Bob responds to Brad DeLong and suggests Krugman's buttressing his point.
Errrmmm... only if you had a really bizarre perspective on this in the first place.
Perhaps Bob should take Krugman’s post as evidence that nobody disagreed with him on the relationship between investment and potential output (that this is not just something that Austrians and Larry Summers have come up with).
Perhaps?
I feel like I have a decent grasp of the way Bob thinks, and I'm honestly baffled how he could write that in the first place. And maybe he doesn't think that, it's just a little rhetorical flare (that would make me feel a lot better). But if he does, maybe that's the place to start.
That would imply that the disagreement is elsewhere – over the degree of the effect and the strength of DeLong’s initial point. Bob seems to think that DeLong is using a particular meaning of “materially lower” and he is hanging an awful lot on the assumption that Brad is using that phrase in that way.
Thursday, August 29, 2013
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This discussion is about whether "the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007."
ReplyDeleteDelong (and you) may believe that a 25% fall in the growth rate is not material.
But DeLong's estimate that potential GDP had only fallen 1% seems to be factually incorrect. And as he (twice) used that estimate to roast Murphy I think the fact he was wrong undermines his whole case.
Any fair-minded person who reads the exchange would probably conclude that Bob's original post was substantially correct and in any case didn't deserve the abuse heaped on him by Delong - which I think is unacceptable in a serious economic discussion.
Yep. That's why the word "materially" is in my sentence in the first place. The way I talk, a "material" shift is 5 percentage points, not 1 percentage point. One percentage point is immaterial.
DeleteBut the number was not 1% - that was something you calculated based on some (presumably) invalid assumptions. The real number was 3.6%.
DeleteIsn't 3.6% close enough to 5% to make you consider that your post on Murphy may have been a bit harsh, especially given that you accused him on not doing the math , but had some dubious assumptions in your own calculations ?
Brad doesn't do apologies or corrections. I admit it's part of his charm, but it also means that you can never really take him that seriously.
DeleteAfter the first round, I thought my best bit was just to shut my mouth. But, that's not my style. I prefer to be wrong than not to participate at all.
ReplyDeleteI'm actually genuinely confused about what the debate actually is. Is it a quibble over what is a material drop in potential GDP? Or is about DeLong's more important point that potential GDP is still above actual GDP, suggesting a demand shortage? Murphy's point doesn't really address the latter. Maybe DeLong thought it was a challenge to that point, whereas Murphy's argument was more of a quibble.
Well, it would be profoundly silly for Murphy to write 1,000 words to say that he disagrees with my judgment that a 1% point is not a "material" decline, wouldn't it? That could be done in ten words, couldn't it?
DeleteBrad DeLong
God. This is so tedious. Brad, you're much more entertaining when you just insult people you disagree with. Stick with what you're known for, it rocks!
DeleteFor anybody who cares, if you look at the CBO's figures for real potential GDP, the average growth from 4q06 through 4q07 was 2.44%.
ReplyDeleteAt that trend, real potential GDP in 2q2013 would have been about $15.2 trillion. Instead, it was only $14.6 trillion, a shortfall of 3.6%.
True, it's not DeLong's threshold of 5% (which he sets as his threshold for "materially lower" in these comments). But on the other hand, it's 260% more than the figure he came up with, when telling me I needed to quit my job because I couldn't be bothered to actually do the math.
And yet, somehow, I'm the jerk in all of this because I made a throwaway line about Austrians being the only ones who care about investment. What if I had instead said, "DeLong is the dumbest man alive"? Would people have focused on his misleading claim in that case, and then his follow-up bad arithmetic as he lectured me on the importance of looking up the numbers?
One last post on this (unless Krugman chimes in again--in which case I am contractually obligated to respond): The reason Professor DeLong and I got off to such a bad start was a genuine misunderstanding. He said there is nothing in the level of investment (and a bunch of other factors) that would lead him to believe "the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007." Since I knew full well that the growth of potential GDP was far lower today than in 2007--according to CBO, it's about 25% lower--I threw a fit.
ReplyDeleteBut in light of DeLong's follow-up comments, it's clear that what he meant was, the current level of potential GDP is not materially lower today than it would have been, had the trend in 2007 continued. I honestly don't know whether I would have objected to that or not, but I wouldn't have accused him of not taking investment into account, in any case.
Great comment, Bob. I think you should do a clarifying post on your site.
DeleteWell then you should use the [strike] tag, shouldn't you? And you should use the delete key, shouldn't you? Use them. Often.
DeleteWe didn't "get off to a bad start". You demonstrated--once again--that you are a clown.
Step up your game, or go do something else.
I'm a musicologist and sexual health counselor at Columbia (which is to say, I'm not an economist), and this Brad person is quite unpleasant! Plus, he doesn't seem to address the mistake that is pointed out by others here that He made. Maybe he's just being sarcastic, in which case I'm into it. Murphy seems like a lot of fun - to me, at least - on the other hand.
DeleteIt is true that I thought by "growth in sustainable potential GDP," you meant growth in sustainable potential GDP. I still don't see why this makes me a clown, but I defer to others on that.
DeleteI also think that being off by 260% in your effort to tell me to do the math might make you consider that I'm not the sole villain here, but again, I'll leave that to others.
one can infer from Minsky that investment, at least at important times, is a following indicator, so the FRED chart means nothing.
ReplyDeletesecond, to the extent that information is a substitute for capital, which is strongly implied by the long term downward trend in interest rates, investment may becoming less important all the time
what will be the measure of investment when robots build and repair themselves?
And, at a macro foundation level, where does the cost of writing software appear? investment or labor?
Last, this post by Murphy shows why no one should read him. His sole reason for doing anything is to draw attention to himself. He has killed off millions of electrons here for no net gain.
Yes, improving productivity is evil.
DeleteImproving productivity is usually the aim/result of a capital investment in the first place. I'd like to see how you can obtain a self repairing robot without making an investment.
DeleteFrom his comment, it is obvious that Alexander Hamilton (like his earlier namesake) has never worked for an actual producing, for-profit entity, so allow me this indulgence.
In my company, I make my living writing software to allow employees to be more productive, make better decisions, improve customer service, and (unfortunately) comply with useless dotgov regs.
The cost of writing this software is capitalized using a 5-7 year depreciation, perfectly acceptable to GAAP. So yes, the money you spent on writing software (or self repairing robots, or whips) is often booked as capital.
I don't see how you can imply that investment is not needed to improve productivity. Even if you whip your employees to make them work harder, you have to first invest in a whip in order to do it.
Ken P: Your comment, what does this even mean? Are you implying that because Alexander Hamilton claims you improve productivity without investment (after all, he thinks that writing software and buying self rairing robots is a business expense), that therefore Dr. Murphy thinks that improving productivity is evil?
I'm afraid I'm not following that line of reasoning. But then again, I write software which means I must employ something called "logic".
What I always like about Dr. Murphy (and all Austrian economists), is that he usually makes sense and is logically sound, while the Keynesians and monetarists, well, you get my drift.
And to Dr. Murphy: The fact that Brad called you a name automatically means you win, regardless of the actual argument. This, despite the fact I was there when you and Dr. Woods reprised the zombie interview and fake Krugman debate on the Bowery this last June, so perhaps he has a point...
Sorry AH, my comment was snarky and also a misreading of your post. Moral of the story, don't check blogs on your phone at the bar. The only Minsky I've read is Marvin Minsky, but that is an interesting point about investment being a following indicator.
DeleteDikvoormekaar, no I misread AH to be anti-robot. I don't think Bob was making a point either way about whether we should be investing more but saying we should expect growth to be slower since we are investing less. I think he was stating that growth in investment is 25% lower and that is significant. If I understand right, DeLong is saying that the impact on potential GDP is only 1%?
I'm somewhat partial to the Hayekian triangle view that C/I ratio is important and should reflect the current time preference of society. My view is that expansion of the credit market has the same effect as the Fed pumping money into the economy. It increases both C and I (at times without even changing the ratio) in an unsustainable way and causes malinvestment. Essentially, the economy under increasing debt load is functioning as if accumulating future obligations have no present cost and that there will be no change in how comfortable people are with debt. In my opinion, we need to reduce regulations on drug companies so that investment expenses aren't gobbled up by bureaucracy.
Agreed. But why stop at drug companies?
DeleteRegulations mainly serve the purpose of entrenching the cartels to the exclusion of smaller and nimbler competitors. It's a myth to think that somehow consumers benefit from them.
Also agree with the your expansion of credit comment, which I assume to be a swipe at fractional reserve banking backstopped by taxayers.
Agreed. But why stop at drug companies?
DeleteRegulations mainly serve the purpose of entrenching the cartels to the exclusion of smaller and nimbler competitors. It's a myth to think that somehow consumers benefit from them.
Also agree with the your expansion of credit comment, which I assume to be a swipe at fractional reserve banking backstopped by taxayers.
Actually, I don't understand banking well enough to have a strong opinion on the subject, but I do lean towards being opposed to fractional reserve banking backstopped by taxpayers. I've seen some interesting alternatives suggested, but I have very little understanding of the subject. However, if you look at the credit market data, it's pretty obvious that monetary expansion was huge during the last boom. TCMDO went up $22 trillion between 2002 and 2008.
DeleteDikvoormekaar:
DeleteLack of regulations might give the impression of reducing costs, but it could end up significantly increasing the costs in the long-run due to an increase in risk caused by weak controls.
I am a CPA and most of the clients I work on are small mom and pop operations. Their books aren't all that complicated and it wouldn't take me too long to do their books from just their records. However, a lot of them look at our fees and decide to either get a bookkeeper or do the books themselves. The amount of time and effort it takes to fix the books oftentimes results in higher fees than if they had just engaged the firm to do the bookkeeping itself.
Professionalism may be more expensive in the short-term, but it generally saves a significant amount of money over the long-term.
That is "self repairing robots", but "self rairing (rearing?) robots" sounds pretty good to as the next step in robot tech.
ReplyDeleteThat's pretty much how I picture it, too.
Delete