tag:blogger.com,1999:blog-5154389358831836369.post4613508431398795355..comments2024-03-28T02:00:36.854-04:00Comments on The Slack Wire: Strange Defeat: An ExchangeJW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-5154389358831836369.post-31453271033581043582014-08-14T18:21:10.637-04:002014-08-14T18:21:10.637-04:00Simcity is fun. (Well, not the new version. But th...Simcity is fun. (Well, not the new version. But the original and Simcity 2000, yes.) But you can't build a useful economic theory from the ground up this way. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-12234700987968619522014-08-14T11:27:34.253-04:002014-08-14T11:27:34.253-04:00I like the idea of adding up how many cars and hou...I like the idea of adding up how many cars and houses (and food and clothing) people are buying, and making guesses about how and under what circumstances people buy those things, and making guesses about how and under what circumstances people go to the doctor a lot, or pay a lot for school, and when the government buys a bunch of planes or roads or school psychologists or nurses. I think each of those types of decisions are possibly susceptible to modeling, but they are all pretty different (even if, yeah, they are all mutually affected by broader credit markets, monetary policy, "aggregate demand," and so on.)<br /><br />I mean, the economy is complicated, but it is finite, just like our individual personal and economic lives are complicated but finite.Jacob H.https://www.blogger.com/profile/02781850720023072132noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-60514171634853296682014-08-13T22:59:03.294-04:002014-08-13T22:59:03.294-04:00I just don't think these kinds of models are u...I just don't think these kinds of models are useful. There are two many adjustable parameters, too little clarity about what drives the results, and most important, they aren't efficient ways of summarizing stable economic relationships -- which is all that a model is. What we want --in my opinion -- is simple aggregative models, plus the broad social and historical background to judge what domain those models apply to. As my new friend Servaas Storm says, agent-based modeling is just one more example of how cheap computing power gets substituted for critical thought.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-80841258594105880422014-08-04T22:48:16.499-04:002014-08-04T22:48:16.499-04:00I'm curious if you think the new hetrodox agen...I'm curious if you think the new hetrodox agent macro models are an imporvement. I suspect not, but I havn't been able to really grok them yet.A Hhttps://www.blogger.com/profile/06916657901677009228noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-13018535016024097062014-08-04T14:29:19.915-04:002014-08-04T14:29:19.915-04:00[continues from previous comment]
But, we know fr...[continues from previous comment]<br /><br />But, we know from the now famous "Capital in the 21st Century" (by T. Piketty) that the rate of profit was higer than the rate of growth basically for all known history of capitalism. While Piketty doesn't make this argument, it is obvious IMHO that this can be the case only if there is some Ponziness going on, as the rate of interest is always higer than the rate of growth, that necessariously causes this sort of Ponzi situation.<br /><br />How can we explain this in terms of rational actors? The only possible explanation is that those actors want to "save" [accumulate wealth] faster than the economy is growing, so that this wealth necessariously cannot end up in "real" capital but necessariously ends up in some "bubble wealth", such as greece debt but also housing in the USA and Spain, etc.<br /><br />But this is a kind of rational actor totally different, on the long term, to the rational actors of current theories (who just smooth consumption on an indefinitely long time), and more similar to Marx's capitalists, who have a drive to accumulation for accumulation's sake.<br /><br />If we change the consumption smoothing rational actors in an army of Scrooge McDucks, this clearly explain why we have crises of demand, and also why someone is bound to end up racking up all the debt (that is just the counterpart of McDuck's wealth) and will be ultimately found as running a sort of Ponzi scheme.<br /><br />So here the problem is not really wether actors are "rational" or not, but rather how do we define this "rationality".<br />___________<br />[1] In fact, almost all countries are "debtor countries", as states are generally in the red and most of the wealth is owned by private citiziens.<br />[2] Incidentially, could someone point to me a simple, not crazy sounding introduction to austrian theories? The few stuff I found on the net makes sense up to a certain point but then I lose the logic to it, as apparently it seems that they don't think that there can be a situation where savings can exceed "productive investiment", so they literally can't think of a reason for the interest rate to fall.MisterMRhttps://www.blogger.com/profile/03806545811376548828noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-16506145295204213402014-08-04T14:28:24.726-04:002014-08-04T14:28:24.726-04:00This comment is perhaps just half on topic, howeve...This comment is perhaps just half on topic, however, this sentence of P. Waknis caught my eye:<br /><br />" Without a fiscal union such free riding by members, otherwise not having creditworthiness to borrow at a lower rate, is bound to happen."<br /><br />As a citizien of one of the "PIIGS" countries, at first this sentence just was slightly offensive: free riding? Who is free riding?<br />However thinking more about it, i think that this concept of "free riding countries" should be analysed nore in dept, as IMHO explains the logical problem of the approach that Waknis is defending here.<br /><br />First of all, how does one know that the interest rates that Greece (or others) had to pay were "too low"? It could well be that the error is that, at a certain point, the rate asked to these "debtor countries" [1] was "too high", and this caused the crisis. If we just think in terms of market perceptions of value, there is no reason to think that those people who tought that Greece (or others) were risky were smarter than the people who tought that Greece was not risky a few years before (often they were the same people); J.W. Mason and A. Jayadev also point out this in their answer. So why is Waknis so confident that Greece's interst payments were "too low"? Well, first of all, we know that Greece did in fact default; however this too could be a consequence of an irrational behaviour of investors later, when they rised the interest that they expected Greece to pay. I think that the real reason that Waknis thinks that Greece interests were too low is that Greece's interst ended up increasing Greece's debt, because those interests were higer than the increase in tax revenues that they caused; in shord Greece ended up enacting a sort of "Ponzi scheme" where new debt is required both to rollover past debt AND to pay for interest on past debt.<br /><br />I think that this idea is also the so called "austrian" theory [2], that is, that the increase in debt levels is only justified as long as debt is the counterpart of some real capital, so that the profits from the real capital can pay for the interest on debt.<br /><br />However, this idea (that is quite reasonable) implies that the profit rate can't be substantially higer than the growth rate, and the interest rate cannot be higer than the growth rate (otherwise, debt would baloon indefinitely and ultimately interest would eat all income, the definition of a Ponzi scheme; the interest rate cannot be much lower than the profit rate because this would give too much incentives to lend).MisterMRhttps://www.blogger.com/profile/03806545811376548828noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-34553605862565636802014-08-04T01:23:16.206-04:002014-08-04T01:23:16.206-04:00The thing is, central bank economics and academic ...The thing is, central bank economics and academic economics are very different animals. There is certainly plenty to criticize central bankers for, but it's important to acknowledge that they operate with a model of the economy that is very different from the academic consensus we are attacking here. In fact, it's striking how little communication there has been between the new consensus in macroeconomics and modern central bankers. <br /><br />Here's Michael Woodford: <br /><br />"The conceptual frameworks proposed by central banks ... developed without much guidance from the academic literature... The central questions of practical interest for the conduct of policy ... had in recent decades ceased to be considered suitable topics for academic study."<br /><br />The most dramatic illustration of the divide between academic and central-bank macroeconomics in recent years that I can think of Narayana Kocherlakota's road-to-Damascus moment, which led -- among other things -- to him firing the whole research staff at the Minneapolis Fed.<br /><br />The ECB case is complicated, but in the US the quality of economic analysis at the Fed is higher than that of the "best" academics, Krugman included, IMO.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-46189859608764429802014-08-03T13:14:33.030-04:002014-08-03T13:14:33.030-04:00I think DeLong has a much more realistic vision of...I think DeLong has a much more realistic vision of the economy than Krugman. I prefer Krugman's politics, though. <br /><br />Thanks for the comments -- more replies in a bit. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-47206917007993205592014-08-03T09:10:36.565-04:002014-08-03T09:10:36.565-04:00Last comment (thanks for the though provoking arti...Last comment (thanks for the though provoking article). Here in 2010, DeLong says Krugman is wrong about Ricardian equivalence:<br /><br />"[Krugman writes]:And at that point further open-market operations do nothing — they just swap one zero-interest asset for another, with no effect on anything.<br /><br />So why not forget about open-market operations, and just drop the stuff from helicopters? Well, remember that at this point cash and short-term bonds are equivalent. So a helicopter drop is just like a temporary lump-sum tax cut. And we would expect people to save much or most of such a tax cut — all of it, if you believe in full Ricardian equivalence."<br /><br />But we don't believe in full Ricardian equivalence. Maybe we would if this year's helicopter drop was to be followed by next year's great helicopter vacuuming, but it isn't. So printing money now--and promising never to buy it back--is a way of having some impact on future inflation, and thus of getting some traction. Moreover, "much or most" is not all.<br /><br />The "much or most" is, I think, reason to go for money-financed government spending as a preferable policy to a helicopter drop--which is a money-financed tax cut. And it is reason to go for an explicit raising of the Federal Reserve's long-term inflation rate target from 2% to 3%.<br /><br />But if we are not going to do either of those things--and it looks like we are not--it's time to rev up the helicopters..."<br /><br />http://delong.typepad.com/sdj/2010/07/helicopter-drop-time-paul-krugman-gets-one-wrong.html<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-68397768346127335002014-08-03T08:59:38.285-04:002014-08-03T08:59:38.285-04:00I pretty much agree with your take. Leaving demand...I pretty much agree with your take. Leaving demand management to the central bank leads to problems of inequality and financial instability. <br /><br />You discuss the central banks' antipathy towards and concern over the UPS strike and European governments' finances in the piece. Recently, there have been counter examples as economies face deflation. Time magazine: ""I'd like to see real wages going up," Yellen says, adding that the average American male worker's inflation-adjusted wages have been flat or down for the past 20 years.""<br /><br />http://time.com/4238/janet-yellen-the-sixteen-trillion-dollar-woman/#ixzz2qUyhqPw1<br /><br />And from the Financial Times:<br /><br />"The Bundesbank has backed the push by Germany’s trade unions for inflation-busting wage settlements, in a remarkable shift in stance from a central bank famed for its tough approach to keeping prices in check. <br /><br />Jens Ulbrich, the Bundesbank’s chief economist, told Spiegel, a German weekly, that recently agreed pay rises of more than 3 per cent were welcome, despite being above the European Central Bank’s inflation target of below but close to 2 per cent. <br /><br />In an article published on Sunday, Mr Ulbrich said that recent wage trends were “moderate” given Germany’s relative economic strength and low levels of unemployment. His comments echo the views of Jens Weidmann, Bundesbank president, according to a senior central bank official. <br />...<br />Ursula Engelen-Kefer, a lecturer at Hochschule der Bundesagentur für Arbeit university and former deputy chair of DGB, Germany’s confederation of trade unions, said she was “flabbergasted” by Mr Ulbrich’s remarks. <br /><br />“It goes to prove that even the central bank recognises that we can’t improve internal economic growth without wages,” she added. "<br /><br />http://www.ft.com/intl/cms/s/0/656ff1f6-10ec-11e4-94f3-00144feabdc0.html?siteedition=intl#axzz38rhjvL64<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-49822068304755680192014-08-03T08:22:16.897-04:002014-08-03T08:22:16.897-04:00Textbooks and teachers should lean against the ide...Textbooks and teachers should lean against the idea that government spending is bad. Waknis writes "because a dollar spent by the US government either crowds out private consumption and investment or at best adds 50 cents to the real GDP." And as you point out "In the paragraph immediately following his lecture urging “faith in people’s ability to make choices,” he announces that investors in Europe made consistently wrong choices about the riskiness of public debt! "<br /><br />Private choices are often wrong. Just look at the epic, overleveraged housing bubble. So who cares if they are "crowded out?" At the very least government spending can maintain full employment and be the job creator of last resort. It seems these conclusions can be reached within the NK conceptual framework, it's just possible for a Waknis not to reach them. But it seems like the consensus represented by Blanchard and the recent Chicago survey on the stimulus consider government spending as worthwhile.<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.com