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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#261

Post by viburnum »

huitzitziltzin wrote: post #213
TheOtherHobbes wrote: post #191

Earlier quoted context omitted.

Economists are in broad agreement because they're paid to be. This is well-documented historically. The Mont Pelerin Society was specifically founded to promote a certain view of economics, and the Chicago School was supported financially by some very rich sponsors who wanted a a pet academic alternative to progressive slant of Keynesianism. The "consensus" in neoliberal economics and its core ideas - including "rati…

> Economists are in broad agreement because they're paid to be. This is well-documented historically. This is *complete* nonsense. No one pays me to think or say anything. No one pays anyone in my department anything to take a particular position. For a simple example of what nonsense your claim is: the economist’s definition of rationality is that preferences are (1.) complete and (2.) transitive. That’s it. (See an…

You may believe what you do sincerely but if you believed otherwise then someone else would have had your job.

Re: Four Basic Truths of Macroeconomics

#262

Post by kqr »

huitzitziltzin wrote: post #219
kqr wrote: post #123

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, and practitioners rarely suffer from the kind of personal survival pressure that otherwise tends to filter out for people who are right. Not to mention that the entire economy is such a complex system, and my experience with complex systems is that we can't predict them, we like to come up w…

> 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…

I'm influenced by reports like these[1], but maybe I've been biased in my reading selection.

I also want to be clear about what I'm saying:

- I'm not saying macroeconomists don't have a hard job. Specifically due to the slow feedback and complex systems, it must be one of the hardest jobs in the world. It's like you set a dial on a big black box and suddenly, but years later, a bunch of people get sick. You'll never know whether it was that dial setting that did it. Or whether it was one of your other 35 dial settings. Actually, you'll likely never even know it happened.

- I'm not saying macroeconomists are worse at this than any others. There are many highly theoretical fields with low level of concrete feedback where this is a problem.

- I'm not saying macroeconomists aren't trying. It's just a fundamentally insanely intractable problem, so I'm still looking for evidence that they aren't failing.

- I'm also not saying macroeconomists are doing it out of ignorance or spite. The few I've spoken to have all been pretty honest about flying blind.

[1]: https://archive.is/S3UpC

Re: Four Basic Truths of Macroeconomics

#263

Post by sumtechguy »

huitzitziltzin wrote: post #255
sumtechguy wrote: post #243

Earlier quoted context omitted.

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…

The rub with >policymakers are going to use some kind of model to predict the impact of policies, or to select which policies to implement

It is the policy makers are not aware of the 3rd or even 2nd level effects on those decisions. The models do not show it to them because many cant, or they do not want to see it. There are also enough different theories that they can pick whatever sounds nice and fits what they want to say and then can lean back and say 'see the model said'. My point is they are not going to follow the 'science' they are going to have smorgasbord of whatever pet theory they want to promote. Then back the 'science' into it.

>This also sounds like "it's hard," OR "you can't model everything." You can then say "and so I give up."

What I am saying is the models are borderline not working. They 'sorta' work right up until you get an irrational actor (see recent stonks issue as an interesting case study). People are irrational but rational in a different dimension. But we have no real good way to model that. It is why almost all of these theories 'work' until you get something irrational that the model does not account for.

I am also not saying 'give up'. I am saying you need a lot more dimensions in your calculus. I am also saying many of those dimensions you will have a very hard time measuring. That is due to other external dimensions affecting those hyper dimensional curves, and even the model bending back on itself affecting things. It will also not be something you can keep in your head. Also at this point you will have to explain it in a way people can understand (any way else is the way of kafka). There are many years of theories that sound nice but do not work.

>I do not see this happening personally. Because in the majority of the cases it does not happen. Because the models usually get it wrong. But every once and awhile someone hits the lottery and leans into it. Usually around market crashes.

Re: Four Basic Truths of Macroeconomics

#264

Post by RobertoG »

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…

>"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."

MMT doesn't claim anything like that. MMT says that a government that have its own floating currency its not financially constrained (the key word here is financially). They also claim that the size of the public debt (but not the deficit!) of such a government it's irrelevant.

Governments (that spend its own floating currency) can't spend indefinitely in a period of time because they are constrained by the real capacity of economy of the country. If they spend beyond that capacity inflation happens. This is cannon in MMT, it's not a complicated idea, it's even in the most superficial introduction to MMT and it's beyond me why somebody, acting in good faith, would keep changing, what the MMT economists are saying.

Your hyperinflation comments have been answered elsewhere in this thread.

Re: Four Basic Truths of Macroeconomics

#265

Post by RobertoG »

notahacker wrote: post #258
huitzitziltzin wrote: post #241

Earlier quoted context omitted.

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…

The money multiplier model brings to mind a comment, in a Terry Pratchett book, where one of the characters says something like "everybody knows what the wind is, the wind is what happens when the trees move their branches".

If you have a model that have the components right but the causality going in total opposite direction, I think is kind of fair to criticize its pedagogic value.

Re: Four Basic Truths of Macroeconomics

#266

Post by viburnum »

huitzitziltzin wrote: post #213
TheOtherHobbes wrote: post #191

Earlier quoted context omitted.

Economists are in broad agreement because they're paid to be. This is well-documented historically. The Mont Pelerin Society was specifically founded to promote a certain view of economics, and the Chicago School was supported financially by some very rich sponsors who wanted a a pet academic alternative to progressive slant of Keynesianism. The "consensus" in neoliberal economics and its core ideas - including "rati…

> Economists are in broad agreement because they're paid to be. This is well-documented historically. This is *complete* nonsense. No one pays me to think or say anything. No one pays anyone in my department anything to take a particular position. For a simple example of what nonsense your claim is: the economist’s definition of rationality is that preferences are (1.) complete and (2.) transitive. That’s it. (See an…

Samuelson literally self-censored his textbook in the wake of the Mccarthyite campaign against Lorie Tarshis. A similar campaigned blocked Galbraith from chairing the department at the University of Illinois. One thing Cowen has in common with Hayek and Mises is his university salary is supplied by the inherited wealth of conservative activists.

Re: Four Basic Truths of Macroeconomics

#267

Post by viburnum »

RobertoG wrote: post #175
dataking wrote: post #171

Earlier quoted context omitted.

> 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.

The grandparent is not attributing malice to the author, but to the way the framework of economics is built. Cowen probably believe that what is saying is true and can't see different anymore.

I’ve been reading Cowen for nearly twenty years. He plays dumb when he gets caught out (“I’m not really a macroeconomist,” “I’m not really familiar with Keynes,” etc). Think of him as a lawyer representing his client. He’s not going to introduce evidence that hurts his case.

Re: Four Basic Truths of Macroeconomics

#268

Post by notahacker »

RobertoG wrote: post #265
notahacker wrote: post #258

Earlier quoted context omitted.

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…

The money multiplier model brings to mind a comment, in a Terry Pratchett book, where one of the characters says something like "everybody knows what the wind is, the wind is what happens when the trees move their branches". If you have a model that have the components right but the causality going in total opposite direction, I think is kind of fair to criticize its pedagogic value.

But all it does is say "this is how a banking system can create n dollars from x dollars". It's also historically correct: banks created leverage from a fixed currency supply exactly as described before the endogenous money era, and the whole reason endogenous money exists is because the government decided that facilitating this money creation with their own was better than bank runs and wildly fluctuating lending rates.

The week after, students learn about money markets, credit and money demand as liquidity preference.

And MMTers aren't saying "the second week of undergrad teaching could be improved by refining this model", they're saying "mainstream economics is built on this foundation that only we are clever enough to know isn't true".

Props for the Pratchett quote though. Sounds like something Detritus would have said. :)

Re: Four Basic Truths of Macroeconomics

#269

Post by RobertoG »

notahacker wrote: post #268
RobertoG wrote: post #265

Earlier quoted context omitted.

The money multiplier model brings to mind a comment, in a Terry Pratchett book, where one of the characters says something like "everybody knows what the wind is, the wind is what happens when the trees move their branches". If you have a model that have the components right but the causality going in total opposite direction, I think is kind of fair to criticize its pedagogic value.

But all it does is say "this is how a banking system can create n dollars from x dollars". It's also historically correct: banks created leverage from a fixed currency supply exactly as described before the endogenous money era, and the whole reason endogenous money exists is because the government decided that facilitating this money creation with their own was better than bank runs and wildly fluctuating lending ra…

The reason MMTers (and I'm not a religious man, but I suppose that, in a way I have been converted) have to fight the Money Multiplier thing is because of this conversation:

MMTer: Public debt can be monetized, inflation is created by spending (public or otherwise) not by more reserves, central banks can control the interest rate independently of the quantity of reserves in the system.

Anti-MMTer: Wait, if you add reserves to the system, banks can lend more! That's inflationary!

MMTer: Banks can lend always anyway if makes business sense. Their only limit is the capital requirements of every particular bank. If lending makes business sense, banks can find the legally required reserves, they are not constrained by reserves.

Anti-MMTer: But the Money Multiplier!

MMTer: Facepalm

I wish I could remember in what book was the Terry Pratchett quote. It's a great quote.

Re: Four Basic Truths of Macroeconomics

#270

Post by notahacker »

RobertoG wrote: post #257
notahacker wrote: post #247

Earlier quoted context omitted.

> 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…

Jeez that's five essay length questions...

1) Japan's public sector debt has risen over time, but is not unusually high by global standards. Mainstream macro suggested that Japan would struggle to stimulate further growth once its interest rates hit zero (structural reasons why Japan's economy slowed down is a book length topic) which is of course what happened to Japan before the rest of the world. QE was a slightly unconventional way of achieving the textbook macroeconomic goal of injecting more money into the economy when it slows down.

2) The European Central Bank announced emergency measures to ensure all governments affected by COVID have access to reserves of Euros. In 2011-2012 it didn't, taking the view that countries with massive deficits should resolve their problems by cutting spending. Bond buyers didn't trust that they would, which made national debt servicing even more expensive, though these countries would have had problems even without that.

3) I'm not aware of any country repaying all its public debts or any textbook macro suggestion that this would be a remotely sensible goal for them to aim for. Textbooks would imply that continuing to aim for the necessary fiscal surpluses during an economic slowdown would result in massive recessions long before the debt got near zero.

4) Monetary policy produces inflation from credit becoming cheaper resulting in more money being available to spend on goods and services (and less reluctance to lend or spend based on concerns about the cost of debt service). The responsiveness to monetary policy is reduced when people still don't want to borrow more and central banks can't make it any cheaper to borrow money than it already is. More unconventional interventions like buying stocks obviously directly and immediately increase stock prices, but the average stock holder is less likely to go out and buy more goods, services or staff with their returns than the average borrower, so doesn't necessarily boost the economy/inflation as much as injecting money to reduce interest rates.

5) Cowen's phrasing is, admittedly, vague and crap here. Much of the velocity of money decrease has already happened because people are not spending or investing or borrowing as much in the middle of an economic crisis. On top of that, you've got much of the additional spending being ring fenced or restricted to those not spending.

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