The one thing broken by this crisis …
Update: Clive Crook has a better discussion of what is going on than I do (original here) – and how irritating it is – than I do. I’m embarrassed to say that I’m a few days behind on my blog reading, so I only saw this after writing my post 🙁
Even if nothing else is broken in the economy, there is one thing that has been irrevocably smashed.
My belief that academic economists in the US would be able to use the economic tools developed over the last 200 years to objectively frame issues during a crisis – and then transparently discuss the different value judgments they hold in order to inform policy.
Compare this belief I held to reality – where we have had ridiculously partisan arguments, where intelligent economists have just told everyone that other intelligent economists are morons (eg), and that their own conception of what is going on IS the truth (something economists don’t have the ability or knowledge to say).
Economists have a framework stemming from methodological individualism – a framework that frames problems. Even though “describing” and “predicting” are too value laden for us, my own view is that good economists will try to build inside this framework first before adding value judgments to get the “description” and “prescription”. Instead all we have seen is random conjecture based on ideological fervour. Saying that this disappoints me would be an understatement …
I still like how Kevin Murphy laid things out: makes very explicit where disagreements are.
Ahh yes, in this one here:
http://www.tvhe.co.nz/2009/01/26/a-structure-for-our-value-judgments/
(of course I’m going to link to a tvhe blog post on it rather than the initial post 🙂 )
Although this goes a long way towards framing the issue and it frames some of the value judgments well, I still think there is an additional level of analysis people aren’t willing to discuss – namely, what is the framework behind some of the parameter values!
Sure the final value of the parameters requires value judgments – but there is still some sort of fundamental framework that we apply our value judgments to in order to get these parameter values.
Essential issues like “is this a structural shock or a temporary demand side shock” need to be openly discussed methinks. We have a lot of knowledge surrounding these types of shocks. Krugman seems to have forgotten that structural shocks exist, while some other authors refuse to admit that “demand deficiency” is even possible.
It’s times like this I wish I was doing microeconomics – so much more transparent …
Yup. DeLong at least set out why pegged his parameter estimates.
Looks to me like Barro is justifiably kicking Krugman’s irresponsible keister — using hard data to do it.
Krugman? Mostly pulling “support” for his views directly _out_ of his keister.
“Yup. DeLong at least set out why pegged his parameter estimates.”
Agreed. I was actually going to write this post just before Murphy’s thing came out. But then, following that, and the fact that DeLong actually used it I thought that maybe there would be a shift towards using an actual framework to discuss policy.
However, it has got to the point now where its just a bunch of name calling a closet ideology – I mean half the reason Krugman and Thoma want increased government spending is because they think government spending should be structurally higher. This isn’t a stimulus argument – its an argument surrounding the structure of the economy.
Although, to give Thoma credit he does directly say that this is what he is trying to do – however, I would prefer it if he separated the stimulus and the structural arguments for more spending, for transparencies sack.
“Looks to me like Barro is justifiably kicking Krugman’s irresponsible keister — using hard data to do it.
Krugman? Mostly pulling “support” for his views directly _out_ of his keister.”
I have a lot of respect for Barro – and I’m glad he is actually working to estimate multipliers. However, I get the feeling from some of his comments that he doesn’t see a role for rigidities in the economy – now a general framework would allow a role for rigidities, but make the final value of these rigidities subject to value judgments.
I agree with him that the a multiplier of 1.5 is excessive – but the US is reaching a place where there is a lot of un-utilized labour. A rigid labour market that doesn’t clear is a market failure, and unemployment is a “surplus” of workers at the current wage rate …
Paul Krugman is also a very very smart man – we are talking about two of the top economists in the world right now, people that could wipe the floor with almost anyone argument! However, his lack of transparency surrounding the value judgments he is applying and the model he assumes disappoints me.