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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#271

Post by RobertoG »

notahacker wrote: post #270
RobertoG wrote: post #257

Earlier quoted context omitted.

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…

That's a long and good answer. Thanks for taking the time.

This is an interesting discussion but I don't want to extend it ad infinitum. A parting thought:

Your answer about ECB tell me that you agree that central banks can control bond yields. So, I have to ask myself who is the "mainstream economics" that we are discusing about. Maybe we are thinking of different people.

Was not Martin Feldstein? (1) is not Paul Krugman? (2)

(1) - http://bilbo.economicoutlook.net/blog/?p=33094 (2) - http://bilbo.economicoutlook.net/blog/?p=13970

Re: Four Basic Truths of Macroeconomics

#272

Post by notahacker »

RobertoG wrote: post #269
notahacker wrote: post #268

Earlier quoted context omitted.

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 re…

I can't think of a single macroeconomist that would say "but the money multiplier" though. This is a straw man invented by MMTers to avoid debate.

Literally every single central bank's policies are designed and implemented by mainstream macroeconomists, as were the capital requirements. "Banks can lend always anyway if it makes business sense" is the system mainstream macro built. Of course, mainstream economists also consider the "if it makes business sense" bit (and to a degree the "capital requirements" bit) matters, and have models observing that the flow of money actually injected into the economy at a given interest rate being finite and relatively predictable, and they can make it go up or down in different circumstances by changing that interest rate. They also (since the 80s, at least) have a sophisticated enough grasp of inflation to figure that how the dollars are injected into the economy matters rather a lot.

Re: Four Basic Truths of Macroeconomics

#273

Post by viburnum »

lottin wrote: post #173
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.

The first "truth" he mentions is literally about wages and unemployment.

Free market types love the sticky wages idea because it blames workers for their own unemployment (which is really caused by inequality, incomplete contracts, the unstable dynamics of investment, etc). The irrelevance of sticky wages was sorted out over eighty years ago but people like Cowen pretend otherwise because they need to. And as an empirical matter, wages really aren't even that sticky anyway.

Re: Four Basic Truths of Macroeconomics

#274

Post by notahacker »

RobertoG wrote: post #271
notahacker wrote: post #270

Earlier quoted context omitted.

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…

That's a long and good answer. Thanks for taking the time. This is an interesting discussion but I don't want to extend it ad infinitum. A parting thought: Your answer about ECB tell me that you agree that central banks can control bond yields. So, I have to ask myself who is the "mainstream economics" that we are discusing about. Maybe we are thinking of different people. Was not Martin Feldstein? (1) is not Paul Kr…

Feldman quite clearly states that Japan moving from deflation to inflation would be the trigger that caused a central bank to increase interest rates (orthodox policy response to inflation) which would increase public debt service costs. So there's no contradiction between central banks affecting bond yields and the effect of the central bank increasing the cost of borrowing being bad for the budget of the Japanese government issuing those bonds.

You'll forgive me for not bothering to defend the half dozen articles Mitchell takes exception to in the second post (though I will say Krugman is given to glib generalisation when writing for mainstream audiences. A quality shared with pretty much every MMT blog going...)

Re: Four Basic Truths of Macroeconomics

#275

Post by titanomachy »

TheOtherHobbes wrote: post #191
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.

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…

What are the best counterarguments for the "four basic truths" he claims are broadly accepted?

Taking the first claim as an example (decline in demand leads to unemployment and recession, because sticky wages etc.), I suppose one could argue that just because we've seen this happen before doesn't mean it's an inevitability of human nature. I can imagine a society with a higher level of cooperation and shared responsibility, where everyone _does_ agree to take a small reduction in pay so that others can stay employed and the overall economy suffers less.

If you agree with that argument, my best response to it is that these macroeconomic "theorems" are supposed to be phenomenological rather than prescriptive. They have predictive power in the present economic system but are not necessarily useful in a society radically different from ours.

I agree that it would be an error to treat these emergent properties as some sort of inevitable laws of nature, which is a tendency that I've seen in debates.

Re: Four Basic Truths of Macroeconomics

#276

Post by phabora »

arcticbull wrote: post #46
remedialhedge wrote: post #43

Earlier quoted context omitted.

It is strange, but I think it makes sense culturally. HN grew out of that particular libertarian, anti-establishment "hacker" subculture, where it is very common to believe that the government and etc. is out to screw you. Rather than like, the government is also made up of people, the same kind of smart, educated people that might otherwise have worked at your startup, and the reason most of them chose to go into go…

Very true. I also wonder if it has to do with folks in high school and college just not having money, so why bother paying attention to ECON material? It's all abstract. It's like the Futurama joke from Future Stock: “Oh my god! I’m a millionaire! Suddenly, I have an opinion on the capital gains tax!”

That’s the stupidest theory I’ve heard this week. This is a forum hosted by a startup accelator where programmers and founders (as well as other professionals) gather. It’s not exactly a hippie resort.

Libertarians are also the most ideologically pro-capitalist people that one is likely to meet.

Re: Four Basic Truths of Macroeconomics

#277

Post by tabtab »

NortySpock wrote: post #11
tabtab wrote: post #2

I get a "please subscribe" pop-up and can't get rid of it without fiddling with the CSS editor. Anyhow... Summary of Truisms: 1) During recessions, employers tend to lay off rather than reduce wages 2) Central bank stimulus helps recessions 3) Too much stimulus causes run-away inflation 4) Non-monetary problems like oil shocks and pandemics can cause recessions 5) Increasing population helps economies. ("Hump to de-s…

Regarding point 5: increasing population via reproduction adds workers in 16-18 years. Immigration adds workers immediately. Additionally, immigration increases both labor supply (obviously) but also labor demand (more consumption, because immigrants buy stuff and services just like anyone else) and as a result wages are flat even when a lot of immigrants join the economy in a short amount of time. "This has been tes…

Increasing a the population is great way to "hide debt". If the size of the economy grows, then the existing debt is smaller in comparison. It may not be that population itself is helping the economy, but rather burying debt is helping. However, arguably it's cheating.

Re: Four Basic Truths of Macroeconomics

#278

Post by brazzy »

rhines wrote: post #251
brazzy wrote: post #203

Earlier quoted context omitted.

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 mone…

> 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.

I can't agree with that either. Housing is not everything. Even if you are homeless with no prospects of getting out of that situation, it still matters a lot how cheap many other things (food, clothes, access to showers, communication with friends and family, even entertainment) are. A phone with internet access is not just important as a tool to get out of homelessness, it also represents a significant improvement in your quality of life.

Admittedly, this may look somewhat different in climates where a lack of shelter can be fatal.

Re: Four Basic Truths of Macroeconomics

#279

Post by learnstats2 »

huitzitziltzin wrote: post #215
learnstats2 wrote: post #212

Earlier quoted context omitted.

It appears to me that Cowen has set out (his own right-wing understanding of) assumptions underlying macroeconomics, in line with the editorial position of Bloomberg. The assumptions are set in stone before you can begin to do macroeconomics, given to you when you take Macro 101, to lay the foundation of your future work, rather than examined and challenged. I don't think this is exactly malicious, but it bothers me…

> don't think this is exactly malicious, but it bothers me that the field largely operates on unchallenged assumptions What do you know about the research done by contemporary macroeconomists? Anything? Do you know how it is taught in graduate programs? If you did, you would know that all macroeconomists have opinions about where their assumptions (basic and otherwise) limit their models and spend their careers tryin…

> Do you know how it is taught in graduate programs?

If a professor presents these assumptions as "truths" (as they have done, quite literally, via this article), graduate students are strongly disincentivized from thinking about challenging or contradicting them - if they want to pass their course, if they ever might want to get a job in that department, etc.

Re: Four Basic Truths of Macroeconomics

#280

Post by huitzitziltzin »

learnstats2 wrote: post #279
huitzitziltzin wrote: post #215

Earlier quoted context omitted.

> don't think this is exactly malicious, but it bothers me that the field largely operates on unchallenged assumptions What do you know about the research done by contemporary macroeconomists? Anything? Do you know how it is taught in graduate programs? If you did, you would know that all macroeconomists have opinions about where their assumptions (basic and otherwise) limit their models and spend their careers tryin…

> Do you know how it is taught in graduate programs? If a professor presents these assumptions as "truths" (as they have done, quite literally, via this article), graduate students are strongly disincentivized from thinking about challenging or contradicting them - if they want to pass their course, if they ever might want to get a job in that department, etc.

We can have an argument about the nature of scientific truth, but I think that's a big topic.

What contemporary graduate macro everywhere teaches you is a set of tools. You then have to ask and answer your own questions. There isn't any "indoctrination" as you seem to be imagining. It's not different at all from doing a math PhD and taking a first-year analysis sequence, or a CS PhD and taking an algorithms class. It is exactly the same.

If you can take these tools and show that any of the truths presented in this article are false and can do it in a convincing way, then (as I have said elsewhere in this thread) you are going to be able to get a great job in whatever department you want.

Understand something about the incentives in science - surprising and counterintuitive results, convincingly demonstrated, can have enormous payoffs.

The way you seem to be imagining things work in economics departments and graduate programs bears little relationship to the way things actually are.

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