Steve Horwitz has a more digestable version of his Adam Smith Institute talk here. Here's my quick take on the different arguments.
1. Steve says that the problem is that policy is giving bad signals that distort the arrangement of different kinds of production. The problem is the distortion. The solution is to stop the policies that are going the distortions.
2. I am much less worried about the distortions because I think the market does a good job at ensuring the survival of good arrangements of production. The problem, as I see it, is that while the market process picks winners and losers well, it does not guarantee a Panglossian outcome where resources are used to their full potential. We cannot pick winners and losers well with government. We can nudge the resource utilization issue without disturbing the market process that picks winners and losers so well.
Often the debate proceeds as if my side is somehow missing the fact that the market process is good at picking winners and losers and generating a good arrangement of different kinds of production.
I do not think that's the disagreement.
That's exactly what my side likes about the market. That is not where the problem is. Now if you want to tell me that my solution to the other problem will make things worse, then argue that point. Don't tell me that we've missed something about the fundamental issue being the arrangement of production and don't tell me that we only think maximizing aggregate GDP is what matters.
UPDATE: Here's another way of putting it:
A couple things can threaten the stability of a house. You could have a flash flood pick it up off its foundation and wash it away, or you could have a fire from faulty wiring in the ceiling burn it down.
Let's say faulty wiring starts a fire. My reaction is going to be to point to the problem of a fire and try to put that fire out, perhaps by spraying it with a lot of water.
If you were to tell me that throwing lots of water at a house risks lifting it off its foundation and washing it away, I would say that that's not really a risk right now: I'm just trying to put the fire out with a fire hose.
It would make even less sense for you to tell me that clearly by continuing to work with the fire hose I don't appreciate the fact that houses need to stay on their foundation and not wash away in order to maintain their integrity.
This is how I feel like some conversations with Austrians go.
I understand that it is bad for the house to get washed off it's foundation. I understand that staying on the foundation is good for the stability of the house.
I am concerned that my roof is burning down right now. It's not that I don't understand how foundations work - I just don't see that as a big problem right now.
Thursday, September 6, 2012
Scott Sumner, meet the New Keynesian IS curve. New Keynesian IS curve, meet Scott Sumner
This is really getting bad. From Scott:
"First the Keynesians say QE “won’t work” because in their flawed interest rate-oriented models it doesn’t work at the zero bound. Then the Fed does QE1 and the dollar plunges 4% on the news. Mere rumors of QE2 are enough to push stocks and commodities up sharply, as well as TIPS spreads. So now they are forced to argue that it works, but it works for the wrong reason, so it still doesn’t work. Or something like that. I.e. it works because it’s a signal for more expansionary future monetary policies, not because of more money today. Fine, but isn’t that arguing about how many QE transmission mechanisms can dance on the head of a pin? Does it work or not, that’s the question. (If you haven’t read my preceding post, do so first.)
But the bigger flaw in the Keynesian argument is that they don’t seem to realize that monetary policy always works through signaling, not just at the zero bound."
Ummm... right. Isn't that what we've always thought?
The zero lower bound isn't the point where expectations start to matter. It's the point where current interest rates lose traction because debt starts to look an awful lot like cash (what Glasner has called "some unpleasant Fisherian arithmetic"*). As Sumner says, "monetary policy always works through signaling", but that's the entire point of the New Keynesian IS curve, which was around long before the market monetarist blogosphere emerged to save the day. So why is Sumner suggesting that Keynesians "don't seem to realize" a point they've been making for decades?
Nick Rowe likes to talk about this as an upward sloping IS curve. I think it's more useful to think about it as a downward sloping IS curve that shifts right when monetary policymakers do what Krugman and Sumner both want. Analytically it amounts to the same thing, it just seems wrong to me to embed a monetary policy reaction function that says the monetary policymaker will act how they're clearly not acting right now! [UPDATE: thinking more, I think this might be the wrong way to make the case. I feel like I need to go back and reread that post more closely. I feel like I had an OK grasp of it when he first wrote it and it was pretty clear that it was almost a semantic difference between an upward sloping IS curve or a downward sloping one that moves in predictable ways... I need to revisit that before saying more, though].
I know Brad DeLong's probable answer but I hope there are others because as you all know that answer troubles me.
The other point I'd make is that just because this is something that was made explicit and formal by New Keynesianism does not mean it was something the Old Keynesians missed. The point was made explicitly by Keynes himself (although it was not made formally), and it's not a particularly complicated point. The reason the Old Keynesian models didn't have it was because they were simpler and the Rational Expectations revolution hadn't happened yet. The fact that expectations were not formally modeled does not mean that expectational issues weren't understood by Old Keynesians.
Here's my advice: If you want to know what a caricature Old Keynesian would say, take Scott Sumner at his word on what the disagreements are on monetary policy today. If you are interested in what they actually say you're going to need to look elsewhere.
And what endlessly frustrates me about this is that all this artificial division among economists makes good policy less likely not more likely.
"First the Keynesians say QE “won’t work” because in their flawed interest rate-oriented models it doesn’t work at the zero bound. Then the Fed does QE1 and the dollar plunges 4% on the news. Mere rumors of QE2 are enough to push stocks and commodities up sharply, as well as TIPS spreads. So now they are forced to argue that it works, but it works for the wrong reason, so it still doesn’t work. Or something like that. I.e. it works because it’s a signal for more expansionary future monetary policies, not because of more money today. Fine, but isn’t that arguing about how many QE transmission mechanisms can dance on the head of a pin? Does it work or not, that’s the question. (If you haven’t read my preceding post, do so first.)
But the bigger flaw in the Keynesian argument is that they don’t seem to realize that monetary policy always works through signaling, not just at the zero bound."
Ummm... right. Isn't that what we've always thought?
The zero lower bound isn't the point where expectations start to matter. It's the point where current interest rates lose traction because debt starts to look an awful lot like cash (what Glasner has called "some unpleasant Fisherian arithmetic"*). As Sumner says, "monetary policy always works through signaling", but that's the entire point of the New Keynesian IS curve, which was around long before the market monetarist blogosphere emerged to save the day. So why is Sumner suggesting that Keynesians "don't seem to realize" a point they've been making for decades?
I know Brad DeLong's probable answer but I hope there are others because as you all know that answer troubles me.
The other point I'd make is that just because this is something that was made explicit and formal by New Keynesianism does not mean it was something the Old Keynesians missed. The point was made explicitly by Keynes himself (although it was not made formally), and it's not a particularly complicated point. The reason the Old Keynesian models didn't have it was because they were simpler and the Rational Expectations revolution hadn't happened yet. The fact that expectations were not formally modeled does not mean that expectational issues weren't understood by Old Keynesians.
Here's my advice: If you want to know what a caricature Old Keynesian would say, take Scott Sumner at his word on what the disagreements are on monetary policy today. If you are interested in what they actually say you're going to need to look elsewhere.
And what endlessly frustrates me about this is that all this artificial division among economists makes good policy less likely not more likely.
I'll be attending this tomorrow
"Getting America Back to Work: Can Training Programs Do the Job?" at AEI
It's got a great line-up of speakers. I find the title interesting. It all depends on what "getting America back to work" means. If we're thinking short-run, my answer is "no", if we're thinking of long-run, my answer is "yes". Some people get worked up about talking about training and other structural issues (see Paul Krugman's response to Bill Clinton's speech). While I'm with Krugman on the business cycle question, I think it's only natural to frame the structural stuf in terms of the recession - particularly in this town. That doesn't mean these are bad policy ideas or findings. You've just gotta train yourself to tune out the references to short-run policy responses when they're political framing rather than actual macroeconomic claims. Of course when they are actual macroeconomic claims, you have to address it as such.
I have been meaning to attend this for a little while now, but just registered this morning - so if you want to register it looks like there's still room.
Here's the AEI summary:
"With unemployment and long-term joblessness at stubbornly high levels, many Americans look to job training as a way to reinvigorate the work force. The federal government currently supports over 40 different programs that provide job training and spends billions of dollars annually training and matching unemployed workers with jobs.
How effective are these training programs, and what are the best ways to organize them? What do we currently know about these programs’ performance, and how can we improve the way they are assessed and evaluated? This conference will feature three panels focused on publicly funded job training programs, their performance in the U.S. and possible reform ideas.
8:30 AM
Registration and Breakfast
8:50 AM
Opening Remarks:
Steven J. Davis, University of Chicago and AEI
9:00 AM
Panel I: Best Practices in Job Training Programs
Presenter:
Lawrence Katz, Harvard University
Discussant:
Harry Holzer, Georgetown University
Moderator:
Michael R. Strain, AEI
10:00 AM
Break
10:15 AM
Panel II: The U.S. System of Publicly Funded Job Training
Presenter:
Jeffrey Smith, University of Michigan
Discussant:
Gary Burtless, Brookings Institution
Moderator:
Kevin A. Hassett, AEI
11:15 AM
Break
11:30 AM
Panel III: Perspectives on Reform of Publicly Funded Job Training
Panelists:
Paul Decker, Mathematica Policy Research
Betsey Stevenson, University of Michigan
Kenneth Troske, University of Kentucky
Moderator:
Steven J. Davis, University of Chicago and AEI
12:30 PM
Adjournment"
It's got a great line-up of speakers. I find the title interesting. It all depends on what "getting America back to work" means. If we're thinking short-run, my answer is "no", if we're thinking of long-run, my answer is "yes". Some people get worked up about talking about training and other structural issues (see Paul Krugman's response to Bill Clinton's speech). While I'm with Krugman on the business cycle question, I think it's only natural to frame the structural stuf in terms of the recession - particularly in this town. That doesn't mean these are bad policy ideas or findings. You've just gotta train yourself to tune out the references to short-run policy responses when they're political framing rather than actual macroeconomic claims. Of course when they are actual macroeconomic claims, you have to address it as such.
I have been meaning to attend this for a little while now, but just registered this morning - so if you want to register it looks like there's still room.
Here's the AEI summary:
"With unemployment and long-term joblessness at stubbornly high levels, many Americans look to job training as a way to reinvigorate the work force. The federal government currently supports over 40 different programs that provide job training and spends billions of dollars annually training and matching unemployed workers with jobs.
How effective are these training programs, and what are the best ways to organize them? What do we currently know about these programs’ performance, and how can we improve the way they are assessed and evaluated? This conference will feature three panels focused on publicly funded job training programs, their performance in the U.S. and possible reform ideas.
8:30 AM
Registration and Breakfast
8:50 AM
Opening Remarks:
Steven J. Davis, University of Chicago and AEI
9:00 AM
Panel I: Best Practices in Job Training Programs
Presenter:
Lawrence Katz, Harvard University
Discussant:
Harry Holzer, Georgetown University
Moderator:
Michael R. Strain, AEI
10:00 AM
Break
10:15 AM
Panel II: The U.S. System of Publicly Funded Job Training
Presenter:
Jeffrey Smith, University of Michigan
Discussant:
Gary Burtless, Brookings Institution
Moderator:
Kevin A. Hassett, AEI
11:15 AM
Break
11:30 AM
Panel III: Perspectives on Reform of Publicly Funded Job Training
Panelists:
Paul Decker, Mathematica Policy Research
Betsey Stevenson, University of Michigan
Kenneth Troske, University of Kentucky
Moderator:
Steven J. Davis, University of Chicago and AEI
12:30 PM
Adjournment"
A survey finds that economists' gender matters for normative, but not positive questions
Here (HT Peter Boettke).
The finding isn't particularly surprising to me, but I think it was badly framed by the title (which says that economists' analyses are not objective!). I think this just shows that given the same objective analyses (the survey finds there aren't many differences on matters of "theory and methodology"), different economists with different backgrounds have different normative views.
That strikes me as being very different from the claim that our analyses aren't objective.
The finding isn't particularly surprising to me, but I think it was badly framed by the title (which says that economists' analyses are not objective!). I think this just shows that given the same objective analyses (the survey finds there aren't many differences on matters of "theory and methodology"), different economists with different backgrounds have different normative views.
That strikes me as being very different from the claim that our analyses aren't objective.
Steve Horwitz on Empirical Austrian Economics
He has a good essay on it at Cato Unbound here. I agree with his take on it, and I'd just highlight two things:
1. There are a lot of Austrians who are more fundamentalist in their a priorism. Steve has the right take on it, I think, but that doesn't mean they all agree with Steve. For this reason you certainly don't see as much Austrian econometricians out there, which I think reinforces this stereotype. That's just an institutional and historical fact that needs to be recognized. The very fact that Steve has to speak to this question demonstrates that it's a real issue. But one shouldn't hold that against "Austrian economics" in the abstract.
2. One interesting omission from his useful and varied list of papers on empirical Austrian economics was a lot of the business cycle literature! I've talked about many of these papers on here before, but that literature is growing as well.
1. There are a lot of Austrians who are more fundamentalist in their a priorism. Steve has the right take on it, I think, but that doesn't mean they all agree with Steve. For this reason you certainly don't see as much Austrian econometricians out there, which I think reinforces this stereotype. That's just an institutional and historical fact that needs to be recognized. The very fact that Steve has to speak to this question demonstrates that it's a real issue. But one shouldn't hold that against "Austrian economics" in the abstract.
2. One interesting omission from his useful and varied list of papers on empirical Austrian economics was a lot of the business cycle literature! I've talked about many of these papers on here before, but that literature is growing as well.
Wednesday, September 5, 2012
Every time you think critically...
...a kid is put in an iron lung!
I just don't get this mentality, brilliantly displayed in the above linked comment by an anonymous old codger in response to my recent post about vaccine fearmongering.
It's as if critical exchange is all well and good in the abstract, but if something like that were to actually go public?! No way. It's an insult to good science and good taste to keep moving things forward by questioning and scrutinizing how we do things now! By questioning current practice, these young upstarts must really be reactionaries who can't appreciate that, after all, things are better than they were in the 1940's!
I just don't get this mentality, brilliantly displayed in the above linked comment by an anonymous old codger in response to my recent post about vaccine fearmongering.
It's as if critical exchange is all well and good in the abstract, but if something like that were to actually go public?! No way. It's an insult to good science and good taste to keep moving things forward by questioning and scrutinizing how we do things now! By questioning current practice, these young upstarts must really be reactionaries who can't appreciate that, after all, things are better than they were in the 1940's!
It's not the right decision rule
Alternative post title: We shouldn't care about whether we're properly calculating a biased estimator.
Andrew Sullivan counters that actually we are better off than we were four years ago if "four years ago" is interpreted to mean "the day Obama took office". Because if you count starting there the unemployment rate has inched down ever so modestly.
Mr. Sullivan, you have quite a podium. You should not be validating this decision rule. You should be explaining that the right question is "are we better off over the course of the last four years than we would have been without Obama". "Without Obama" is vague, I know. Appropriate counterfactuals might include if McCain-Palin had been running the show or if Romney-Ryan had been running the show, or some kind of current policy baseline from 2008 to 2012.
Andrew Sullivan counters that actually we are better off than we were four years ago if "four years ago" is interpreted to mean "the day Obama took office". Because if you count starting there the unemployment rate has inched down ever so modestly.
Mr. Sullivan, you have quite a podium. You should not be validating this decision rule. You should be explaining that the right question is "are we better off over the course of the last four years than we would have been without Obama". "Without Obama" is vague, I know. Appropriate counterfactuals might include if McCain-Palin had been running the show or if Romney-Ryan had been running the show, or some kind of current policy baseline from 2008 to 2012.
Song of the day...
...been really into this lately
I am one of those people that has only been turned onto it since it hit the radio - it's several years old. I doubt the artist will care. Great song.
I am one of those people that has only been turned onto it since it hit the radio - it's several years old. I doubt the artist will care. Great song.
My approach to people I disagree with
Brad DeLong leaves a comment that should not be immediately dismissed or immediately endorsed, and which I would differ on a wee bit. My difference on this goes a ways in explaining why I put more time into talking with libertarians and Austrians than some of my readers like. Brad writes:
"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?"
Could it be because Steve Horwitz is not in the education business but the propaganda business?
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?"
See my answer to (1).
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.
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.."
No one with a PhD in economics (no one with a BA in economics, for that matter) should be publicly displaying the Romer-Bernstein graph and found not saying one of two things:
1. I think the forecast was great, and thus the stimulus was a terrible failure, or
2. I think the forecast was too rosy, so inference from this graph will give you an underestimate of the impact of the stimulus.
I'm no forecasting expert, so I am happy to hear someone defend #1. My concern was that Steve seemed to be sampling from both. No one with a PhD in economics should do that, particularly because the public will buy it if they do.
And yet we observe people with PhDs in economics doing that.
Why?
It could be the propaganda business, this is true. But let's put that a little differently. I think Steve firmly believes from a scientific perspective, and not an ideological or political perspective, that fiscal policy cannot work. We never hold scientific perspectives based on one piece of evidence or theoretical exposition. It's usually a whole constellation of arguments that gets us to our position.
The flip side of that is that no single piece of evidence or theoretical exposition is going to change someone's mind on a scientific question. Nor should it. Science is too messy for that - no one would ever hold a viewpoint for more than five minutes if that were how we staked out positions.
So rather than being into propaganda Steve might just be presenting a synthesized position and making a bad claim about what the Romer-Bernstein graph says as a means of streamlining the presentation of his argument.
This actually isn't that bad of a decision if you think the scientific question has important and immediate practical consequences. You are, after all, just treating noisy data like noisy data (from your perspetive). That's not particularly dishonest if that's what you're doing.
The point is, Brad and I don't think that's noise. We think it's signal.
So the point I'd make to Brad is that you'd observe the same behavior (w.r.t. the Romer-Bernstein graph) from Steve if he were (1.) a propagandist, or (2.) an honest scientist dismissing what he perceives to be noise as noise.
Our job is to convince him it's not noise - it's meaningful and he should adjust his priors. If he is an honest scientist who think's it's noise, we may improve the situation by convincing him of that. At the very least, pestering him might get him to choose his words more carefully so he doesn't mislead the public. At the very least, he'll think of us every single time he brings up the graph in the future.
And if he's a propagandist, what do we lose by treating him like an honest scientist? We expose the error regardless. Ignoring his argument is only going to spread more misconcptions to the public, after all.
It seems to me the optimal strategy whether he is a propagandist or an honest scientist is to treat him like an honest scientist. At the very least it will increase the likelihood that he'll treat us like honest scientists in the future.
That's my view at least.
Two pleas for the comment thread of this one:
- Please, please, please review your comments for an ironic lack of self-awareness before posting. If I don't find Brad's formula convincing, you're not going to get anywhere by writing "why do you even listen to Brad - he's such a propagandist!" I don't take that sort of thing very seriously, and Brad has the added advantage that I think he's right on a lot of the scientific questions so the "propagandist" line will get even less traction there than it did with Steve.
- I know this is a long, navel-gazing type of post. Call me a traditionalist, but I think the way we conduct social interactions is important. And if that's not enough, it's my damn blog. If you think a long post on social interactions isn't worth your time, then commenting on it certainly isn't worth your time.
"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?"
Could it be because Steve Horwitz is not in the education business but the propaganda business?
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?"
See my answer to (1).
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.
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.."
No one with a PhD in economics (no one with a BA in economics, for that matter) should be publicly displaying the Romer-Bernstein graph and found not saying one of two things:
1. I think the forecast was great, and thus the stimulus was a terrible failure, or
2. I think the forecast was too rosy, so inference from this graph will give you an underestimate of the impact of the stimulus.
I'm no forecasting expert, so I am happy to hear someone defend #1. My concern was that Steve seemed to be sampling from both. No one with a PhD in economics should do that, particularly because the public will buy it if they do.
And yet we observe people with PhDs in economics doing that.
Why?
It could be the propaganda business, this is true. But let's put that a little differently. I think Steve firmly believes from a scientific perspective, and not an ideological or political perspective, that fiscal policy cannot work. We never hold scientific perspectives based on one piece of evidence or theoretical exposition. It's usually a whole constellation of arguments that gets us to our position.
The flip side of that is that no single piece of evidence or theoretical exposition is going to change someone's mind on a scientific question. Nor should it. Science is too messy for that - no one would ever hold a viewpoint for more than five minutes if that were how we staked out positions.
So rather than being into propaganda Steve might just be presenting a synthesized position and making a bad claim about what the Romer-Bernstein graph says as a means of streamlining the presentation of his argument.
This actually isn't that bad of a decision if you think the scientific question has important and immediate practical consequences. You are, after all, just treating noisy data like noisy data (from your perspetive). That's not particularly dishonest if that's what you're doing.
The point is, Brad and I don't think that's noise. We think it's signal.
So the point I'd make to Brad is that you'd observe the same behavior (w.r.t. the Romer-Bernstein graph) from Steve if he were (1.) a propagandist, or (2.) an honest scientist dismissing what he perceives to be noise as noise.
*****
Our job is to convince him it's not noise - it's meaningful and he should adjust his priors. If he is an honest scientist who think's it's noise, we may improve the situation by convincing him of that. At the very least, pestering him might get him to choose his words more carefully so he doesn't mislead the public. At the very least, he'll think of us every single time he brings up the graph in the future.
And if he's a propagandist, what do we lose by treating him like an honest scientist? We expose the error regardless. Ignoring his argument is only going to spread more misconcptions to the public, after all.
It seems to me the optimal strategy whether he is a propagandist or an honest scientist is to treat him like an honest scientist. At the very least it will increase the likelihood that he'll treat us like honest scientists in the future.
That's my view at least.
*****
Two pleas for the comment thread of this one:
- Please, please, please review your comments for an ironic lack of self-awareness before posting. If I don't find Brad's formula convincing, you're not going to get anywhere by writing "why do you even listen to Brad - he's such a propagandist!" I don't take that sort of thing very seriously, and Brad has the added advantage that I think he's right on a lot of the scientific questions so the "propagandist" line will get even less traction there than it did with Steve.
- I know this is a long, navel-gazing type of post. Call me a traditionalist, but I think the way we conduct social interactions is important. And if that's not enough, it's my damn blog. If you think a long post on social interactions isn't worth your time, then commenting on it certainly isn't worth your time.
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