Thursday, February 05, 2009
The other key into the current debate is that the Republican position is ominously similar to their position on global warming or, for that matter, evolution. The discussion of what to do on the Democratic side tracks more or less with textbook macroeconomics, while Republican argument track either with tax cut monomania or rhetorical claptrap intended to confuse. It's true that macro-economics doesn't make controlled experiments possible. And economists can't speak to these issues with certainty. But in most areas of our lives, when faced with dire potential consequences, we put our stock with scientific or professional consensus where it exists, as it does here. Only in cases where it goes against Republican political interests or economic interests of money-backers do we prefer the schemes of yahoos and cranks to people who study the stuff for a living. (emphasis added)John Maynard Keynes:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.Worth noting that the academic scribbler Marshall cites is our loquacious Nobel laureate. I wonder how many macro textbooks he reads? Abel and Bernanke and Croushore:
As discussed earlier in connection with fiscal policy ... attempts to stabilize the economy run into some technical problems. First, because the ability to measure and analyze the economy is imperfect, gauging how far the economy is from full employment at any particular time is difficult. Second, the amount that output will increase in response to a monetary or fiscal expansion isn't known exactly. These uncertainties make assessing how much of a monetary or fiscal change is needed to restore full employment difficult. Finally, even knowing the size of the policy change needed still wouldn't provide enough information. Because macroeconomic policies take time to implement and more time to affect the economy, their optimal use requires knowledge of where the economy will be six months or a year from now. But such knowledge is, at best, very imprecise.Hmmm. What about Mankiw?
Because of these problems, aggregate demand management has been likened to trying to hit a moving target in a heavy fog. These problems haven't persuaded most Keynesians to abandon stabilization policy...
In this chapter we have examined whether policy should take an active or passive role in responding to economic fluctuations and whether policy should be conducted by rule or by discretion. There are many arguments on both sides of these questions. Perhaps the only clear conclusion is that there is no simple and compelling case for any particular view of macroeconomic policy.I can find you a few more if you would like to wait for me to type the others in. I'll note that's from the edition published in 2000, before he became head of CEA for Bush.
This "tracks more or less with textbook macroeconomics" is that "everybody knows" dodge that reminds me of a famous list (I recall it being Stigler's but I can't remember where I last saw it) of economics conference discussant remarks where you need a translator to know what the fellow really means. "Everybody knows" translates to "I'm going to say this true and it's up to you to prove me wrong". Well sorry, Josh, but it is.