Friday, March 18, 2011

Taking Mike's Advice

The blogosphere is a powerful tool. We have a technology that gives everyone access to ideas at low cost, and permits the instantaneous exchange of those ideas. The ideas can be good and bad, of course, and it takes some effort to sift through what is out there. I have been doing this for about a year now, and have learned a lot. Why do I do it? Nobody is paying me of course and, while there is some payoff in notoriety, it does not seem to be the notoriety that an academic needs. Academic economists make their names by publishing papers in scholarly journals, and influencing other academics. The ideas are vetted internally by the profession, sifted, and then are put to use in solving practical problems. That's scientific progress.

Here is what blogging does for me. It forces me on a regular basis to put complicated ideas into words and make them (hopefully) easy to understand. This is excellent discipline. The fact that those words are going to be read by a large number of people is also disciplinary. You want to have your facts right, and your arguments well-constructed, or someone will try to embarrass you. In economics seminars people can be tough as well - that's good practice for the blogosphere.

Sometimes I like to provoke. If you challenge someone's ideas and force them to defend themselves, you can get an interesting discussion going, and everyone learns something. That's the end goal. I was trained to be an educator, and this blog is just another educational tool - for me and anyone else who cares to read it.

Now, sometimes provocation does not work. Not everyone is interested in economic science. Some people have political agendas, and that need not mix well with science. I think that is part of the Paul Krugman problem, but you might disagree with me. If the political people enter the debate and misunderstand the context, then all hell can break loose, and science suffers. I have just had an experience where two groups of readers met each other, neither appreciated what the other group was up to, and nothing of value got accomplished. So I deleted that post, and wrote it off to experience.

Now, some tips for the politically active people. The events since late 2008 have been confusing and troubling. Trained economists are struggling to sort things out, so it is no wonder that everyone else is angry and looking for someone to blame. And some of those trained economists, looking to gain advantage, are quite willing to blame some of the other economists whose ideas they don't like. My messages to you are: (i) I think things are under control. Don't worry too much. Economists may bicker, but they are actually a productive lot. (ii) We are very lucky here in this country. We have stable democratic institutions, and a lot of control over those institutions if we choose to exercise it. (iii) Knowledge is power. Work to get inside the institutions. Then you can have some influence over how things are run. (iv) More knowledge helps you to understand what is worth keeping and what we should throw out. If you get carried away, you might make some errors.

53 comments:

  1. Actually Stephen, I think of you and Krugman as much closer than you acknowledge. You might not like his politics so much, but at least the two of you are doing genuine economic science. This is more than can be said for some of the denizens of the more cult-like blogs who have unfortunately corrupted the discourse here in recent posts.

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  2. How about a post on the yen appreciation in the wake of the earthquake ? Can we make sense of this ? Or do you subscribe to the model in Champ and Freeman's text, where the exchange rate is indeterminate ?

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  3. Stephen,

    keep up your great work!

    KP

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  4. First anonymous,

    True. I actually feel something of a kinship with Krugman. He can come over to the house any time.

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  5. Second anonymous,

    The indeterminacy result is from Kareken-Wallace. It's actually a useful starting point. "Sunspot" indeterminacies appear to explain some of the things we observe, and people used the idea in Keynesian coordination failure models. Sometimes it seems like a cop out though. I haven't thought about how you explain the Yen's behavior. Start with the idea that the exchange rate is the relative price of two currencies, and try to do it in terms of the terms on which people are willing to hold stocks of outside money. Volatility is a problem though, just as when we are trying to explain stock prices.

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  6. Stephen -- you provoked, I put substance with references to the leading scientists in the field, and you ducked out on actually doing what you claim -- discussing substance.

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  7. Stephen, I'm willing to listen to your rejoinder to Frydman, Woodford, Blanchard, Bhide on the explanatory and cognitive limitations of the New Keynesian version of the New Neoclassical Synthesis -- and mainstream formal math economics more generally.

    But you seem incapable of bringing anything to the table.

    This is the real current state of your science.

    Don't mislead your readers by pretending otherwise.

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  8. I can take a guess on the reasons for the yen appreciation: unexpectedly high GDP growth usually produces domestic currency appreciation because it induces expectations of interest rate increases.

    Japan's natural disaster will probably increase investment, decrease savings and raise GDP growth. These will produce increased expected Japanese interest rates. If the long-run real exchange rate is approximately unchanged, then the immediate exchange rate response must be a sizable appreciation above the long-run equilibrium, a la Dornbusch.

    A note to the knee-jerk ankle biters about to accuse me of indulging in Bastiat's fallacy of the broken windows: The earthquake, tsunamis and nuclear accidents were very, very bad for Japan. Noting that these events will probably increase Japanese growth and interest rates over the medium term does NOT mean that I think that natural disasters are good. Natural disasters that destroy people and capital are bad.

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  9. And also Buiter and Caballero on the limitations of the DSGE construct, and the confusions caused by math bewitchment.

    Again, you provoke, Stephen, then you fail to hold up your side of the table -- instead of discussing substance, you dish out more "provocation", then duck under the table.

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  10. Hey Greg, I hope that Steve knows what you are talking about because the rest of us don't.

    The bad part about the internet is that it enables drive-by snark with no real point.

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  11. Thanks to Chris for his insightful remarks. This is why people come to this blog, to discuss genuine economic science.
    I am hoping personally Stephen does not respond to the bait from you-know-who here so we can get back to posts on real issues. Biologists wouldn't get far in understanding molecular genetics if they had to spend every other paper refuting the creation scientists.

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  12. Greg,

    No, this post was not addressed to you at all. I view you as relatively harmless, and you seem interested in science, at least, though you have a warped view of what that is. This is another blog issue, which is the extent to which the comment box should be viewed as public property. I have the power to delete comments, and I do it sometimes. If people cross the line by being abusive - to anyone - I delete. Now, there is another issue, which is when people get so far afield that they are not contributing to the discussion. You I view as someone who is not interested in learning anything. You're interested in promoting your own views which, in what you have revealed so far, seem totally crackers. Right now, you are creating a congestion problem. You're becoming obnoxious, and I could make a case to delete your comments. What do the other readers think?

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  13. In Stephen's End The Fed post I provided links and fuller references to much of this stuff.

    "Hey Greg, I hope that Steve knows what you are talking about because the rest of us don't."

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  14. I wouldn't delete the comments, just ignore them. He refers to Caballero a lot but doesn't recognize that Caballero has produced many many math models that are potentially refutable.
    This is why the Austrian sect is doomed to be irrelevant to the real world because they don't talk in the language of modern econ.

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  15. Stephen, the "abuse" began with your questions and provocations.

    "If people cross the line by being abusive"

    I responded to your questions directed explicitly to me.

    The issues are substantive -- clearly the writings on the limitations of current formal math models produced by Frydman and Bhide and Buiter and Woodford and Caballero and Blanchard are not "crackers".

    You are dodging the patent anomalies at the heart of your science, identified by dozens of your peers -- top people in your profession.

    You are being massively honest with the public if you falsely portray this significant period of non-normal, revolutionary science (as defined by thomas Kuhn) in your field as "crackers".

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  16. I love it that most of your readers won't identify themselves, Stephen.

    Your reader simply doesn't get it -- seeing value and significance in math models is perfectly consistent with finding LOGICAL and CAUSAL and EXPLANATORY limitations to those models -- this is the great insight of Hayek's debate with Lerner over collectivist economic planning, and the great lesson of Mises' paper on socialist calculation.

    There are limitations to what the math does -- see the math sophisticated folks cited above on this issue.

    Your paper bad wearing reader wrote:

    "He refers to Caballero a lot but doesn't recognize that Caballero has produced many many math models that are potentially refutable."

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  17. That there are limitations to math models....this is Hayek's great insight ?
    There is nothing here, nothing.

    Please, Stephen, let's move on and do some real econ.

    ultra anonymous

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  18. The work produced by William White's BIS is now at the heart of macro understanding by the leaders of your profession, e.g., Otmar Issing:

    "Quite a number of studies, now libraries almost, from the BIS and also from the European Central Bank have clearly shown that there is hardly any bubble in history which was not accompanied if not proceeded by strong growth in money and/or credit. So looking into money and credit will help you to identify a risky situation."

    White began producing this work in the early 2000's -- empirical work inspired by the theoretical work of Selgin, Minsky, and Hayek.

    But you refuse to engage this discussion either, and its clear implications for modern macro, pointed out by Blanchard:

    "Monetary policy has to go beyond inflation stability, adding output and financial stability to the list of targets, and adding macro-prudential measures to the list of instruments."

    William White argued for this beginning in the early 2000s, working under the influence of the work of Hayek and Minsky.

    Again, only chirps from you.

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  19. Sorry Greg. Have to get my paper in shape so I can present it next week in Santa Barbara. Need to integrate, differentiate, do some algebra, and write some words. Chirp chirp.

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  20. Stephen, this I understand. I really would like to hear what you have to say about W. White, Frydman, Buiter, Bhide, Issing, Woodford, Blanchard, L. White, and Caballero on the cognitive and explanatory limitations of math constructs and the current fashion in modeling.

    Maybe I can come up to Santa Barbara and you can explain all this to me over dinner. I'll buy.

    Stephen writes,

    "Sorry Greg. Have to get my paper in shape so I can present it next week in Santa Barbara. Need to integrate, differentiate, do some algebra, and write some words."

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  21. Greg Crankpants said, "I love it that most of your readers won't identify themselves, Stephen."

    I'm sorry, Greg, we would like to identify ourselves but the terms of our agreements with the Federal Witness Protection Program prohibit that.

    "I really would like to hear what you have to say about W. White, Frydman, Buiter, Bhide, Issing, Woodford, Blanchard, L. White, and Caballero on the cognitive and explanatory limitations of math constructs and the current fashion in modeling."

    Did you ever think that Steve ignores you because you are asking for an essay on a broad topic that would require a lifetime's work?

    Narrow questions and a more civil tone might actually get you somewhere.

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  22. Right. The interloper doesn't get that we're not interested in a bloody philosophy seminar, we want to do economics.

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  23. Stephen's "narrow" question to me was: what have you got against modern macro?

    I then began pointing to cognitive and explanatory limitations in with the modern macro math constructs, with references to the current literature and debate.

    Note well. I did NOT attack sound uses of math in economics.

    Stephen then began provoking me will all kinds of false suggestions.

    Paperbagman #2 writes,

    "Did you ever think that Steve ignores you because you are asking for an essay on a broad topic that would require a lifetime's work?

    Narrow questions and a more civil tone might actually get you somewhere."

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  24. Your bloody economics is racked with anomaly -- identified by the leading lights of the profession, listed above.

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  25. Greg, why don't you start by writing a coherent essay on what your opinion on W. White, Frydman, Buiter, Bhide, Issing, Woodford, Blanchard, L. White, and Caballero's work, and post it here or somewhere else? Maybe that would get you somewhere...

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  26. My blog is here:

    http://hayekcenter.org/

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  27. Regarding the collision of two groups of people meeting each other:

    Unfortunately, we cannot opt out of using Federal Reserve Notes to pay debts. If so, I would gladly let those at the Fed do what they wished with their claims for future liabilities. They could do what they want, when they wanted to do it. In fact, if I could opt out of everything, I would sincerely not care what the rest of the country voted to do with everyones money and property.

    The idea that anyone become agitated because another individual scrutinizes how the individual/organization in question operates can be directly corrected by establishing volutary participation. Coercion and the lack of choices results in doubt and scrutiny.

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  28. Greg said, "I then began pointing to cognitive and explanatory limitations in with the modern macro math constructs, with references to the current literature and debate."

    Sorry, Greg, I've seen none of that. I've seen incoherent assertions and vague references to other people's work but no reasoned, coherent argument. (In fact, it isn't an argument at all, barely even a rant.)

    Maybe you've done it someplace else but I've seen none of it. Please forgive me if I don't search the web for it.

    Your reference to paperbagman went completely over my head. If you want to insult me, you will have to harness your great intellect to hit lower targets.

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  29. Christian, you don't need to use FR notes except for a fraction of a second before tax time. Keep your savings in yen or euros. Use a credit card from a yen or euro account to pay your taxes in dollars. Feel free to barter with your neighbors. You really don't need to expose yourself to the terrible dollar if you just think a little.

    Lots of people in other countries use the domestic currency very sparingly. They barter; keep assets in foreign currency, etc. Oddly, Americans--except for the Unabomber, perhaps-- simply don't do this, despite the many terrible flaws of the US central bank.

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  30. Maskedmen, whatever, dude.

    I'm not here to hold your hand or help you read.

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  31. Greg,

    I posed this question to you before, but you ignored it. Do you accept the diagrams in The Pure Theory of Capital, and hayekian triangles as valid models? And if so why is geometry allowed but not analysis?

    Dude you just seem to dislike math, and have a serious Hayek fetish. (Which actually comes off as really creepy.) I think you are seriously misreading modern economics if you believe that something like GE theory is inconsistent with Hayek.

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  32. "Anonymous" -- this is simple.

    Pointing out what math can do and what it can't do is different that "rejecting all math"

    I don't reject "all math".

    This is a straw man used to avoid centrally important issues -- and to avoid the difficult task of think hard by rethinking things. No one likes to work hard or think hard, if they can instead remain on autopilot, turning the same old crank.

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  33. Greg,

    A link to these supposebly devestating critique of the use of mathematics in economics would be helpful. I tried googling the names you listed plus several variants of your description and could not locate anything. In fact, I only found a Woodford interview saying undergrads interested in economics need to study math.

    I can't speak for Stephen, but I think most economists will recognize the limitations of formal models. But, taking that admission and extrapolating towards the end of saying mathematical models are useless is absurd.

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  34. Hahaha whose blog is this Greg's or Stephen's. Clearly the most compelling dialogue is coming from Greg. Stephen meanwhile is getting used while he postures that he's above it all but clearly isn't. And is venturing dangerously far into the realm of pathetic by commenting so heavily on his own posts. A clear indication that he feels he is losing face despite the posturing. JD Salinger would be most unimpressed.

    Fact is Greg is right. Economics is absolutely NOT science. And economists are DEFINITELY not scientists. In economics causation is not repeatable across all cases. The so-called laws do not meet the criteria of laws on science, and most of all failed theories are recycled over and over rather than scrapped. The Fed is clearly a failed experiment, yet the only guy in the room calling for it's end is getting bashed by the phony scientists.

    Oooooh wow. You did some algebra and some calculus! This doesn't make you a scientist it makes you a high school senior. As do all the petty insults. For adults you are all pathetic AND wrong about everything. So you all shoot the messenger Greg. You must all lead very sad lives.

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  35. The only people who argue for economics not being a science are those who do not want it to be, those who have a vested interest in a chatty, philosophical form of economics that has no falsifiable content and, additionally, no math. Deuce and Greg Ransom are two examples of this creature -- they have a political bias that says "markets good, government bad" but can't find or use a model that makes these points (stupid incomplete markets and OLG, always messing up the welfare theorems).

    Steve, I'd ban-hammer these guys. Next time I see you, in fact, I'll suggest it again. But I won't put my name on this post, because I don't want the shitstorm that came down on Kartik and David.

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  36. I have to add that Ransom's blog is a real piece of crap. Not a single useful statement there.

    You go Greggy, keep fighting to reinterpret what some old dead guy said. I think the Post-Keynesians are having a pity-party, maybe you can come and join their bus to Irrelevant Town.

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  37. This has always been my advice to the young -- make sure you are the biggest swinging math stick in room, if you're desire is to be a player in the economics profession.

    "I only found a Woodford interview saying undergrads interested in economics need to study math."

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  38. I've shown how economics IS a science.

    Scientism and fake science isn't science.

    Stuff that fails to provide sound and successful explanations isn't science.

    Somebody wrote,

    "The only people who argue for economics not being a science"

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  39. "I've shown how economics IS a science."

    The literature on the "scientific" status of economics produced by "mainstreamers" or folks attempting to vindicate the scientific status of "mainstream" economics is a massive stack of failure, it should be emphasized.

    Alex Rosenberg has judged economics not to be a science -- taking for granted the ground of what "science" must be AS STIPULATED by the "mainstreamers".

    One reason economists avoid talking about the anomalies and failures racked up by their version of "science".

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  40. Greg is useless. He doesn't actually argue a point, he asks sweeping questions and he rants a bit. He makes vague references to other people's work. He doesn't answer questions about what he proposes or thinks would be better.

    Greg's posts are marvels of vacuousness.

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  41. Who cares what Alex Rosenberg thinks, whoever he is?

    "Stuff that fails to provide sound and successful explanations isn't science."

    False. It may be science, just unsuccessful (cold fusion was science, it was just wrong).

    Greg, you seem bitter, probably because the economics profession does not value the mathless jibber-jabber you prefer to use to justify your political position. I recommend finding a nice soothing hobby, because that situation isn't changing. The battle over methodology is long over, buddy, you might as well get comfortable with the state of the world.

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  42. Greg,

    Then how should economics proceed? What mathematics is okay to use?

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  43. DSGE / New Keynesian econ = cold fusion = science.

    Hey, go with it, dude.

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  44. I think Mark Thoma eventually had enough of you-know-who and banned him. Like all the modern followers of the Austrian sect, they have nothing to contribute that hasn't already been said far more elegantly by Hayek, Mises, Menger many decades ago.
    It is depressing to look at the blogs of the so-called Austrians, like ThinkMarkets or austrianeconomists or takinghayekseriously.
    There is no sense of a progressive research program going on there, just a boring meandering philosophy seminar.
    It would be a genuine contribution for example, if one of them could develop a quantitative model of the Hayekian theory of business cycles. But as was said above, they are only interested in jibber jabber.

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  45. "Anonymous" -- I continually see Nobel winners and top guys going back to Hayek -- Frydman, Bhide, and Caballero are just the most recent examples. Nobel winners like Lucas, Phelps, Smith, Hurwicz, Ostrom, North, and Williamson are perhaps better known.

    If you are not sharp enough or too poorly educated to get why, I can't help you.

    Lefty economists like DeLong and others edit and censor and ban professional peers with rival perspectives and data all the time -- they are rather famous for their intolerance of dialogue with those who don't tow the line.

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  46. "Nevermind" is essentially Blanchard's report of the consensus view among leaders in the field of the macro of the last decades.

    So how's that "progressive research program" working for you?

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  47. "one of them could develop a quantitative model of the Hayekian theory of business cycles"

    "Anonymous", if you're a rocket scientist, you do it. I'd be pleased to post your work on my Hayek blog. And it should be easy, Stephen Williamson has told me the elements of Hayekian macro have already been modeled.

    In fact, Williamson recently told me the elements of Hayekian macro are already existing versions of the DSGE / New Neoclassical Synthesis. So, evidently, the job has already been done.

    Willianson needs merely to direct me to the relevant articles in the literature.

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  48. I continually see Nobel winners and top guys going back to Hayek
    -----------------

    Meaning what? Social evolution, heterogenous capital, time to build capital models (roundaboutness), neural nets?

    Hayek had a broad career so why don't you just lay it out for us?

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  49. Macroeconomics is about coordination of plans.
    Mainstream econ of the type favored by the real business cycle school tried to solve that issue by methodological fiat. Unsurprisingly, It didn't work, so enter the New Keynesians who tried to model the coordination failure by sticky wages/prices. That didn't really get to the heart of the matter either. So now the people doing real econ are trying to build models with financial frictions, or decentralized search models.
    The point is, they are getting on and doing research and increasing our scientific knowledge, not endlessly blathering on about what some dead economists said 80 years ago.

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  50. Decentralized search models -- i.e. catching up to and working out formal aspects of the Hayekian research agenda -- i.e. doing "normal science" in the paradigm of economics laid out by Hayek.

    It was 25 years ago when Bruce Caldwell pointed out how contemporary economists kept re-discovering and attempting to advance aspects of the Hayekian paradigm which could not but be in a successful science of economics.

    Another brave economists who is too much of a coward to use his actual name writes,

    "So now the people doing real econ are trying to build models with financial frictions, or decentralized search models."

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  51. Look who the "Hayekian" is:

    "Macroeconomics is about coordination of plans."

    You might want to read Gerald O'Driscoll's _Economics as a Coordination Problem_ written as a dissertation for Alex Leijonhufvud, whose own book on macro as a science of the coordination of plans was deeply influenced by Hayek.

    But if you are a typical modern economist, you are utterly innocent of the history of economic thought, isn't that true?

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  52. I'm not an economist.

    The man with a bag over his head writes,

    "The point is, they are getting on and doing research and increasing our scientific knowledge, not endlessly blathering on about what some dead economists said 80 years ago."

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  53. Hilarious.

    There are no "complicated ideas" in economics. It's just a case of simple ideas being made more complicated in order to keep the illusion of scientific rigor. You should learn the difference between natural sciences and social sciences in showing causation before you claim to work towards gaining knowledge.

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