Believe those who are seeking the truth. Doubt those who find it. Andre Gide


Thursday, November 4, 2010

Paul "Malibu Barbie" Krugman?

Did you see this recent post by Brad DeLong? 
In terms reminiscent of Malibu Barbie's "math is hard," now comes Paul Krugman from the New York Times to say that "Macroeconomics is Hard."
What, you didn't see it? That's because it didn't happen. DeLong evidently doesn't have the balls to mock Krugman the way he does junior members of the profession (who stress essentially the same thing); see here.

Here is what Krugman has to say:
The thing is, no amount of experience meeting a payroll helps you understand issues that are critically affected by the way things add up at a macro level. Businesses are open systems; the world economy is a closed system, with feedback effects that are crucial but play no role in ordinary business experience. In particular, an individual businessman, no matter how brilliant, never has to worry about the fact that total income equals total spending, so that if some people spend less, either someone else must spend more, or aggregate income must fall.
Every macroeconomic theorist is going to agree with Krugman that identifying, accounting for, and anticipating "feedback effects" is what makes macro hard. These feedback effects are sometimes called "general equilibrium effects" in the literature. Coming to grips with these feedback effects is the whole point behind dynamic general equilibrium modeling.

My only quibble with Krugman's statement above is that he implicitly suggests that these feedback effects work solely, or predominantly, via spending decisions. One could have alternatively written:
In particular, an individual businessman, no matter how brilliant, never has to worry about the fact that total production equals total spending equals total income, so that if some people produce less, either someone else must produce more, or aggregate income must fall.
Don't say something like this in public though (you'll get accused of worshipping at the idol of JB Say). But on a more serious note, one might also expect feedback effects to operate via prices, credit limits, participation decisions, etc., etc.
 

I must confess though...I do find something odd about Krugman's position here. That is, he feels compelled here to discount the views of individual businessmen; such views, while informed, are necessarily "local" in nature--they are not necessarily useful for understanding or interpreting what is happening at the macro level. 

Unless, that is, their views happen to support your own pet hypothesis (er, knowledge of truth, excuse me); see here: It's Demand, Stupid. To quote:
I’ve said this before, but Catherine Rampell has a very nice chart making the point: if you ask businesses — as opposed to their lobbyists — what their problem is, you find no hint of the stories the usual suspects are telling you about government interference, political uncertainty, etc.. Businesses aren’t hiring because of poor sales, period, end of story.
Yes...end of story. The science is settled. Well done, Paulo.

But I guess this is why Krugman labels his column "The Conscience of a Liberal," instead of "The Thoughts of a Scientist."

6 comments:

  1. It's interesting that you and Williamson think that acting like lawyers for your friends in the profession is "science." If you think the things you two have written come off as honest brokers in search of the truth, you should think again.

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  2. Ah, Mark...

    I am trying to figure out what bothers you about this post.

    Do you take exception at me trying to defend a junior member of our profession, who was mocked and ridiculed by the blog bully? You do not like me standing up for the little guy? Is that it?

    Or do you take exception to any of the facts I reported above? I do not think so, since you do not claim that I have said anything false.

    So what, then, could be your problem? How dare I level criticism at two hypocrites, when I am myself hypocritical? Fine; but then state your charges and let us evaluate them.

    Or...is it something else? I'm all ears.

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  3. Mark makes an interesting point: namely who do you see as your audience. Personally, I enjoyed this, but that may be a problem if you're aiming for a mass market.

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  4. There doesn't seem to be anything about David's blog that indicates he's aiming for anything other than an economics crowd. Which actually does make me wonder why bother engaging with political sycophants and assorted wannabes, though.

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  5. Dave:

    Well, I'm not sure that this was Mark's point exactly.

    Nevertheless, you ask who I see as my audience. To be honest, I'm not really sure. I'm just sort of winging it here!

    Some of my posts present (what I think is) interesting data. This sort of material likely has a large potential audience. (My city-level Beveridge curve data, for example, was picked up by WSJ Blogs).

    Some of my posts present simple, yet still fairly technical, theories designed to interpret data and to get people thinking. The audience for this material is quite a bit smaller (likely limited to students, teachers, and academics). I frequently get some really good constructive criticism on this material.

    I only occasionally take pokes at high profile bloggers, primarily against those who are fond of poking fun at others. I doubt whether these few posts have any bearing on what determines my potential audience. (I'm glad that you liked it though! I usually get hate mail.)

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  6. Just a few points of clarification:

    1.) Athreya is hardly a junior member of the profession; 10 years after getting your PhD you should know you are picking a fight when calling out others in the profession ("the patron saints of the “Macroeconomic Policy is Easy: Only Idiots Don’t Think So” movement:Paul Krugman and Brad Delong") and exhorting lay readers to ignore them.

    2.) You argue that PK is liable to "discount the views of individual businessmen" but was somehow hypocritical in pointing to Rampell's chart on business sentiment. However, there is a difference between a sample of n=1 versus n=874 (as in the NFIB). Just sayin'...

    In any case, keep up the good work. Your blog is a nice counterpoint to alot that is out there.

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