The MIT Gang • Hacker News Board

Re: The MIT Gang

#11

Post by overpaidgoogler » Sat, Jul 25, 2015, 4:33 PM UTC

washedup wrote: post #5

overpaidgoogler wrote: post #2

The distinction is usually referred to as saltwater vs freshwater economists (referring to the geographical location of the university's). Apart from MIT there is also Princeton and Stanford in the saltwater camp. And Krugman is right that the saltwater economists were vindicated by the recovery from the GFC. However Krugman is not a good spokesperson for saltwater economists. Most econ professors I know from saltwat…

We really need a way to simulate how the economy will react under certain policies. The current model is based on one hypothesis about how the economy works, when such policies may have been only tested once or twice before, AND when the test conditions were different in a lot of ways. Because of the complex nature of economic systems, prediction is extremely difficult. We have yet to see if the monetary policies bei…

I don't see any fundamental difference between what your call simulation and what economists call models. The only difference is that your believe in the possibility of models so accurate that one could easily verify that they give correct predictions, as opposed to existing models which are subject to continual debate.

The reason it is so hard to stimulate the economy is that it represents the sum total of a large part of all human activity. So for example to test the impact of a particular kind of fiscal stimulus, you would have to accurately model the response of individuals to their new circumstances, as well as the response of markets (which involve individuals with conscious knowledge of the new policy, and thus their own beliefs about its effects). It is this last factor that makes the economy so hard to stimulate. You are not only simulating actions, but beliefs, and beliefs about beliefs, etc. It's ironic that economics is criticised for following physics to closely, when it is precisely this last factor that makes economics fundamentally unlike physics. The closest thing to modern macro if mean field theory.

Re: The MIT Gang

#12

Post by washedup » Sat, Jul 25, 2015, 4:37 PM UTC

overpaidgoogler wrote: post #11

washedup wrote: post #5

Earlier quoted context omitted.

We really need a way to simulate how the economy will react under certain policies. The current model is based on one hypothesis about how the economy works, when such policies may have been only tested once or twice before, AND when the test conditions were different in a lot of ways. Because of the complex nature of economic systems, prediction is extremely difficult. We have yet to see if the monetary policies bei…

I don't see any fundamental difference between what your call simulation and what economists call models. The only difference is that your believe in the possibility of models so accurate that one could easily verify that they give correct predictions, as opposed to existing models which are subject to continual debate. The reason it is so hard to stimulate the economy is that it represents the sum total of a large p…

I mean computer simulation. Something that you can test many, many times that accurately reflects (or at least within reason) the affects of tweaking the parameters. I understand it's a difficult problem, but there has been some success in this field, and with cheap computer power it becomes easier.

Check out this paper: http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf

Re: The MIT Gang

#13

Post by nolepointer » Sat, Jul 25, 2015, 4:37 PM UTC

eutectic wrote: post #8

pmorici wrote: post #4

It's hard to take anything Krugman writes seriously. All his writing is so intertwined with his politics It's impossible to sort the factually sound parts from the rest and he has a track record of saying some truly wrong things with great conviction.

What do you think are his political views, and how do they influence his economic writing?

It's not evident by the article, but his blog [0], in which this article appears, is titled "The Conscience of a Liberal." Make of that what you will.

[0] http://krugman.blogs.nytimes.com/

Re: The MIT Gang

#14

Post by overpaidgoogler » Sat, Jul 25, 2015, 4:38 PM UTC

eutectic wrote: post #7

overpaidgoogler wrote: post #2

The distinction is usually referred to as saltwater vs freshwater economists (referring to the geographical location of the university's). Apart from MIT there is also Princeton and Stanford in the saltwater camp. And Krugman is right that the saltwater economists were vindicated by the recovery from the GFC. However Krugman is not a good spokesperson for saltwater economists. Most econ professors I know from saltwat…

Can you give specific examples of other economists making better predictions than Krugman by avoiding the mistakes you claim he makes?

First, can you describe what the predictions were and what you consider their significance to be?

Re: The MIT Gang

#15

Post by overpaidgoogler » Sat, Jul 25, 2015, 5:05 PM UTC

washedup wrote: post #12

overpaidgoogler wrote: post #11

Earlier quoted context omitted.

I don't see any fundamental difference between what your call simulation and what economists call models. The only difference is that your believe in the possibility of models so accurate that one could easily verify that they give correct predictions, as opposed to existing models which are subject to continual debate. The reason it is so hard to stimulate the economy is that it represents the sum total of a large p…

I mean computer simulation. Something that you can test many, many times that accurately reflects (or at least within reason) the affects of tweaking the parameters. I understand it's a difficult problem, but there has been some success in this field, and with cheap computer power it becomes easier. Check out this paper: http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf

Economic models are computer simulations!

The difference between conventional models and the kind of simulation you would like to see lies in the kind of assumptions that are made about agents and the environment they operate in. What they have in common is that both try to simulate a world in which individuals act in response to their environment.

The simulation in your paper might be more complex, but that in no way guarantees not faithfulness to reality.

I would suggest your check out mainstream micro and macro, eg a first year graduate textbook. Then you will see that the "representative agent" models of economics are really just simulations based on a specific set of assumptions.

Re: The MIT Gang

#16

Post by dluan » Sat, Jul 25, 2015, 5:28 PM UTC

My beef with Krugman is his absolutism, which comes as way more smug when he's post-rationalizing.

Re: The MIT Gang

#17

Post by clairity » Sat, Jul 25, 2015, 5:31 PM UTC

overpaidgoogler wrote: post #11

washedup wrote: post #5

Earlier quoted context omitted.

We really need a way to simulate how the economy will react under certain policies. The current model is based on one hypothesis about how the economy works, when such policies may have been only tested once or twice before, AND when the test conditions were different in a lot of ways. Because of the complex nature of economic systems, prediction is extremely difficult. We have yet to see if the monetary policies bei…

I don't see any fundamental difference between what your call simulation and what economists call models. The only difference is that your believe in the possibility of models so accurate that one could easily verify that they give correct predictions, as opposed to existing models which are subject to continual debate. The reason it is so hard to stimulate the economy is that it represents the sum total of a large p…

> ...you would have to accurately model the response of individuals...

but macro and micro are two separate disciplines within economics because of the belief that large scale economic activity can be modeled without modeling the individual agent. it's more akin to newtonian physics where the model breaks down at small scales.

but i agree with your main point about why it's hard to model -- basically humans are wiley creatures who defy predictability, and observation itself creates a feedback loop that changes the model =)

Re: The MIT Gang

#18

Post by eutectic » Sat, Jul 25, 2015, 6:03 PM UTC

overpaidgoogler wrote: post #14

eutectic wrote: post #7

Earlier quoted context omitted.

Can you give specific examples of other economists making better predictions than Krugman by avoiding the mistakes you claim he makes?

First, can you describe what the predictions were and what you consider their significance to be?

The economic slowdown could last 5-10 years and cost trillions of dollars (June 2009):

http://news.bbc.co.uk/1/hi/business/8081813.stm

Semi-prediction of a housing bubble (August 2002):

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...

Inflation and interest rates will remain low in in spite of stimulus and QE (many times).

A diagnosis of potential problems with the euro, many of which have come to pass (2001):

http://web.mit.edu/krugman/www/euronote.html

This is by no means an exhaustive list, but it is quite hard to find a major misstep that he has made as a direct result of his Keynsian beliefs.

Re: The MIT Gang

#19

Post by washedup » Sat, Jul 25, 2015, 6:22 PM UTC

overpaidgoogler wrote: post #15

washedup wrote: post #12

Earlier quoted context omitted.

I mean computer simulation. Something that you can test many, many times that accurately reflects (or at least within reason) the affects of tweaking the parameters. I understand it's a difficult problem, but there has been some success in this field, and with cheap computer power it becomes easier. Check out this paper: http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf

Economic models are computer simulations! The difference between conventional models and the kind of simulation you would like to see lies in the kind of assumptions that are made about agents and the environment they operate in. What they have in common is that both try to simulate a world in which individuals act in response to their environment. The simulation in your paper might be more complex, but that in no wa…

All computer simulations are models, but not all models are computer simulations. What's taught in graduate school are text-book models which are descriptive at best. I am arguing that more thought should be given to trying to develop computer simulated economies now that computing power is much cheaper. The paper I linked to you shows initial success is at least being able to describe how an economy behaves. It's worth exploring, especially when we have huge test data sets in the form of online gaming economies.

In graduate-level economics (got my masters) there is very little connection between the micro and macro world. Macro economic behaviors are emergent properties of the underlying agents who are guided by a set of incentives, and graduate economic programs generally teach a fractured system. You either apply steady-state models to the macro world or you run behavioral experiments. There is (or there was in 2010, anyway) very little emphasis on modeling both systems as one.

Re: The MIT Gang

#20

Post by darkmighty » Sat, Jul 25, 2015, 6:47 PM UTC

overpaidgoogler wrote: post #6

caminante wrote: post #3

Earlier quoted context omitted.

On a tangential note, I ran across Dr. Hall's personal page[1] last night and learned (at least according to him) that he coined the "saltwater v. freshwater" classification in his 1976 essay.[2] FWIW, it's refreshing to hear that eggheads can't follow Krugman. It puts me in good company! [1] http://web.stanford.edu/~rehall/ [2] http://web.stanford.edu/~rehall/Notes%20Current%20State%20Em...

The problem with Krugman is that he used a very "old school" Keynesian intellectual framework, while the rest of the field has moved on. The ideas of Keynes were not abandoned, but they were rendered in a form that is more consistent and coherent with neoclassical economics. Meanwhile Krugman has never been a prominent researcher in macroeconomics, but his Nobel prize and outspoken views on macroeconomics lead many p…

I've always wondered what would happen if we held important positions and decisions in the same regard we hold and review important economic theories, decide on climate change (IPCC panel), or choose among cryptographic hash functions (SHA competition) -- demanding each opinion be backed by a researcher well reputed in the relevant field, and overall statistical/theoretical justifications were demanded for each decision -- to try and make some provably or at least well supported significant decision in terms of optimality to reach certain clearly established goals.