of the gross values added of all resident, institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).”

      GDP = R + I + P + SA + W
      where R : rents
      I : interests
      P : profits
      SA : statistical adjustments (corporate income taxes, dividends, undistributed corporate profits)
      W : wages.

      GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).

      Y = C + I + G + (X − M)

      All ways are correct.

    6. Kain

      You say: ‘Of course they [profit theories] can be different and correct at the same time.’ Only in the intellectual swamp of economics which is the preferred habitat of confused confusers and compulsive blatherers.

      (i) Take notice that ‘The Profit Theory is False Since Adam Smith.’

      (ii) As a consequence of (i) the concept of GDP is false, see ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach’

      (iii) As a consequence of (i)/(ii) Walrasianism, Keynesianism, Marxianism, and Austrianism is provably false. Because profit is the pivotal concept in economics it holds without exception: when profit is ill-defined the whole theoretical superstructure falls apart.

      (iv) Because economists do not understand profit they do not understand how the actual monetary economy works.

      (v) Because of the abysmal logical incompetence of economists since Adam Smith economics is a failed science. There is nothing to choose between Orthodoxy and Heterodoxy. See ‘The nothing-to-choose dilemma’

      (vi) Because the axiomatic foundations of economics are provably false economists are in NO position to give any economic policy advice. Instead, they have urgently to do some scientific homework: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (Hutchison)

      Conclusion: Because the axiomatic foundations of economic theory are provably false economic policy guidance is worthless or even counter-productive. Economists are a menace to their fellow citizens.

      Egmont Kakarot-Handtke

    7. Hi Egmont,

      I respectfully disagree with the notion of GDP being a false concept, or that GDP having multiple methods of calculations and equations is problematic. Similarly, I disagree that finding multiple ways of deriving a profit equation is problematic as well. Perhaps one is more useful intellectually than the other, perhaps all ways can be useful. I just don't really see a reason to discount these measurements and equations.

      By the way, the point you made in (ii) you basically hold Stock-Flow Consistent models ahead of anything else, using the Godley-Lavoie models. Guess what, Wynne Godley and Marc Lavoie were both Post Keynesians!
      In your blogpost (v) you said that two of the main axioms of Walras that was in modern economics was equilibrium and optimization. Guess what, Post Keynesians generally reject both of those as well! (Of course, there are some who still do equilibrium types of equations, but this is usually to explain their points to conventional economists. In fact, this may be the reasoning behind the math and models within Imperfect Competition).

      And yes, you definitely do need to have an alternative framework set up in mind if you want to replace the current orthodox approach, and this is something all heterodox including Post Keynesians have failed to do so far, both with new 101 foundations and with having a comprehensive macro model to replace DSGE in totality (although SFC is very good, and could perhaps be tweeked to some other new factors to replace it).

      Anwar Shaikh is onto something with his new book and lecture series: . He also agrees that you shouldn't have theories of "perfect" and "imperfect" competition for example, just a theory of "competition".

      Maybe you should talk to some Post Keynesians out there, you seem to be saying criticisms that they are mostly in agreement with (minus the multiple ways to have equations on GDP and profit), perhaps you should attend a conference somewhere with them and talk about creating new foundations for an entire new branch of economics instead of continuing paths of past economists with different degrees of orthodoxy rooted into their thinking.

    8. Kain

      (i) You insist that there are multiple ways to define profit/income. This widespread methodological hallucination is the hallmark of confused confusers and explains why economists fall regularly over their own conceptual feet. See ‘The Humpty Dumpty Methodology’

      (ii) Your advocacy of Post Keynesianism is futile because the formal foundations of Post Keynesianism are provably false. See ‘Why Post Keynesianism Is Not Yet a Science’

      (iii) Godley/Lavoie have moved farthest in the right direction but they, too, got profit wrong. See proof in ‘The Emergence of Profit and Interest in the Monetary Circuit’

      (iv) Post Keynesians have not realized in more than 70 years that Keynes messed up macrofoundations. See ‘Finalizing the Keynesian Revolution’

      (v) For the overdue paradigm shift from microfoundations to macrofoundations see ‘The problem with macro in two words’

      (vi) Post Keynesianism is over just like Walrasianism. Time to come up to speed.

      Egmont Kakarot-Handtke

    9. All i'm saying is that it's perfectly fine scientifically to find some equation of profit or GDP using different variables. In physics for example, when finding magnetic field intensity, you can find it through an equation like this or through pole strengths . Similarly, you can find multiple definitions of the same concepts throughout physics.

      Perhaps one person's definition of profit is wrong, and that's a perfectly fair critique if you show why. But it's not really correct to dismiss Post Keynesians definition of profit simply because they have multiple ways of coming to that definition.

      On (ii), it is a somewhat fair critique. There's quite a lot of differences among Post Keynesians, almost as many as against the neoclassicals, that coming down to a mutually agreed to set of axioms and foundations simply hasn't come about yet.

      As far as the axioms that all Post Keynesians DO believe in, i.e. 1) uncertainty / rejection of erdogicity - this is a metaphysical assumption rather than one that is provable. For all we know, Milton Friedman and the PIH may be correct because we are predestined to have a certain kind of income the day we are born. Being an Atheist, of course that's nonsense to me, and uncertainty makes the most metaphysical sense.
      They also believe in the 2) non-neutrality of money and 3) rejection of the substition axiom.

      You're correct that this is not enough for the foundation of an entire scientific field. The question is how would you get a room of the world's Post Keynesian economists to agree on a set of axioms with which to base the entire discipline on? It'd be quite hard, but worthwhile.

      As far as (iii), (iv) and (v) goes, to comes back to whether or not Keynes' definitions were incorrect, which I and most would argue that they weren't. You say that Keynes didn't complete his profit equation. That's true, but most Post Keynesians would argue that the profit question was adequately addressed by Kalecki.

      So basically you would have to refute Kalecki's profit equation and claim your own is better than his, if you want to truly debunk the Post Keynesians. And claiming that because others like Keen or Minsky use other definitions doesn't really count.

    10. Kain

      You say: “So basically you would have to refute Kalecki’s profit equation and claim your own is better than his, if you want to truly debunk the Post Keynesians.”

      High time for you to come up to speed, see: ‘What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example’

      The refutation of Keynes, Marx, Keen you could also find on SSRN if you were not too much occupied with giving silly advice.

      Egmont Kakarot-Handtke

  16. Anonymous6:27 PM

    Except hopelessness has historically gone into violent revolution, or, at least bands of thug run kidnappings and violence similar to South America and Mexico.

    Piketty predicts losing voters on capitalism (free trade), ...Trump and Sanders are just the tip of the iceberg.

  17. Anonymous12:53 PM

    I've been reading Krugman for years and I find him hard to trust completely, even though I like him, find him fascinating, and find he's often right (eg inflation predictions). But he strikes me as someone who will spin and stretch any argument to fit the team he's on, whether it's the democrats or Hillary specifically. And this is coming from someone who agrees with him and likes Hillary. Maybe it's his derisive attitude torwards all ideas republican, even if they are bad ideas. Or his tendency sometimes to gloss over the downside of a policy if he thinks the net is a positive. I think he would do himself a favor by finding a few republican ideas he actually likes. People like Noah smith, greg Mankiw, and even Steven landsburg seem more trustworthy to me. Steven landsburg may be just as derisive as Krugman, but he over time has chided republicans just as easily as he's chided democrats. I feel I trust pundits with a more balanced approach. Of course Krugman hates "the center," but to me the center just means not always being on any given team and supporting good ideas regardless of what party they come from.

    1. Anonymous

      You say: “I’ve been reading Krugman for years and I find him hard to trust completely, even though I like him, find him fascinating, and find he’s often right.”

      Note: (i) Science is NOT about trust or credibility or belief, (ii) Science is NOT about like/dislike, (iii) science is about true/false, (iv) scientific criteria are well-defined as formal and material consistency.

      Krugman’s policy proposals have NO sound scientific foundation. His underlying models are PROVABLY false, see: ‘Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It’

      Your sitcom-assessment of Krugman (fascinating, likable) is beside the point and itself a reliable indicator of scientific incompetence.

      Egmont Kakarot-Handtke

    2. Anonymous2:03 PM

      Lol. Oh please. You make it seem like we have all the answers, crystal clear in front of us and some just refuse to look. False. We do not live in a world of black and white true false answers in Econ. To think otherwise is absolutely silly and absurd. We have better methods these days to take advantage (and notice) natural experiments but spare me the true/false bullshit. By the way, how many people were wrong about inflation when Krugman was right?

    3. Anonymous

      You say: “... spare me the true/false bullshit.”

      (i) Science is about true/false and nothing else. Scientific criteria are well-defined as formal and material consistency.

      (ii) Science was there before economics was there. Economists either accept the rules/ethic of science or are not accepted as scientists.

      (iii) Economics is a failed science. For the main approaches the proof of either logical or material inconsistency has already been provided.

      (iv) Economists are proof-deniers: “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.” (Hands)

      (iv) Proof-denial violates scientific standards. Economists violate them on a daily basis at least since the 1940s: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941)

      (v) Economic policy proposals have no sound scientific foundations. Thus, policy disputes resemble nothing so much as a quarrel between poultry entrails readers. Krugman’s application of IS-LM is a case in point.

      Egmont Kakarot-Handtke

  18. You should probably set the ad hominem attacks on Joan Robinson aside, as she was a lady. Also, not to forget the Vietnam-soaked anger of the time, nor her reasoned opposition to 'structural adjustment' in an environment where such was outside the pale.

    More seriously, as Barkley points out, her work on monopolistic competition must be seen as a necessary complement to Keynes, who somewhat neglected the issue.

    I'd simply conclude that the standard rejection of Sanders' plan made no mention of the obvious efficiency of a single-payer system that would remove layers of monopolistic seizure of consumer surpluses. The narrow debate you have joined on the wrong side has been seriously harmful.

    Krugman said all this better, recently, though not noting the implications for the medical debate he had previously chosen sides upon, in one of the few columns no comments were allowed upon, doubtless expecting trolls. Perhaps read that before next trolling Robinson:

  19. Anonymous12:49 PM

    I can only think that Krugman wants a job in the Clinton Administration. She has been getting away with too much. Her close contacts with Goldman Sachs really bother me, and this is not the time for such people post 2008. His criticisms of Sanders have gone too far. You might not agree with them, but they are not as wacko as Krugman makes out.

  20. Anonymous4:38 PM

    Going back to the original former CEA chairs' criticism, the point they had made most directly was that Analysis that was not supported by a careful view of models and data to conclude favorably for progressive policy was a mistake. It was a mistake because that criticism of wishful thinking is what the right wing and the libertarians are getting hammered for --i.e. 'trickle down', and don't want to get into the danger of ideological equality with the other side