I think that House, in his response to Paul Krugman, was overly gracious, to say the least. Here's what Krugman had to say. Krugman starts with this:
America, it goes without saying, has a powerful, crazy right wing. There’s nothing equivalent on the left — yes, there are individual crazy leftists, but nothing like the organized, lavishly financed madness on the right.Is the far right wing of U.S. society "crazy?" Of course not. Out of respect for the mentally ill, we shouldn't fling words like "crazy" around lightly. The far right is quite rational, and they have well-defined goals. They want easy access to all manner of dangerous weapons; they do not want extended government participation in health care; etc. Is the far right powerful? Yes and no. They have indeed been successful in promoting lax gun control. But the United States now has in place an extended health care program with government participation. Democrats control the executive branch and the Senate, though the House is of course in control of the far right wing of the Republican party, and the left seems to be losing on the Supreme Court.
Krugman goes on to say this:
Which brings me to this critical piece by Chris House. A while back House declared that both Ed Prescott and yours truly say crazy things; when asked for an example of me saying something remotely equivalent to something like Prescott’s declaration that there is no evidence that Fed policy matters, he never did answer.Why this produced such a polite reply from House is beyond me. Krugman is (groundlessly) accusing House of making claims without evidence, and stating things about Krugman's post without reading it. I read all this stuff myself, and I thought House was quite fair and careful. Here's some of what Krugman actually said in his two posts (here and here) concerning Tom Sargent's 2007 Berkeley graduation speech:
Now House takes me and Noah Smith to task for preaching to the left-wing echo chamber in what we wrote about the Tom Sargent speech that’s making the rounds. And once again I have to wonder whether he actually read what I wrote, or simply assumed that it must be over the top.
So why the sudden attention to Sargent’s 2007 speech? I think it’s fairly obvious: it’s essentially stealth anti-Keynesian propaganda, cloaked in the form of a widely respected and liked economist uttering what sound like eternal truths. But they aren’t, and the real goal here is to undermine the case for fighting unemployment in the here and now. There are virtues to that 2007 talk, but right now is no time for 2007 Sargent.That paragraph actually is crazy - it reflects paranoia. As I explain here, Sargent's speech is a very terse set of innocuous, mainstream, economic ideas, that are entirely consistent with Krugman's thinking, Mike Woodford's thinking, Ed Prescott's thinking - whatever. Anti-Keynesian propaganda, untruths, conspiracy? Nonsense.
Now, back to Krugman's last missive on the matter. This casts "progressives," and particularly Krugman's blogosphere friends - DeLong, Thoma, Konczal, and Wren-Lewis - as poor downtrodden "voices in the wilderness" fighting against a set of powerful bullies. I have no objection to an organized fight against the forces that make firearms proliferate, and the promotion of broad-based health care in the United States, for example. What I object to are bad economic ideas, and the misrepresentation of sound academic work in economics. And I think that is part of what gets propagated by at least some members of what is being characterized as a "progressive" group here. I think Mark Thoma and Simon Wren-Lewis are honest and have good intentions, but Krugman and DeLong? Not so much.
In the final paragraph of this last post, Krugman states:
I won’t ever say anything I don’t believe to be true...I don't have hard evidence for this, but I think that's a lie. Given Krugman's body of academic work, I do not believe he can honestly state that there are easy solutions to our economic problems that are at the fingertips of typical undergraduate students in economics 101. How could he think such a thing? There may be a few problems for which the answers are easy, but most of this is very difficult. To state otherwise doesn't help anyone.
"There may be a few problems for which the answers are easy...."ReplyDelete
What Krugman is saying is that the problem of deficient demand is easy, so far as the economics goes. That's what Keynes says too, many many times in his writings. Why doubt that they mean it? Do you think Keynes was lying too?
I get that you disagree. But you should be able to see that other people think you're just wrong.
"What Krugman is saying is that the problem of deficient demand is easy, so far as the economics goes. That's what Keynes says too, many many times in his writings."Delete
You understand of course, that much of what has been written in macroeconomics in the last 45 years or so says it's not that easy.
I guess that qualifies as what Wren-Lewis calls anti-Keynesian or what I would call demand denial.Delete
When tens of millions are unemployed, nominal rates are low and inflation (and inflation expectations) are low and thus real rates are low, i.e. when we are in a liquidity trap, solutions are actually pretty easy.
Here is the thing Stephen - you say:ReplyDelete
"What I object to are bad economic ideas, and the misrepresentation of sound academic work in economics."
What is a "bad economic idea"? And thus, what is a good one?
What is "sound academic work in economics"? And thus, what unsound work?
And who decides? The editors of the AER and their referees? The editors of JPE or QJE or RES, and their referees?
Who is the ultimate decider of good and sound work? The market? If yes, which market?
Keynes and Hayek disagreed heavily. Did they consider each other's work unsound?
Friedman and Tobin disagreed heavily - did *they* consider each other's work unsound?
Related to that, you also say:
"I have no objection to [...] the promotion of broad-based health care in the United States..."
What if somebody sharply disagrees with you, say on "the promotion of broad based health care...". Would you consider it unsound work? If not, why?
Keynes and Hayek may have disagreed, but they at least agreed on the basics. More importantly, they had respect for each other and never dismissed each other's ideas as right-wing or left-wing propaganda. Which is precisely what Krugman is doing to Sargent about ideas that are, in fact, quite mainstream. I doubt that even Krugman really believes that a massive increase in government spending does not involve trade-offs because in some over-simplistic model the SRAS is perfectly elastic. One can argue that in a recession the costs are relatively small compared to the benefits, but this is a completely different argument. And it certainly does not justify the attack on Sargent.Delete
"And who decides? The editors of the AER and their referees? The editors of JPE or QJE or RES, and their referees?"Delete
Krugman says that the editors of the top journals (except maybe the QJE where he gets his work published) conspire to keep out good work. I disagree. I think, for the most part, the journals are doing a good job.
I have to disagree on Sargent's 10 points. Not all of them are reasonable--the fact that mainstream economists read those 10 comments and not object is a clear indictment of the state of our profession.Delete
You should not include yourself as part of the profession. You should actually accomplish something first.Delete
What do you make of this? https://www.youtube.com/watch?v=CIgyN0slhC4ReplyDelete
I didn't watch the whole thing. Not sure what you want me to say. What I suppose I didn't mention is that ignorance is a big problem. Some of it is willful.Delete
So a guy who does not read one of the most important economic publications of the recent years because it suggests non-distortionary income redistribution of the very rich, i.e. people who inherited their wealth or who people who are in the top management of a company and extracted rents (do I really have to point out that taxing heirs and rent extractors slightly more has basically no disincentive effects?) pretends that he is not a right-winger but just a technical economist yet accuses modest centrist economists (Krugman and Piketty are not left-wingers, in the fifities they would have been Eisenhower Republicans and in the eighties they would have been centrists) of having a political agenda?ReplyDelete
Taxing heirs has no disincentive effects? Since when? Would you save and leave a bequest for your children if, for example, it was going to be confiscated by the government?Delete
Anonymous, you need to stop pretending to be so thick-headed. I know Krugman's message is that there are two groups of people: those who agree with Paul and who are good guys, and those who disagree with Paul and are also bad guys. It's permissible to go off message, don't you think?Delete
It is totally permissible to admit that economics is always political. Not that you and the other right-wingers do that, you try to play the game of us neutral technical economist vs those progressive hack economists. It is really too transparent to work so let's simply be honest and admit that economics is always political.Delete
And before you start your ramblings about being a socialist, not caring about the skyrocketing of inequality and advocating against output stabilization as as economically right-wing as you can be.
"Taxing heirs has no disincentive effects? Since when? Would you save and leave a bequest for your children if, for example, it was going to be confiscated by the government?"Delete
In most countries only the bequests of fairly rich folks are taxed. These people are usually motivated by something else than plain consumption motives, for them their wealth reflects their life work, it is power (not in the negative sense but in the positive sense of having built something).
A typical example would be a patriarchal small business owner who works until he is in his seventies and finally hands over the company to his son. He would never sell his life's work to consume it. I mean, gee, if the Koch brother or Bill Gates would follow our models they would not work at all as they already have all the means for consumption they would need in 10 lifetimes!
People who built up a company are not the rational textbook agents. It would not hurt academic economist to understand how real people actually tick. Your lack of understanding of how mid level business owners think and feel about their companies and your total ignorance of the numerous corporate governance issues are really embarrassing (especially as you don't need a PhD to understand them).
"...economics is always political..."Delete
Anonymous, I am confused! Are you talking about working or saving? Keeping working the same, Bill Gates has two options. Save his income to leave it as a bequest, consume it, or donate it to charities. Now, if passing it on to a heir is more costly, he is likely to consume more, donate more, or both. Either way incentives are distorted. Now maybe one can argue that the cost from whatever increase in consumption is small relative to the benefit of encouraging charitable donations, the increase in gov't tax revenue, etc. However, this is not the same as saying that there is no trade-off. I understand that it is easier to convince people to accept your viewpoint if you ignore the costs of the policy. Personally, I favor an inheritance tax above a certain level, to the current situation. But, this does not mean I am willing to lie about it. As a result, if a progressive consumption tax was politically feasible, I would go for that instead.Delete
"Anonymous, I am confused!"Delete
So much is obvious. How about getting out of academia and working for some time in the real world. How about creating a company yourself. How about becoming old and realizing that you would never ever sell your company, not even when inheritance tax rates are high and not even when you do not have any children.
If you don't understand that people who have created wealth care about more than wealth as a means of consumption, if you don't understand all the non-pecuniary incentives concerning creating and maintaining wealth (this is not just savings buffer which can be consumer, it is your life's work) I cannot help you.
Now I totally agree that inheritacne taxes imply qualitatively speaking disincentive effects upon saving. But there are quantitatively insignificant compared to all the other distortions in the capital market. On a practical level I also wouldn't worry much about issues that distort saving incentives, the bigger problem right now worldwide is not supply but demand of capital. I don't hear any advocacy for CO2 taxes which would unleash massive investments and make the retarded "the CBs are responsible for low rates!" (OK, it is not totaly lunacy, admittedly QE did influence long rates to some degree) crowd shut up.
Now while talking about incentive effects, would you favour more competition and less collusion in top management? Would you favour a reform of corporate governance law that protects the property of stockholders and would you favour changes in top management pay towards real incentive payment contracts, e.g. via forcing CEOs to not merely participate in the upside risk via stock options but also participate in the downside risks via having to buy shares? Would you favour reforms that achieve numerous things at the same time, increase the efficiency of top management, protect the property of stockholders and increase income inequality (via reducing CEO pay to actual market prices)?
You know that the times are crazy when the people who advocate for more really free markets (and if you still think that what is happening at the top of large companies has anything to do with free markets you are either willfully ignorant or ideologically blinded or probably both at the same time) are called left-wingers.
You sound nutty.Delete
That is an understatement!Delete
The oligarchic right-wingers have run out of arguments. go ad hominem and start to insult you. Quelle surprise.Delete
Read how you start your latest or your 3:38 comment. Are there any mirrors at your house of have you smashed them all?Delete
"I think, for the most part, the journals are doing a good job."ReplyDelete
Stephen, on most of your blog entries, I do agree with what you say, and learn a lot. And I do find Sargent's commencement speech completely mainstream econ.
But - on the specific point of journals, I don't know. I am not sure I share your view.
While I was in academia (at a not so prestigious place) I ran the weekly seminar program for two years. I invited people from all over - Ivy and not so Ivy. The grapevine is full of horror stories of the elite journals.
There is an old paper in the J of Econ Perspectives about this same topic (sometime early 1990s).
And not to speak of the chances of getting published there.
There is *no way* that a paper coming out of a non-prestigious school has the same chance of being published in AER or JPE (or QJE or RES), than *that same paper* coming out of Harvard. There is huge bias toward Ivy (and Ivy-like) papers. It's club, a very closed academically nepotistic club, an almost corrupt club, with no transparency and no way to defend yourself against unfounded claims from referees or editors. And of course, editors and referees like it that way - nobody rock the boat with sunshine and transparency, because the editors and referees have a nice racket going, publishing among themselves.
Which again, begs my question: who decides what is sound economics? You say, AER (and the others) by and large do a good job. Could it be that you are part of the club? How receptive are you to new ideas, for example? (New ideas to be published in elite circles.) And how do you judge them to be sound work in economics (your words)?
Someone has to decide. On the whole, peer review works. Those who don't like what the existing journals publish, or don't like how the journals treat them, are free to start up their own journals. That's hard work, but it's been done over and over. Everyone whines about their treatment by journal editors and referees - I've done plenty of whining myself. One paper that was famously rejected at the top journals is Lucas's Expectations (1972) paper. But eventually that was recognized as pathbreaking work, and formed part of the basis for Lucas's Nobel prize. So, I think good ideas eventually win - call me optimistic.Delete
ok, I agree, I could start my own journal. As a matter of fact, my (former) thesis advisor did just that. He did not like JPubEc, and started his own gig.
But your argument forgets one thing: the elite journals are still the same, the "five", AER, JPE, QJE, RES and Econometrica. No other econ journal founded since the early 1970s displaced them (or got added to). Yes, one could publish in field journals, but they do not have the same impact. A pub in AER or JPE gives you (almost) tenure in many places (I understand - not WashU, but many other places), but a pub in JMonetE or JPubEc or JEDC, not.
I understand that several papers were rejected - they say that Black-Scholes' paper was rejected by Econometrica (and it got into JPE *only* because Merton Miller almost forced them to). The Stolper-Samuelson paper was rejected by AER.
Maybe you are more optimistic than I. But the perception that the elite journals are just a closed, crony, nepotistic (academically speaking) club, where editors and referees only publish among themselves ("I publish yours if you publish mine", a publishing log-rolling) is very, VERY, widespread.
I don't know. I see some things I don't like. Chicago PhDs have an easy time getting into the JPE, the QJE favors Cambridge people. The JME was mishandled for years by someone who didn't want to let go. But what's the alternative? I'm not an insider. I was educated in public universities. I've got no Ivy League connection. I went to Wisconsin which does not have some lineage of people doing what I do. But I feel I've been treated fairly enough.Delete
I believe the problems that many economist about what Sargent said in his speech is that he presented some simple economic facts and did not put them in the broader context hence making a bias incomplete analysis.ReplyDelete
For example, all economist agree that redistribution will have an impact on the economy. However, the effectiveness of redistribution need to be examined in term of the many externalities caused by inequality of wealth and income. Since we know for certain that inequality of wealth or income have important externalities the question is not if redistribution of income is bad but how much redistribution of income is optimal. Hence, the fact presented by Sargent, are, for this example alone, quite clearly missrepresented and henceforth could not be qualified as good economic which would makes some economist unhappy especially those believing the externalities of inequality behind high but even those believe that those inequality are low would have to advocate that redistribution is necessary at some level.
"Since we know for certain that inequality of wealth or income have important externalities..."Delete
I don't know that for certain. Explain.
Oligarchy is the most obvious one. You must have pretty thick ideological blinders if you missed Citizens United and the ensuing streams of corporate and private money into politics. Or you simply don't perceive democracy as a public good.Delete
This is much more complicated now. Where does the political system come from? Do you think that's just exogenous?Delete
It is not. Inequality does undermine democracy. Unless you are blind or do not care democracy in the first place.Delete
Though in spite of the substantial financial support that goes to the Republican party, an African American President was elected for two terms. One person gets one vote. But clearly there are imperfections in the American political system. Why was it set up in the way it was? The fact that Supreme Court Justices have a lot of power and are appointed for life has far-reaching consequences.Delete
"Though in spite of the substantial financial support that goes to the Republican party, an African American President was elected for two terms."Delete
I always read with respect what you write and learn a lot.
This phrase that you wrote is an unhappy one. I do not think you meant it that way, but somehow one could interpret this as you saying that the financial support to the Republicans was motivated by race, and thus, that the Republicans opposed an African American as President, just by virtue of being African American - and not because they disagreed with this policies.
I do not think that I need to remind you that there are honorable members of the Economics profession that are Republicans, who advised Republican candidates (running against President Obama, both times), and that are not in any way, shape or form racist. I do not think it is right to deride people (and because we are in Economics, economists) because they advise a party that you do not vote for.
"but somehow one could interpret this as you saying that the financial support to the Republicans was motivated by race"Delete
I'm not saying all the financial support was motivated by race. If you think none of it was, I'd say you're wrong. What I'm saying is that it's hard to deny that Obama had his work cut out for him. When you're born African American in the United States, life will be more difficult for you than if you are born white. Corollary: It's harder for an African American to become President than is the case for a white person. Pretty obvious, don't you think?
Some simple search on google scholar let you found some interesting article such as:ReplyDelete
There is also a lot of additional interesting medical papers on the impact of income inequalities on mortality rates.
On a lighter notes, the level of inequalities between countries have been link to significant differences in happiness:
Also, interesting work by the World Bank suggest that inequality impact property right and also directly reduce economic growth:
I am not even going to start brining link from political science and philosophy on the debate which don't always have hard data.
In general, the data suggests that inequality have an impact on key economic variables, health metrics and measured happiness. The results of those analysis should not be discounted.
And your comment goes to....?Delete
In some of these cases, it's not the inequality we're worried about. It's poverty. Low income (for countries or people) implies poor health, high mortality rates, etc. The idea has also been around for a long time that there are positive externalities associated with cities, and with being around other people with high levels of human capital. I would rather be around good economists than bad ones. If I were a barber, I would rather ply my trade in Australia than in India. I have heard it said, though (I'm thinking of Robert Frank for example) that the richer my neighbor is, the more miserable I am - a keeping-up-with-the-Joneses effect that implies an externality associated with inequality. There are many things wrong with that idea, which I've discussed in posts before (do a search in my archive on Robert Frank).Delete
OK, if data cannot convince you that inequality might be bad a simple model will certainly will.Delete
Let say two nations, A and B, have the same level of income per capita.
In nation A, income distribution is perfect and everyone can spend Ha$ for health care services.
A group mortality rates in this world is an inverse function of that H$ spend which seem like a very reasonable assumption. Another reasonable assumption is that the function f(H$) likely have a decreasing marginal effectiveness so that
Mortality = f(H$) where d f(H$) / d H$ > 0 but d2 f(H$) / d2 H$ < 0 ;
it is easy hence to see that the mortality rate of nation A with perfect income equality to be:
Mortality - a = f(Ha$)
Now compare country A with a slightly unequal country B where half of the individual have 10% less incomes then nation A and the other half have their income 10% higher then nation A. Now, let assume that spending on health have an elasticity to income of 1 which could be debatable.
Hence, the mortality rate of Nation B is:
Mortality b = 0.5*f(Ha$*0.9) + 0.5*f(Ha$*1.1)
Because of the form of f(H$) the following is always true:
Mortality b > Mortality a
Indeed, a decreasing marginal gain from health spending on mortality mean the mortality rates of richer individual is lower from higher health spending then poorer individual. However, it is not as low as to offset the poorer population group since, at the margin, each additional dollar spend on health spending is less effective (second derivative is negative).
Hence, inequality, relatively speaking, increase mortality ceteris paribus.
Where's the externality?Delete
It seems that someone doesn't know the definition of externality, and that person is not Steve.Delete
Steve, I think if you met Krugman and DeLong in person, you wouldn't think that they're dishonest. You might have thought that about Thoma before you met him, right?ReplyDelete
Who is to say? I'm pretty tolerant. I know people who are dishonest. One such person I actually like, but I know not to turn my back on him.Delete
I think another motivating factor in Krugman's demonizing of Sargent is some professional jealousy. Though both won Nobels, everyone knows Sargent is more accomplished with a depth of knowledge pretty much unmatched in the whole profession.ReplyDelete
He doesn't really demonize Sargent. When I mentioned that I was thinking more of what he has said about Prescott, Lucas, and general classes of people he doesn't name. It's hard to say that he's going after Sargent directly, though in that last quote Krugman certainly makes it clear that he doesn't like Sargent's speech - it's not just that he thinks it's being used by some characters he doesn't like.Delete
criticizing his speech because it has some "right wing" (as per Krugman) concepts is kind of demonizing when Sargent did not intend it as such.Delete
I assume you concede that Sargent knows more economics than Krugman.
We would have to test them I think, but it's certainly safe to say that Sargent knows more about macroeconomics, he's technically better, and I'd say he also knows more economic history.Delete
I will let you judge on the macro-economics, but on the history his stuff is not serious. It is so shallow and amateur you cannot say anything about it. It would be like judging the macro-economics of Michelle Obama. A clever woman who knows many things, and probably has a lot of common sense when it comes to economics, but judging her on macro is silly. In his paper on 1920s hyperinflation for example he misses so many elephants in the room as to make the work completely meaningless.Delete
As for Krugman I will just say this. He is inconsistent, yes. Not always right. Certainly. But at least he is a voice against a very powerful orthodoxy which has all sorts of contestable positions.
If Sargent's stuff is not serious, your stuff wouldn't even get rated, whoever you are. Go back to Reddit where you belong.Delete
Happy to engage you (Anonymous) in a debate about Sargent's history. It is not very deep, so it won't take very long.Delete
^ OK, but let's raise the stakes first. Tell us your real name.Delete
Anonymous , since you have been so forthcoming with your own name and position, mine is also Anonymous.Delete
I know where you are trying to go with that.
Now for the debate. It is the substance that matters.
"though in that last quote Krugman certainly makes it clear that he doesn't like Sargent's speech"Delete
I think a few people were not very happy with it. Especially the equity/efficiency tradeoff. Some came back and said that the the law of diminishing utility calls for redistribution. But whether that is a case for government redistribution is a matter of opinion. Personally, whatever its merits, I do not like economic theory as a guide to how to live your life. Economic theory is a means to understand markets, not to answer moral, or even sociological or philosophical questions - even if we have to consider these issues for policy.
^^Slag off, Broad DeLarge. You're just bitter because Tom is better than you in every way, as a scholar and a human.Delete
When you get Fox News promoting Cliven Bundy and armed opposition to user fees on grazing on federal land, it's fair to say that the far right wing is bloody crazed. And I defy you to point to anyone on the left as crazy and powerful as Fox News.ReplyDelete
You want the right language here. There's a difference between a crazy person and a liar. A crazy person lives in his or her own reality, which is different from what we think of as normal reality. A liar knows what normal reality is, but behaves in a way that may make him/her observationaly equivalent to the crazy person. It's tricky of course when the liar starts to believe in the alternate reality that he/she created. Another problem is ignorance. Sometimes crazy persons, liars, and ignoramuses can be indistinguishable at first glance.Delete
Would you like to put that argument into a fully specified optimisation model?Delete
Thirty million patriots head to Washington DC to oust Obama, Boehner, Nancy Pelosi and a long list of others to be named later. No not crazy at all.Delete
And of course, lots of well funded media (paid for by you know who) to put their crazy out there.
Imagine what would have been said if Sargent was known to be a republican?ReplyDelete