Saturday, August 6, 2011

Repy to Krugman Part II

A few more words on the fracas associated with this, before we move on to the serious problems facing the world. I was mulling over Krugman's comments, in particular this one:
It’s funny in this case, because Quiggin is in fact a prominent economist, Williamson not so much.
So, it seems that, in Krugman's mind, prominence is a good thing, I have not so much of this thing, and therefore I must be some kind of lesser being, who should not be so uppity.

Now, prominence actually might be bad. I could have a prominent zit on the end of my nose, in which case I'm just hoping it will go away quickly. Prominence can also be good. Ed Prescott is a prominent person in the profession in part because of the students he has trained, and the students that were trained by the students of students, etc. On that dimension, Prescott is prominent, Krugman not so much.

Lady Gaga is prominent. A few weeks ago I actually shared an airplane with this person, on the way back from Sydney. The security guy at the Sydney airport clued us into this fact, though he seemed to be somewhat embarrassed by what she had on. Lady Gaga then left my mind, until we landed in LA. My wife and I were walking the 20 miles to US immigration, and there she was. Conservatively dressed, this time (for Lady Gaga), but with 5-inch heels and a funny hat. Not sure how she walked the 20 miles without breaking an ankle. Now, you might think being prominent in the sense of Lady Gaga would be a bad thing (for her) in an airport, but she actually seemed to be quite into it. Even the walk to immigration was a performance, and she seemed to like the attention.

Now, Lady-Gaga-prominence is a particular kind of prominence. Many people know her name, but most of us could not say much about her music or what ideas are floating around in her head. Krugman has some Lady-Gaga-prominence, but of course there's more depth to it than that. People who know who he is are aware of the ideas in his head, and he has followers. We can say that he is influential. But what of that influence? People can be prominent and propagate bad ideas, as Krugman does on a regular basis. John Quiggin is apparently prominent - he has written many words, and there is obviously a market for that stuff. On the basis of my reading of "Zombie Economics," I would argue that he is also propagating bad ideas. So much for prominence.

Now, here's the core of Krugman's idea here:
...if you look at how many freshwater macroeconomists have responded to Keynesian arguments in this crisis, you find over and over again that they resort to assertions of privilege — basically, I am a famous macroeconomic expert and you aren’t — rather than really addressing the issues...But in any case, this is never an appropriate way to argue — least of all at a time like this, when events have strongly suggested that a lot of work in economics these past few decades, very much including the work on which these guys’ reputations are based, was on the wrong track.
The problem with this, as with Quiggin's book, is that it is so vague and general as to be vacuous. There was "a lot of work," done by "these guys." It was on the "wrong track." "These guys" are apparently "freshwater economists," but guys like that are very hard to identify these days. 1970s ideas have evolved to the point where the labels "fresh" and "salt" don't apply to anyone in particular.

Krugman is badly confused. The ideas of some of "those guys" are in fact in the core of some of the work that he is so proud of. His liquidity trap paper uses a cash-in-advance construct, popularized by Lucas. His paper with Eggertsson is a direct descendant of Kydland and Prescott (1982), by way of Rotemberg and Woodford.

This kind of criticism is just misguided flailing-about, and it certainly can't accomplish anything useful.


  1. The context out of which you pulled the quote about prominence makes it clear Krugman's point was exactly that prominence is irrelevant to correctness.

  2. If that is your idea of a rebuttal, you should be happy Krugman bothered to write about you at all. You seem wounded! Did Krugman's "not so much" get under your skin? So now your last hope of salvaging some dignity is to imagine that you amd he are going at it. Two big guys in the field. But the best you can come up with is exactly why Krugman thinks you are a lightweight:

    Krugman is confused ... His papers borrow from the people he critques.

    One has nothing to do with the other. He doesn't like the way these guys throw their weight around. He mever said he didnt lik

  3. Who cares whether Krugman has used concepts that Lucas or Prescott originated?

    He claims that "a lot" of their work is misguided, not all of it.

    More to the point, it's possible for a theorist to develop a useful snippet of a model, but then builds on it or applies it poorly. Right?

    To use an anlogy, a car can have a great transmission but a lousy engine and chassis. Another car marker can come along, use the same transmission but pair it with a good engine and chassis. Only the second guy has a good car. You're arguing that the second guy shouldn't criticize the first guy's car because he used its transmission. That doesn't make any sense.

    I don't have any dog in this fight, and I'm not going to carry water for Paul Krugman. He doesn't need it. But you're really, really reaching here with this type of criticism.

    Also, the salt and fresh labels absolutely do mean something. Just compare the curriculum at Chicago, Minnesota or Wash U with the curriculum at MIT, Princeton and Harvard. To say otherwise is to assume your conclusion that Keynesians aren't doing real macro.

  4. Stephen

    I'm a new reader of your blog. I'm sorry you aren't as famous as Quiggin. On the other hand, I'm willing to bet Krugman doesn't know what people in his own department are writing (e.g. Brunnermeier/Sannikov). But I must confess that I keep abreast of Krugman's blogging since he mentions something interesting every once in a while. On the other hand, I do appreciate your blogging quite a bit more because it is deeper and I learn a few things too. So thanks.

    P.S. You mention in a previous blog that "the answers will come from understanding the barriers to mobility in labor across sectors, sectoral productivity, and links between the labor market and financial factors". Any progress along these directions will be claimed as a "demand-side effect" by Krugman (who, of course, won't go into any details), so in the long run, he will always be correct.

  5. You're drawing some interesting critics in the comments here.

    I'm probably a 'fringe' player of the type that you've criticized elsewhere. But that said, most of your arguments consist of 'A doesn't necessarily follow B, so lets investigate that assumption'.

    This technique calls into question the prevailing assumptions in the existing system of thought.

    Your criticism of Quiggin is quite accurate - his position could be used to argue that government in fact, cannot even solve privatization. There is nothing obtuse about that statement.

    Thank you for your work. personally I find it deep and engaging. Even if I am a 'fringe' player. :)


  6. Stephen:

    PS: We prefer the term Heterodox to 'fringe'. :)


  7. SW,

    Take a brake from Krugman patrol for a while. I learn a lot from the other posts and would love to see you expand on ideas like bitcoin or other topics.

  8. "So, it seems that, in Krugman's mind, prominence is a good thing, I have not so much of this thing, and therefore I must be some kind of lesser being, who should not be so uppity."

    I don't see how this is anything other than an obvious misreading of what Krugman was saying. He's attacking what he sees as hypocrisy on your behalf; his interpretation of your post was that you were attacking Quiggin by attacking his professional credentials, but Krugman considers Quiggin more "prominent" than yourself.

    It's clearly not lack of intelligence or analytical rigour that caused you to misinterpret him so; I agree that you should let the whole ruckus die down, it's as unflattering for you as it is for Krugman.

  9. "He's attacking what he sees as hypocrisy on your behalf..."

    No, he can't address the substance, so what does he have left?

  10. Who the hell is Quiggin? I have been in Economics for 30 years and I have never heard of him. I am very familiar with your great work on financial systems and monetary economics. It's stunning to me that Krugman knows so little about you. Your work is very a propo for studying financial system problems. He should ask his colleague Nobu Kyotaki to explain your work to him.

  11. Oddly enough, I've never heard of "Mr MIT" either, so we are even :-)

    Arguments from authority made by pseudonymous blog commenters ("I've been in econ for 30 years, so I should know who's who") are even more amusingly silly than the other kind.

  12. "The problem with this, as with Quiggin's book, is that it is so vague and general as to be vacuous"

    I made a bunch of reasonably specific claims, all of which you ignored in your review, relying on a defense that the theories and modelling approaches I criticised had no implications and therefore could not be false. The closest you got to a response was your unoriginal snark about privatisation.

  13. Quiggin, why are you here? You don't help your cause by slinging mud.

    You've apparently got a line of bloggers ready to carry your water, so let them. Nothing good can come from further trading the same barbs that have already been made.

  14. What's silly on a claim "I've been in econ for 30 years, so I should know who's who"?
    In fact, if you look at reading lists in graduate courses at top US schools, you will not run across Quiggin's papers, not a single one. You will, however, run across some of Williamson's papers in graduate courses in monetary economics.

  15. Hi John,

    I think, if you were more specific, that we might find some common ground.

    1. If, by DSGE, you mean the DSGE models of Woodford and company, there are some specific ways in which those guys missed the boat, i.e. by spending too much time thinking about sticky prices and wages, and not enough time on financial factors and the details of how a central bank works. But you seem to have some Keynesian sympathies, so maybe you like Woodford. Or maybe you don't and you are a General-Theory Keynesian, or a coordination-failure Keynesian.

    2. On "efficient markets theory" there is a standard class of models we work with, starting with Lucas's (Econometrica 1978) construct, that don't fit the data very well. The financial crisis highlights how trade in financial assets is important for prices, which obviously takes you out of the representative agent construct. There is work by myself and other people in my field where we think about liquidity and what it means for market prices, open market operations, etc. Maybe this is some of what you have in mind.

    3. Maybe this comes from your background in decision theory, but you seem to want to load everything into preferences. Maybe you think the way to go is alternatives to standard time-seperable expected utility. Some macroeconomists do some of that, though there is a tendency to concentrate on other features of the environment, the idea being that one could manipulate preferences to explain anything.

    In any case, no harm intended. I'm interested in ideas, not some reputational contest.

  16. Quiggin: I don't understand why kind Steve Williamson wastes his time writing a reasonable reply to you. You know everything. What could you learn? Why not read Kahn and Thomas for an example of debt problems can be put into a DSGE. Buera and Moll is another example. You sound like an out-of-touch geezer.

  17. Ps Steve: Please post your review of Quiggin's book on your website. Some of us may like to give you comments. Its time for those of us interested in ECONOMIC SCIENCE to fight back.

  18. Mr MIT,

    Give him a chance. He may in fact be willing to learn, as we all should be. Treat the guests in the house nicely, even if they walk in the door unhappy. The review is already sent off, so I'll let you look for it in the JEL. What I wrote in the post is just a condensed version.

  19. First things first, i'm going to be "that guy". This is the repec rankings limited to the various measures of citation count. I take that to equate in a rough way with influence.

    For Quiggin:
    For Williamson:

    Feel free to do it yourself, the tool is here:

    As I said I limited mine to citation counts, since I find it more sensible than giving credit to mounds of published but not noteworthy work and certainly more sensible than giving a rankings boost for things like number of journal pages or download clicks from the repec database. Eliminate citation counts completely and they both jump higher, with Quiggin bounding ahead.

    Now the point of that isn't "STEPHEN WINS QED", this is a silly and juvenile aspect of the debate and I blame both Stephen for poor initial word choice and Krugman for... well, being his normal ass self. The point is that they're both prominent economists using any sensible definition of the term prominent. It's not easy to land in the top 5% of the REPEC rankings and they both do it using any specification of the search engine, with some specifications putting Stephen out ahead and others putting Quiggin out ahead.

    So to summarize this whole thing...

    Deadwood non-macro/finance guy #13214545654 writes popular book number #23546546546 on how those gosh darned macroeconomists and financial economists got everything wrong, wrong wrong. This one has a unique added twist in that it also implies that those gosh darned empirical micro and IO guys got everything wrong about privatization. All of this, of course, is because EVIL RIGHT WING CONSPIRACY.

    It's all just extremely difficult to take seriously. There are some unorthodox (but not kooky) folks that I really love and intently listen to. When Dani Rodrik says that he thinks
    the economic consensus on import substitution and globalization is wrong he doesn't rush off to get a
    pop-econ book stuck on the shelves of Barnes and Noble (he might occasionally do that as well, but they're certainly not his focus), he writes down his ideas in the form of a paper, provides evidence for them, then gets them PEER REVIEWED AND PUBLISHED. It's easy to try and backdoor your ideas into the limelight by convincing the public- a group that is largely ignorant- to accept them. But you're not doing serious economics in the same way that Kent Hovind isn't doing serious biology when he tries to convince a Southern Baptist church that
    the earth is 6000 years old and to say otherwise is an evil darwinist anti-Jesus conspiracy.

    Popular books contribute absolutely nothing to economic discourse. I adore Milton Friedman (who doesn't?) and am by and large sympathetic to a lot of his political views. Free to Choose contributed nothing, nothing, nothing to economic discourse. Neither did Capitalism and Freedom.

    If you think everyone has it wrong, publish a goddamn paper and show us why.

  20. Like every economic debate, this will run and run. I understand why Williamson gets frustrated. He wants everyone to use his rule book: everybody play the game using the rules as laid down by Lucas and Prescott. Write everything down in a dsge model, then we can see exactly where we differ.
    But the Krugman axis won't play ball. They don't like the rules, so like William Webb Ellis, they invent different rules and thumb their noses at the perceived idiocy of the kids playing the silly boring confining dsge game.

    And so econ can never be a science like chemistry, where everyone plays by the same rules.

  21. Scuttlefish,

    Very good. That about does it. Much ado about nothing. If we wind this back to when the JEL sent me the book, do you think I should have told them to find someone else and spent my time working on my research instead? Writing this blog doesn't do much for my repec ranking. No one will remember this next week, let alone 20 years on.

  22. Scuttlefish, I couldn't disagree with you more. There is tremendous value in writing books for public consumption. The public needs to learn more about economics, not less. They need economists to be make themselves more accessible, not less. Otherwise, every public policy debate ends up as Monty Python's Argument sketpch on a split screen on CNN, Holtz-Eakin and Goolsbee carrying on: "No it isn't," "Yes it is" etc.

    Of course, it's also important that the books for public consumption be informative and good. We have enough Michael Moores and Casey Mulligans, and if Quiggan falls into that category, then nothing good will come from that.

    But surely there is a way of responding that is better than "you don't know what you're talking about," especially when that line is so frequently and absurdly deployed against folks like Krugman. You lose a lot credibility with that sort of thing, and ironically boost Quiggan's in the process. People are more willing to believe that "modern macro" is a bunch of useless nonsense if its best response to a Nobel Prize winner who happens to be on a hot streak right now in terms of predictions (remember: in addition to his more recent work, Krugman was a Euro skeptic back in the 90s).

    None of that makes Krugman "right" in an epistemic sense, but it does mean he enters public discourse with a lot more credibility than Gene Fama or John Cochrane. Again, that doesn't mean they are "wrong." But as I said elsewhere, an argument based on your own authority is the weakest one around, and I'm not the only one seeing a lot of that from the freshwater folks and a lot less of it from the Krugman team. At least in public.

  23. Scuttlefish says:
    "Writing this blog doesn't do much for my repec ranking."

    Do you mean as good researchers we shoud focus on activities that boost our REPEC's ranking? Working for REPEC ranking is like working for your prominence, and you can certainly improve your REPEC ranking by uploading lots of superficial and useless stuff, just like Lady Gaga with her provocative apparels, but at least she is sexy! lol

  24. "...Nobel Prize winner who happens to be on a hot streak right now in terms of predictions..."

    So he says. Don't get me started on that. The guy is a very skilled at rhetoric, but I think you're being fooled.

  25. Prof W says "the guy is very skilled at rhetoric". Professor McCloskey argues that all economic arguments are a form of rhetoric, see Journal of Econ Literature, June 1983. Where rhetoric is defined as probing through argument and discourse what we should believe.
    Economics is all about persuasion.

  26. I would honestly put McCloskey in Stephen's rabblerouser classification too. You can agree with me politically and still be a rabblerouser. :) Though to be fair she's always been like that, didn't just jump on the bandwagon when the great recession hit.

  27. McCloskey is my ex-colleague, so I know her well, from both before and after. We always got along fine, and she was quite helpful on a few occasions. This is not quite in the rabblerouser category, but she keeps company with some of those.

  28. I should add that there are some things McCloskey talks about that sound like Ed Prescott - i.e. the importance quantitative economics. McCloskey might also say that proving theorems is a waste of time, which is definitely not a Prescott view. Ed would say that it's important to get the theory down before you do the quantitative work.

  29. Ed would say that it's important to get the theory down before you do the quantitative work

    Tjalling Koopmans made the same argument in 1947 in criticizing the NBER. He of course was arguing for the use of rigorous econometric models of the Cowles type. Ray Fair is the last keeper of this particular flame.

  30. The Cowles people were pushing structure, long before Lucas wrote his critique paper. It's odd you mention Ray Fair. I haven't taken a close look at his latest model, but my guess is that most modern macroeconomists would not think of it as structural.

  31. Some historians of thought argue Keynes long predated the Lucas critique when JMK criticized the econometric models of Tinbergen, arguing they were not invariant to changes in government policy and other factors

  32. While we look forward to reading Steve's review of Zombie Economics in the JEL, here's my own.

    The Structure of Scientific Revolutions

    John Quiggin in an Australian economist. He made his name in the early 1980s in an esoteric area called decision theory. The Econometrics Society made him a fellow on the basis of this work, a distinguished award. He writes a blog, which has many devoted followers. The book is primarily about macroeconomics, however, which is not his area. Asking Quiggin about macroeconomics is like going to a podiatrist for your headache: it's the wrong end of the body.

    The chapter on Dynamic Stochastic General Equilibrium modeling (DSG modeling) is a good example of Quiggin's lack of expertise about modern macroeconomics. He states that one of the oddities about DSG modeling is the representative agent paradigm. This is an abstraction where the decision making of one representative consumer/worker is taken as a stand-in for the millions of people living in an actual economy. This abstraction was employed in a famous 1982 article by Kydland and Prescott. Finn I. Kydland and Edward C. Prescott justly won the Noble prize in 2004. The stand-in consumer was abandoned in 1994 in important work by the late and great economist S. Rao Aiyagari. Every graduate student in macroeconomics today knows the Aiyagari paradigm. This work is not mentioned in Quiggin. Nor is the celebrated work by Mortensen and Pissarides, done during the late 1980s and early 1990s, on modeling unemployment. Dale T. Mortensen and Christopher A. Pissarides won the 2011 Noble prize for Economics. There has been a flurry of work in macroeconomics embedding the Mortensen and Pissarides framework of unemployment into an Aiyagari/Kydland/Prescott style DSG model. An early example is the research by David Andolfatto in 1996. Interestingly, Noble Prize winner Paul R. Krugman's latest research with Gauti B. Eggertsson borrows from Aiyagari (they cite it) and is essentially a dynamic general equilibrium model, albeit with a very Keynesian flavor. Quiggin is really out of touch with modern economics.

    The trouble with Quiggin's book is that to the non-economist his little bit of knowledge will sound authoritative. Like an undergraduate's essay, many of the bits and pieces are indeed correct. But, also like many undergraduate essays, it shows little understanding about modern macroeconomic, just a superficial dropping of names and theories. Beloved Albert Einstein, a hero for scientists, didn't like quantum mechanics and argued against it. Perhaps it was because of the escalation of the mathematics required to understand the quantum world. Some people say that Einstein wasn't good at math. The mathematics in his papers is easy for a modern economist or physicist to understand--look them up on the web. Time has advanced mathematical training among scientists. Anyway, this was one battle Einstein lost. When Keynesians displaced the classical economists in the 1940s, 1950s and 1960s the latter cried out about the mathematics (calculus and statistics) the former used. Keynesians, such as the Noble prize winners John R. Hicks, Lawrence R. Klein and Paul A. Samuelson, were at the forefront of technique in their day. And now it is the displaced Keynesian crying about the new math (dynamic programming, numerical analysis, stochastic processes) used by the neoclassical economists ushered in by the Kydland and Prescott revolution. Maybe the table will be reversed tomorrow. Who knows: if you could forecast this you could be a Noble Prize winner. This is the process of science: New ideas don't come easily and old ones are hard to displace. Professor Quiggin: You sound like an old man whining about the young Turks.

  33. Mr. MIT,

    Very good. I'm glad you put in a good word for the "late and great Rao," who taught me Minnesota macro before most people knew what it was. As Mark Gertler will tell you, Rao was getting him up to speed at the same time. The guy was brilliant, and always one step ahead of the game.

  34. Its interesting, I think that Mr.MIT stresses the more advanced mathematics involved in DSGE modeling. Yet he shows no interest in whether the DSGE model actually gives us any more insight into understanding economic developments in the real world. I feel like I get a feel for understanding the story of the world economy when I read Krugman, Minsky, Schumpeter and modern adherents like Steve Keen. DSGE econ is more like chess - intellectually stimulating and aesthetically pleasing but ultimately irrelevant.

  35. Anonymous,

    There is not "a DSGE model." "DSGE modeling" as I understand the term just refers to the use of available economic theory and empirical methods to make sense of the world. It's economic science. Not sure why you think science is irrelevant.

  36. Yet another anon.

    What is all this talk about 'economic science'?
    Do you think economist have been engaged in 'science'? If you do you are sadly mistaken.

    Economics is capable of becoming a science but that is a long way off, and would require serious changes to the curriculum. That said, a few economists are doing serious work that will be recognised as contributions to a serious science. And even some of the vast majority of economists who are not engaged in a scientific approach occasionally do work that could be considered as a contribution. After all, even a broken clock gets it right twice a day.

    As I have been watching this little bruhaha on the various sites. The exchanges I have enjoyed most, so far, have been on

    Watching academics go at it is such sport! The egos, the conceit, the narcissism. Who needs reality TV! As attributed to Kissinger: "Academic politics are so vicious precisely because the stakes are so small.".

  37. John Quiggin is deleting comments from his blog that support you. So much for the free exchange of ideas.