tag:blogger.com,1999:blog-2499715909956774229.post4315263984311503728..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Why Economists Are RightStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger81125tag:blogger.com,1999:blog-2499715909956774229.post-4230083171786923932012-12-06T10:34:17.968-08:002012-12-06T10:34:17.968-08:00And what movies is that?And what movies is that?kadar airhttp://kadarair.comnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58510024952858897172012-02-16T04:01:27.433-08:002012-02-16T04:01:27.433-08:00I guess this idotic remark about Minsky not being ...I guess this idotic remark about Minsky not being a serious economist is related to the lack of mathematics in his writings.<br />Strange that right-wing economists do not understand that mathematics merely helps to formalize your thoughts. Great left-wing economists like Krugman or Stiglitz say all the time that you gotta be able to put the result of a theoretical models into prose. If you are not able to do it you have not understood your model.<br /><br />Back to Minsky, his financial instability paper provides a lot of insight into the financial crisis. Sure, it is no fancy general equilibrium model with beautiful mathematics (plus a lot of unrealistic assumptions) but that's more of an asset than a liability.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-26712065223370407022012-02-13T10:11:23.874-08:002012-02-13T10:11:23.874-08:00Oh! Sorry I'm so used to just rolling it off o...Oh! Sorry I'm so used to just rolling it off of my tongue. I'm privileged enough to study at the University of Minnesota. The statement about the price was meant to be jovial. It's not like it's the only book in the bookstore that costs a fortune. Also I figured you had little control over the cost.<br /><br />My main gripe was the attacks on other Economists. If you do feel the need, please try and make it productive. I understand that this Econ blog, or any other, should not be taken as serious Economics, but it would still be nice if there were at least some productive banter - if there were to be banter at all. Landsburg seems to do it fairly well.Andrewnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-666356230519709212012-02-13T06:24:50.950-08:002012-02-13T06:24:50.950-08:00CA:
When you do so you have to be very cautious a...CA:<br /><br />When you do so you have to be very cautious and incremental in your approach. <br /><br />At full employment, etc. maybe<br /><br />At the end of the World, where we are, No. We are at a Bruce Willis moment in the moviesAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-69145123634956998262012-02-12T20:23:03.724-08:002012-02-12T20:23:03.724-08:00Anonymous, I have no objection to what you wrote. ...Anonymous, I have no objection to what you wrote. Look, do I think that sometimes it is better to put an arbitrary speed limit ahead of the dangerous curve even if there is no model that predicts what that limit should be? Absolutely. I do believe that sometimes pulling a number out of a (reasonably constructed) hat is better than waiting until you have everything figured out. And this is something on which our host and I do not see eye to eye. My issues with Krugman and you are the following:<br />1) When you do so you have to be very cautious and incremental in your approach. <br />2) You should also be working on constructing a model that can give you some answers rather than turning the practice of pulling numbers out of hats the norm.<br />3) You should not resort to ad hominem attacks to make pulling numbers out of a hat seem more credible than it is.CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28721931652388184622012-02-12T16:17:13.675-08:002012-02-12T16:17:13.675-08:00typo I just do not read former gov't officials...typo I just do not read former gov't officialsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58409371301384907202012-02-12T16:15:41.382-08:002012-02-12T16:15:41.382-08:00CA
You ask, "So let's stop listening to ...CA<br /><br />You ask, "So let's stop listening to macroeconomists . . .?<br /><br />No, as per Buffett and Munger, I advocate that the reader should do as I am trying to do and that is adopt a series of checklists so as to avoid the psychology of human misjudgment. <br /><br />Have you read Munger's speech at Harvard on economics and the Psychology of Human Misjudgment?<br /><br />It is a great tool. For example, I just do read former gov't officials, left or right, because of incentive cause bias. I pay no attention to Greenspan, Summers, Taylor, Rhomer, etc. The incentive is too great for "spin." In fact, Summers is such a cull that I was writing the FT and others before Obama's election, saying we should have none of him. Now, that 44 cent stamp is viewed as a satisfactory investment.<br /><br />I pay no attention to current Fed employees, but I do pay attention to Fed papers like the recent white paper on housing. Given instutional constraints, Bernanke can not say Keen is right, but when you read "headwinds" because of the scope of private debt and a missing 300/400 billion in private spending, you can see the publication is a far as the Fed can go in giving a true picture. It has to be able, later, to say, "We told you so, when . . . "<br /><br />That leaves a very narrow, very useful field. Krugman, DeLong, Keen, the Soros effort, INET, Stiglitz, Noah, that's about it.<br /><br />If you asked me to sum up what they are saying it is:<br /><br />1) we have no model that tells us what to do about the level of private debt to GDP and no tools for the task either.<br /><br />2) having no other choices or options, we should just blow it out in a massive Keynesian stimulous and hope it works<br /><br />I agree.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-33557187561185242702012-02-11T09:38:45.435-08:002012-02-11T09:38:45.435-08:00For the record, I am in favor of reasonable regula...For the record, I am in favor of reasonable regulation especially when asymmetric information is prevalent, and am in favor of creating tax incentives that promote saving so I could not have discussed "the lack of need of regulators for stepping in" as you claim. Moreover given Greenspan's famous-now phrase about an "irrational exuberance" it is hardy likely that Greenspan was a RE guy. Who is the liar now?CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-74977598324931098792012-02-11T09:29:33.862-08:002012-02-11T09:29:33.862-08:00So let's stop listening to macroeconomists and...So let's stop listening to macroeconomists and start looking for answers from Ron Paul, Michelle Bachman, Michael Moore and the like. How ridiculous. In any case, until you prove that you are not "lying" when you write<br /><br />"Civil engineers know the optimal speed limits for curves."<br /><br />then I will resume conversation. Until then I will stop wasting my time interacting with someone who is more interested in winning an argument (in his mind of course), rather than learning from his interactions with others.CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-30258356823868370382012-02-11T08:22:23.794-08:002012-02-11T08:22:23.794-08:00Hi Andrew. Which U of M? There are a lot. Sorry ab...Hi Andrew. Which U of M? There are a lot. Sorry about the pricing for the book. As I told my students the other day, the publisher determines that, and I have no control over it. If I were well-off enough, I would give it away, but I have to educate my three sons.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-17483019319773683332012-02-11T08:18:37.692-08:002012-02-11T08:18:37.692-08:00"...a theory of the finance/credit structure ..."...a theory of the finance/credit structure of contemporary capitalist economies"<br /><br />To call that a theory is ridiculous. You should know better.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57952893150996770632012-02-11T03:59:31.457-08:002012-02-11T03:59:31.457-08:00CA:
1) I intentionally selected a curve. Civil en...CA:<br /><br />1) I intentionally selected a curve. Civil engineers know the optimal speed limits for curves.<br /><br />2) I know it is hard. That's why I said the Fed and Macro was lazy.<br /><br />3) Your discussion of the lack of need of regulators stepping in is totally disingenuous, for as you point out, forcing savings may require coercion.<br /><br />In that regard, look at the Lesser Depression which was caused by an explosion and collapse of private debt. No one but the gov't can take away the punch bowl.<br /><br />The same is true for other known, overall measures of economic health such as investment and research and development as a percent of GDP.<br /><br />4) Thank you for confirming the dishonesty of Lucas and the macro profession. Lucas said in his famous speed that macro had the answers. He didn't. He lied and you let him.<br /><br />5) In honor of the refusal of Macro to defrock Greenspan, I have just announced the Gateway rule and corollary.<br /><br />As you know, Greenspan recently wrote, with the approval by silence of Williamson:<br /><br />Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.<br /><br />This lead Crooked Timber to write, "With notably rare exceptions, Russian Roulette is a fun, safe game for all the family to play."<br /><br />The Gateway Rule:<br /><br />With notably rare exceptions, macro economists who write, publish, or blog do such only to promote their narrow personal, financial, or political interests or bias.<br /><br />The corollary:<br /><br />With notably rare exceptions, macro economists who say they write, publish, or blog to inform others or the public are lying for they really only write, publish, or blog to promote their narrow personal, financial, or political interests or bias.<br /><br />IOW, no one has agency problems more than macroAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57571813327819894362012-02-10T10:46:52.369-08:002012-02-10T10:46:52.369-08:00I forgot to mention that the optimal investment ra...I forgot to mention that the optimal investment rate question has been asked and answered(see golden rule saving rate in Wikipedia). However, achieving this without turning into China in terms of coercion is not easy.CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-90306387891258342412012-02-10T10:24:41.556-08:002012-02-10T10:24:41.556-08:00A civil engineer knows to put a speed limit but it...A civil engineer knows to put a speed limit but it is not quite clear what the "optimal" speed limit is. There is no theory for that (most speed limits were set at a level that reduces demand for oil following the 1970s oil shocks). Here is the thing. Home prices are X. Some people believe X is right. Some believe X+y is right. Others believe X-y is right. Chances are, quite a few people will eventually be right in the end. That says nothing. Some people will be right about the magnitude also (Krugman admitted he wasn't). Those I may pay more attention to. If they have am objective process that produced the quantitative prediction I may start believing they are onto something. Short of that, luck seems the better explanation.<br /><br />Now I don't know of anyone who believes that asking the questions you pose is wrong. In fact I would start by asking, is there an "optimal" level of whatever, under what criteria, and whether policy-makers are likely to know that better than anyone else. Now my question is that if there is a theory that can predict the optimal level of whatever and at least a few smart-people can figure it out, why do they not try to exploit deviations from the optimal thereby eliminating that deviation (see point 2 in previous comment), in which case there would be no need for regulators to step in. These are not easy questions to answer, and anathemas do very little in promoting the discussion.CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43839057612257564812012-02-10T10:08:00.510-08:002012-02-10T10:08:00.510-08:00Like Levine mentions, making an accurate forecast ...Like Levine mentions, making an accurate forecast can be a matter of luck <br /><br />We all know that even a broken clock is right twice a day. We also know who is not even fairly attempting to tell time (and I would argue this includes all freshwater economists).<br /><br />I do not consider it a matter of luck that a civil engineer knows to put a speed limit sign on a curve<br /><br />The issue really is that simple: Does macro economics know enough to put up speed limit signs? Caution signs? <br /><br />The answer is plainly, "No."<br /><br />It is also pretty plain that the calling has no plan, design, or intent to do such, for the work is too hard so against the self interest of a lot of the profession, or both.<br /><br />You put up speed limits and Goldman Sachs brokers will see their incomes go down, threatening potential consulting fees. We all get the Game.<br /><br />I believe it perfectly fair to ask, "What is the optimal level of private debt and/or the private debt to income ratio?" I believe it perfectly fair to ask, what is the optimal level of private investment, as a % of GDP, to promote maximum growth and job creation. Same as to public and private R & D?<br /><br />Now, we all know whose toes are going to be stepped on by the answers (and thus why we don't have the answers).<br /><br />I believe it fair to ask, given that the Fed permitted price instability in housing, what steps should it be responsible for taking to repair the damage it did to millions of Americans? Why should the fed's policies favor creditors instead of debtors?<br /><br />In sum, I would argue that the Fed is a man with a hammer that looks to near to the front of the car and lazily oversteers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-52902617652626233702012-02-10T09:32:44.373-08:002012-02-10T09:32:44.373-08:00First let’s debunk common misconceptions.
1. The t...First let’s debunk common misconceptions.<br />1. The theory of rational expectations does not postulate that people do not make errors. It postulates that these errors are not systematic. Errors are systematic when they are predictable. To use a sports analogy, it would be like shooting from the same spot the ball too hard, past the basket, over and over, game after game. It is easy to see that systematic errors can occur in the long-run only if people are incapable of learning.<br />2. As an average relationship, rational expectations are applicable even if most people do make systematic errors, so long as a few are able to recognize this fact and exploit it. So suppose that most stock traders systematically overreact to bad news but a few recognize this and decide to go long when others go short and vise-versa. Then stock prices will behave AS IF they are traded by a group of individuals that exhibit rational expectations even if most individuals do not.<br />3. Like Levine mentions, making an accurate forecast can be a matter of luck (people who have elevated Roubini to divine status should remember that) unless their record is consistent, and unless their specific prediction is derived from a detailed theory that can be generalized and used by others (rather than on a hunch). Otherwise Ron Paul, who has been predicting a financial meltdown since the 1980s, should be considered a master economist. Keep predicting a crisis and over a course of 80 years chances are you will eventually be correct.<br /><br />All this is important because it shows that rational expectations are appropriate under very broad assumptions. Unless people are incapable of learning, which means that educators are scam artists, I can think of only one case where they are less likely to hold: for events that are relatively infrequent (and thus the cost of systematic errors is smaller and the opportunities to learn fewer) and when it is not easy for the few that “know better” to exploit the systematic errors of others ("The big short" by Lewis is quite informative). The problem is that conducting this discussion in public is extremely difficult. People who have no understanding of the terminology leave the discussion with a completely distorted view of the issues.CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-90664437491391206502012-02-09T18:58:07.342-08:002012-02-09T18:58:07.342-08:00Hi Stephen,
You write, "Minsky was not a ser...Hi Stephen,<br /><br />You write, "Minsky was not a serious economic scientist." Yet Minsky elaborated a theory of the finance/credit structure of contemporary capitalist economies and presented a fair amount of data supporting this theory. He had a model, and that model illuminates significant aspects of the recent financial crisis. <br /><br />Minsky's theory is "falsifiable" to invoke Popper's defining conception of science. So, what is your defining conception of science? Must a "serious economic scientist" build models with micro-foundations whose agents optimize in the face of some reasonably well-defined probability distribution? (which is not to say that Minsky's model couldn't be recast in these terms).Anonymoushttps://www.blogger.com/profile/11677815746117897839noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-84573164744343678842012-02-09T18:33:40.748-08:002012-02-09T18:33:40.748-08:00Noah has an extraordinary paragraph up on his blog...Noah has an extraordinary paragraph up on his blog, picking up Cochrane's litter.<br /><br />"But then came the Bush years, and America doubled down on the Milton Friedman program with more tax cuts, more deregulation, more privatization. And income stagnated, stocks stagnated, and growth was lackluster, while debt and inequality resumed the explosive growth of the Reagan years. By the eve of the financial crisis, the Republican narrative was looking pretty shopworn."<br /><br />If Williamson and Lucas were really concerned about economic growth that the welfare of the average American, these are the subjects they would be tackling with the zest of Giant's linebacker.<br /><br />Instead we get a virulent version of the Very Serious People/Republican narrative hereAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-24698845690258761182012-02-09T16:20:08.194-08:002012-02-09T16:20:08.194-08:00You're just jealous 'cause I'm handsom...You're just jealous 'cause I'm handsome and get all the chicks. ;)Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-50621832016493154992012-02-09T13:51:44.530-08:002012-02-09T13:51:44.530-08:00As usual, Noah says nothing useful or correct.As usual, Noah says nothing useful or correct.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-83276630658798132062012-02-09T13:51:06.388-08:002012-02-09T13:51:06.388-08:00"If you told me tomorrow the sun will come up..."If you told me tomorrow the sun will come up, I wouldn't believe you."<br /><br />Good. Let me sell you some insurance contracts that pay off if the sun doesn't rise. I can cut Steve in on the profits, and I'm certain he'll tell you the sun will rise.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-20281482074206164202012-02-09T13:49:42.181-08:002012-02-09T13:49:42.181-08:00Minsky had an insight, but no evidence. He basica...Minsky had an insight, but no evidence. He basically said "finance matters" and then spent several hundred pages saying it again and again.<br /><br />Minsky is the first refuge of the inept.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-83164224771411054782012-02-09T12:42:18.734-08:002012-02-09T12:42:18.734-08:00You need to drop the "serious economist"...You need to drop the "serious economist" schtick. You seem to dismiss anyone you disagree with as "not serious" or out of touch. Minsky had a valuable insight relevant to understanding the economy even if you can't find a way to squeeze it into a framework you understand and operate with.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-85612090321755076762012-02-09T12:37:19.438-08:002012-02-09T12:37:19.438-08:00On a side note, I'm studying Economics at the ...On a side note, I'm studying Economics at the U of M and I discovered Steve's website because we are using his book in my Macro class. My hope is to study Game Theory in Grad School.<br /><br />Kudos to you Steve. I love the book and you explain things very well, but it was way too pricy at my bookstore. Yet I'm disappointed with the constant attacks at other Economists on this blog. It serves no purpose other than mud-slinging - this is not productive. DeLong and the rest shouldn't do it ether, of course. So I hope you would strive be above them. Besides, their posts usually attract Sea Cucumbers to comment on them. I'm worried that the same will happen here.<br /><br />It would help if people could feel the costs of posting ridiculous things, but alas Anonymous posts happen.Andrewnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58067854554766121062012-02-09T12:31:18.470-08:002012-02-09T12:31:18.470-08:00"New York is the largest center for world fin..."New York is the largest center for world financial activity."<br /><br />Actually, London does more volume (notional) in FX, government bonds, and credit derivatives which probably makes it a larger financial centre. See the BIS Triennial Survey for the FX data.<br /><br />Anon212Anonymousnoreply@blogger.com