Tuesday, February 01, 2011

MIT Symposium Highlights Macroeconomic Muddle


MIT had a celebration of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir 150th birthday, a Symposia on Economics and Finance: From Theory to Practice to Policy. Here's Bob Hall's solution to our problems (see around 50:00):
What we really like is for people to perceive that now is a great time to buy stuff instead of later, well cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re's nothing like inflation to get that mentality going. Normally we don't like to see that, we want to keep inflation under control because it's a sign of an overheated economy, well, we'd like a bit of that overheated economy now...

When cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 government buys more stuff, every model agrees that stimulates cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy...any economist who suggests that it doesn't stimulate cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy hasn't looked at a wide range of models, all of which agree...

Hey, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 models all agree! In ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r words, if you look at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 aggregate data, all we have here is a lack of demand. Just replace cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 missing private sector investment with government purchases, or by confusing investors and hoping cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y mistake nominal price increases for real demand, and all will be well. Most of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 macroeconomists suggested that all we need to do is double down on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 stimulus--only cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 political will is lacking for this obvious solution.

What we had was a misallocation--too much housing--and so now must move labor and capital to ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r areas, which creates temporary unemployment. To try to cover this up via having cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 government spend more on backfilling teacher's pensions, or have everyone buy an unsustainable amount of everything, would not solve this problem faster. Notice cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y don't spend any time discussing what government would spend this stimulus on because it doesn't matter to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m. It's fun to think a solution to a hangover is more of a different type of alcohol, but I've tried it, and it doesn't work.

Unfortunately Keynesians don't have any intuition for this, because everything's all just 'aggregate demand', not housing, technology, energy, etc. Aggregation leads to simplifcation, but clearly it has a cost, and I think any macro cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ory that ignores cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fact that an economy is a network of firms and individuals is pointless.

Hayek's early work on business cycles focused on misalignments in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 structure of production. Alas, this was basically impossible to formalize. Keyenes's model, meanwhile, was adopted into cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Hansen-Hicks syncá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365sis that looked a lot like cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 simple Supply/Demand equations economists were used to, so everything seemed copacetic. A bad idea, in a tractable model, has a long life, because everyone forgets about all cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 hand waiving assumptions that underlie such models.

Joshua Bell is a famous violinist, but when he did an experiment, and played his $3.5MM violin at a train station, he made only $32. Reputation matters. In Bell's case, passersby did not realize he was truly a gifted violinist. In this case, while this was supposedly our best and brightest giving insight on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 big issue of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 day, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 audience was treated to standard diagnoses and recommendations you hear everywhere on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 left: we had a collapse in demand, so cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 government needs to spend more, or trick people into spending more via money illusion. If one wanted a better anecdote for William F Buckley's famous remark that he would prefer cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 first 100 names in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Boston phonebook to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Harvard faculty, I can't think of one.

As Cicero said, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 purpose of wisdom is to know cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 good, in which case cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se people would have done better with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 proverbial dollar fifty in late charges at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 public library, racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r than attend cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 esteemed establishment cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y were celebrating.

On cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r hand, Google's chief economist, Hal Varian noted that Yahoo!, Microsoft and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 rest are all hiring economists to design services based on game cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ory and ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r microeconomic specialties. This is in contrast to banks, that basically all went from having a large economic staffs in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 1970s, but a flak PR guy today for CNBC interviews. Bottom line: if you are going to do economics, don't do macro.

5 comments:

Anonymous said...

Re: Hayek, are you aware of any attempt at modeling a multisector economy with varying production times in different industries? When I was a student learning Sargent/Prescott style macroeconomics I tried to get somewhere with this many times but cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 math gets tedious. Fischer Black had some work that went part way with sector specific capital, but left off production times that varied by sector, which was central to Hayek's argument.

Re: All cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 models agreeing that increasing G always increases AD, I'm surprised anyone would say this. Even Keynesians should know that in some models crowding out takes place.

A Yeh-Chi Chen said...

Whoa, like ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r branches of economics are particularly better? Do you think looking for an obscure regulatory change in search of a significant t stat to add to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 pile of t stats on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 schooling-earnings relationship is that much better?

And anyway even if Macro is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 worst of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fields currently, that doesn't mean one shouldn't try to make it better.

Patrick R. Sullivan said...

' William F Buckley's famous remark that he would prefer cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 first 100 names in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Boston phonebook to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Harvard faculty'

Congratulations on getting that anecdote right. Almost no one does.

Brad F. said...

But everyone loves macro! They love to be told what is going to happen. While shoveling snow my neighbor asked me yesterday:

what are you guys trading, Nasdaq?
No, Eurodollars, Interest rates
Where are we headed?
I don't know
If you had to be long or short, what would it be?
Niecá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r

People love cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 casual prediction, so with so much demand, macro isn't going anywhere.

But if I were an academic economist I'd focus on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fun little stuff, like Dan Ariely or Satoshi Kanazawa... not that that behavioral economics is any more scientific.

Charles said...

Macroeconomics deals with abstractions that are difficult to define and even more difficult to measure. Relationships between cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se measurements are hypocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365sized for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ory and statistically estimated for models. Then people assume that relationships that hold in one time period can be extrapolated into cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 future. They also hypocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365size that a relationship between measurements will hold if cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 government manipulates an endogenous variable.

It's all a kind of pseudoscience like alchemy. Sometimes it seems to work.