tag:blogger.com,1999:blog-1740670447258719504.post4317841468448477018..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: Horwitz and DeLong on policy in our depressionEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-1740670447258719504.post-25967722230076027442012-09-06T11:40:44.867-04:002012-09-06T11:40:44.867-04:00OK maybe we're talking about different things ...OK maybe we're talking about different things then; I haven't listened to Horwitz yet.<br /><br />But even your weaker claim doesn't work for intro classes, unless by "intertemporal decisions" you mean "how much to save?"<br /><br />Krugman seems to think the only real problem is if the market interest rate doesn't yield full employment. This isn't what Horwitz means by "intertemporal allocation" or "intertemporal coordination."Bob Murphyhttps://www.blogger.com/profile/04001108408649311528noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-8044340769268954642012-09-06T09:51:07.223-04:002012-09-06T09:51:07.223-04:00I agree - most don't know about the more speci...I agree - most don't know about the more specific argument that you are talking about.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-33878618269507815502012-09-06T09:50:21.268-04:002012-09-06T09:50:21.268-04:00You and I seem to be talking about extremely diffe...You and I seem to be talking about extremely different things.<br /><br />I was talking about whether the interest rate is a price that coordinates intertemporal decisions.<br /><br />You seem to be talking about a particular model of the capital structure and the question of whether a certain monetary policy is good or bad. Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-45091945108153843972012-09-06T09:43:25.023-04:002012-09-06T09:43:25.023-04:00Daniel, look: The first (and last?) time Krugman p...Daniel, look: The first (and last?) time <a href="http://krugman.blogs.nytimes.com/2011/01/19/great-leaps-backward/" rel="nofollow">Krugman publicly responded</a> to me, he actually said that empirical research showing that the Fed can influence the timing of the business cycle, is a strike <i>against</i> Austrian business cycle theory. (!!!!!) <=== I can use a lot of punctuation marks just like you!<br /><br />So don't tell me principles students know all this stuff, and understand how a false interest rate can lead to distortions. The only thing principles students are taught is that if the central bank has "too easy" monetary policy (which, at that level, is associated with keeping interest rates "too low") then you get too much inflation. That's it, end of story. 95%+ of principles classes wouldn't say one word about, "And this of course sets up an unsustainable intertemporal structure of production, leading to a necessary recession in a few years because of underlying real distortions."Bob Murphyhttps://www.blogger.com/profile/04001108408649311528noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-61703818552518396322012-09-06T09:41:08.615-04:002012-09-06T09:41:08.615-04:00Right, but the interest rate as an intertemporal c...Right, but the interest rate as an intertemporal coordination signal and the interest rate as a determinant of the capital structure are two very different things!!!<br /><br />I agree the capital structure point is not a widely appreciated concept.<br /><br />The idea that the interest rate is a price signal that coordinates intertemporally is.<br /><br />I think your 5% figure is high if you're talking about the capital structure (not because the concept is beyond them, but just because they don't know about it). I think the percent that understand that the interest rate coordinates intertemporal decisions is pretty much 100%Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-33706383655052505792012-09-06T09:32:50.461-04:002012-09-06T09:32:50.461-04:00Daniel wrote:
This is sort of first year micro an...Daniel wrote:<br /><br /><i>This is sort of first year micro and macro stuff right? I don't think there's an economics undergraduate out there that fails to understand this, much less a Nobel laureate. I really don't understand this criticism.</i><br /><br />No, absolutely not. I can't even believe you said this. (I'm not offended, just astounded.) I am willing to entertain the idea that Krugman knows about it, since he does talk about Wicksell (via DeLong, and I'm not sure Krugman's IS-LM interpretation of Wicksell is right), but give me a break. No, first year micro and macro students absolutely do NOT have any freaking clue of what Austrians mean when they warn that screwing with interest rates will mess with the intertemporal structure of production. I think maybe 5% tops of professional economists could even reproduce to my satisfaction what we mean by such a worry, and not all of them would agree it's a problem.Bob Murphyhttps://www.blogger.com/profile/04001108408649311528noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-4848439997961575752012-09-06T08:00:16.797-04:002012-09-06T08:00:16.797-04:00All good questions.
1. Discussion of RB starts at...All good questions.<br /><br />1. Discussion of RB starts at 13:30. At about 14:30 he seems willing to accept the forecast was bad, but doesn't strongly commit to it. There is another strange way that Steve reacts to this too. Like a lot of people looking at this graph, he seems to assume that forecasting models and models producing multiplier estimates are the same thing. This clearly isn't true. Keynesian macroeconomists and macroeconomic forecasters are two very different groups of people working with very different tools and models.<br /><br />2. Go a little before the start of that discussion (13:15 or so), and then also throughout the discussion, and you'll see he refers to both Krugman and DeLong, and he does throughout. He starts discussing interest rates as a signal at around 20:00. I can't find the detailed interest rate discussion right now, but I don't think it makes a difference if he said K & D or just K. Come on - do you really think Krugman doesn't understand this? He's talked about it a lot on the blog, including recent posts on DeLong's discussion of Wicksell. This is sort of first year micro and macro stuff right? I don't think there's an economics undergraduate out there that fails to understand this, much less a Nobel laureate. I really don't understand this criticism. <br /><br />3. I might need to reread, but I thought DeLong was saying that the arguments make sense but the resulting inefficiency is insignificant relative to the other problems: it takes a lot of Harberger (or in this case, Hayekian) triangles to fill an Okun gap. Now what they think of Austrian business cycle theory is VERY different from what they think of interest as an intertemporal coordinator. I don't see anywhere where he's downplayed that point but perhaps you could clarify. I don't see why ABCT and interest as a coordinator are one and the same. You can rely on the latter and not think the former is significant: that's modern mainstream macroeconomics!!Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-64534728158982726002012-09-05T22:07:43.491-04:002012-09-05T22:07:43.491-04:00Daniel,
==> I can't watch Horwitz's ta...Daniel,<br /><br />==> I can't watch Horwitz's talk; I have too much stuff going on. Can you point me to the discussion about the forecast?<br /><br />==> Regarding interest rates: Brad DeLong is *way* more knowledgeable about this stuff than Paul Krugman, at least from my reading. So if Horwitz said, "Krugman doesn't know about intertemporal structure of production, he just thinks interest rate regulates total spending" (or something), you're not refuting this by pointing to DeLong posts. <br /><br />==> I didn't go read the whole thing, but from the excerpt you've given here, it sounds like DeLong is saying, "Yes, I understand you Austrians claim there is an intertemporal coordination problem, but I just don't see what the problem could be." So even on your own terms, how is this supposed to reassure Horwitz? He claims Krugman (and all Keynesians?) don't get the intertemporal coordination problem. It sounds like you should say, "Right, we don't, because there is no such thing." Not, "We do too get it!"Bob Murphyhttps://www.blogger.com/profile/04001108408649311528noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-86823386346919528642012-09-05T14:25:35.443-04:002012-09-05T14:25:35.443-04:00I should review that section again, but it seemed ...I should review that section again, but it seemed pretty clear he agreed it was reasonable that the forecast wasn't right. If that's the case, then even if you expect a negative stimulus the naive reading of the graph will still give you a lower multiplier than is true, right? It will still look more negative than it actually is.<br /><br />Ya, obviously what a good counterfactual will be is a question we can (and do) argue about until the cows come home. What concerns me is statements about the graph that make the general public feel like they can just take the graph and do policy evaluation with it. That is wrong and nobody should be giving that impression regardless of what you think the right multiplier was.<br /><br />And I think that point is value-free.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-20803631267880367282012-09-05T14:18:51.665-04:002012-09-05T14:18:51.665-04:00""we can't know exactly without a co...""we can't know exactly without a counter-factual, but we can rely on past evidence - but this graph that I am showing you understates the positive impact of the stimulus because of the poor forecast"."<br /><br />Of course, if posits a negative multiplier, which many Austrians do, the forecast without the stimulus could have been just right, and the stimulus simply had the exact opposite effect that RB thought it would have.<br /><br />(*I* don't think a negative multiplier is likely, but it would make Steve's position consistent.)gcallahhttps://www.blogger.com/profile/10065877215969589482noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-34849941548738821502012-09-05T12:05:38.640-04:002012-09-05T12:05:38.640-04:00I would say that the natural rate in Wicksell'...I would say that the natural rate in Wicksell's sense is the rate that matches aggregate demand to potential output, and that that natural rate will only be equal to the first-best rate of intertemporal transformation is fiscal policy gets it right (or if households are Ricardian). If not, than there is a distinction between them. Thus right now the first-best rate of intertemporal transformation would be a positive interest rate, but--because fiscal policy and banking policy are too tight--the Wicksellian natural rate is less than zero...<br /><br />Yours,<br /><br />Brad DeLongbradhttps://www.blogger.com/profile/04548019979157668776noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-50746183039492332202012-09-05T12:02:41.907-04:002012-09-05T12:02:41.907-04:001. Re: "Steve understands the problems around...1. Re: "Steve understands the problems around inference from non-experimental data, so why does he promote the graph as demonstrating the failure of the stimulus?"<br /><br />Could it be because Steve Horwitz is not in the education business but the propaganda business?<br /><br />2. Re: "'Krugman and people like him don't understand that interest rates coordinate intertemporal choice.' I was surprised the first time I heard [Steve Horwitz] say this, but then he revisited it several times. Does anyone honestly believe Krugman and people who agree with Krugman don't understand that the interest rate is a price signal?"<br /><br />See my answer to (1).<br /><br />There comes a point when you have to divide people into those who are trying to understand what is going on and those who are trying to pull the wool over their (and your) readers' eyes.<br /><br />I see no evidence that Horwitz has not long ago crossed that boundary and left honest discourse behind--and here today we have two more examples...<br /><br />Yours,<br /><br />Brad DeLongbradhttps://www.blogger.com/profile/04548019979157668776noreply@blogger.com