Sunday, January 6, 2013


I've been making some progress on a paper, but Paul Krugman is at it again, so I need to go into defense-of-macroeconomics mode.

We'll start where Krugman finishes:
And if the perception spreads, instead, that business-cycle macro is just ideological posturing, that influential economists choose their doctrines to suit their political prejudices, and that the field not only fails to progress but sometimes actually retrogresses, this will be bad for the profession as well as the world.
My neighbor Joe Schmoe told my other neighbors that I kick my cat. Joe and I were having dinner together the other night, and Joe told me: "You know, everyone's saying you kick your cat." To which I replied: "I don't kick my cat. Even though she is now transferring her hair to my clean towels, I have no desire to kick her."
Joe: "But it would be bad for you and the world if people perceive that you kick your cat."

What Krugman discusses in his blog post is a paper by Roger Gordon and Gordon Dahl, reporting the results of an opinion survey by the Booth School at the University of Chicago. Basically, a panel of academic economists from the top economics schools in the US was put together, and these people were asked their opinions on particular policy questions. Perhaps surprisingly, these people tend to agree.

But Krugman isn't buying it. The crux of his argument is that
...macroeconomics – and in particular the study of recessions and policy responses thereto – is special, and ... the Booth panel responses just don’t provide sufficient information on what is happening in that corner of the field.
Is macroeconomics special? Certainly not, in terms of how we do our work. One of the key aspects of post-1970 macroeconomic research has been the free flow of ideas among macroeconomics, labor economics, industrial organization, economic theory, and other fields. If macro seemed like a foreign language to non-macros in 1969, that is certainly not the case today. It's basically the same language, and the same toolkit.

Which brings us to the next issue. Krugman thinks that the Chicago Booth panel of experts doesn't include enough macroeconomists to give us a good read on how views differ. Well, these are successful economists who have, for the most part, been trained in mainstream PhD programs where macroeconomics is taught in the PhD core. They work in top departments where they can talk to macroeconomists. As I noted above, modern macro is amenable to communication - it's easy for people outside the field to drop into macro seminars and conferences and get ideas. Indeed, the average person on this panel knows at least as much about macroeconomics as Paul Krugman does. I don't see how the knowledge of the panel limits their ability to make judgements about "macro" issues.

Is the Booth panel asked about a lot of topics that do not involve macroeconomics? No. If you look through the list of topics, there are very few that you won't find addressed in the research of practicing economists who call themselves macroeconomists.

So, it seems hard to make a case that the survey evidence tells us any more or less about consensus in macroeconomics than it does about consensus in labor economics. Suppose, however, that we're skeptical about the whole survey exercise. Who cares about the armchair opinions of some group of economists, who may or may not have the relevant evidence and theory at their fingertips? Maybe Krugman has something else he can tell us to make his point?

The remainder of his piece focuses mainly on remarks by prominent macroeconomists taken out of context, represented by Krugman as doing " best to justify that belief quantitatively, with as little subjective interpretation as possible." Some people might politely call this "stretching the truth."

First up is Tom Sargent, who Krugman claims "denounced the president." If you read the Sargent interview which is the original source, you'll see that's not what Sargent did. Here's the quote:
In early 2009, President Obama’s economic
advisers seem to have understated the substantial professional uncertainty and disagreement about the wisdom of implementing a large fiscal stimulus. In early 2009, I recall President Obama as having said that while there was ample disagreement
among economists about the appropriate monetary policy and regulatory responses to the financial crisis, there was widespread agreement in favor of a big fiscal stimulus among the vast majority of informed economists. His advisers surely knew that was not an accurate description of the full range of professional opinion. President Obama should have been told that there are respectable reasons for doubting that fiscal stimulus packages promote prosperity, and that there are serious economic researchers who remain unconvinced.
You'll notice that the President hasn't been denounced here. At worst, Sargent is calling into question the judgment of Obama's economic advisors, who apparently were not giving him an accurate picture of the relevant economic science. Sargent's interview, interesting in many respects, is perhaps most famous for this:
Rolnick: You have devoted your professional life to helping construct and teach modern macroeconomics. After the financial crisis that started in 2007, modernmacro has been widely attacked
as deficient and wrongheaded.
Sargent: Oh. By whom?
Rolnick: For example, by Paul Krugman in the New York Times and Lord Robert Skidelsky in the Economist and elsewhere. You were a visiting professor at Princeton in the spring of 2009. Along with Alan Blinder, Nobuhiro Kiyotaki and Chris Sims, you must have discussed these criticisms with Krugman at the Princeton macro seminar.
Sargent: Yes, I was at Princeton then and attended the macro seminar every week.
Nobu, Chris, Alan and others also attended. There were interesting discussions
of many aspects of the financial crisis. But the sense was surely not that modern macro needed to be reconstructed. On the contrary, seminar participants were in the business of using the tools of modern macro, especially rational expectations theorizing, to shed light on the financial crisis.
Rolnick:What was Paul Krugman’s opinion about those Princeton macro seminar presentations that advocated modern macro?
Sargent: He did not attend the macro seminar at Princeton when I was there.
Rolnick: Oh.
If you thought that Paul Krugman was a person who likes to criticize what macroeconomists do without spending much time learning about what macroeconomists do, that's another shred of evidence for you.

The second guilty party is Ed Prescott, who is quoted as saying:
Stimulus is not part of the language of economics.
Actually, I like that. What Ed is saying is that "stimulus" is a word that is used for marketing purposes. He's saying: "Ask me a question I can answer." The relevant economic questions are: What happens when government spending on goods and services increases? Does it matter what the government spends on? Does the state of the economy matter for these effects? If so, how? Does it matter how the spending is financed? What if the government cuts taxes? What happens? Does it matter what taxes we cut or who receives the tax cuts? What about transfers? These are important questions, and I'm sure Ed agrees. So, whatever the charge against Ed is supposed to be, I say not guilty.

Last up is Bob Lucas, who gets the most severe blast.
Finally, Robert Lucas made a personal attack on Christina Romer for advocating stimulus, calling it “shlock economics” and questioning her intellectual honesty.
You can read what Lucas actually said here. Lucas was answering a question at an open forum about the usefulness of large macroeconometric models. Here's the complete exchange:
QUESTIONER: Ben Steel, Council on Foreign Relations. Bob, I edit a journal called International Finance and I get a lot of submissions from people who build big models -- big economic models -- and the shortest referee reports I get back condemn these submissions by saying this model is subject to the Lucas critique. In the last session, we had quite an animated discussion which spilled over into the lunch about models on fiscal multipliers, what they are.

On the one extreme, we have models by people like Mark Zandi at Moody's who say that the fiscal multiplier for the spending initiatives we're discussing are on the order of 1.5. On the other hand, we have people like Robert Barro at Harvard who say there's zero or negative. How would you go about applying the Lucas critique to these types of models to sort of educate us in how we should think about the validity of these models?

LUCAS: Do I need the Lucas critique for -- I'm with Barro is the short answer. (Laughter.) The Moody's model that Christina Romer -- here's what I think happened. It's her first day on the job and somebody says, you've got to come up with a solution to this -- in defense of this fiscal stimulus, which no one told her what it was going to be, and have it by Monday morning.

So she scrambled and came up with these multipliers and now they're kind of -- I don't know. So I don't think anyone really believes. These models have never been discussed or debated in a way that that say -- Ellen McGrattan was talking about the way economists use models this morning. These are kind of schlock economics.

Maybe there is some multiplier out there that we could measure well but that's not what that paper does. I think it's a very naked rationalization for policies that were already, you know, decided on for other reasons. I don't -- I'd like to talk about the Lucas critique but I don't -- I don't think we can -- (chuckles) -- deal with that issue.
Christina Romer's name comes up here alright, but Lucas's tone is more empathetic than anything. I don't see any disrespect. The schlock Lucas is referring to is not a reference to Romer in particular, but to the use of large macro models for policy analysis. There's consensus on that. Most of the macroeconomics profession thinks of old-fashioned large-scale macroeconomic models as useless for anything but forecasting. Students working on doctoral dissertations aren't busy modifying some sector of the FRB/US model or some such, as might have been the case in 1968.

The bottom line Krugman wants to push is that macroeconomics, among fields in economics, is unusually contentious, and that this contentiousness is driven by ideology. In other words, Republican economists and Democrat economists filter both theory and evidence to support preconceived beliefs about how the world works.

Since Krugman brought up Sargent's name, it's useful to read this New York Times article, written after Sargent got his Nobel prize. Here's a good quote:
He doesn’t wear his political opinions on his sleeve. “They really don’t matter in my research,” he said. But because others have applied labels to him, he decided it was worth setting the record straight. He’s a Democrat, he said, “a fiscally conservative, socially liberal Democrat,”
That would be an accurate description of my politics, actually. Sargent goes on:
“If you go to seminars with guys who are actually doing the work and are trying to figure things out, it’s not ideological,” he said. “Half the people in the room may be Democrats and half may be Republicans. It just doesn’t matter.”
Excellent. That describes my experience exactly.

Apparently Krugman thinks that the theoretical apparatus that came out of Lucas's and Prescott's work is somehow ideologically biased. How could that be? Take Lucas's Expectations and the Neutrality of Money paper, for example. The basic model he works from is Samuelson's overlapping generations model. Do you think Samuelson was a Republican? When Kydland and Prescott wrote Time to Build and Aggregate Fluctuations, they were basically tweaking a well-developed modeling framework that came from the work of Solow, Cass, Koopmans, Brock, and Mirman. It's highly likely that none of those people were/are Republicans.

As I've stated before, I don't think that macroeconomics, among fields in economics, is unusually contentious, or unusually ideologically driven, though I'm sure you can find examples of both if you look. I agree with Paul Krugman that much of the Republican party is a despicable bunch, and not worth voting for. But I don't like it when he attempts to sow dischord, by picking on well-respected septuagenarian (or almost septuagenarian, in Sargent's case) macroeconomists and mischaracterizing their public statements. That's pretty despicable.

By the way, have you heard Krugman kicks his cat?


  1. What does fiscally conservative socially liberal mean?

    1. Well, Sargent said it, so I can't speak for him. My interpretation, since I told you that seemed to fit where I sit, is:

      1. Fiscal conservatism: On activist countercyclical fiscal policy, my sympathies are more with Friedman than with Keynes. Also, the tax system has important incentive effects we have to worry about.
      2. Social liberalism: People should be allowed to marry who they please, and have abortions if they want them. I think government-provided health insurance is a good idea.

    2. Interesting, would you then be in favor of progressive tax increases to pay for government provided health care?

    3. Two different issues. You want government-provided health care. We have to pay for it somehow. What's the best way to do it? Some progressivity in the income tax system seems appropriate, as part of social insurance. But there is a tradeoff between insurance and incentives. Without doing a serious modelling exercise, I can't tell you whether we currently have too much progressivity or too little in the US.

  2. These "real" macroeconomists, unfortunately, do so little to make their reasoning understandable to well educated laypeople, or even economists in other areas. Your posts are usually not really understandable -- the intuition, the complete this leads to this leads to this... -- to someone who's not already a "real" macroeconomist, who professionally publishes in the top macro journals.

    At least with Krugman, his posts, and books like "End this Depression Now!", are largely understandable to non-specialist economists and well educated laypeople, the intuition, the this leads to this leads to this,...

    When are the "real" macroeconomists (Does that include Simon Wren Lewis?) going to write books and posts that will really make their positions and reasoning clear to the other 99.9999%. Do they really care, or that would just take a lot of time away from the real glory, publishing in the top macro journals?

    1. And when you do hear their reasoning it's so often things like, since all people are perfectly rational and forward looking, deficits don't matter, as people perfectly monitor government policy and spending and will perfectly compensate for increased deficits with increased private saving. Then we see surveys showing people are ridiculously ignorant and mistaken in their understanding of government spending and policy.

      If there's something more than this kind of thing, it would be nice if there was a real effort to explain it to well educated laypeople and economists not in this small sub-area.

    2. Richard,

      In every class, there is a student like you, who complains about not understanding, asks a lot of questions, but really is not interested in absorbing anything. I've tried explaining things to you, but you come back again and again with the same questions. Your ideas are pretty much fixed, I think. No learning going on.

    3. Richard,

      Just to clarify. You are in favor of really poor economics that is written for a general audience rather than serious thinking.

    4. No, I'm in favor of the best (and most influential) economics being tried to be made understandable to at least well educated laypeople and policy makers.

      It just may be very hard to explain Stephen's complicated macro in relatively short blog posts to laypeople and non-specialist economists. But I don't see anyone besides Stephen trying, or anyone trying with popular books like Krugman's "Peddling Prosperity".

    5. Stephen,

      I don't mean to be hard on you. It can be extremely difficult to explain to laypeople and non-specialists something very complicated and long in a few paragraphs, or pages, even at a basic intuitive, story level. But you're the only one from your group I've seen trying. Why no one else? And why no one trying books for well educated laypeople, where you have much more space, like Krugman does, and scientists in other fields do, like top nutritional scientist Colin Campbell?

      Obviously , only a micro percentage of the population, and few policy makers, are going to have the background and time to read all the papers.

    6. Richard, Steve Landsburg is a pretty popular economist - read armchair economist. The problem with "popular" economists is the lack of rigorous analysis, usually in favor of dramatic appeal to emotional responses.

      In any serious look into the economy, but at a basic level, you will see perfect case scenarios. Think about how physicists start out with frictionless space.

      Like, from my understanding when I took a class with Professor Willamson's intermediate econ book, the core idea - the basic idea - to take away was that the price matters; you should probably not mess with the it. We created a frictionless model and used it almost like it was a unit of measurement.

      Only then we added more and more ideas into it that created friction. It got more complicated (not very much), but the model became less and less like a rough sketch.

  3. Richard:
    Williamson's reply to you notwithstanding, I will try an answer to your complaint: nowadays there are perfectly fine non-specialist venues where the non-specialist can go and read about current research in economics. For starters, there is the Journal of Economic Perspectives, a journal that was established for exactly the reason you complain about. Anybody can go to the AEA website, and look up the JEP index of the current and past issues, and find articles of their interest about different economic topics. There are non-specialist books by John Taylor and Luigi Zingales that the non-specialist can read as well. And by the way, the non-specialist can pick up any intermediate macro, public finance, micro textbook and get up to speed in Econ. With some effort, it is not too difficult.
    It takes some digging, it takes some effort, like anything else in life, but it is simply not true that there is *nothing* out there for the non-specialist to read about current and modern Economics.

    1. Thanks for telling us about JEP. Very useful.

    2. The Federal Reserve Banks were pretty good at providing accessible economics. Most of them got out of the business though. The Minneapolis Fed Quarterly Review was excellent, but has reduced quantity drastically. It's now more like an annual review, but still very good:

      The Richmond Fed's Economic Quarterly is also good, and has stuck to the quarterly format:

      Also, closer to home, there is the St. Louis Fed's Review:

      And St. Louis also has other publications, which you can find on the above web site.

      The Federal Reserve System has excellent economists, and writing for these publications is part of their job, so they take it seriously.

    3. Yes, thanks for that too.

      Funny you bring these publications up - I referenced the Cleveland Fed's very readable "Commentary" in my most recent post on Yap Money.

    4. There is a nice Yap stone in the atrium at the Bank of Canada.

    5. Whenever I go through Ottawa I always hit the BoC museum. Catch the yap stone, enjoy free admission, and learn some monetary history. Great fun.

    6. Inside the Bank, I think this is East Tower, 2nd floor, there is a framed note on the wall. I can't remember the details exactly, but I think it was early 20th century, with a denomination of $50,000. This was a note not intended for circulation in retail payments, but for interbank clearing and settlement. In the days before they could do this electronically, they needed paper notes, and of course it would be inconvenient to settle large interbank transactions with small-denomination notes. Clearing and settlement was very important to the functioning of the pre-1935 private money system in Canada.

  4. I find this comment puzzling:

    "Most of the macroeconomics profession thinks of old-fashioned large-scale macroeconomic models as useless for anything but forecasting."

    How can these models be useless if they are superior (by implication) at forecasting? Why aren't there useful DSGE models which can beat the useless large-scale macro models at what matters for policy makers and the general public?

    1. "How can these models be useless if they are superior (by implication) at forecasting?"

      Forecasting is an exercise where you make predictions about various future quantities and prices. Policy analysis is a different exercise - you're making a prediction about how things would be different if policy changes. It's well-recognized that 1970s vintage large-scale macroeconometric models (and the FRB/US model currently in use at the Board of Governors I think fits in that class) are no good for the latter exercise. The hope is that modern models, of the type estimated by Smets/Wouters or Christiano/Eichenbaum/Evans can both fit the data and be useful in policy analysis. I'm not convinced, though. In an attempt to fit the data well, random disturbances, and various bells and whistles proliferate in these models, to the point where they lose the structure they need to be useful for analyzing policy. There is a problem here related to how organizations work, as well. Once one of these models gets taken over by, say, a working group in a central bank, the thing quickly grows in size to the point where no individual understands how the whole thing works. Ultimately, the model ends up looking like the 1970s vintage object. Maybe there's a way to design the organization to solve the problem. I don't know.

    2. yes, have more models ... the Board also has a large-scale DSGE model: and the staff forecast draws on a raft of (partial equilibrium) models and judgment. No one model (or modelling approach) is going to serve all purposes.

  5. Hard to critique a post with such a lovely cat, but...

    First, I appreciated the longer text excerpts, though in one regard they strengthened Krugman's argument. Sargent called out the lack of consensus about stimulus ... that was point of this debate, right? Sensible macroeconomists disagree on policy advice (not just the details, but the sign).

    Second, I think we economists, particularly academic ones, forget that economics is just one ingredient in economic policy. Someone once explained to me the formulation of (non-monetary) economic policy as list out four option in decreasing appeal by economic principles. Inevitably the fourth option gets picked because it is the most politically viable. Now are economists in the room to 'blame' for policies being political? Seems like an narrow-minded critique.

    Finally, I am not so enamored with the 'economic consensus.' When I was in grad school the consensus told me the housing boom was a sign of vitality and the Great Moderation was our signature success. That consensus flipped so fast at my first the consensus tell me leverage is bad and technological growth is in the toilet (or at least no better than toilets). Yes, I am being a bit flip, but my point remains that the consensus is often over-rated and transitory. I am skeptical of what the survey says about the consensus. I don't worry so much about the survey, it's the stability of the consensus.

    1. "...strengthened Krugman's argument."

      No, his argument is that macro has an unusual lack of consensus, and it's driven by politics.

      I agree with you about the "consensus." There are fads in economics as in anything else. Sometimes I've been surprised by what some people call consensus. A person preaching consensus might be someone with a weak idea trying to give it some force. That's part of what Sargent was talking about. Someone told Obama that there was consensus about a particular issue, and that wasn't correct.

    2. Essentially, you claim that most economists agree that we need more spending on state and local employment and infrastructure to correct for the AD deficiency caused by the free market ideology that the shadow banking industry would regulate itself.

      Or would you say that people like Krguman, Stiglitz, Sachs, and Baker are just liberal outliers? Honestly, I don't see many conservative economists or right wing think tanks argue for this approach.

      While this not be an accurate example of Conservative economists, it was a survey on their views of the ARRA. Many just parrot right wing talking points that we have more of an AS problem rather than an AD. Therefore, tax cuts are good and government spending is bad. Many believe that unemployment insurance is causing lasting unemployment rates.

      Again, while this survey may not be represent of Conservative economists, it show the classic ideological myopia.

    3. Oops, I meant this to be a general reply, not a reply to Claudia.

    4. "...we have more of an AS problem rather than an AD..."

      As Prescott would say, that's not part of the language of economics.

    5. That is a nonsensical response. Prescott was against the use of "stimulus" since he believed that the "stimulus" bill was a marketing ploy and that the ARRA would depress the economy, in which he was wrong.

      Plus, I would fail to see why Prescott would be against using AS and AD terminology.

    6. "I would fail to see why Prescott would be against using AS and AD terminology."

      The language comes from a model taught to undergraduates. It's intended as a shortcut, but unfortunately it's misleading. It doesn't make any sense to try to explain how one would think about a problem properly in the language of a model that is not useful for the problem at hand. What's a financial crisis? Does that shift the AD curve or the AS curve? You shouldn't ask that question.

    7. It seems that you are more interested in deflection than discussion. You can completely dismiss the AD and AD model, but no macroeconomic model fully captures the complexities of reality. Plus, I was using this terminology along with a survey of Conservative economists to show that there are stark differences with views being driven by ideology purity. Then again, this sample may not be reflective of Conservative economists since they self-selected into a Cato pledge.

      A financial crisis is what we recently experienced along with the housing bubble popping. Since you don't believe in AD, I will stop here.

    8. We know exactly what the Cato Institute is, and can take it with a grain of salt. That's not academia.

    9. SW can correct me if I am wrong since he is the expert and I am definitely not, but to the extent that financial intermediation is a service, a financial disruption is also a supply shock. This supply shock may affect the demand for other goods, but this is where the AD-AS language fails.

    10. AS-AD is the following. There's a money demand function. There's a consumption function and an investment function. There's a competitive labor market. Then, things are messed up in some fashion. Maybe the nominal wage is fixed, and this gives you the upward sloping AS curve.

      Now, what's financial disruption? That is somehow screwing up credit markets and exchange. I guess that would affect the demand for money, and it would also have implications for consumption and investment behavior. Since firms are affected, this will also matter for labor demand. But if there are implications for consumption, then the consumers who are consuming are of course the same economic agents on the supply side of the labor market, so this matters for labor supply too. So does AD-AS tell you anything about what happens. No. It seems all the curves are shifting. How much? We don't know.

    11. I think the best thing for macroeconomics would be to eliminate the principles course -- it teaches nothing useful and instead propagates nonsense like AS/AD thinking. Maybe just teach a year-long course in micro principles with some national income accounting and discussions of price indices.

    12. In terms of what an economics major is going to learn, the year of principles we typically ask them to do is indeed a waste. You could pretty much start them at the intermediate level, and it wouldn't make any difference. But principles courses are very high-enrollment, typically. There are plenty of people for whom that is the only economics they will ever see, and economics departments typically want the students to justify their existence. Since that problem isn't going away, maybe we need to think about how we do a better job of getting economics - and macro in particular - across at that level.

  6. I think to some extent Krugman is right that macro is more contentious than other fields of economics, though I think he vastly overstates his case, and unlike him I don't think this has much to ideology. If you look at macroeconomics, as whole, there is actually very broad consensus on methodology and we seem to have some reasonable consensus on what reduced-form shocks are important. There is still non-trivial disagreement on what primitive shocks are important; what features need to be included (I know you, Steve, have issues with New Keynesians exclusion of money); and what frictions are appropriate. Policy wise, there is fairly strong agreement. Prior to 2008 most macroeconomists would agree that for most recessions a reasonable policy course would be to keep inflation low and stable; for taxes to be smoothed; and for the social safety net to expand. Most macroeconomists would not have argued for surge in government expenditures in response to any Post-WWII recession prior to 2008. I think that's a pretty substantial consensus.

    I think there is little doubt that there is a substantial disagreement about the merits of fiscal stimulus in the current environment (although I would contend 2013 is different than 2009), but I think this has little to do with ideology. It has to do with that the occurrence of recessions with zero nominal interest rates; high unemployment; slow growth; a financial crisis; and a large decline in asset values is quite rare. In many respects, it's harder to make progress in the social sciences than the physical sciences. In macroeconomics, you don't have clean experiments. Even in a scientific fields without experiments (say cosmology), the "aggregate" observational data is much more decisive in rejecting theories. Human's don't follow fundamental laws of the type studied in cosmology so the data is never easy to interpret. The best macroeconomists can do is to develop models that are well motivated by reasonable intuitions and micro data, and hopefully these models have reasonable resemblance to the data. This type of process is naturally going to lead to disagreements on all sorts of things. How the micro facts fit together can be a tricky thing and if we can't get simple experiments of the models, we are going to have disagreement based on what evidence reasonable people find more compelling. Hopefully, consensus will eventually be reached with lots of work on testing the micro assumptions, coupled with better data and better theory. The recent work by Bils-Klenow on price frequency was a wonderful example of what I mean by testing our micro assumption. Their work has given economists much better data on what types of models of price stickiness might be useful. I think similar exercises on wage adjustment would be useful (though expensive to undertake).

    I'd also mention other fields go through these issues too. Physicists vigorously debate string theories because they are difficult to test and allow for a lot of solutions. Yet this shouldn't undermine the enormous consensus physicists have on a wide variety of phenomena.

    1. "Krugman is right that macro is more contentious than other fields of economics.."

      I don't think so, but of course we can't measure this. I'm thinking about the rifts between structural and astructural labor economists (Heckman, for example, is a pretty contentious character), or attitudes about experimental economics and behavioral economics. Even the econometricians get upset with each other. Bayesians and Classical statisticians can get into it in a serious way.

  7. Macro is not driven by politics. Politics is driven by macro.

  8. Of course scientific disagreements exist among economists, particularly on issues for which the empirical evidence is weak. But this is true in all sciences. Krugman's charge is not that (macro)economists disagree, but that they disagree because they are driven by ideology, sometimes even when the empirical evidence is considerable.

    I am honestly planning to buy Gordon and Dahl a drink whenever I run into them for taking him on with a formal paper. Krugman is becoming the Jerry Springer of the economics blogsphere.

  9. This is the cutest cat!!!

    1. She's a Siberian cat:


  10. Robert Aumann's agreement theorem says that i) if people are rational, and ii) belief differences are only data/information-related, then, there shouldn't be any disagreement, eventually. But, what we observe in real world is that people disagree. Economists disagree. Why? They have similar background, similar education, similar schools, similar math skills, but they disagree. I think economists disagree on things because they interpret things differently, That is, they view things differently and thus they have differences in opinions. So, the second assumption of Aumann's theorem is---I think---violated, not the first one. Belief differences of economists are driven by opinions, not information. The bad thing here is that, since the heterogeneity is not info-driven, there is no motive to update information, and economists can agree to disagree forever!

    1. That's interesting, but I think there's much more to it than that. Information is costly to acquire and to process, and people have different abilities. Start two rational economists at time t with the same initial state, and at time t+T they will have different information, will process it in different ways, and in general make different decisions. That's just for starters. It's very costly to re-tool, even if it becomes clear that your paradigm is inferior. You would rather block entry of the new paradigm than pay the adjustment cost. So some economists, particularly the low-ability ones who face high adjustment costs, are going to disagree with new ideas, even if they know those ideas are correct. That's what "opinion" is about, in part.

      But fortunately we're also hard-wired to cooperate. Sometimes a good fight can be fun, but people enjoy harmony more than conflict. Maybe you can construct a game with some of those features in it.

  11. FYI, Sargent more directly criticized Krugman here:

  12. Krugman may be well on the money about pre-1978 macro?

    Nelson and Schwartz specially addressed this point in their response to his carping at the time of Milton Friedman’s death.

    • Krugman (2007d) said: “The key thing is that good Keynesianism, as embodied even in undergrad textbooks of the time, was perfectly OK: Dornbusch and Fischer, 1978 edition, offered a description of what disinflation would look like that matches the experience of the ’80s reasonably well, and the textbook does not seem all that dated even now.”

    • Nelson and Schwartz going on to say that “a major reason why Dornbusch and Fischer (1978) “does not seem all that dated even now” is because it incorporates many monetarist ideas.” Dornbusch and Fisher (1978, p. 520) observe 'Much of the analysis of this book would, a few years ago, have been considered monetarist.'”

    See pp. 18-19.