tag:blogger.com,1999:blog-1740670447258719504.post4991818493248873529..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: DeLong does not understand what Cochrane is claimingEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-1740670447258719504.post-46354769592034100722012-03-06T10:19:45.864-05:002012-03-06T10:19:45.864-05:00Crowding out of private investment and consumption...Crowding out of private investment and consumption.<br /><br />In the history of the World, this has never happened in a way that ought to concern us, for political and not economic reasons. Recall Keynes letter to France cited elsewhere, about the level of taxation being set by politics.<br /><br />You are in the territory Roosevelt talked about when he said nothing to fear but fear, itself.<br /><br />The Chinese are proving this truth, right now. They are lending and spending more solely because they, justifiably or not, have more confidence about the future than do we.<br /><br />Last, take the long view. The Pyramids had to, in the short run, been a NPV (and who knows about crowding out) but in the long run they were priceless.JLDhttps://www.blogger.com/profile/02186957841091998126noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-27087298557817952782012-03-05T12:28:59.640-05:002012-03-05T12:28:59.640-05:00If taxes are distributed evenly (I don't know ...If taxes are distributed evenly (I don't know if I buy that but it seems like its a key assumption of N&S) don't you have a treatment and control group that both have the negative tax effect built in? Like, and I'm not sure I'm thinking about this correctly, but aren't you estimating (Positive Spending Multiplier) - (Negative Tax Multiplier) across all states where in many states PSM = 0 in which case what you would see is the negative effect of the increase in taxes as the "multiplier" estimate?<br /><br />Where I see the issue is that net tax burdens are not evenly distributed, there are big net tax transfers from the north to the south. This is probably as true for tax transfers for military spending. But I'm not sure how you measure the increased tax burden in, say, New York to finance a new military base in Arizona.<br /><br />I dunno I feel like I'm wrong about this. I also feel like this is meaningless without having really read the N&S paper.Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-58052182834102401382012-03-05T12:15:02.663-05:002012-03-05T12:15:02.663-05:00Ummm... Nakamura and Steinsson are estimating a co...Ummm... Nakamura and Steinsson are estimating a constant-monetary-conditions multiplier—that is, they are comparing different levels of government purchasing while holding real interest rates constant across their identifying variance. That is not the policy-relevant multiplier when monetary policy conditions are not in fact constant in your counterfactual. But it is a fine estimate for today.<br /><br />There are, I think, the places to question the applicability of Nakamura and Steinsson:<br /><br />1. Supply-side regional factor mobility biases their estimate up.<br />2. Demand-side regional factor mobility biases their estimate down.<br />3. In the current conjuncture, the counterfactual is not one of higher government purchases with constant monetary and financial conditions--a constant real interest rate and constant risk premia. A stronger economy means faster inflation and fewer bankruptcies, and thus lower real interest rates charged to firms. There is not crowding-out but crowding-in, and N&S's constant-monetary-and-financial-conditions multiplier misses this effect.<br /><br />No, I do not know how these three effects add up. But I have to have a view by 1 PM or else...bradhttps://www.blogger.com/profile/04548019979157668776noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-10381640933235441642012-03-05T11:41:01.249-05:002012-03-05T11:41:01.249-05:00Anyway - we all know what's REALLY going on he...Anyway - we all know what's REALLY going on here. I'm just trying to get Brad to link to me again :)Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-31423382448542035572012-03-05T11:39:53.342-05:002012-03-05T11:39:53.342-05:00I know you said we need better Keynesian commentat...I know you said we need better Keynesian commentators in that last comment thread, Bob, but I didn't realize you were volunteering for the job!!!<br /><br />:)Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-13102348973730402372012-03-05T11:38:23.556-05:002012-03-05T11:38:23.556-05:00Never heard the Grossman quote before, but a shudd...Never heard the Grossman quote before, but a shudder went down my spine when I read it.<br /><br />I would have to think about the solution - and I'm not closely familiar with the N&S paper either. <br /><br />The other thing that came to mind is using military spending to produce a predicted net federal spending value, and using that. Treat it like the instrument it is.<br /><br />I'm still not sure about this though - I'd have to think about it. What's really going on here is that high military spending states are getting transfers from low military spending states. You're estimating the impact by differencing the two. That seems problematic to me. <br /><br />So let's do it your way and let's say taxes are evenly distributed across all states - only the exogenous spending isn't evenly distribute. If the tax burdens are evenly distributed, they're going to be unrelated to GDP, and they're not going to change the multiplier estimate. How does this help? I would think we would want a solution where we could imagine evenly distributed taxes and unevenly distributed exogenous spending where doing something to account for the taxes reduces the estimated multiplier. Simply controlling for that doesn't seem like it would do it.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-82327797417952689792012-03-05T11:24:56.763-05:002012-03-05T11:24:56.763-05:00Wow maybe I just have a psychological need to alwa...Wow maybe I just have a psychological need to always quibble with you, Daniel, but I actually totally get why DeLong is complaining in this fashion. I too thought that Cochrane was reverting back to the view that "if the government spends money, it must come from somewhere, so all it can do is rearrange output, not increase it on net." You're right, he made good points about problems with looking at state-level differences, but then he sort of motivated the whole thing by an apparent appeal to the Treasury view.Bob Murphyhttps://www.blogger.com/profile/04001108408649311528noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-5680511151030996562012-03-05T11:22:16.312-05:002012-03-05T11:22:16.312-05:00Yeah I think we agree more or less. I just think ...Yeah I think we agree more or less. I just think you give the VAR/time series lit too much credit. I think the narrative approach is prone to bias. Also, as the health economist Mike Grossman has said "Id rater have an interesting biased estimate than an uninteresting unbiased estimate".<br /><br />Also, would simply including a variable that captured the relative tax burden of each state solve much of the problem above? I'm not familiar with the N&S paper though I obviously should be!Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-38117355750732051712012-03-05T10:27:15.143-05:002012-03-05T10:27:15.143-05:00And I've agreed with you before on those criti...And I've agreed with you before on those criticisms, but there's a big difference between the bias of an estimate and the generalizability of an estimate.<br /><br />Generally speaking, I would call Barro/Redlick and Ramey/Shapiro unbiased but hard to generalize.<br /><br />I would call the state studies biased, but perhaps easier to generalize.<br /><br />But that just raises the question - why in the world would you want to generalize a biased estimate?<br /><br />Anyway, as a matter of actually how to move forward I think you and I are probably closer. I don't want to toss out this information. We have a good sense of in what ways these are biased. I think a better way to put it than "averaging" the effects is to say that we need to triangulate the multiplier we're interested in, given what we know about the various biases and issues with each study.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-67804590737207714342012-03-05T10:21:40.461-05:002012-03-05T10:21:40.461-05:00I've made this argument before but the Barro R...I've made this argument before but the Barro Redlick/Ramey Shapiro analysis suffers from the opposite problem of the state analysis, and it's not more valid because it produces lower bound estimates. Again, I think the problem of pinning down a real estimate of fiscal policy shocks is essentially intractable. It makes more sense to me to look at some kind of average effect across studies that seem legitimate than to just take whatever estimates are lowest. <br /><br />The B/R paper is driven by WWII, which indeed was a massive crowding out and also completely inapplicable to any analysis of aggregate demand management. The R&S paper isn't much better in that regard, their results are driven by the Korean War shock. That war was almost entirely financed by a tax increase. Again, not applicable to any properly "Keynesian" discussion of the efficacy of fiscal policy because for fiscal policy interventions to have a net effect they necessarily must be deficit driven.<br /><br />In some ways the state analysis actually captures a properly Keynesian effect better for the very reason you are criticizing it. These state level shocks are more "exogenous" shocks to the states than they are at the national level and so are more like deficit financed shocks.Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.com