Thursday, August 12, 2010

Two econ posts...

Greg Mankiw criticizes "extreme Keynesians" - basically people who he says think that aggregate demand explains everything. I couldn't agree more. Indeed, this is the argument I make in my paper on the 1920-21 depression. Although there I critique Powell (2009), Woods (2009), and Murphy (2009) for acting like this "extreme Keynesianism" is "Keynesianism" and for pretending that a Keynesian's response to every downturn is fiscal and monetary stimulus (it's quite clearly not but that didn't get through to them).

So from a theoretical/rhetorical perspective I agree with Mankiw completely. From a nuts-and-bolts perspective I think there are some problems with what he uses to critique the demand-side view in this recession. He writes:

"University of Chicago economist Casey Mulligan offers a challenge to that view. Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased). That is no surprise: It is normal supply and demand in action. But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one. But it does!"

I'm not sure Mulligan was really reading Eggerston's point about the "paradox of toil" very closely. What is the mechanism through which increased labor supply negatively impacts unemployment? Eggerston says that: "Higher short-run supply may create deflationary expectations and increase the real interest rate. This lowers aggregate demand, since aggregate demand depends on the real interest rate." Isn't that precisely what we've seen this summer - the return of deflation risks? The impact of that higher [real] interest rate on demand and employment will unfold in the coming months. This whole "paradox of toil" thing, which I honestly haven't looked into that closely, doesn't say that supply and demand don't work anymore. An increase in the supply of labor still impacts employment like it always has, it just sets in motion mechanisms that might also counter-act that increase. But you have to consider these mechanisms carefully. How would we expect the specific mechanism Eggerston identifies to effect employment? We would (1.) not expect it to do anything to normal supply-and-demand relationships, but (2.) set in motion a reduction of demand for labor with some sort of lag.

So anyway - click through the links to look at the stuff yourself, but I don't see how Mulligan really proves what he sets out to prove unless he completely misunderstands what Eggerston and Krugman have been saying on this. I should note that Greg Mankiw indicates he thinks Mulligan's claims are too strong as well.

Anyway, this gets me to a post by Peter Boettke on the Higgsian uncertainty point. It's all good, but I would make the same critique of Boettke that Mankiw makes of unnamed "extreme Keynesians". How do you attribute the weight that you do to policy regime uncertainty? Your logic is impeccable - I buy the logic. How important is that logic to the functioning of the economy right now? This is my beef with a lot of macroeconomics. Some people try to frame macroeconomics as "ex post story telling" with lots of theories floating around, and that it's unscientific because it has lots of theories floating around. The problem is, very few of these theories contradict each other. There is no reason to think that we aren't going through an industrial restructuring (a la Kling), a rebalancing of malinvestments (a la the Austrians), a deficiency of demand (a la Keynes), and some important supply shocks (a la RBCT). All these things can happen at the same time. I could throw in Jonathan Catalan's recent post contrasting Kling and the Austrians here too.

Mankiw ends with a really great anecdote that I can identify with:

"I am reminded of a response I once gave to a reporter who asked whether I was a supply-sider or a Keynesian. "I am neither a supply-side economist nor a demand-side economist," I said. "I am a supply-and-demand economist.""

I think we all should be supply-and-demand economists. Isn't that kind of what you learn on day one? Understanding all these theories and trying to figure out how they work together would go a long way towards making us less ridiculous when we fight over stuff that isn't even mutually exclusive. Or put it this way - if it is mutually exclusive it's because we've unnecessarily defined it that way when what we should be doing is identifying processes that describe the way the world works.

UPDATE: Now that I think about it, a funny irony is that many of the economists who only tell demand stories are the same economists that can't seem to get through their heads what the impact of a demand shock like a mandate will do!

21 comments:

  1. And I should note on Peter Boettke - it's not tha there's a problem with focusing on regime uncertainty if that's your research agenda. Researchers can focus on a small piece of the puzzle. The point is, when you try to make a statement about policy you need to be cognizant of all the other pieces.

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  2. Or, in the case of Higgs, there's a difference between saying "policy uncertainty is an important factor to consider" and "policy uncertainty caused the Depression". I've only read a little of his work, so I'm not sure exactly how he frames his points.

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  3. BTW, Brad Delong does spend time "pruning" comments, very regularly. As hard as that might be for you to believe, it is true.

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  4. how do you know that sandre? i don't know - I've lost so many that aren't critical of him and I've seen so many maintained that are critical of him that I find this hard to believe.

    Where do you get your info aside from an underlying suspicion of brad delong?

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  5. It is pretty common knowledge that DeLong censors comments he dislikes. I would say he's fairly notorious in the blogosphere...

    http://austrianeconomists.typepad.com/weblog/2009/03/ol-brad-is-at-it-again.html

    http://www.halfsigma.com/2007/11/brad-delong-del.html

    http://isteve.blogspot.com/2005/09/brad-delong-purifier-of-comments.html

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  6. you think brad delong's blog is special? He uses typepad, and it is a paid service unlike blogger. marginalrevolution is on typepad, so was cafehayek until recently. I used to post under a handle called "oil shock" a few years ago(before/during the oil shock of 2007/2008, if you know what I mean) My comments would stay there for a few hours draw responses, and then get deleted. Sometimes delong would say as much. Why do you think so many people accuse him of deleting messages? Could it be because he actually does?

    Read the pruning remark here

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  7. Also, this is not the first time that you have been informed of Brad deLong's disgusting behaviour of editing people's comments, not just deleting them. You just defend deLong because he agrees with you ideologically. I bet that I will see you suggesting that deLong doesn't delete comments, again in the future.

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  8. sandre -
    I never said it didn't happen I'm just always curious about these claims because they're always backed up by dropped comments and nothing else.

    Sometimes blogs drop comments. Xenophon had an issue with that on our blog recently. Neither Evan nor I deleted anything but for some reason blogspot started deleting comments that used and http: preface to a link. I've had trouble at the Atlantic blogs with dropped comments too. It happens.

    None of which is to say that DeLong doesn't do this - I never said that. I'm just curious why people think he does. For some reason the only response I ever get is "he dropped mine", which isn't really proof of anything. I've lost comments on there that were supportive of him. I've lost comments on Cafe Hayek too, for that matter.

    Now - your "pruning" post is interesting. That seems to get more at the heart of what he is doing. For some reason he thinks of the comments as an integral part of the post record and he takes the liberty of deleting uselss comments. I can sympathize with that - there is a LOT of useless commenting on here.

    But that's different from deleting people he disagrees with, if that's what he's doing. DeLong has a series of posts (they're called "DeLong Smackdown Watch"), where he highlights commenters that disagree with him!!!!! So clearly any comment pruning is not simply a matter of cutting out the disagreements!

    I think the pruning is a little silly. Unless he gets hundreds of comments, in which case maybe it is a smart way to clean it up and focus on really substantive commenters.

    I don't know, I have a hard time getting worked up about this or taking people seriously that do get worked up about this. DeLong obviously isn't out to get dissenters - that much is very clear. If he's pruning down non-sequitors that's his call - it's not what I would do - but it's not what you're accusing him of either.

    I just don't know what his policy is, and the fact is neither do you

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  9. "Also, this is not the first time that you have been informed of Brad deLong's disgusting behaviour of editing people's comments, not just deleting them. You just defend deLong because he agrees with you ideologically. I bet that I will see you suggesting that deLong doesn't delete comments, again in the future."

    1. Yes, I've heard people make these claims before and until your comments here they've never really backed up those claims. Your comments actually helped me understand how he approaches this (not that I really cared all that much).

    2. What I'm going to continue to claim is that I've seen supportive and unsupportive posts come down, I've now (thanks to your evidence) specifically heard him say that he prunes comments that don't seem to contribute, and we know he highlights people who disagree with him. I'm going to continue to claim those things because that seems to be what the evidence suggests, and none of that implies he just goes around deleting people he disagrees with.

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  10. Now I'm going to have to think about pruning if we keep talking about Brad DeLong as opposed to the people I actually mention in this post - namely, Greg Mankiw, Peter Boettke, Casey Mulligan, and several million unemployed Americans!

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  11. Higgs doesn't advertise his policy uncertainty argument as *the only cause of the great depression*, but as one complementary to other arguments... more specifically he believes policy uncertainty is key to understanding the length of the Great Depression, which he believes extends until 1945-46.

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  12. Great - thanks for the background (and welcome to the blog!). I've read some of what he's written for the Independent Institute, but not much besides that.

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  13. Sometimes blogs drop comments. Xenophon had an issue with that on our blog recently. Neither Evan nor I deleted anything but for some reason blogspot started deleting comments that used and http: preface to a link. I've had trouble at the Atlantic blogs with dropped comments too. It happens.


    Yes, sometimes they do, but Brad deLong is not special in that regard. Dropped comments never appear in a new window, never get any responses from other commenters. I'm a Software Engineer and I would like to believe that I know a little bit about how these things work. Also, typepad is not blogger.

    But that's different from deleting people he disagrees with, if that's what he's doing.

    No, it is not. You can try to spin it anyway you want. That doesn't change the fact that he deletes comments that disagree with him even politely. He even edits other people's comments as mentioned in David's links. While my comments have always hit the memory hole, I have personally seen comments getting edited on his blog.

    DeLong has a series of posts (they're called "DeLong Smackdown Watch"), where he highlights commenters that disagree with him!!!!!

    I'm sure he does. I wonder why he has to do such a series. :-) It does take 4 exclamations to spin it.

    I don't know, I have a hard time getting worked up about this or taking people seriously that do get worked up about this.

    I'm not worked up. I stopped going to deLong's blog long time ago. I tried to respond to your comments on economicthought.net, guess what it NEVER appeared - ( therefore it never got deleted. ) when I looked at the comments from a different browser session.

    Now I'm going to have to think about pruning if we keep talking about Brad DeLong as opposed to the people I actually mention in this post - namely, Greg Mankiw, Peter Boettke, Casey Mulligan, and several million unemployed Americans!

    Sure, that's your prerogative. My comments here on this topic are not for others to read, but just you.

    BTW, my comment on that blog post was in response to a commenter named 'john' who had something ridiculous to say about Say's law. It wasn't even attacking deLong.

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  14. "BTW, my comment on that blog post was in response to a commenter named 'john' who had something ridiculous to say about Say's law. It wasn't even attacking deLong."

    Once again you're reinforcing my point. Doesn't that suggest to you he's trimming down the comment section to something he finds useful, rather than addresing a comment he disagrees with?

    I never look at Krugman's comment section - I only look at his posts. It's just too long and 95% of the comments are pointless gripes. I often look through DeLong's comments because they have substantive points to make.

    So maybe "pruning" has some benefit for him - who knows. But you've provided no reason to think it's what you're trying to make out of it.

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  15. so why didn't he delete john's comment or umpteen other favorite commenters of his that responded to him

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  16. I have no idea what you're talking about. I don't follow the comment section that closely or know who his regulars are.


    Does John make comments DeLong might reasonably consider to be useful for readers?

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  17. I have no idea what you're talking about. I don't follow the comment section that closely or know who his regulars are.

    I'm sure you don't. I don't either. But in this case, I have enough context to know that he deletes comments that actually make him look like a hack that he is. therefore you should admit your love for delong when you are going out of your way to defend a despicable human being who calls other economists like Russ Roberts or Steve Horowitz names you wouldn't find even a bunch of roughnecks hurling at each other at a drunken brawl.


    Does John make comments DeLong might reasonably consider to be useful for readers?

    Yes, because delong wants his readers to applaud him and make him look good. John leads the cheerleading squad. So it is pretty reasonable for Delong to think that it will be useful for his cheerleading squad.

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  18. "therefore you should admit your love for delong when you are going out of your way to defend a despicable human being"

    This isn't Cafe Hayek and to be quite frank this isn't DeLong's blog. Nobody is going to want to read your comments if it degenerates into this. I really don't care about DeLong's comment policy and I care even less when you get on your soapbox and proclaim who is and who isn't a despicable human being.

    Bye, bye sandre. We don't want that here.

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  19. I really don't care about DeLong's comment policy

    Yes, you do. You started it, and it wasn't the first time.

    Bye bye,

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  20. Anonymous -
    9:46 AM comes chronologically before 9:47 AM. Check the record.

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All anonymous comments will be deleted. Consistent pseudonyms are fine.