tag:blogger.com,1999:blog-17232051.post2836991117609550095..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: "Freshwater vs. Saltwater" divides macro, but not financeNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger78125tag:blogger.com,1999:blog-17232051.post-56949494559223024422014-01-15T15:19:07.021-05:002014-01-15T15:19:07.021-05:00I think the mechanism that Mr. Williamson posits s...I think the mechanism that Mr. Williamson posits supports string theory in its competition with other theories in physics.Rogernoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-43767284761124027492013-12-24T10:37:03.826-05:002013-12-24T10:37:03.826-05:00I found an economic theory on the internet that ca...I found an economic theory on the internet that can make predictions on the stock market from which both the recession of 2008 as the flash crash of 2010 could be and have been predicted. It's all based on some economic theory of this crackpot guy. Unfortunately lately the formula seemed to stop working. I don't know why.John Short ad sinorazumhttps://www.blogger.com/profile/06294518362102475267noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61210494490681346622013-12-21T16:11:35.576-05:002013-12-21T16:11:35.576-05:00@ Noah
Noah you are really wrong about the tax th...@ Noah<br /><br />Noah you are really wrong about the tax thing. Here is some name-dropping: Saez, Piketty, Chetty, Stiglitz, Diamond, Summers, Poterba, Auerbach, Gruber, Slemrod (Amy Finkelstein does not do tax, nor does Bernheim). These are clearly pro-government intervention people. Take the other side: Feldstein, Hubbard. That's it. Really it. <br /><br />Even the macro people doing dynamic public finance find role for taxation (Farhi, Werning). Moreover, the right-wing leaning departments just don't have PF economists! Chicago and Minnesota are the clear examples, but I'll be generous and include NYU and UCLA. The three top departments in PF (by leaps and bounds) are Harvard, MIT, and Berkeley, and then is your alma mater and Columbia. These are also the department consistently producing good students in PF. Even the conservatives in PF are quite well received by non-conservatives and work together. Feldstein hand-picked Chetty to be his heir. <br /><br />I am a student in PF and do not wish to disclose my name as I'm on the market. However, I really know what I'm talking about as this is my field and have no intention of showing off, it's just literally what I do all day, every day, especially on weekends :)fp3690https://www.blogger.com/profile/18347535686615378654noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-71793671542232069472013-12-18T12:10:12.766-05:002013-12-18T12:10:12.766-05:00Comparing two Chicago econ bloggers, Cochrane seem...Comparing two Chicago econ bloggers, Cochrane seems the more rhetorically political (he even links to Cato on the sidebar), even while his economics papers might not be so politically charged. Casey Mulligan's work on labor economics is highly politically charged, touching on a central dispute over redistribution, but he's usually careful to take a tone saying the labor market effects are not enough to determine what policy ought to be since we trade that off against helping the recipients of redistribution (Megan McArdle would be an example of someone who roughly accepts his positive conclusions but favors UI extensions anyway).Wonks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-7140158987262147842013-12-17T02:46:36.301-05:002013-12-17T02:46:36.301-05:00I don't know if this is of any help but my own...I don't know if this is of any help but my own experience dealing with some econometricians is that purity(only practicing econometrics) is kind of rare. Finance people generally tend to be more time-series oriented so I don't think its helpful to just categorize things into econometrics. If anything at least separate it into Financial Econometrics and see what happens next. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-67190432362659681162013-12-16T12:20:23.608-05:002013-12-16T12:20:23.608-05:00Yes this is "a" concern that has been po...Yes this is "a" concern that has been pointed out by Jeremy Stein and some others and the related issue of "reaching for yield", especially by the TBTF. Both are not that prominent. Money market funds are have no difficulty in sourcing any safe assets. If TBTF are reaching for yield, what they need to do is to issue loans that offer that yield. If they perceive these loans to be too risky, then that is due to a number of straightforward reasons: companies are flush with cash and do not need to issue bonds or take loans. Those that need it are vulnerable because they do NOT see future demand clearly. If the banks were to issue these loans regardless, then they need to do so on highly levered balance sheets (Well raise more equity!! "Market won't like it" is a statement that is correct, and the TBTF has then failed the stress test!)<br /><br />Saying QE has led to disinflation makes no sense. What it tells us now is that as private and corporate deleveraging continues, the slack has to be absorbed. It is a simple but tenacious detail that will not leave us just because some video-game model of economics tells us so.Som Dasguptahttps://www.blogger.com/profile/11848089230329819807noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6613988780763947552013-12-16T11:40:45.987-05:002013-12-16T11:40:45.987-05:00There are a multiplicity of things that are gettin...There are a multiplicity of things that are getting lumped into what "Wall Street" rewards and doesn't. Let me be a little shrill here :-) <br /><br />1. If you look at the issue of regulatory capture, which led to the repeal of Glass-Steagal, it will fairly clear to anyone willing to be objective, that that particular malarky led to banks getting hugely leveraged, gushing profits for an extended period and essentially competing for "trades" with private pools of capital for all manner of bets (why do you think certain Hedge Funds wanted to build the next Goldman Sachs?) . The "research" backing the repeal, relied heavily on the water carried by a number of prominent economists and finance professors (no names!). <br /><br />2. The typical day-to-day activity of trading desks are, especially derivatives desks are carried out using decently precise PDE-based models that are calibrated to market prices. Not much room for bull there. However if you think about how short rates are set (or have been "fixed" in recent cases) will provide you with a peak into the working of the "free market system unshackled" which you like so much. But I digress a bit here. Rates, Equities, Volatility, Commodities are essentially traded on fairly free markets that operate within lanes set by regulation (that fail at times).<br /><br />3. " ....plenty of schlock macro pseudo-science" that you are attempting to be smarmy about, has been anything but what you describe it as. In fact people who were willing to listen and follow that advice, did really well. Did you come up with your reverse-causality model back in 2008? If so people listening to you should have been buying bonds! Did they? All indications from the usual suspects following the Chicago brand appear to have been caught trying to sing to the "Hyperinfaltion!" trope for their Bar Mitzvahs!<br /><br />4. It is clear to me that a number of prominent macro professors are in the process of doing some heavy back-pedalling at the moment, to catch the policy trend that seems to have caught the drift. <br /><br />5. If you need pointers on the seminal "pesudo science schlock economics" you need to read what Paul Samuelson had to say:<br /><br />http://www.theatlantic.com/politics/archive/2009/06/an-interview-with-paul-samuelson-part-one/19572/<br /><br />Read especially his reply to the 6th question<br />Som Dasguptahttps://www.blogger.com/profile/11848089230329819807noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-47294319499166354582013-12-16T07:52:41.635-05:002013-12-16T07:52:41.635-05:00All of this obsession, yet you still haven't p...All of this obsession, yet you still haven't provided a decent definition to distinguish between saltwater and freshwater macro, forcing us to keep thinking that you mean New Keynesian vs. non-New Keynesian. The study you cite literally uses geography, which doesn't actually tell us much about methodology. In the Twitter conversation between Miles Kimball and me, he basically admitted that most people are working in a grey area and that your article intentionally used the most extreme version of the freshwater mindset as a punching bag. <br /><br />The caricature that you two painted in your Quartz piece of extreme RBC vs the wise saltwater sages who incorporate frictions is totally bogus, as nobody is working with bare-bones RBC. Rather, RBC types are incorporating lots of frictions that provide huge bang for buck in terms of explanatory power. The main remaining difference now is that RBC frictions can get big results from small changes to the model, whereas the saltwater types are just curve fitting by throwing in enough shocks to get the model to do anything the data do (eg CEE, S and W, etc). These guys don't even hide what they're doing--in some cases, they literally calibrate the model to match impulse response functions from the data; in other words, they assume the result. Maybe you think that throwing in a bunch of ad hoc frictions that make it impossible NOT to match the data is "explaining" things (as you termed it in Quartz), but it's not.<br /><br />You can keep barking up this tree, but you need to be honest with your readers about what exactly divides the fields. I raised some of these questions here: http://updatedpriors.blogspot.com/2013/11/what-constitutes-freshwater-macro.html; you responded not by resolving the problems but by claiming that you had done so in an early draft. Show us!Ryan Deckerhttps://www.blogger.com/profile/03060713323484397524noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49710253786874249392013-12-16T02:53:03.208-05:002013-12-16T02:53:03.208-05:00That's fine. I agree. I've learned a lot f...That's fine. I agree. I've learned a lot from Cochrane's blog. Steve does not agree with you or me, and seems intent on lying about something minor for no obvious reason.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-553201157187175142013-12-15T22:42:02.428-05:002013-12-15T22:42:02.428-05:00I definitely do think Cochrane's posts are pol...I definitely <i>do</i> think Cochrane's posts are politically charged. But they're still (usually) good.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10515154679084296122013-12-15T21:28:51.933-05:002013-12-15T21:28:51.933-05:00Of all the responses I thought I might get, a flat...Of all the responses I thought I might get, a flat denial of Cochrane's blogposts being politically charged is the stupidest one. It's also tedious. I'm not going to go find a million of his quips to quote just to prove you're being coy. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86758074772371185202013-12-15T12:13:38.605-05:002013-12-15T12:13:38.605-05:00Yes, some people don't read. The financial cri...Yes, some people don't read. The financial crisis effectively created a low supply of safe liquid assets - the assets we use in financial exchange and as collateral. That effect is very persistent, but you would expect it to go away over time, as the financial system repairs itself. The low supply of safe liquid assets makes the real interest rate low, and as the financial system recovers the real rate rises. If QE has an effect, by shortening the duration of safe assets it makes the stock of safe assets more liquid, and will also increase the real rate. But the effect of QE could be small. I think these other factors matter more.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-71115077265049403662013-12-15T08:26:16.566-05:002013-12-15T08:26:16.566-05:00X was just working to make my comment more compreh...X was just working to make my comment more comprehensible. Read my last sentence then read his comment. Maybe the rest of my comment seems worth your time then!Dikaios Logosnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6268270662458550222013-12-15T02:15:12.939-05:002013-12-15T02:15:12.939-05:00You clearly never worked on Wall Street. Financial...You clearly never worked on Wall Street. Financial models are used mainly in two ways<br />1. Marketing of complex products<br />2. Statistical arbitrage<br /><br />In the first case, nobody cares if they are "good science". Only if things sound sophisticated. That's the majority of sophisticated /quant modeling at big banks.Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81642355569979836022013-12-14T21:44:23.142-05:002013-12-14T21:44:23.142-05:00"More to the point, there are other forces po..."More to the point, there are other forces post-financial crisis that will cause the real interest rate on safe assets to rise, and inflation to fall further, so long as the Fed keeps short nominal rates at or near the zero lower bound." <br /><br />So it's not actually QE that is deflationary (which is what people seemed to think you were saying), but "other forces". Could you give some more details on what these other forces are?Pnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-48828877219851339892013-12-14T01:45:13.368-05:002013-12-14T01:45:13.368-05:00My argument isn't worth the time for you to at...My argument isn't worth the time for you to attack? How convenient. That's exactly what somebody would say if they didn't want to admit that they were incapable of attacking it. <br /><br />Yeah, I have numerous blog entries on the same topic. You don't have anything that interests you enough to blog about? Maybe your cat or something? Xerographicahttps://www.blogger.com/profile/14978832439622230018noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37865557684407398842013-12-13T20:42:38.587-05:002013-12-13T20:42:38.587-05:00Your 'argument' isn't worth the time t...Your 'argument' isn't worth the time to 'attack.' I'm just quite amazed that you've churned out so many blog posts that do nothing but repeat these contextless aphorisms. It's pretty spectacular!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-51116094546493529122013-12-13T20:38:31.478-05:002013-12-13T20:38:31.478-05:00If you have some overall perception that happens t...If you have some overall perception that happens to exclude the top guy in the field (not to mention basically everyone else), then yeah, you're ferociously wrong, Noah. You do realize that the average person who reads this doesn't realize you have no idea what you're talking about, right? Do you have anything to contribute other than trying to determine the political 'sides' of different fields?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-74252150417084205262013-12-13T19:52:51.681-05:002013-12-13T19:52:51.681-05:00"Update 2: Seeing Williamson's comment, M..."Update 2: Seeing Williamson's comment, Matt Yglesias points out on Twitter that successful macroeconomic modeling should be in huge demand on Wall Street. For example, if Wall St. firms were to learn that QE really does cause deflation - as Williamson's recent paper alleges - they should be able to make enormous profits."<br /><br />He's on the right track. But there's more too it than "QE causes deflation." The right way to state the proposition is that, if it does anything, QE will lower the inflation rate over the long run. And the long run comes sooner than you might think, i.e. if QE gives you a short-run increase in inflation, then if it's like typical monetary easing, then that effect lasts only a year or two. More to the point, there are other forces post-financial crisis that will cause the real interest rate on safe assets to rise, and inflation to fall further, so long as the Fed keeps short nominal rates at or near the zero lower bound. And there are good reasons to think that the Fed will be stuck at the zero lower bound indefinitely. Conclusion: expect less inflation rather than more. That has to matter for your portfolio choices.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-31999912014541052592013-12-13T18:52:19.385-05:002013-12-13T18:52:19.385-05:00Dang, there goes my attempt to start another blog ...Dang, there goes my attempt to start another blog war... ;-)Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-70481989963317147162013-12-13T18:35:42.923-05:002013-12-13T18:35:42.923-05:00Yes, what I really like about Cochrane is that wha...Yes, what I really like about Cochrane is that whatever his initial reaction to something, he always goes back and thinks about it in careful detail, and when he thinks about it carefully he is extremely fair. You can see this with his recent foray into the mechanics of New Keynesian models. Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-63244933217263448702013-12-13T18:30:13.212-05:002013-12-13T18:30:13.212-05:00I don't see the politics in Cochrane's blo...I don't see the politics in Cochrane's blog posts. Seems he wants to spend time thinking about models and how you use them to give policy advice.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-54859411812056141542013-12-13T18:27:11.247-05:002013-12-13T18:27:11.247-05:00"Because prices in financial markets are not ..."Because prices in financial markets are not sticky while they are in product and labor markets?"<br /><br />What are you saying? Are you making an empirical observation, or saying something about what has to go in a macroeconomic model?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-23837615073933324872013-12-13T18:25:19.110-05:002013-12-13T18:25:19.110-05:00Let's leave names out of it. We'll just sa...Let's leave names out of it. We'll just say this happens from time to time.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10704005217035882452013-12-13T17:57:17.181-05:002013-12-13T17:57:17.181-05:00Boston winters aren't exactly known for being ...Boston winters aren't exactly known for being great. They're a different category from Midwestern winters, but they're still far closer to that than San Francisco Bay winters.UserGoogolhttps://www.blogger.com/profile/07451696693372858067noreply@blogger.com