The Paul Krugman Thread

I feel like we're talking about different things. I'm not arguing that economics has the precise rigor of physics. It can't perfectly predict the behavior of individual entities; rather, it works in aggregates. However, like "hard" sciences, it is poorly understood by the layman. I would challenge your assertion that people in general have a greater appreciation of the accuracy of sciences like physics and biology than they do economics.

Economics is capable of empirical predictions, both on a micro and macro scale. You can make an assertion, such as, "Lowering taxes by [X] will result in [Y] reduced revenue and [Z] increased output." This assertion, based on a peer-reviewed modeling technique, can then be proven or disproven by the actual results of that tax decrease. The tools are statistical, but then again quantum mechanics is also statistical.

edited 29th Sep '14 9:35:49 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Here's more evidence of the information bubble that exists among finance types in the U.S. Empirical predictions were made by Krugman and many others way back in 2008, that according to economic models that have existed since the 30s, holding interest rates down and engaging in quantitative easing wouldn't cause inflation in a liquidity trap. Yet the person cited by Krugman doesn't even seem to recognize that the concept of the liquidity trap exists, never mind attempt to explain around it.

The problem isn't the models, it's the people. Our current situation could be likened to a cult of influential people who don't believe in the theory of gravity, so they keep trying to achieve flight via jumping very hard, and they've convinced themselves that the reason they don't stay in the air is that they aren't jumping hard enough. The theory is in the textbooks, and we have plenty of empirical evidence, but a lot of folks have staked their careers and their fortunes on ignoring it.

In other scientific areas, the same thing pertains. We do have a cult of influential people who have staked their lives on evolution not being real, just as we have a cult who've staked their lives on anthropogenic climate change being false. In all cases the empirical evidence is overwhelming. It's exactly the same thing.

We solved macroeconomics for all intents and purposes in the 30s. A lot of people didn't like that answer, so they plotted a counter-movement that relied on people not understanding the underlying science. Your claim that economics isn't scientific feeds that paradigm.

edited 29th Sep '14 9:54:03 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

A lot of it is wishful thinking, a lot of it is the unfortunate supply crisis of the 1970s, which convinced all of the present-day movers and shakers that straight Keynesianism is tantamount to foolish naivete, when in reality stagflation was due to exogenous market shocks (as well as a major shuffling of the global financial system with the end of Bretton Woods, nominally a market shock of its own)

Remember most of those people lived through that time and went to University during The '80s — that certainly had an effect on their worldview and feelings on Keynesianism.

edited 29th Sep '14 11:51:54 AM by Greenmantle

Keep Rolling On

@Fighteer: We may be talking about different things because I never claimed that economics isnt scientific. I claimed that it was scientific, but in the same way as sociology, which set Euo off. The point I'm making is that while the cult of people who support intelligent design over natural selection are almost entirely outside of biology, and while the cult of people who support global stability over warming are almost entirely outside of climate science, the "cult" of people who still believe that lowering taxes will increase revenue or that government spending always reduces growth in the private sector include many economists. There is no clear way, for someone who isn't rather well familiar with the data, to tell who is right.

"We learn from history that we do not learn from history."

Unfortunately, you are correct in the sense that there is so much disinformation — at the hands of people who are considered respected professional economists — that the uneducated layman has no way to pick through it.

That said, I'm a layman when it comes to this stuff and I have come to understand it quite well. So it can't be that hard.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Be fair, now, how much time have you invested in learning about it? And can you say the same thing about a myriad of other, more or less equally arcane yet important subject areas? What do you understand about, say, the current underlying theory of educational practices?

"We learn from history that we do not learn from history."

@Fighteer: The '70s did require a course correction in macroeconomics precisely because the stagflation had looked impossible under existing Keynesian models. That's where we get sticky prices, as well as neoclassical economics.

I despise hypocrisy, unless of course it is my own.

If I read Krugman right, Keynes understood sticky wages at the very least. And stagflation wasn't a takedown of Keynesian thought; it simply required the addition of a new variable. A theory that can't adapt to new information is no theory at all — e.g., neoclassical.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

There seems little doubt that the Keynesianism of today is a more accurate model than it's competitors. But it's not perfect, and isnt yet at the level of predictive detail and precision necessary to entirely replace it's competitors.

"We learn from history that we do not learn from history."

Its competitors, which have zero predictive capability? Or rather, reverse capability. If neoclassical asserts a thing, you would almost universally do better to believe its opposite.

edited 30th Sep '14 8:55:00 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

While I sympathize with your position, I dont think the empirical models are really there yet.

"We learn from history that we do not learn from history."

I'm curious what predictive success rate you'd accept as evidence that the models are "there yet". Hypothetically, if I'm offered a model that's 90% accurate and a whole bunch of models that are 1% accurate, I know which one I'll pick.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

I was taking your claim literally.

"We learn from history that we do not learn from history."

Which claim?

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

"If neoclassical asserts a thing, you would almost universally do better to believe its opposite."

"We learn from history that we do not learn from history."

Neoclassical has good micro models, at least

Maybe, maybe not. On a macro scale, if a neoclassical economic voice tells you that raising taxes would cost jobs, you should believe the opposite. If an Austrian tells you that federal borrowing will cause inflation, you should believe the opposite.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

How high an importance do you place on micro-economics?

Keep Rolling On

I suppose it would matter if I needed to run a business or plan a city's budget. I'm far more concerned with macro effects, since that's what's at the center of the current debate across the entire First World. Clearly, micro is important, but it also doesn't seem to be in contention at the moment.

edited 30th Sep '14 2:35:49 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Which itself is part of the problem. Realistically, macro models should be built upon micro ones. After all, real economies arent populations of consumers and producers acting in lock step- they are the accumulative result of millions of individual decisions. It was not taking human irrationality into account that got classical economics in trouble (among other things).

"We learn from history that we do not learn from history."

Whole universities full of econ students have tried to build from micro up to macro. It simply doesn't work neatly. Neo-Keynesianism is based on that principle and it has failed spectacularly to bridge the gap between neoclassical and Keynes. Krugman gets better results from "back of the napkin" modeling than a thousand grad students with their fancy computer programs.

I'm unsure if you're playing Devil's advocate here or arguing from sincerely held belief, but let me once again point out that the acid test of any hypothesis is whether it accurately predicts empirical results.

edited 30th Sep '14 5:40:18 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Reminds me of the problems of getting Quantum Mechanics and General Relativity to play nice. One wonders why both disciplines have so much trouble with the Microcosm tying to the Macrocosm.

Many were increasingly of the opinion that they'd all made a big mistake in coming down from the trees in the first place. - Douglas Adams

I'm saying that the fact that stand-alone macro models are more accurate than ones built up from an understanding of micro dynamics is a problem that the field needs to solve. Yes, we should use the most accurate models. But from a meta-perspective, this is one of the things that is holding economics back.

"We learn from history that we do not learn from history."

Only to the folks who insist that micro must explain everything. To the layman, the argument sounds ridiculous.

I'm sure that, like with quantum mechanics and relativity, there exists some perfect economic synthesis waiting to be formulated, but that doesn't mean we should ignore stuff that we know works just because it isn't perfectly understood.

edited 1st Oct '14 7:32:22 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"