A couple of months ago, I wrote a critical post about
how the economics blogosphere dealt with a murky event - the recent turmoil at the Minneapolis Fed. Basically, bloggers got some basic facts wrong, made things up, and were willing to make strong inferences based on little evidence. In terms of basic reporting standards, it was a pretty poor performance.
Here's another example of poor blogging performance. In this case, the underlying facts are not murky. Kartik Athreya has published a book, Big Ideas in Macroeconomics
, and the facts are plain. All you have to do is read the book to know what they are. Basically, Kartik has written a 400+ page book with the intention of explaining modern macroeconomics to the layperson - with no symbols or mathematics and only the occasional diagram.
The first mention of Kartik's book (other than my plug on January 10
) seems to have been David Glasner's post on February 3.
Though he gives Kartik some compliments, Glasner doesn't like the book. Kartik is in good company here, because apparently Glasner isn't too fond of modern macro in general. Though Glasner is confused, we can give him credit for politeness in this instance and, above all, he appears to have actually read the book.
After that, it gets more interesting. On February 10, a week after the Glasner post, there was a quick succession of blog posts, beginning with John Quiggin's.
If you're familiar with Quiggin's book, Zombie Economics
, you'll know that he hates modern macro with a passion. But, suffice to say, as I argued here,
that Quiggin is poorly informed. We might say that Quiggin has high TFP - plenty of intellectual horsepower - but he's applied little labor input to understanding what modern macroeconomists do. Nevertheless he doesn't like us. Whatever.
In this instance, Quiggin's post appears to have more to do with reprising Zombie Economics
than discussing Kartik's book. In his post, Quiggin claims to have the book in his hands, but I'm suspicious that he hasn't read it or, at best, he's spent little time delving into it. Why do I think that? Here's a quote from Quiggin's post:
The easiest way to see why the book is so striking is to list some topics that do not appear in the index (and are not discussed, or only mentioned in passing, in the text). These include: unemployment, inflation, recession, depression, business cycle, Phillips curve, NAIRU, Taylor Rule, money, monetary policy and fiscal policy.
By contrast, the book includes a lengthy treatment of such topics as Bayes-Nash equilibrium in game theory, intertemporal optimization of consumption and the theory of mechanism design.
Now compare that to what Glasner wrote:
The index contains not a single entry on the price level, inflation, deflation, money, interest, total output, employment or unemployment. Which is not to say that none of those concepts are ever mentioned or discussed, just that they are not treated, as they are in traditional macroeconomics books, as the principal objects of macroeconomic inquiry. The conduct of monetary or fiscal policy to achieve some explicit macroeconomic objective is never discussed. In contrast, there are repeated references to Walrasian equilibrium, the Arrow-Debreu-McKenzie model, the Radner model, Nash-equilibria, Pareto optimality, the first and second Welfare theorems. It’s a new world.
That's too similar to be a coincidence, so my best guess is that Quiggin got a bit of information (or none) from the book itself, and learned most of what he needed from Glasner's post. But note the difference between Glasner and Quiggin. Glasner says there are some things not in the index that he thought should have been there, and he says those things are actually discussed in the book. Quiggin claims those things are not discussed in the book. What's the truth? Well, there are extensive discussions about business cycles, unemployment, policy rules, monetary and fiscal policy, etc., in Kartik's book. There's certainly an extensive discussion of the theory, but of course that's necessary to get where the author wants to go, which is explaining how the theory is used as an input to policy, and to understand what we observe.
So apparently, Quiggin hasn't done his homework, but he's willing to make some bold conclusions:
The result is that there is almost zero intersection between Big Ideas in Macroeconomics and what I would think of as macroeconomics. It’s not so much that I think Athreya is wrong is that we are talking past each other. As Charles Goodhart said of DSGE, Athreya’s version of macro excludes everything in which I am interested.
So is this just "talking past each other." I don't think so. In my experience, Quiggin is not willing to engage. I took some trouble to write a defense of modern macro/critique of Zombie Economics
, and Quiggin took note of that in some comments on a blog post of mine. Then he made excuses about being busy, and disappeared.
A typical criticism of modern macro is that it is too technical for a layperson to understand, and that macroeconomists make no effort at accessibility. Well, in this case, Kartik's goal is to be accessible. Certainly Glasner is not accusing him of being difficult to understand. Talking past each other? Baloney.
Shortly after Quiggin wrote his post, Noah Smith added his two cents' worth.
He's certainly up front about how he researched his post:
I myself have not yet read the book, but David Glasner and John Quiggin have, so I'll be lazy and free-ride off of their effort.
So, Noah is freeriding on Quiggin and Glasner, but it seems likely that Quiggin knows no more about Kartik's book than what he read in Glasner's post. Further, though Glasner (to his credit) seems to have read the book, he's got some hostility toward modern macro - claims we're "methodologically arrogant," whatever that means - and his post glosses over some of the more important contributions to be found in Kartik's book.
So, having not read the book, but rather the Cliff's Notes version filtered through Glasner and Quiggin, Noah is ready to state the following:
Possibility 1: Athreya is trying to balance out the public discussion of macro. He knows that a lot of lay people and bloggers already talk about Keynes and Friedman, monetary policy and fiscal policy. His intent was to write a book about all the other macro stuff that the public doesn't know about - general equilibrium and game theory, incomplete markets and search frictions, and so on.
Possibility 2: Athreya just doesn't care that much about the stuff he leaves out. He's not interested in the history of economic hypotheses, only in the history of economic methodology. He cares vaguely about policy and about the economy itself, but only insofar as it's an interesting application of his beloved methodology. The ideas he thinks are "big" are ideas about how to make macro models, not about what assumptions go in the models or what conclusions come out of the models.
I don't know Athreya, but my intuition is that whether Possibility 1 is true or not, Possibility 2 is true - Athreya seems to be in love with modern macro methodology. If he were just trying to balance out the public discussion, he would probably have been more explicit about that goal. Also, the fact that he doesn't seem to talk much about evidence is telling. "Big ideas" apparently doesn't mean ideas that are successful in explaining the data, it means ideas that are neato and cool.
So, Noah's first big mistake is taking Quiggin at his word. Quiggin's claim that Kartik left out discussion of unemployment, policy, etc. is false. But of course Noah goes further. He doesn't know Kartik, as he points out, and he hasn't read his book, but he's going to use his intuition to look inside Kartik's head and tell us how he thinks. Basically, Noah is going to make up some stuff. Very un-neato and un-cool, Noah. On the disgusting side, actually.
So, we know that when this crew gets together, Paul Krugman can't be far behind
. It's clear that Krugman didn't read the book either. He only read what Quiggin wrote. Further, we know Quiggin's post is more about Zombie Economics
than about Kartik's book, and to the extent it deals with the book, falsely represents what is in it. So this has become a game of telephone, where whatever was stated in Kartik's book comes out in Krugman's blog as
John Quiggin looks at a recent book that purports to explain the big ideas in macroeconomics, but doesn’t contain any, well, macroeconomics.
And, well, that is one big falsehood.
It's now been more than four years since Krugman wrote How Did Economists Get It So Wrong?
If you remember, these were the instructions Krugman gave us in 2009, in that piece:
So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.
So, let's go through the checklist.
1. Sure, financial markets are imperfect. This was something that we knew in 2009. By then, macroeconomics was replete with work on incomplete markets, financial contracts, banking, credit market frictions, etc. Krugman didn't have to tell us to think about those things. As to "delusion and madness of crowds," we have Shiller to tell us about delusion, and the "madness of crowds" is Roger Farmer's territory.
2. Is Keynesian economics the "best framework for making sense of recessions and depressions?" If by "Keynesian economics" we mean the version of Keynesianism that is practiced by current researchers, i.e. New Keynesian economics, and if making sense means that a baseline NK model with sticky prices and wages can explain all the macroeconomic phenomena we might be interested in, then the answer the profession has delivered is a resounding no. The interests of macroeconomists have shifted, naturally of course, to work on financial frictions of various kinds. In the work of freshly-minted PhDs in economics, there is distinctly less work on sticky prices than was the case before the financial crisis. I think a typical modern macroeconomist understands that there is a wide array of frictions that we want to think about when explaining what is going on in the world and understanding the role for economic policy. For some problems (perhaps all - we're really not sure) sticky prices and wages may be peripheral or totally unimportant. I don't get the same feeling of Keynesian religious fervor that used to exist among some people.
3. The realities of finance? I think we've made a lot of progress but, again, it wasn't like we were finance dummies before the financial crisis.
So, what effect has Paul Krugman had? Has Krugman changed how macroeconomics is done? Have we taken his messages to heart? Hardly. For your average working economist, what Paul Krugman thinks is irrelevant. But John Quiggin claims that Krugman and Brad DeLong are "setting the terms" of at least some elements of the debate on public policy. Here's my conjecture. I think it's likely that Kartik Athreya has had a larger effect on macroeconomic policy in the United States of America than Paul Krugman and Brad DeLong put together. Kartik is a Vice President at a Federal Reserve Bank, and his views affect those of the President of the Richmond Fed with regard to both monetary policy and banking regulation. Krugman and DeLong are journalists. Have their views helped to persuade anyone about anything that had any tangible effect on a policy decision? I'm not sure.
Kartik is a serious macroeconomist. As is typical in regional Federal Reserve Banks now, and at the Board of Governors, Kartik is expected to be engaged in research at the level of academic economists. Here's his CV,
which includes work on credit, bankruptcy, default, public insurance - a lot of things that critics of modern macro seem to think we don't do. Part of Kartik's job is also to do policy, and at the Richmond Fed there is a lot to think about. In addition to monetary policy issues, the Richmond Fed district includes Charlotte, NC, where Bank of America is headquartered. So bank regulation is a big deal for the Richmond Fed economists. Kartik thus has a wealth of experience, which he has used to write a book which explains modern macro and how we do it. Pay special attention to Chapter 6, where he discusses how the available tools can and were used to make sense of the financial crisis. Big Ideas in Macroeconomics,
is an excellent book, and I think John Quiggin, Noah Smith, and Paul Krugman should read it. You should too.