Krugman puts ANOTHER nail into the coffin of crank economists

[Mac1958]

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Krugman does a fine job of presenting economic theory from left-wing perspective.

Others do a fine job of presenting economic theory from a right-wing perspective.

As long as that is understood, those whose opinions who are not distorted by their political ideology will know to carefully consider all input and come to their own conclusions.

Like pretty much every other issue that is polluted by politics.

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[Toro]

Real Americans and Real Economics
(snip)

What made me think about that concept is something sort of parallel I’ve noticed about the reaction to my writings. Often, I find, the most rage-filled emails and voice mails come after I’ve written something fairly economistic, like today’s piece. And typically, part of the rant is something along the lines of “You call yourself an economist?” You see, the person delivering the rant has a notion of what economics is; he (it’s almost always a he) believes that “real economics” is about singing the praises of free markets — basically Capitalism Roolz. It’s inconceivable to him that you could have a more nuanced view without being a Marxist. And he’s outraged both that I have the temerity to claim that I’m doing economics and that other people seem to take me seriously.

Krugman NAILED IT!!!

We get a lot on this board also. I learned my basic economics back in the 60's when I would guess there was a consensus among about 85% of economists regarding how the economy worked. Most of the remainder were in finance and we always regarded "business economists" as a different breed. These were the guys who came up with the "efficient markets" hypothesis and bled over into insisting on micro foundations for macro analysis which is probably the greatest intellectual disaster in economic thought since Galbraith's "countervailing power" schtick.

As I have been out of teaching and into private business for the last thirty years and don't try to publish much or attend AEA conventions like I used to, I got pretty well out of touch. What changed seems to be a trifercation of the profession into three schools. First are the successors of the "business economists". They really don't spend much time on macro except as it directly effects corporate finance. They unabashedly favor deregulation, immigration reform, tax loopholes, and government subsidies; all for their industry. This puts them generally in agreement with conservative thinkers, except they make a lot of pragmatic exceptions, like immigration reform.

Another group is essentially right-wing ideologues, which I thought had almost died out. This group has come back with a vengeance, and doesn't necessarily get along with the business types. They don't pretend to do any economic analysis or research, and are better understood as dealing in political economy rather than economics. There is literally no coherent economic theory that comes from this group. They aren't Keynesians, or monetarists, or even Austrians in the original sense (Bohm-Bawerk, Hayek, Menger, etc). They are the Luddites of the economics profession, seeing no need to have models or predictions at all.

What's left is what Krugman calls "real economics", by which he means the creation of predictive models based on historical evidence, "natural experiments", and data analysis. If the predict well, they are good models; if not, they need to be improved or abandoned. What shocks me is that while the vast majority of the profession could have been identified with this 35 years ago, they are a bare majority now; and even the journals seem to have drifted away from scientific method into some obscure OCD with mathematical elegance (and this coming from a mathematical economist!) and theoretical microfoundations purity.

If this is where we are headed it is going to be a bumpy road.

I have an undergraduate degree in economics and have spent nearly 20 years in the investment business. I mean no offense, but I've come to the conclusion that economists are mostly useless in my profession. There are a few decent ones, but when they needed to matter the most - 2000, 2006 - their failure was so complete that it's hard to take the profession seriously.

That's probably an unfair generalization, but that's my observation.

I can't argue with you that a large part of the profession did not do well over the past decade. But the bulk of both the intellectual and policy disasters came from people with ideological blinders who promoted deregulation, hard money, fiscal austerity, despite the evidence of massive failure of their programs.

I think the EMH is one of the most damaging theories in all of economics, as is this notion that asset markets and liabilities have minimal effect on the economy in DSGE models since they zero out. However, I don't recall those in the Fed and mainstream promoting hard money. Just the opposite in fact, i.e. "Helicopter Ben." I recall some hard money proponents being very vocal that there was a bubble, whereas very few mainstream economists were making the same argument. Nor do I recall any in the Fed or many in the mainstream saying the government should tighten during a recession.

 

[bripat9643]

.

Krugman does a fine job of presenting economic theory from left-wing perspective.

Others do a fine job of presenting economic theory from a right-wing perspective.

As long as that is understood, those whose opinions who are not distorted by their political ideology will know to carefully consider all input and come to their own conclusions.

Like pretty much every other issue that is polluted by politics.

.

Your claim "economics from a leftwing perspective" is an oxymoron. There's no such thing as "leftwing economics."

 

[oldfart]

We get a lot on this board also. I learned my basic economics back in the 60's when I would guess there was a consensus among about 85% of economists regarding how the economy worked. Most of the remainder were in finance and we always regarded "business economists" as a different breed. These were the guys who came up with the "efficient markets" hypothesis and bled over into insisting on micro foundations for macro analysis which is probably the greatest intellectual disaster in economic thought since Galbraith's "countervailing power" schtick.

As I have been out of teaching and into private business for the last thirty years and don't try to publish much or attend AEA conventions like I used to, I got pretty well out of touch. What changed seems to be a trifercation of the profession into three schools. First are the successors of the "business economists". They really don't spend much time on macro except as it directly effects corporate finance. They unabashedly favor deregulation, immigration reform, tax loopholes, and government subsidies; all for their industry. This puts them generally in agreement with conservative thinkers, except they make a lot of pragmatic exceptions, like immigration reform.

Another group is essentially right-wing ideologues, which I thought had almost died out. This group has come back with a vengeance, and doesn't necessarily get along with the business types. They don't pretend to do any economic analysis or research, and are better understood as dealing in political economy rather than economics. There is literally no coherent economic theory that comes from this group. They aren't Keynesians, or monetarists, or even Austrians in the original sense (Bohm-Bawerk, Hayek, Menger, etc). They are the Luddites of the economics profession, seeing no need to have models or predictions at all.

What's left is what Krugman calls "real economics", by which he means the creation of predictive models based on historical evidence, "natural experiments", and data analysis. If the predict well, they are good models; if not, they need to be improved or abandoned. What shocks me is that while the vast majority of the profession could have been identified with this 35 years ago, they are a bare majority now; and even the journals seem to have drifted away from scientific method into some obscure OCD with mathematical elegance (and this coming from a mathematical economist!) and theoretical microfoundations purity.

If this is where we are headed it is going to be a bumpy road.

I have an undergraduate degree in economics and have spent nearly 20 years in the investment business. I mean no offense, but I've come to the conclusion that economists are mostly useless in my profession. There are a few decent ones, but when they needed to matter the most - 2000, 2006 - their failure was so complete that it's hard to take the profession seriously.

That's probably an unfair generalization, but that's my observation.

I can't argue with you that a large part of the profession did not do well over the past decade. But the bulk of both the intellectual and policy disasters came from people with ideological blinders who promoted deregulation, hard money, fiscal austerity, despite the evidence of massive failure of their programs.

Hmmm . . sorry, but the "disasters" have all come from the opposite policies. There is no evidence that the above policies failed or were even tried, for that matter. We haven't had "hard money" in this country since 1914.

Fist I appreciate and congratulate you on a lucid post. You have advanced the discussion rather than just exchange invective.

The "hard money" comment was hyperbole; I should have referred to tight money. My reference is to the inflationistas who have been warning since 2009 of catastrophic inflation due to a quadrupling of the monetary base. It hasn't happened, in fact the reverse is true; we seem to be in a period of secular disinflation. This is what is meant by a "natural experiment", a policy sufficiently robust that the experience can be reasonably be expected to yield widely different predictions from different models such that the success or failure of such models will be clearly demonstrated. In this sense, the inflationista monetarist argument has clearly failed. But I note that it failed because of the large production gap and resulting idle resources associated with deficient aggregate demand (in the new lexicon, I would describe myself as a paleo-Keynesian/Fisherite). In circumstances of less dramatic economic slack, the models I use DO predict rising inflation with large increases in monetary base.

On the deregulation issue, I stand with Alan Greenspan in the wonder that the heads of the largest Wall Street firms could be so incapable of managing risk and would knowingly endanger the survival of their firms. Clearly there are major limits to self-regulation (But hey! Anyone familiar with game theory and oligopoly in the last 70 years knows that! Only the willfully ignorant, the bought-and-paid-for shills of finance capitalism, and those who have not troubled themselves to really learn economics make that mistake).

As for fiscal austerity; we have debated that before. Just look at Europe; and don't try that nonsense that austerity would work if we just try harder. Austerity was given a more robust trial than stimulus. Strange that 18 months of half-stimulus and four years of expansionary austerity have led to global depression and some want to blame the stimulus and excuse the austerity.

 

[oldfart]

I have an undergraduate degree in economics and have spent nearly 20 years in the investment business. I mean no offense, but I've come to the conclusion that economists are mostly useless in my profession. There are a few decent ones, but when they needed to matter the most - 2000, 2006 - their failure was so complete that it's hard to take the profession seriously.

That's probably an unfair generalization, but that's my observation.

I can't argue with you that a large part of the profession did not do well over the past decade. But the bulk of both the intellectual and policy disasters came from people with ideological blinders who promoted deregulation, hard money, fiscal austerity, despite the evidence of massive failure of their programs.

I think the EMH is one of the most damaging theories in all of economics, as is this notion that asset markets and liabilities have minimal effect on the economy in DSGE models since they zero out. However, I don't recall those in the Fed and mainstream promoting hard money. Just the opposite in fact, i.e. "Helicopter Ben." I recall some hard money proponents being very vocal that there was a bubble, whereas very few mainstream economists were making the same argument. Nor do I recall any in the Fed or many in the mainstream saying the government should tighten during a recession.

I've already admitted to hyperbole on the hard money quote. You make a lot of good points. Regarding balance sheet items, reading Irving Fisher today makes me wonder that his work is not more utilized in econometrics.

 

[Dot Com]

Good posts

 

[EdwardBaiamonte]

. Clearly there are major limits to self-regulation.

only when liberals have distorted the market beyond recognition with massive levels of interference. Is it coincidence that it happened in the most regulated market there is?
Is the liberal solution to have even more massive soviet regulation?

 

[EdwardBaiamonte]

My reference is to the inflationistas who have been warning since 2009 of catastrophic inflation due to a quadrupling of the monetary base. It hasn't happened, in fact the reverse is true; we seem to be in a period of secular disinflation.

who cares about what the "inflationistas" minority thought about quanity and velocity?. Bernanke was in charge and read it perfectly. He tripled the balance sheet while letting the world know there would be no inflation or disinflation, and so far he's been spot on!!

 

[EdwardBaiamonte]

. In circumstances of less dramatic economic slack, the models I use DO predict rising inflation with large increases in monetary base.

it has to do with far more than economic slack, it has to do with basic structural problems like unions, tax codes, deficits, public schools and liberal broken families that conspire to drive businesses and jobs offshore and sap buying power.

 

[EdwardBaiamonte]

Just look at Europe; and don't try that nonsense that austerity would work if we just try harder. .

1) There was no austerity in Europe.
2) real austerity builds efficiency into an economy with capitalism
3) stimulus spending distorts an economy, like the housing stimulus did, and paves the way for boom and bust cycles.