The first thing to note is this:
For newbies: saltwater is the kind of macro practiced at MIT, some of Harvard, Princeton, etc., macro that still finds Keynesian ideas useful and argues that monetary and fiscal policy can be effective; freshwater is Chicago, Minnesota, etc. insisting that business cycles are optimal responses to real shocks.This is not actually a message for newbies. Krugman seems to be hoping that these "newbies" are Rip Van Winkles who have been asleep for 30 years rather than 20. Or maybe he thinks that repeating this enough will make it true. From my previous post:
What are "freshwater" and "saltwater" macro? No idea. In Paul Krugman's own department at Princeton, Richard Rogerson, who was a student of Ed Prescott's, resides with Nobu Kiyotaki, who was a student (or at least a coauthor) of Olivier Blanchard's. There are other macroeconomists there with PhDs from Chicago, Minnesota, and MIT. What school of thought drives that place? Beats me.If Krugman can't figure out what is going on in his own department, do you think you can trust him to take the pulse of the profession?
A second thing:
So yes, the equations in one of Mike Woodford’s papers look a lot like the equations coming out of Chicago or Minneapolis. And a few years ago it was possible to delude oneself into believing that this represented a true convergence of thought.There's much more to it than equations. Here's an example. In fall 2008, I went to this conference at the Federal Reserve Bank of Minneapolis. What was it about? Monetary Policy and Financial Frictions. That's in the middle of the crisis, and it was certainly topical. I didn't see anyone there obsessing about TFP shocks. People came from across the country - Princeton, Chicago, MIT, Northwestern, Stanford, Columbia, etc.
One paper I saw was Mike Woodford's work with Curdia. Woodford/Curdia start with a basic NK framework and add a financial friction, in part by introducing some heterogeneity to generate borrowing and lending. When I first saw the program, I was wondering why Andy Atkeson was discussing the paper. I wouldn't have thought that Andy knows much about NK models. Wrong. Actually, what Mike was doing uses some ideas from the market segmentation literature that Andy has done work in. There was basically a set of shared ideas, techniques, and tricks for getting the job done. Cross-fertilization! Market segmentation is about studying the distributional effects of monetary policy - a nonneutrality of money. Mike works in models where the nonneutrality generally comes from price stickiness. Andy was a Sargent student at Stanford. His first job was at Chicago, and he is now at UCLA. Mike at one time also worked at Chicago, and he was at Princeton, then Columbia.
Here's something I could have said:
I’m not saying that the NK approach is necessarily right; but it’s a serious intellectual effort, undertaken by people who thought they were part of an open professional dialogue.So Krugman and I have something we can agree on.
Krugman seems to want us to be at each others' throats. Only he can tell us why.
Krugman is indeed a serious negative externality in the profession. Coase solution ? Can the serious Nobelists pool funds to buy him out of the profession ?ReplyDelete
There is no solution. Grin, bear it, and pity the poor man.Delete
The comments at the NY Times are embarrassing. It is a shame we as a society have given a voice to the dumb and the dumber.ReplyDelete
to anon at 1:45pm: agreed, it is truly shocking the stupidity and ignorance exhibited by the liberati, whether at NYT or the blog comments at Thoma and deLong. Contrast the careful and brilliant work of Sargent with the torrents of garbage that spill forth from those 2 blogs and their commenters.ReplyDelete
I don't read those things. Too scary.Delete
"Krugman seems to want us to be at each others' throats. Only he can tell us why". Where is the real Stephen Williamson? When he writes the above or the "Too scary remark"?Delete
The blogosphere and the economics profession are two different things. If you look at what is said in the blogosphere, that's scary. People are saying all manner of absurd things. The economics profession proceeds in an orderly fashion. People argue, but there are rules of engagement, and the wackiness is at a minimum, except in the fringes.Delete
Krugman does not know what is going on in Princeton? have you considered the possibility he knows, and is just not happy about it. Woodford and Svenson leave, to be replaced by Rogerson and Kehoe?ReplyDelete
1. Kehoe has gone back to Minnesota. Of course they hired Mike Golosov too.Delete
2. My guess is that Krugman does not care what goes on in the Princeton economics department. He has a minimal teaching load, and just shows up to fulfill that requirement.
Krugman, love or hate his modus operandi, has been right about just about everything for a long time now.ReplyDelete
You? Not so much.
I'm a moderate, but prudent risk management requires placing my chips with the guy who's been right, and not the whiners like you.
Krugman is right according to him. You seem to be prone to snake-oil salesmen. They must see you coming a mile away. On my prescience, Andolfatto seems to think I'm pretty good:Delete
Apparently RN just takes Krugman at his word that he's right about everything. After all, why provide evidence if the premise is evidently true on its face?Delete
RN, I suggest you take up a subject with lower standards of evidence. I hear phrenology is making a comeback.
According to Sargent, Krugman did not attend the Princeton macro seminar when Sargent was there.ReplyDelete
"that's something I could have said"ReplyDelete
OK, Stephen, so you respect, even though not necessarily agree with, the NK approach. The thing is, how shared is this respect across the macro profession?
At the beginning of the crisis quite a few notable economists completely dismissed the idea that a government stimulus may be needed to support aggregate demand. And it is not that they recognized that there were models out there in which a stimulus was effective and argued against those models. The mere idea was dismissed as non-sense. See e.g. the speech by Lucas where he basically laughs at the idea of multipliers.
So maybe Lucas respects the NK approach in seminars but, when push comes to shove, he just doesn't. And you cannot deny that this attitude is shared by at least some other economists who see Lucas as one of their intellectual "fathers". I have seen it myself in grad school (as have others at other schools): with some smart, productive and well-published macroeconomists, mention Keynes to them and they would laugh at you. This is what PK has in mind in his post.
(Btw, I agree with you that his geographic generalizations are non-sense for the reasons you mention)
What's wrong with discussing the size of the multiplier and the efficacy of fiscal policy? This would offend you only if the multiplier is part of your religion. It depends what you mean by respect. Someone's methods may be fine, but you might think they have not taken everything into account. There may be some weakness in their science. You can discuss this and try to sort it out. Krugman seems offended when anyone questions any of the features of his paradigm, and typically characterizes this questioning as dismissive or disrespectful, when it's not. What's that about?Delete
To the one-eyed man, the visions of the two-eyed are fantastical. The one eyed _can_ learn depth perception, by taking lessons and doing exercises.ReplyDelete
I go to these meetings too, though less than before learning, that conversation in them is almost always polite, meaning that the room is fuller of sycophants, so most conversations are inward-directed.
Serious discussion is almost completely lacking on your side; say no more,
Except, kindly, would one of you say something. anything, about the Labor Share?
The difference between fresh and salt-water.
Naturally, Paul's idea better in converse.
Each gets up to the podium.
The Saltwater (quondam fresh) places a glass of salt water on the table. Accordingly, has no intention of pausing before ranting out.
The Freshwater (quondam salt) has natural water before him. And occasionally taking a drink loosens the tounge.
Take up the 18th. Brumaire or not.
PLEASE START TALKING ABOUT THE LABOR SHARE
"I have never thought of the macroeconomic production function as an analytically justifiable concept." R.SolowReplyDelete
So there is indeed something rotten in macro. The whole neoclassical macro project has no solid foundation in an aggregate production function.
Perhaps the network theory of Acemoglu and Gabaix will provide the basis for a true macro theory. But the Kydland Prescott stuff is pure trash, as is the New Keynesian bs.
Lets hope the next generation can do better
A more complete version of the quote is:Delete
"I have never thought of the macroeconomic production function as a rigorously justifiable concept. … It is either an illuminating parable, or else a mere device for handling data, to be used so long as it gives good empirical results, and to be abandoned as soon as it doesn’t, or as soon as something else better comes along."
You could say that about any piece of the standard theory we use. Expected utility has it problems, but we use it because it helps get the job done - until something better comes along. So what? What have you done lately that's useful?
Yes, but what job?ReplyDelete
Is the subject you wish to study what so many are really concerned about, the inability of the economy to absorb what they are able to offer it, or something mechanical, only taking up what it finds of use to its maw? Thanks for responding to my query. That you didn't, tells all!
Responding to retards is not Steve's job.Delete
"If Krugman can't figure out what is going on in his own department, do you think you can trust him to take the pulse of the profession?"ReplyDelete
Subtlest reference to the Lucas Island model I've ever laughed at
Wow, such a wonder-post this is. I really love this post very much. Keep it up, mate! Free download softwaresReplyDelete