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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#251

Post by rhines »

brazzy wrote: post #203
cambalache wrote: post #189

Earlier quoted context omitted.

I dont know what homeless people you do know (I guess the number is zero) but here on planet earth 99.99% of poor/homeless people would prefer a roof over their heads than a smart-phone. Well, everybody with a working brain would choose the house.

I don't know what gave you the silly idea that I was saying people would prefert a smartphone over a permanent home. That is not the choice people have to make. A smartphone does not cost hundreds of dollars per month. And I'm pretty sure that you don't know any homeless people either if you think they'd give up their phone for a few nights of shelter (which is what it might realistically buy). I was disagreeing with…

I think there's maybe a bit too much vested in the term "irrelevant" and the context around this. I suspect the OP meant the conditional to read something like: IF shelter is unaffordable THEN smartphones being cheap is irrelevant ASSUMING opportunities from the smartphone don't make housing affordable. Like if someone says if you're starving, being a millionaire is irrelevant - the assumption would be that that money cannot be used to buy food.

Of course I 100% agree that a phone can be used to improve your situation, and I'm sure the OP agrees as well. But a phone isn't enough to be able to go find housing for most people. While it can help you find cheaper shelter, or maybe over time allow you to learn skills that lead to better paying job opportunities that allow you to afford housing, you wouldn't need any of that if housing was simply affordable in the first place.

Ultimately OP isn't saying phones suck and homeless people should sell their phones for a couple nights in a shelter. What they're saying is that phones being cheap does not make up for housing being expensive - no matter how useful the phone is, ultimately the end goal is to have shelter, and if you can't afford shelter then it doesn't matter how cheap anything else is.

Re: Four Basic Truths of Macroeconomics

#252

Post by huitzitziltzin »

gmtx725 wrote: post #244
huitzitziltzin wrote: post #239

Earlier quoted context omitted.

> How do economics professors get hired? By impressing other economics professors. This claim is true. > Who are the people that tend to fit those criteria? Mostly, those who already agree with the existing establishment This claim is false. If you can empirically support a result which shows that something most other economists believe is likely false and can do so convincingly, you can write your ticket to any depa…

> This claim is false. If you can empirically support a result which shows that something most other economists believe is likely false and can do so convincingly It's almost impossible to do that though isn't it? Economics isn't a hard science, it's not like you can run RCTs or experiments. And all actually-existing economic systems are situated within an actually-existing political, social and historical context, m…

> It's almost impossible to do that though isn't it?

Not at all. It IS hard, but that's because research is hard. If it were possible to easily show widely-held beliefs to be wrong, someone would have done it already. (No different from any other scientific field!) But it does happen.

>Economics isn't a hard science, it's not like you can run RCTs or experiments.

Also wrong. You can in many areas. Indeed, there is a gigantic literature on field experiments, and the whole field of development economics runs on RCTs. In macro it is difficult, because no one is going to give you a whole economy to play with, but lab experiments in macro exist. Most empirical work in macro is not based on experiments.

But that does not make it impossible to learn anything, it just makes it hard. Indeed, that is why we have spent years developing methods to solve this problem, then more years criticizing and refining our own methods. That process will never end.

> And all actually-existing economic systems are situated within an actually-existing political, social and historical context, meaning we only ever observe a tiny fraction of the possible universe of economic systems. There is no possibility to explore counterfactuals.

Again, this is what makes it hard. It is not impossible. To answer certain questions for certain models may be impossible b/c there is no way to identify the parameters in question empirically.

You make these claims like it makes our whole enterprise worthless or impossible. We have taken it as a challenge to attempt to develop interesting methods to answer hard questions.

Exploring unseen counterfactuals on the basis of parameters estimated from models given existing data is literally my bread and butter EVERY day (I am not a macroeconomist, but I am an economist). And it is the bread and butter of many of us.

Give us some credit, an overwhelming majority of us are not conservative ideologues. And if you really want to know how it works, HOW we learn things from data (in macro and elsewhere) I can provide references.

Re: Four Basic Truths of Macroeconomics

#253

Post by dragonwriter »

chordalkeyboard wrote: post #87
dragonwriter wrote: post #79

Earlier quoted context omitted.

> Asst holders benefit disproportionately No, they don't. Clearly dollar-denominated asset holders lose by first order effects, though they might see reduced risk as second+-order effects. Non-dollar-denominated asset holders see no real gains as first-order effects, they only see them indirectly from the absence of production cuts and demand throughout the economy, but those are much smaller proportional benefits th…

> Clearly dollar-denominated asset holders lose by first order effects I don’t think you understand how this works. There are more dollars chasing the same number of assets, the asset holders are standing still while the dollar holders are falling behind. > We benefit because otherwise those jobs would be lost entirely If those jobs are lost due to decreased demand, the null hypothesis is that they should be lost, be…

> It absolutely can

No, it can't.

> If they didn’t inflate the money supply then businesses would notice decreased demand and fire some workers, thats what you said.

No, it's not. They notice whether they are cutting real wages or cutting jobs (and the increase in general prices, which affects all inputs which the industry shares with industries not facing demand drops—including those segments of labor with mobility—assures that they notice even if the inflation means nominal market clearing price remains the same.) What inflation does is increase the range of alternatives they have to deal with the demand decline to include addressing some of it decreasing real wages in some areas, particularly jobs with low mobility, reducing the degree to which it is addressed by production cuts which cut jobs in the industry, cut orders to suppliers and force second-order and beyond job cuts, etc.

> in fact by increasing the nominal price of inputs it can make it more difficult for businesses to even survive.

It only has that effect if businesses have long-term fixed nominal price commitments made in ignorance of inflation, which is why central bank policies tend to focus on avoiding significant volatility as well as maintaining moderate positive inflation.

Re: Four Basic Truths of Macroeconomics

#254

Post by DoreenMichele »

rhines wrote: post #249
DoreenMichele wrote: post #205

Earlier quoted context omitted.

This is the line I was responding to: but if you can't afford to have a roof over your head I'd argue the smartphone is irrelevant. A phone and tablet and internet access were essential to my ability to cope and eventually get back into housing. They aren't irrelevant. If you want to argue we need to do a much better job of making housing something people can afford, I totally agree. If you want to argue that homeles…

I think what they mean is that if you can't afford shelter, it's little comfort to be able to afford a phone. Yes, the phone may be a tool that can help you find shelter, and it may help with coping with your situation and finding other opportunities, but in the end you're still trying to get shelter. If you could afford a home initially, you wouldn't need the phone to help you get one. So no one here is arguing that…

Housing is more expensive in part because it's much more spacious than it used to be. We've torn down a million SROs (single room occupancy units).

When I say that, inevitably someone argues against it and tells me it's slum housing. So we have a world in which the folks with money and the folks who have the power to create housing only want to approve upper class housing and then act like homeless people are just lazy and not trying hard enough or something.

Before life got in the way I wanted to be an urban planner. I've had pertinent college classes and managed to find a hundred year old SRO and that's how I got off the street.

Would I like something better? Sure I would. But I don't have the money and this beats the hell out of being homeless.

I've talked about this stuff for years. I mostly get flak.

What makes this really bad is there are a lot more households with fewer than four people than there were when we invented the suburbs. But suburban single family detached housing designed for a family of 4.5 people is our default mental model for "proper housing" and now it's that on steroids and let's not let reality get in the way of our development of this kind of completely inappropriate housing that doesn't even fit the needs of our current demographics.

Yes, I'm cranky. I lived this crap. I've studied it. I get nothing but blown off, usually by people who know way less than me about these issues.

Re: Four Basic Truths of Macroeconomics

#255

Post by huitzitziltzin »

sumtechguy wrote: post #243
huitzitziltzin wrote: post #219

Earlier quoted context omitted.

> I personally think a lot of established macroeconomics is bullshit. There's just no mechanism to verify many of the hypotheses Modern academic (and central bank) macroeconomics is literally all about taking macroeconomic models to data. Period. Attend any macro seminar in the field at any university and that’s what you’ll see. In particular: it is directly about “verifying the mechanisms.” Your complaint is perhaps…

Most economic models are very nice in the steady state. If you get any sort of irrational actor or unaccounted variable in the model the model usually goes weird. The whole thing is at least s 20 dimensional graph just for the data. Never mind the hundreds of other things that feed it each of those systems some of which are impossible to model. It is a challenging problem but not really 'dialed in' and able to make d…

> Most economic models are very nice in the steady state. If you get any sort of irrational actor or unaccounted variable in the model the model usually goes weird. The whole thing is at least s 20 dimensional graph just for the data.

If you're saying "it's hard," then I agree. And every academic macroeconomist would say the same thing.

> Never mind the hundreds of other things that feed it each of those systems some of which are impossible to model.

This also sounds like "it's hard," OR "you can't model everything." You can then say "and so I give up." Macroeconomists do not and for good reason: policymakers are going to use some kind of model to predict the impact of policies, or to select which policies to implement. We can either do our best to try to inform them on the basis of data, or we can throw up our hands, in which case they might well make worse choices.

> Every once and awhile someone's model will 'get it right' at that point they go on book tours and predict the next disaster which may or may not happen.

I do not see this happening personally. Nor do I think a lot of academic economists are in the business of going on book tours making confident predictions.

Re: Four Basic Truths of Macroeconomics

#256

Post by huitzitziltzin »

neilwilson wrote: post #236
huitzitziltzin wrote: post #225

Earlier quoted context omitted.

> What mainstream economics can't handle is financial saving. Quite literally it is abstracted away from their models, yet it exists in the real world. An extremely bizarre claim. Literally the first macroeconomic models you learn in grad school have savings. This is always an option to consumers so it’s always going to be in the model. Moreover, actual macro models (even extremely simple ones) will permit you to sav…

"Literally the first macroeconomic models you learn in grad school have savings. " Go look it up in MankiW. You'll find those aren't financial savings. Money plays no part in RBC models. It's a one-to-one match with stuff.

The models we teach to undergrads in macro principles are simpler than the models economics professors use in their research or that central banks use to make policy.

Mankiw does not have a graduate textbook so I'm not sure where you want me to look it up. The math textbooks used in middle school don't cover calculus. Same thing w/ the economics textbooks: undergrad textbooks cover simplified versions of problems.

If you want to see money in a macro model in the RBC tradition, see Thomas Sargent and Lars Ljungvist's "Recursive Macroeconomic Theory" (the standard graduate textbook everywhere) Part IV. For asset pricing, see the same book in Chapters 13 and 14. IF you want to see savings, you can start much earlier in the book, probably around chapter 8 or 9.

For another example of money in an RBC model, see the very-well titled "ABC's of RBC's" by McCandless, Section 2.

I am not sure where you get your confidence that this very basic feature of actual economies is ignored in economic modeling? It is misplaced.

Re: Four Basic Truths of Macroeconomics

#257

Post by RobertoG »

notahacker wrote: post #247
RobertoG wrote: post #211

Earlier quoted context omitted.

What you says is true. It's a little unfair to criticize his description of economics for what he says in a short article, but I'm not criticizing so much what he says here but his point that there are four essential truths of Macro that justify the current framework. >"And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha."…

> There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized). Repeating a falsehood does not make it any less false. QE policy was designed by mainstream economists who did not want to see massive inflation, and as they predicted they did not see…

Ok, it seems you know what you are talking about. Maybe you can help me with some doubts:

-Japan have been monetizing the debt for decades, what is the consequences predicted by the textbook mainstream for inflation and interest rates? And what mainstream think are the consequences of its high public debt?

-In 2011-2012 there was a crisis of sovereign debt for some countries of the Euro-area. The reason was that "the markets" perceived the debt of those countries as too risky, so, they demanded a high return. How was, by textbook macroeconomics, the crisis solved? Currently, those countries have bigger public debt that then, and, a very big (Covid) crisis in their hands. How mainstream economics explain that the returns demanded by the market are so low now compared to then?

-When was the last time that a country payed its public debt and what would happen if they do (by textbook macro)?

-What is the mechanism that produce inflation when you increasing reserves (monetary policy) instead of spending in the economy (fiscal policy) and why has not worked (except for the stock market)?

-What are the measures that Cowen is talking about when he says: "[..] central banks simultaneously act to decrease the velocity of money — that is, if they take measures to reduce borrowing and lending [..]"

Re: Four Basic Truths of Macroeconomics

#258

Post by notahacker »

huitzitziltzin wrote: post #241
neilwilson wrote: post #237

Earlier quoted context omitted.

"“why didn’t your monetary ideas work for Venezuela/Zimbabwe/Weimar Germany?”" What a bizarre response. They weren't even attempted there as the literature shows. https://gimms.org.uk/2020/11/14/weimar-republic-hyperinflati... Presumably you also believe heavier than air flight is theoretically impossible because bad pilots crash planes.

The MMT claim, as far as any normal economist understands it, is that the government can print money indefinitely to pay for whatever it wants, because of a somewhat counterintuitive claim about the government being able to insist that people pay taxes in the currency it designates. As I said, it's really hard to get MMT people to sit down and describe exactly what they are claiming, b/c they have to face up to these…

tbf MMT does have an explanation for Venezuela, Zimbabwe and the Weimar Republic (supply constraints). This isn't by itself implausible, but their overall inflation model is very handwavy. I can buy "job guarantee could act as an endogenous stabiliser if the proportion funded by new currency issue is calibrated correctly" but not "the existence of a buffer stock of labour compensated by a JG means that we don't need to consider printing less or making credit more expensive as if prices rise firms could always hire from this pool" which seems to be the preferred version

But yes, they seem to be preferring to talk past rather than engage with mainstream macroeconomists. The sheer rhetorical effort they devote to convincing their readers the money multiplier is the wrong foundation that underpins all modern macro and not a simple pedagogic device for explaining how leverage works and why deposit insurance became a thing....

Re: Four Basic Truths of Macroeconomics

#259

Post by viburnum »

humpydumpy wrote: post #222
viburnum wrote: post #172

Earlier quoted context omitted.

“The Worldly Philosohers” is very good. Economics is full of controversies and contested ideas so it’s best to take them head on rather than pretending it’s physics. If you’re looking for a textbook, this is the best (it’s also free): https://www.core-econ.org/the-economy/book/text/0-3-contents...

Somehow I can never take somebody seriously who says "this is the best". How can you know it is the best book? Have you literally read all of them and can thus compare them? If not, how can you be sure? Is there even such a thing as a best book? Different people have different backgrounds, learn in different ways, like different things. Why would there not be multiple "best" books? Reminds me of a guy I once met, who…

There aren’t that many econ textbooks. The others are all trying to do the same thing, stuck in the past in different ways.

Re: Four Basic Truths of Macroeconomics

#260

Post by viburnum »

dataking wrote: post #171
viburnum wrote: post #169

This is a good example of how so much economics is meant to distract you from what’s important. Cowen is framing economics to exclude things like unemployment, the process by which investment, savings, and income are determined, and the distribution of income. If you get people into the weeds about sticky prices and whatnot, it’s like putting blinders on a horse.

> This is a good example of how so much economics is meant to distract you from what’s important. I think your assumption of malice is unfounded. A likely benign explanation is that Cowen focused on areas there economists are in broad agreement without intent to mislead.

His paycheck literally comes from the Koch brothers. Nobody is required to be naive about this.
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