Wednesday, November 21, 2012

What the Economics Profession Looks Like to Yglesias

It took three weeks for Matt Yglesias to figure out that I was having fun at his expense. As my mother would have said, better late than never.

Yglesias tries to get my goat by arguing that people who talk about economic science are full of it. But here is something interesting:
Here's what I think about ambition. I think that if I were an ambitious monetary economist who believed in good faith that the current course being pursued by the FOMC will be ineffective in boosting employment and is likely to produce a troubling level of inflation, I'd be shouting that from the rooftops.
Why? Because when we're mired in inflation, all the whores and politicians will look up and shout "save us!" and they'll be shouting at the people who called it right. When Milton Friedman warned that the naive Phillips Curve economics being pursued by the Federal Reserve in the late-60s and 70s would lead to ruinous inflation, nobody listened to him. Until suddenly they did listen to him and low and behold Milton Friedman was super-famous. Developing a correct analysis of the situation and then explain it is obviously no guarantee of success in your career. But all else being equal, it tends to help. That said, sometimes things aren't equal. But I wonder what it is Williamson thinks isn't equal here? What job is Kocherlakota angling for? And how will pretending to believe something he knows is wrong help him get it?
This, I think, is a strange view of the economics profession, but possibly not so far away from how the average non-economist thinks. If you're an economist, you might be anticipating that Uncle Billy is going to ask you for a forecast tomorrow over Thanksgiving dinner, and you probably won't know what to tell him. Probably his forecast is as good as yours. Some economists are indeed forecasters, but most of us hardly think about the forecasting problem.

Yglesias has a story in his head about how Milton Friedman became "super-famous." Actually, Friedman was super-famous long before he made his 1968 address as President of the American Economic Association, and long long before the importance of that address was widely understood. Further, in terms of research impact, Friedman's influence today has more to do with the Friedman rule, the permanent income hypothesis, and the Monetary History.

Yglesias thinks that the way to get ahead in the economics profession is to make an outlier forecast, make a big noise about it, and hope that you're right. There's certainly a cynical view out there that says this works - Nouriel Roubini comes to mind. I guess Yglesias and I are very different. He puts himself in the shoes of an "ambitious monetary economist" and asks what he'd do. Maybe I'm not ambitious, or too old for it, but I think of everything I do as learning and teaching. I want to learn, and I enjoy passing the knowledge on to other people. Fame is for Yglesias and Lady Gaga.

On the particular questions at hand: First, it is indeed accurate that I think what the Fed has done recently (QE, Twist, forward guidance) matters little for US labor markets. Second, it is not accurate to say that I think a "troubling level of inflation" is "likely." Given current and planned monetary policy actions, and how I think the Fed will behave in the future, I can see an equilibrium path on which the inflation rate is higher than it should be. I can't say anything sensible about "likely." Actually, my hope is not that this comes to pass and people think I am remarkably prescient, but that I have some influence and it doesn't happen. That would be better for everyone, don't you think?

Second, there are plenty of economists for whom Narayana Kocherlakota is a puzzle. He may yet redeem himself, but my current thinking is the following. Nerds are valuable members of society. I think we should give them resources and room to work. But we should think twice about letting a nerd run anything.

54 comments:

  1. I rather like this post.

    Your last paragraph is very much how I felt about NK a couple of years ago. More recently I've seen signs of redemption (in my eyes, of course).

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    1. Well, we agree to disagree apparently. Happy American Thanksgiving.

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  2. Respect for your more respectful tone. I think mildness will help you convey your message.

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    1. I don't know. I juxtaposed Yglesias and Lady Gaga.

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  3. Hi, thanks for the condescending reply.

    I notice that you've completely dodged the core question I was trying to ask. You've accused NK of changing his views for reasons of "ambition" and I'm curious as to what kind of ambition you think NK has that could be effectively advanced through the sort of cynical flip-flop you've attributed to him.

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    1. Hi Matt,

      1. I'm trying to be restrained here. I understand you think you are an important person, but try to be humble.
      2. I can understand you interest in some juicy gossip, but I can't read Narayana's mind. Never could.

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    2. In the previous post, you said this about Kocherlakota, "But in this case, the guy has sold out. That's a fact."

      Are you back tracking or are you certain his ambition lead him to sell out for some purpose, but you have no idea what that purpose is? Nor apparently even a plausible guess?

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  4. Yglesias thinks that the way to get ahead in the economics profession is to make an outlier forecast, make a big noise about it, and hope that you're right.

    For the record, I don't think this is the best way to get ahead. What I do think is that *if you're making a forecast* it's better for your career to make an accurate one than an inaccurate one. But perhaps I'm mistaken about that. The point is that I'm struggling to make sense of your theory that "ambition" would motivate NK to deliberately engage in bad "economic science" and am hoping you'll explain further what you think is going on.

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    1. 1. In my youth, I was a forecaster, but I don't do that any more. I agree with you that if you set out to do something you might want to do it well, rather than poorly.
      2. On NK, I just want to stay out of trouble, thanks. I've taken that as far as I want to go.

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    2. Second thoughts: "Ambition collides with economic science" was something I tossed off without thinking too hard. Now I like it very much, as I think it describes the situation. It's not angling for a job specifically, but something deeper and more interesting. You'll have to wait for that, though, so keep reading.

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  5. who is this Yglesias fellow ? Is he a trained economist with an advanced degree in the subject? Otherwise he is surely not worth taking seriously. At least Krugman and de Long are real economists, even if ideology and the ambition for fame has corrupted them.

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    1. He has a Wikipedia entry:

      http://en.wikipedia.org/wiki/Matthew_Yglesias

      31 years old. Harvard graduate in philosophy. Journalist. Writes on economics for Slate. We don't care what he thinks, but how does he graduate from blogging to a more mainstream platform like Slate?

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  6. "Uncle Billy..."

    Lol. That's a good image.

    Well, I've said this before... I don't think Yglesias is the problem here, it's that you (and by that I mean "the profession") have a communications problem. Most people don't understand you. Maybe you haven't properly communicated your ideas to Yglesias. Maybe Yglesias is dumb, maybe he just doesn't agree. If so, you haven't short circuited his connection to the public by establishing your own. Ok, this blog is a step in the right direction. But where are your colleague's blogs? How come you don't have a confederate at some mainstream platform pushing back? More importantly, does the economics profession even need to care what the public thinks about it?

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  7. "...you have a communications problem."

    Betty has been telling all her neighbors that Sally beats her husband. Betty to Sally: "Sally, you have an image problem; everyone says you are beating your husband." Sally: "But I don't beat my husband. Just ask him." Betty: "Better hire a lawyer and and PR person."

    Serious economists spend their time doing research and arguing with their fellow economists about how the world works. What can they do against a legion of people who are either paid to spend all their time beating up on the economics profession, or have given up on research and enjoy spending their time beating up on the economics profession? I do my bit, I think, but I'm not sure what you want. It's basically a time allocation problem which you run into a lot in life. The efficient allocation of resources requires that we spend time educating people about how to allocate resources. But some rent-seekers have a low marginal value of time, and are sometimes able to successfully allocate resources in their own interest, and against society's.

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    1. Stephen, I agree to a large extent with what you say. However, to the extent that our research is partially funded by taxpayer money, don't you think we have a responsibility to pass whatever knowledge we uncover, in palatable form, to the general public (not just our students)? Were Milton Friedman or F.A. Hayek wasting time when they wrote "Free to choose" and "The Road to Serfdom" respectively? What about Akerlof and Shiller with their "Animal Spirits"? I am not so sure.

      Here is Daniel Klein's position on the issue:
      http://www.cato.org/publications/commentary/what-do-academic-economists-contribute

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    2. Klein's article was written in 1999. He says:

      "...in academia few economists take policy positions and accept intellectual challenges. Few do scholarship relevant to policy issues. Few even have opinions they are prepared to defend in serious debate."

      This is totally wrong. The influence of academic economics in policy circles has never been greater. Fiscal policy leaves a lot to be desired. But there are plenty of academic ideas and former academics floating around the Federal Reserve System. Our research is indeed funded by taxpayer money, but economic research is cheap relative to research in the natural sciences and medicine. The money spent through the NSF and the Fed, for example, on economics research is a drop in the bucket. If universities and research institutions continue to employ us and support our research, why is it that we need to defend ourselves to the average Joe or Jane on the street? I'm happy to do it when I get the opportunity, but why do you think Tom Sargent's time is better spent on writing popular books than pushing the frontiers of economic knowledge?

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    3. "but why do you think Tom Sargent's time is better spent on writing popular books than pushing the frontiers of economic knowledge?"

      Because, in the end, the ultimate decision-makers are the voters. Perhaps this is why fiscal policy leaves a lot to be desired, because unlike monetary policy that is conducted by "experts", fiscal policy is conducted by elected officials.

      Finally, my impression is that natural scientists spend a lot of time informing the general public, thus securing the funding they need. Just look at the popular books written by Stephen Hawking or Richard Dawkins. Look at the documentaries running on the Science Channel or the Discovery Channel where scientists from top research universities get to discuss really complex issues in a manner than can be understood by the average Joe. In economics, shows like this one:
      http://www.marketplace.org/topics/business/freakonomics-radio
      are relatively few and short.

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    4. Joe, Jane, Betty, Sally, Billy - you're on a roll today, Steve ;)

      I think you're selling yourself and Sargent short. The stuff you guys do would be interesting to a lay audience. The problem is translating it into a good story.

      If the public's willingness to provide financial support erodes, there's probably some risk that the Tom Sargents of the world are unable to do their work.

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    5. Frequently, I will post a comment on certain blogs because they are so wrong, especially SW.

      SW is especially wrong on two underlying assumptions.

      First, he states that "Serious economists spend their time doing research and arguing with their fellow economists about how the world works."

      That simply is not true. His models omit the factors most important to how the world works (money, banks, confidence, etc.). In addition, his models make assumptions which are wholly unjustified. For example, and I have about convinced one prominent economic writier that you monetary macro is meaningless because it assumes that banking, on a micro level, is working and the facts likely are otherwise (e.g., should we permit banks to make recourse loans?)

      Second, SW believes that only a select few can study and learn economics. Sorry, but that isn't true.

      Matt Yglesias, myself, and thousands of others who SW considers to be lay students have far better grasp of the situation than does SW.

      It is almost by definition. SW says his models cannot see bubbles and he cannot forecast future directions.

      The man or woman on the street knows more than this about economics. They know whether they should have confidence in the present or future and why.

      SW's fundamental problem is that, being a man with a hammer, economics has to be about interest rates and mathematical formula.

      In fact, economics is about human confidence in the future and about paradoxes that must be managed to assure continued confidence. (The quickest formula for a depression would be for all of us to become savers)

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    6. Anon, Steve's models are all about money. That's the whole point of his research, along with guys like Randy Wright. They're trying to figure out what sort of frictions lead to the use of mediums of exchange and ask questions like why collateral is important to banking.

      You should go back and read more of his posts, you'll understand what I mean.

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    7. "His models omit the factors most important to how the world works (money, banks, confidence, etc.)"

      This is pretty funny. Obviously not reading my papers.

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    8. Steve, if only you were better at communicating your ideas to the lay public... ;)

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    9. JP Koning asserts, "They're trying to figure out what sort of frictions lead to the use of mediums of exchange and ask questions like why collateral is important to banking."

      JP, we learn the answer to the second question on the first day of law school. Some people are not honest and no one lives forever. Collateral is important to banking because it permits one to better task risks in light of these and other uncertainties.

      It would be better is SW would attend to something he could handle. Should we even permit lenders to make secured or recourse loans? SW never tackles such a concrete but useful question.

      The answer to the first question is only slightly harder. You have it backwards. Frictions do not lead to the use of money. Money reduces frictions.

      SW's fundamental problem is that he really doesn't understand money or its value, which is entirely Coarsean. I hate to point the reader back to Prof. DeLong, but he has often explained this point, probably even to SW. Money has value because it is more efficient than not having money.

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    10. " money has value because it is more efficient than not having money"

      The question is what specific features in the manner in which people or firms can trade give rise to the willingness of people to accept intrinsically worthless objects. This is what anyone sensible might ask, include Ronald coase.

      For example, how dependent is monetary trade on record keeping capabilities ? on their ability to default on agreements?metc.

      It is imperfections in the latter types of features that are called frictions.

      For anyone to assert, as you do, that saying that money is used because it is useful constitutes some sort of explanation is not coherent.

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  8. 1. Sargent is not capable of writing a popular book that anyone would want to read. He's a nerd.
    2. I think if economics were interesting to the lay public in a way that black holes are, that the Science Channel would be running to our doors. For the average person, it's just pretty dull.

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    1. Steven J Gould, Stephen Pinker, Richard Feyman, Stephen Hawking, etc.

      Huge nerds. Complex subjects. Great books.

      If only science got as much media attention as economics. Obviously, people are interested in the subject. That the subject and the discipline appear to have so little in common is hardly the fault of the layman.

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    2. "That the subject and the discipline appear to have so little in common is hardly the fault of the layman."

      What is that supposed to mean?

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    3. To the layman, the subject of economics is of intense interest (to suggest otherwise is, with respect, bizarre). Its not news that the layman sees little intersection between his concerns and the research output of the discipline.

      You are being way too easy on your colleagues. They are not autistic savants. They are intelligent, articulate academics capable of communicating publicly with clarity and rigor. Just like Pinker, Gould, Feyman, Hawking, and Stephen Williamson.

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    4. This Coase essay makes a similar point:

      http://hbr.org/2012/12/saving-economics-from-the-economists/ar/1

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  9. Stigler contended that economists exert a minor and scarcely detectable influence on the societies in which they live. Stigler in the 1970s toasted Milton Friedman at a dinner saying: "Milton, if you hadn't been born, it wouldn't have made any difference.”

    Stigler argued that if Richard Cobden had spoken only Yiddish, and with a stammer, and Robert Peel had been a narrow, stupid man, England would have repealed the corn laws to allow free trade in grain as its agricultural classes declined and its manufacturing and commercial classes grew in the 1840s,

    As Stigler frequently noted,
    • the ideas behind reform had been around for a long time.
    • To affect public policy, ideas must find a market among the groups influencing change.
    • when their day comes, economists seem to be leaders of public opinion.
    • But when the views of economists are not so congenial to the current requirements of interest groups and median voter, these economists are left to be the writers of letters to the editor in provincial newspapers.

    These days they would run an angry blog.

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  10. I'm not so sure JP is right. Yglesias and his fellow travelers may be part of a group of people want so very desperately to chat about a subject, to look smart at a slate-level cocktail party, that they yield to the temptation to blabber. It helps that economics seems at once easy to talk about and contentious. This contentiousness amongst experts is read, so very wrongly, by impatient writers as an indication that all views are equivalent. Yglesias is poorly educated, certainly formally in economics, but also informally in the sense that he never got the lecture that I did--if you haven't studied or done something--whether than something is plumbing, baking, or economics--then do not blather on. I think Stephen is helping him by drawing attention to a magazine writer who is demonstrably ignorant.

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    1. I would be pleased not to give the guy further "help." I think I'm a drop in the bucket though. You'll find a large dose of approving links to Yglesias in the economics blogosphere - Krugman, Thoma, DeLong, Sumner, for example.

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    2. true true. Those guys seem to find him useful as a mouthpiece. He is a willing water-carrier for the "economics of bald assertions", in contrast to what many of us prefer: the "economics of a chain of reasoning that may not yield definitive conclusions" (boooring!!)

      Here's something on Yglesias that is very funny--usually too mean for my taste, but in many instances, spot on:

      http://www.ydiot.net/

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  11. Steve: Do you think NK is angling to be Fed chairman?

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    1. Well, he's the president of the Minneapolis Fed...other than Fed chairman, what higher office is there for a monetary policy guy?

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    2. I'm sure he would take the job if someone offered it to him. Your question was about "angling."

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  12. I see a lot of appeal to authority here being used against Matt Yglesias, as if his not being a professional economist alone renders his point invalid. Any honest person knows this is not true. His original point remains unanswered amidst the flurry of ad hominem insinuations.

    The original accusation against Mr. Kocherlakota by Mr. Williamson was that he had changed his positions not based on economic science and sound reasoning, but rather for some more subjective personal reasons. It seems to me quite a shoddy way to engage in debate over economic policies that indirectly have the potential to really matter to hundreds of millions of people. It's more akin to politicized brawling.

    I think Matt Yglesias was right to question that. The manner in which he chose to respond may have wounded Mr. Williams vanity in some way, which is understandable since we are all human. But none of this unfortunate emotional overtone changes the fact that the original point has not been answered, which is how Mr. Williamson can justify his claim that Kocherlakota's adjusted position is not based on sound economic reasoning and a clear eyed view of new data?

    The comparison of Mr. Yglesias to Lady Gaga isn't encouraging. It is an obvious fallacy that fame necessarily implies one can not be seriously in pursuit of truth. I think Mr. Williamson should either retract his original comments directed at Mr. Kocherlakota, or else provide his reasons for assuming that Kocherlakota's change of heart can't possibly qualify as valid economic reasoning based on current evidence.

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    1. I think you have it the wrong way around. This began with Matt Yglesias calling NK a "hero of rigor" (mortis?). For a few weeks now SW has been posting about NK's earlier speeches and thoughts on policy and how his recent actions don't seem to comport with said earlier views. Moreover, NK's earlier views seemed to be based on models, economic theory, and such. SW is merely wondering aloud how to rationalise NK's recent actions with his previously stated views on models.

      So perhaps you should really ask Yglesias why he thinks NK is a "hero of rigor"? Are NK's comments in consonance with his earlier views? Has there been a change? If so, what is the justification, and how do these justifications that guided NK's earlier positions?

      And to understand SW's point of view, read his earlier blog posts. (Of course, you can take issue with those, but I suspect you're not really doing that.)

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    2. I read the "Hero of Rigor" post, and while I can agree the word "hero" may be hyperbolic, the point is that Kocherlakota has shown intellectual courage by changing his position based on considering the data over time, and based on persuasive arguments made by colleagues.

      There is room for argument over whether this is courageous, honest, and based on sound economics, or whether it's a politicized sellout, as Mr. Williamson seems to imply.

      But I didn't see Matt Yglesias write anything derogatory directed personally at Stephen Williamson. It was Williamson who first felt compelled, as I see it, to take a personal shot at Yglesias.

      I'm not qualified to comment on the economics, or to know who is correct, whether fed policy will bring inflation or growth or simply be ineffective. That isn't exactly relevant to what is going on here, which has diverged to something beyond economics.

      Why Yglesias thinks Kocherlakota is a hero of rigor is outlined in Yglesias' post. Williamson didn't respond to the content of that, but instead made a personal attack on Yglesias. Evidently there is some kind of smoldering resentment there that came bursting out.

      Some commenters above seemed to have been encouraged by the chum in the water to circle and snipe at Yglesias, going as far in at least one case to call him "dumb". Some people perhaps don't care if what they write agrees with reality, and they just say what makes them feel good. I find Matt's writing to be thought provoking, and anybody who tries to claim he is dumb ought to feel embarrassed, because he certainly isn't dumb. He is very confident in stating his opinions, and I can imagine that might rub some people who disagree with him the wrong way. Still I think Williamson took this debate to a place that is not entirely honorable.

      As to whether Matt's point about ambition in the economics field has any validity, perhaps one should consider some of the output of Hubbard, Mankiw, Taylor, and Hasset during the Romney campaign. It certainly seemed to me these were some professional economists willing on at least a few occasions to compromise themselves intellectually for political reasons and for personal career gains, i.e. cabinet positions.

      http://blog.supplysideliberal.com/post/29630504620/kevin-hassett-glenn-hubbard-greg-mankiw-and-john

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    3. Jeffrey,

      What a lot of chatter about nothing important. You could discuss this. It has more content.

      http://www.newmonetarism.blogspot.com/2012/10/kocherlakota-joins-cogcb.html

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    4. Matt Yglesias is many things, and dumb is only one of them.

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    5. Since I'm the one who first the word dumb, let me clarify what I mean.

      Assuming Steve has truth on its side, if the lay audience (Yglesias, myself, others) doesn't understand Steve, it's either because we're dumb, busy, or Steve (and his buddies) aren't communicating properly. I think a lot of it is the latter. I also think Steve and his buddies have a lot of good things to say. Lastly, I'm sure Yglesias is a smart guy.

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    6. Truth and smart are words we should not be using. Everyone is smart, and we will never find truth. As for communication, I'm doing the best I can with the time available. Obviously you're getting something, or you wouldn't keep coming back.

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    7. Actually, on "smartness" and "niceness" the best piece by far has been written by Deidre (back then Donald) McCloskey:
      http://college.holycross.edu/RePEc/eej/Archive/Volume21/V21N1P109_112.pdf

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    8. Yes, exactly. Whenever your colleagues tell you to hire someone because they are smart, don't pay any attention.

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  13. what a waste of Steve's time. we should be doing economic theory. this is why Sargent doesnt blog, he's too busy rolling up his sleeves trying to figure out new math tools that can represent the way the world works. It's no disrespect to say that dsge macro models at the moment are primitive. we dont understand monetary economies, we don't have good theories of money.

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    1. "It's no disrespect to say that dsge macro models at the moment are primitive. we dont understand monetary economies, we don't have good theories of money."

      1. Primitive? Simplicity is a virtue.
      2. Don't understand? We actually understand a lot, I think. Science advances of course.
      3. Don't have "good" theories of money? Fighting words.

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  14. Regarding : Given current and planned monetary policy actions, and how I think the Fed will behave in the future, I can see an equilibrium path on which the inflation rate is higher than it should be. I can't say anything sensible about "likely."

    Isn't that a bit too easy? How "Likely" high inflation is, is very important, not whether high inflation is a theoretical possibility. If we can't say how likely high inflation is, it' hard to give advice to the FED!

    It would be intersting what kind of missing information or theoretically unresolved question prevents you from making a statment on the probability of high inflation.



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    1. You understand this is a blog, right? To answer a question like that requires a formal model, and a serious allocation of time. Anyone who tells you they can answer the question off the top of his/her head should not be trusted.

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    2. Yes, I am completely aware that this is a blog. I appreciate very much the time you take in writing posts and answering to comments.

      Nonethless, I think you should be very sure about what you say (and have that formal model at the back of your head) when you implictly accuse Kocherlakota of beeing intellectually dishonest. The null should be that he thought about it hard ("a serious allocation of time") and advocates what he thinks is in the best interest of the country. He might be wrong. And that's where building a formal model would be useful to convince him (rather that questioning his intentions.)

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    3. No accusation of dishonesty intended. I just think his reasoning was bad economics, which was the point of this post:

      http://www.newmonetarism.blogspot.com/2012/10/kocherlakota-joins-cogcb.html

      Why a guy who proved himself perfectly capable of doing sound economics indulges in unsound economics is the puzzle, don't you think?

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    4. You're letting yourself off way too lightly. It's fine to say that you think is reasoning was bad economics. But in the comment sections of various posts you have said things like his change of position involved "ambition colliding with economic science", and that he "sold out, and that's a fact". To me you responded that the most logical explanation was that NK let his ambition overcome his good judgement, and not that he simply disagrees with your interpretation of the data.

      Those statements clearly imply intellectual dishonesty, and it is those type of statements Yglesias was responding to in his post. If you hadn't buried them in the comments section I'd assume you were just making provocative statements to angle for more page hits. As it is I find your behavior much more puzzling than NKs.

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    5. You're over-thinking here. I'm just trying to figure this out, like you are. I'm throwing around some ideas, and haven't come to any specific conclusions.

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