tag:blogger.com,1999:blog-17232051.post560082221292392626..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Bob Lucas on macroNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger71125tag:blogger.com,1999:blog-17232051.post-57777066916117004402012-12-22T10:35:12.969-05:002012-12-22T10:35:12.969-05:00Monetary theory, monetary theory ... follow the mo...Monetary theory, monetary theory ... follow the money: that was where you could get research funds, CB conferences and talks to Wall Street types. Let's not ignore self-interest as a component of the direction research takes. From that perspective RE and later developments were gold mines.Mike Smitkahttps://www.blogger.com/profile/10310816368811158899noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-63983675322322585652012-12-17T23:19:05.498-05:002012-12-17T23:19:05.498-05:00Big fan of Lucas :) His nobel prize lecture is bri...Big fan of Lucas :) His nobel prize lecture is brilliant, both in its exposition of the history of monetary theory and his very modest conclusions about what we know today. Question, you pick on the "Calvo Fairy," why not the "Taylor Fairy" also? Melaniehttp://www.smithandkeynes.comnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-11788538843191812372012-12-10T01:31:25.348-05:002012-12-10T01:31:25.348-05:00Ben, that's wrong in a subtle way. The proxim...Ben, that's wrong in a subtle way. The proximate cause of all recessions is a shortage of spending in the private sector. It is possible to generate that without a high rate of saving, under circumstances involving manipulation of the money supply.<br /><br />However, your description is *usually* right -- but it's still misleading. A "high rate of saving" can mean that the billionaires are hoarding all the money, and can't find ways to spend it fast enough, while the rest of the population would love to spend money or save money, but is deep in debt and can't really do either. That is what's actually going on right now.<br /><br />Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-85236347320362695652012-12-10T01:28:37.676-05:002012-12-10T01:28:37.676-05:00What's a "real shock"?
I don't ...What's a "real shock"?<br /><br />I don't think "technological shocks" have ever caused a recession, and I don't think "taste" shocks could even conceivably cause a recession (people's propensity for consumption doesn't vary that much!).<br /><br />On the other hand, the 1973 Oil Crisis could logically count as a real shock -- people in the US weren't expecting the behavior of OPEC and had no idea how to react to it. That's a very classic supply shock, though. <br /><br />It also seems like that sort of thing can only cause a recession under rare circumstances: specifically, the good with the supply shock has to be *very important* to the economy, and it has to have *no good substitutes* in the period of years. Oil in the US in 1973 fits both criteria. However, you'd be hard pressed to find another example of a supply shock causing a recession, though you might be able to dig one up from ancient Rome or something.Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65611886225337512042012-12-10T01:23:05.166-05:002012-12-10T01:23:05.166-05:00Thanks for some interesting thoughts, Mr. Serlin.
...Thanks for some interesting thoughts, Mr. Serlin.<br /><br />From what I can tell, theorists in mathematical game theory really *do* keep the limitations of Nash equilibrium in mind, and have been working to develop further useful concepts. I can't speak to the economic game theorists, because I admit I haven't been following them as much as perhaps I should!Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86202172184111260382012-12-10T01:12:16.278-05:002012-12-10T01:12:16.278-05:00I seem to agree with you on a great deal, Mr. Hami...I seem to agree with you on a great deal, Mr. Hamilton, so I may just be confused about what you were trying to say with reference to "leadership".Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-89700877422794599872012-12-10T01:11:14.599-05:002012-12-10T01:11:14.599-05:00Leadership is policies and policies are leadership...Leadership is policies and policies are leadership. I have no idea what the distinction you are making is.<br /><br />I don't think that you can do things through sheer charisma, though charisma is valuable. <br /><br />There are things which actually matter: for instance, you have to put wealth in the hands of the poor people in order to have a functioning economy over the long term; you can't let it all concentrate in the hands of very rich hoarders. It doesn't much matter how you do that, but you do have to do that.<br /><br />Ronald Reagan wrecked the country using policies which were calculated to create short-term success and long-term failure -- these are a specific class of policies, and they do exactly that. The same class of policies was used by the "ancien regime" in France during the 100 years before the French Revolution; the key features are "kicking the can down the road" and fraud.Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-4152844127796001892012-12-10T01:06:24.360-05:002012-12-10T01:06:24.360-05:00Preston makes a good description of the actual pro...Preston makes a good description of the actual procedure for resolving conflicts.<br /><br />For a long time, geology told us the age of the earth, and physics told us the age of the universe, but physics said the age of the universe was shorter than the age of the earth, which is actually impossible. Which was wrong? (As it turned out, physics.)Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14539589316024696422012-12-10T01:03:53.786-05:002012-12-10T01:03:53.786-05:00Lucas is WRONG. Beyond wrong, even.
Perhaps his ...Lucas is WRONG. Beyond wrong, even.<br /><br />Perhaps his problem is that he's never studied biology, or the history of biology. The theory of evolution by natural selection, in particular, does not meet *any* of his "microfoundation" requirements. And yet it is the absolute best theory for explaining vast quantities of biology and geology, far better than "microfounded" theories.<br /><br />I have to agree with the people who think that economists suffered from physics envy, when they should have been studying biology.Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-19152428514909128282012-12-02T07:11:03.438-05:002012-12-02T07:11:03.438-05:00The proximate cause of all recessions is an overly...The proximate cause of all recessions is an overly high rate of saving in the private sector. There are many different catalysts for such behavior, but it is that behavior which initiates and sustains economic downturns. Economic distress emanates from a lack of aggregate demand.Ben Johannsonnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15430116860857104092012-12-02T07:01:06.234-05:002012-12-02T07:01:06.234-05:00This is wrong. You cannot make a comparison betwe...This is wrong. You cannot make a comparison between physics and economics and expect to get anything useful out of it. Thermodynamics (the micro in your example) contributed toward understanding of atomic theory (your macro) because so far as we are aware the laws of physics do not change, which is why physics is actually relatively simple.<br /><br />But in economics rules which apply at the micro level often do not translate to the aggregate. The Paradox of Thrift is an enormous glaring flaw in attempting to make it so, as is comparing government budgets to those of households or firms. Recall the bild assertion by the Tories that austerity would spark investor (microeconomic actors) confidence, and their spending would generate economic growth. What actually happened was that withdrawing government spending reduced incomes which reduced employment which reduced output (macro!).Ben Johannsonnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-88139487061838908932012-11-30T13:09:51.764-05:002012-11-30T13:09:51.764-05:00CA - I'm not suggesting one start by assuming ...CA - I'm not suggesting one start by assuming contradictory laws.<br /><br />As Noah points out, if you have an explanation of the solar system (that doesn't contradict the behavior of individual planets) then it is fine.<br /><br />He ALSO points out, if you have an explanation of individual planets (that doesn't contradict the behavior of the solar system) then that is fine.<br /><br />It would be nice if you can explain the behavior of solar system and planets with one explanation - i.e. gravitational attraction between masses - but it isn't required if the separate explanations are non-conflicting (even Ptolemic epicycles have a fair predictive ability).<br /><br />Additionally, if your solar system and planetary theories do start to conflict, it is not clear which theory (if either) is correct. For example, the understanding of the solar system was surmised incorrect and 'fixed' by adding in Neptune and Pluto. However planetary motion was also surmised incorrect and 'fixed' by correcting for relativity (especially with regard to Mercury).<br /><br />This is why, as a non-economist, I enjoy Noah's blog; he advocates the scientific method, and is thus understandable to a scientist. He doesn't try to 'make it fit' he looks for the 'fit that works'.<br />Preston Urkanoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-9947227845487884952012-11-30T13:00:33.068-05:002012-11-30T13:00:33.068-05:00Noah, I have a go at Lucas too, but I think I end ...Noah, I have a go at Lucas too, but I think I end up closer to Brad on this issue ...http://larspsyll.wordpress.com/2012/11/30/oh-dear-oh-dear-robert-lucas-is-talking-nonsense-again/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-57551103862609100552012-11-29T16:23:19.779-05:002012-11-29T16:23:19.779-05:00But would it be OK to explain the behavior of sola...But would it be OK to explain the behavior of solar systems by assuming laws that contradict the behavior of the individual planets within a solar system? CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65691375071230778782012-11-29T14:45:13.226-05:002012-11-29T14:45:13.226-05:00Bees are not the only critters that "swarm&qu...Bees are not the only critters that "swarm", therefore the macro swarming behavior cannot depend that strongly on the underlying micro degree of freedom (bee).<br />http://en.wikipedia.org/wiki/Swarm_behaviour<br /><br />Observed correlations between the degrees of freedom in the economic microtheory are probably not strongly dependent on the details of that microtheory. If they were, then you have strongly coupled scales -- such a system would likely not admit a macro description at all.<br /><br />It is a possibility in economics, but if the behavior of gasses depended on the details of atoms at all scales, then we likely wouldn't be able to describe an ideal gas.<br /><br />(I may be wrong about this, but I think in models where we understand there is micro behavior that produces correlations in the macro behavior ... Langton's ant, for example ... we actually can't derive the latter from the former except by brute force simulation.)Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-67167097876829309062012-11-29T13:30:18.769-05:002012-11-29T13:30:18.769-05:00Good point, I haven't looked at game theory fo...Good point, I haven't looked at game theory for many years. If both players choose a mixed random strategy of 1/3R, 1/3P, 1/3S, that's a NE.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34127175826431126492012-11-29T12:04:24.521-05:002012-11-29T12:04:24.521-05:00ps - in the 'hard' sciences bestiary, Luca...ps - in the 'hard' sciences bestiary, Lucas (for this one comment) would come across as an Astrologer, studying Astrology. Sounds a lot like an Astronomer studying Astronomy, but isn't quite the same. :)Preston Urkanoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-62186719273372929122012-11-29T12:01:16.260-05:002012-11-29T12:01:16.260-05:00... Finally, Lucas on microfoundations:
Wh... ... Finally, Lucas on microfoundations:<br /> What is important...is that if a model is formulated so<br /> that its parameters are economically-interpretable they<br /> will have implications for many different data sets...This<br /> kind of cross-validation (or invalidation!) is only possible<br /> with models that have clear underlying economics: micro-<br /> foundations, if you like. <br /> This is bread-and-butter stuff in the hard sciences....<br /><br />As a 'hard' scientist (see Noah's bestiary), it pains me to read what Lucas considers bread-and-butter stuff - he misunderstands completely.<br /><br />Chemistry, Physics, etc, did not start out with a Grand Unified Theory; they started out with Newton's Theory of Gravity, Maxwell's Electromagnetism, .... and are still working on putting them into a GUT.<br /><br />Einstein showed that gravity is more generally represented as the curvature of space, but bridges are still designed using Newton's theory - should we be afraid of crossing them?<br /><br />The 'bread-and-butter' is that 'hard' scientists kept working on the macro models - they didn't start with the Electro-Weak Interaction and work backwards to Electromagnetism and the Weak Interaction; they worked forwards from the macro models to the micro.<br /><br />One should not look for cross-validating models; one should look for models that cross-validate (existing) models. Otherwise, as Noah points out, you should junk your hypothesis and move on.<br /><br />To your next reviewer who rejects a paper for lack of micro-foundations, point out that Newton, Priestley, Bohr, et cetera weren't micro-founded either.Preston Urkanoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-53150153014314725422012-11-29T11:33:51.113-05:002012-11-29T11:33:51.113-05:00Neuroeconomics is not the same as behavioral econo...Neuroeconomics is not the same as behavioral economics. <br /><br />By the way, what does all that have to do with Lucas? CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-82027669550847467912012-11-29T11:32:05.155-05:002012-11-29T11:32:05.155-05:00I don't think Lucas refers to technology shock...I don't think Lucas refers to technology shocks only when he talks about "real" shocks. The list inclued changes in taxes, government spending, energy costs, etc. Nevertheless, I think it is hard to argue that the 1981-1982 recession was due to a real, rather than a monetary shock.<br /><br />What kind of shock was the Jimmy Carter presidency?<br /><br />It is amazing to me that economists are so stupid that they have models that vary behavior according to future expectations about the price of wheat but not whether we have a fool as President or a madman running around in the mid-east with nuclear weapons.Anonymoushttps://www.blogger.com/profile/07904132869021579763noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-27445460729218902502012-11-29T11:27:53.441-05:002012-11-29T11:27:53.441-05:00Was Minsky a neuroeconomist?Was Minsky a neuroeconomist?CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-807125313452300742012-11-29T11:23:54.767-05:002012-11-29T11:23:54.767-05:00Last time I checked, there was a Nash equilibrium ...Last time I checked, there was a Nash equilibrium at rock, paper, scissors. Of course, it is in mixed strategies.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-20532465573229097062012-11-29T10:48:31.041-05:002012-11-29T10:48:31.041-05:00Lucas' comments just corroborate the need for ...Lucas' comments just corroborate the need for efficient (Bayesian) estimation of DSGE models.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86532283845060543742012-11-29T04:46:51.310-05:002012-11-29T04:46:51.310-05:00i.e. in one word Minsky.i.e. in one word Minsky.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-32961362526474110432012-11-29T04:40:40.000-05:002012-11-29T04:40:40.000-05:00This assymetry is not the same as a tast for risk ...This assymetry is not the same as a tast for risk aversion. It is a sudden change in risk aversion in response to experience.<br /><br />reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.com