tag:blogger.com,1999:blog-582368152716771238.post7778145822350577323..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Policy penanceJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger39125tag:blogger.com,1999:blog-582368152716771238.post-1805720089985279712014-12-10T07:24:07.812-06:002014-12-10T07:24:07.812-06:00Exactly. Krugman was drawing an inference, based o...Exactly. Krugman was drawing an inference, based on public statements by Cochrane, Fama, and Lucas. An entirely justified inference, in my opinion.JZhttps://www.blogger.com/profile/12994372644670111315noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-83430145320180952242014-12-10T06:48:47.796-06:002014-12-10T06:48:47.796-06:00The physics analogy is remarkably appropriate and ...The physics analogy is remarkably appropriate and illuminating. Thanks!Marvhttps://www.blogger.com/profile/01266597263539637552noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42068048429081419132014-12-10T06:03:03.816-06:002014-12-10T06:03:03.816-06:00"I'd say the problem is that it's too..."I'd say the problem is that it's too sloppy."<br /><br />I agree. Whether you choose a literary medium or a mathematical one, there is good and bad writing and good and bad maths.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-30470210332773380292014-12-10T05:53:04.742-06:002014-12-10T05:53:04.742-06:00"I'm criticizing "Keynesian economic..."I'm criticizing "Keynesian economics," as practiced by his followers, and implemented in their explicit, objective, and written down models, and policy advice they have generated for decades."<br /><br />Absolutely, and I think many people would agree with you. Although New Keynesianism took this to new levels, the problems go back a long way, starting I would say with the Hicks model and Samuelson and their attraction to the precisely the "pretty and polite techniques" that Keynes warned about (Anon 11.30). <br /><br />The low point was reached in the 1990s with Patron Saint of New Keynesianism, Stan Fisher's, response to the Asian Financial Crisis:<br /><br />"Indeed, the reluctance to tighten interest rates in a determined way at the beginning has been one of the factors perpetuating the crisis. Higher interest rates should also encourage the corporate sector to restructure its financing away"<br /><br />http://www.imf.org/external/np/speeches/1998/012298.HTM<br /><br />Of course this was exactly the opposite of what they advised the US in 2007-8 and as a result the Asian countries felt a sense of betrayal. This idea that there are different rules for the powerful considerably undermined US soft power and therefore its authority as pointed out recently by Stiglitz (posted in Mark Thoma's blog).<br /><br />The word flim-flam has become associated with New Keynesian economics, and soon it will permanently stick. The classics are important because they are a bulwark against having to relearn old lessons the hard way. Although we cannot expect to know works like the General Theory from front to back, we must have an accurate understanding of it. New Keynesianism is an intellectual forgery at the highest level. It fails that test and the consistency in policy practice one. <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-57924300301352226702014-12-10T05:33:37.254-06:002014-12-10T05:33:37.254-06:00OT –
Thoughts on your paper…
http://monetaryreal...OT –<br /><br />Thoughts on your paper…<br /><br />http://monetaryrealism.com/john-cochranes-monetary-policy-with-interest-on-reserves/JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54113203723320252182014-12-10T00:15:24.785-06:002014-12-10T00:15:24.785-06:00Get real, folks. What you forget is that economic ...Get real, folks. What you forget is that economic arguments are considering the world as it was years ago while the life of Americans has changed drastically since the intense marketing of personal technology. The insanity of how we live now is that people can't "put down" as they say in "recovery" literature and meetings. "Families across America have cut back on food, clothes and entertainment ... as the draw of new technology competes with cellphone owners' more rudimentary needs and desires." ("Cellphones Are Eating the Family Budget." Wall Street Journal, Sept. 28, 2012.) So which companies are making money from the enormous growth in use of technology and which ones are losing money? The little guy loses while the corporations gain. And the corporations gain further by creating a huge number of techno-addicts or techno-zombies--people who would rather give up food and the pleasure of spending time together to have devices to look up when the next bus is coming or who won the last Knicks game. These people are losing their ability to make decisions without consulting electronic devices and are fast losing their human connections. Easy to see on the streets of any town where a man looks down at his cell phone while walking on a busy, uneven sidewalk. Or a group of teens hang out with each one looking at his/her cell phone. Or a mother crossing a main street intent on her cell phone while her three-year-old toddles behind him. "Oh, I thought my husband was watching him."<br /><br />Neither economic philosophy considers what would happen if a series or simultaneous "Sandys" hit the east coast. Is climate change considered or disregarded totally? A recent Pew Internet report said that 64% of Americans think that there will be a space colony in the next 50 years --they'll escape the end of the world calamity by flying off into space. 77% believe that people will control the weather. Isn't it sick and funny too? (Aaron Smith. "U.S. Views of Technology and the Future." April 17, 2014.) Anonymoushttps://www.blogger.com/profile/17772766257387695950noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-58987770335211370682014-12-09T23:17:00.325-06:002014-12-09T23:17:00.325-06:00About that Krugman piece: Notice that he never na...About that Krugman piece: Notice that he never names or provides any links or quotes from any of these "other guys." Also, keep in mind this article was written by someone who, among other things:<br /><br />Repeatedly warned of a "deflationary spiral" a few years ago<br /><br />Called the sequester last year a "fiscal doomsday machine" and "one of the worst policy ideas in our nations history," adding that it could cost the economy "around 700,000 jobs" (see Cochrane's post from a couple weeks ago)<br /><br />Wrote last year that "we are in effect getting a test of the market monetarist view right now" and "the results aren't looking good for the monetarists"...then after the economy performed better than expected, claimed it was never a test of market monetarism after all.<br />http://marginalrevolution.com/marginalrevolution/2014/01/the-austerity-flip-flop.html<br /><br />And I'm sure some of you remember this attack on Greg Mankiw regarding the White House's growth projections in 2009. <br />http://gregmankiw.blogspot.com/2009/03/wanna-bet-some-of-that-nobel-money.html<br /><br />Some of his posts are almost getting comical at this point.<br /><br /><br /><br /><br /><br /><br />Zacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43661123425395684942014-12-09T23:16:39.058-06:002014-12-09T23:16:39.058-06:00As anonymous writes above, you've missed Krugm...As anonymous writes above, you've missed Krugman's point vis a vis 'stupid.'<br /><br />In addition to Anon's comment you should remember that it was just over a week ago, in his post <a href="http://krugman.blogs.nytimes.com/2014/11/30/notes-on-the-floating-crap-game-economics-inside-baseball/" rel="nofollow">Notes On the Floating Crap Game</a>, he wrote:<br /><br /><i>...reading Fourcade et al, it occurs to me that the way everything outside macro works may explain one of the things that has puzzled me in the disputes over macro policy — namely, the seemingly unquenchable certainty among some of the freshwater guys that Keynesians are stupid.</i><br /><br />This has been a running theme for years with PK. Your defense that he has misquoted you badly misses the point. He believes your past statements have implied that Keynesians are stupid. He doesn't need a direct quote.<br />Kevin O'Neillhttps://www.blogger.com/profile/06692943768484857724noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75242623357799694332014-12-09T20:37:37.122-06:002014-12-09T20:37:37.122-06:00With regards to the line regarding the word "...With regards to the line regarding the word "stupid", could it be that you're missing the transitive logic of Krugman's post? In the sentence before he writes "And it has been remarkable in the years since to see how determined anti-Keynsians are to keep believing that Keynsians are stupid." When one juxtaposes that sentence with the remark on how you now concede that "...Woodford isn't stupid" seems more a swipe at a mindset than remarks on a specific individual. <br /><br />I would have thought a stronger response would be a defense of your positions on Keynsians in general rather than on Woodford? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-89925583553984918922014-12-09T17:03:27.229-06:002014-12-09T17:03:27.229-06:00"Well, it's hard to follow rules ex-post...."Well, it's hard to follow rules ex-post. That's the whole point of rules!"<br /><br />"I'll keep to the usual don't-respond-to-Krugman policy, with one exception."<br /><br />OK, I'm not a regular poster and don't mean to be snarky, but that's pretty rich. Particularly with the "just this once" response in the comments.<br /><br />In any event, since the audience here is probably better suited, can anyone direct me to a good response to one of Krugman's infamous Keynesians-get-everything right posts? This one is old, but seems relevant. A quick clip:<br /><br />"Anti-Keynesians assured us that budget deficits would send interest rates soaring; Keynesian analysis said they’d stay low as long as the economy remained far from full employment. Guess who was right?"<br /><br />"Keynesianism isn’t just about sticky prices, but it does generally assume sticky prices — and there is overwhelming evidence, from a variety of sources, that prices are indeed sticky."<br /><br />"Mainly I’d stress the first point. We have a model of the way the world works, and the world does indeed seem to work that way.<br />[...]<br />"In fact, however, my preferred model has passed the test of events with flying colors, while the other guys’ models have been totally wrong."<br /><br />http://krugman.blogs.nytimes.com/2011/10/11/why-believe-in-keynesian-models/<br /><br />Sorry, not trying to be a Krugman fanboy, though I guess I qualify. I'm just a layman looking for a little counterpoint to follow. Maybe an example of somewhere freshwater folks got it "totally right"?tetchmagikoshttps://www.blogger.com/profile/01051423929562960316noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-53753220952671859082014-12-09T16:18:11.307-06:002014-12-09T16:18:11.307-06:00http://www.theatlantic.com/politics/archive/2009/0...http://www.theatlantic.com/politics/archive/2009/06/an-interview-with-paul-samuelson-part-one/19572/<br /><br />Read Samuelson, especially where he was talking about the contributions of Lucas, Sargent etc. during Fed policy meetings. (Hint: none)Som Dasguptahttps://www.blogger.com/profile/11848089230329819807noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-72499251723366545392014-12-09T15:10:37.112-06:002014-12-09T15:10:37.112-06:00There was a large increase in primary deficits aft...There was a large increase in primary deficits after the deep recession of the early 80's when unemployment reached double digits- no surprise there. However, it did decline sharply in the following years. By FY 1989, it was back into a small surplus. By the mid-90's there was a very large primary surplus. I don't really understand where you think the contradiction is here with the neo-Fisherian model.<br /><br />http://www.econdataus.com/primary-deficit-2011.htmlZacknoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-40378942559674595472014-12-09T14:47:14.021-06:002014-12-09T14:47:14.021-06:00As usual, I think just the opposite. I am investe...As usual, I think just the opposite. I am invested in the models I created , but that is just the structure of the profession - and even on those models I fiddle around when there is new data. I learn and use the models others have created, but I use them mainly as another viewpoint. Trying a bunch of models on a problem is a good way to clear out the crap to see what needs to be done - a mental enema.Bob Floodnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91011223576343045492014-12-09T14:35:06.333-06:002014-12-09T14:35:06.333-06:00Forget Keynes for a minute. His argument was again...Forget Keynes for a minute. His argument was against the idea that huge government spending by itself is a course correcting mechanism for big recessions. Since economists prefer models rather than subjective opinions, ISLM and others were offered up. This goes back to his original point - no graduate programs today teach simple ISLM models as THE policy answer to big recessions. And that's why we have these more advanced models. We can debate whether those advanced models are all garbage, but they were invented precisely because ISLM didn't do a good job at all. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-73601213063938656772014-12-09T14:30:17.506-06:002014-12-09T14:30:17.506-06:00I have to agree with this, though this post is a b...I have to agree with this, though this post is a big too negative for my tastes.<br /><br />You sound like you pissed off a lot of people by being a bit of a grumpy jerk and so instead you try to reconcile and prove how considerate you can be. Though instead you honestly come off a bit over-sensitive and insecure in an attempt to *look* nicer while still not conceding anything.<br /><br />As another comment author said you also seem to like to paint a picture of Keynesian = Obsolete. As if there's the modern new macroeconomics that is highly evolved and then some crusty old guys still kicking around that old Keynesian can.<br /><br />Quite honestly I think it's fairer to look at it like physics models... let's say newtonian physics vs special relativity.<br /><br />Just because special relativity indeed models situations that newtonian didn't model doesn't mean we throw out all of newtonian physics. Newtonian models are still very useful for certain situations.<br /><br />Find where the models are accurate and use them accordingly. From a physics perspective we can also throw in quantum mechanics. We still have yet to conclude on a universal physics theory/model to unify them all. Yet we still use the different models for the situations that fit.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47191529992221568612014-12-09T14:24:29.901-06:002014-12-09T14:24:29.901-06:00Professor Cochrane,
You and Paul Krugman ought t...Professor Cochrane, <br /><br />You and Paul Krugman ought to read each other's writings a little more often. If you did, Krugman would know that you have been praising Woodford for a long time and you would know that Krugman and many other Keynesian economists objected very strongly to your <a href="http://johnhcochrane.blogspot.com/2012/09/woodford-at-jackson-hole.html%22" rel="nofollow">blog post</a> on Woodford's Jackson Hole speech in 2012. <a href="http://macromarketmusings.blogspot.com/2012/09/john-cochrane-michael-woodford-and.html" rel="nofollow">Here</a>, for example, is David Beckworth explaining why he thinks you are guilty of major reading comprehension errors that result in claims you put in Woodford's mouth that are inconsistent with Woodford's stated positions. Your analysis that follows all but calls Woodford's policy recommendations stupid.<br /><br />You might also have noticed that Krugman has given you props for trying to understand New Keynesian models, but that he doesn't understand how you could fail to grasp some of the essential elements of the literature. More than a year ago, Krugman <a href="http://krugman.blogs.nytimes.com//2013/11/18/the-new-keynesian-case-for-fiscal-policy-wonkish/" rel="nofollow">explained</a> why he thought you were confused about the effects of fiscal policy on GDP vs consumption in standard NK models. Objectively, NK models say what they say whether they are right or wrong. If you assert they something different from what Woodford or Krugman do, isn't the onus on you to read their critiques and respond? Ibnyaminhttps://www.blogger.com/profile/02200468798337178145noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54796376046142473072014-12-09T14:16:34.371-06:002014-12-09T14:16:34.371-06:00"mysterious novel economics that might come f..."mysterious novel economics that might come from reading keynes again and coming up with something new."<br /><br />That is how innovation often happens. Unfortunately in economics it seems people get bad ideas from reading the classics - notably those applied mathematicians responsible for re-digging up trash like Ricardian Equivalence from the Victorian English School of Economics. (Although I am sure scholars would argue that Ricardo is not in the same league as say a Plato, Marx, Kant or Keynes in terms of philosophical depth.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5091454781198418862014-12-09T13:39:41.839-06:002014-12-09T13:39:41.839-06:00This is actually a brave piece.
At first I though...This is actually a brave piece.<br /><br />At first I thought to myself "Someone who is a layman would misunderstand the disingenuousness of this. Like where he says the new Keynesians do not think about the intertemporal models. What a laymen would need to do is ask any of the thousands of people who have studied graduate level macro from Romers ubiquitous textbook ..."<br /><br />And the layman might turn to a friend who did a masters once 10 years ago and say "is that true?"<br /><br />And the friend would say "Well, look. When you read the piece, as much as it is written in a conciliatory tone, you can see that it is not cleanly neutral. It is obvious that there is like this undercurrent of passive aggression and barbs. I mean when he is throwing out that New Keynesians are reading Marx and the Talmud that is obviously not the case and kid of the style of the entire piece.<br /><br />"Have you ever seen the show Happy Days where The Fonz is unable to say he is wrong? Well in terms of prescriptive economics, those in the 'modern economic' school screamed loudly prescriptions those prescriptions turned out to be wrong. So John Cochrane here in this piece is like Arthur Fonzarelli . He is like: 'I was wro.. wro ... but the New Keynesians only look at the static picture, our model is more complex and looks at the intertemporal picture. But anyway, I was wro.. wro.. hey, did I mention the importance of mathematical rigor? ...'"<br /><br />On a personal level the cognitive dissonance must be powerful. I mean your standing in society as a professor at one of the world’s most prestigious schools, your prestige, your feeling of self-worth ... it’s all tied up in these models.<br /><br />One could argue that you have more invested in these models than those religious cult members from the textbooks on cognitive dissonance who go out into the middle of the dessert on apocalypse day to be rescued by aliens on the divine day, and the cognitive dissonance experienced when the prophecy does not come to pass.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-86696324351342721922014-12-09T13:38:41.736-06:002014-12-09T13:38:41.736-06:00It seems Cochrane is firmly butting up against the...It seems Cochrane is firmly butting up against the dilemma between "what is?" vs "how ought we be, given what is?" The scientific method has allowed human debate to get so refined that we can no longer reliably separate the two.<br /><br />Lately, I find my fervor moderated not by any real change in my views, but rather in the recent difficulty we are all experiencing getting anyone on either side of our arguments to concede much of anything. What is driving this polarization? Ignorance? Laziness? I no longer think these describe the modern informed positions. I find it isn't too hard to use the is/ought template to generate the other sides' position. The more psychology, sociology, and political science you know, the easier it seems to be to predict the other side's response. This doesn't mean I'm more right - it seems to mean that much (maybe all) of our (informed) discourse is rooted in factual versions of reality that simply emphasize one or the other side of the "is" / "ought" divide. All too often commenters on both sides are unable or unwilling to address the fact that their staked positions are actually un-addressed facets of the same is/ought state.<br /><br />So we aren't disagreeing because we know "so little" - we are more and more disagreeing because we really do know a large fraction of what we need to know or ever *could* know, and both sides are accurate special cases (but not necessarily symetrical in their accuracy or applicability to the current discussion).<br /><br />So what is the resolution? First, accept that their is a necessary is/ought paradox at the bottom of any well-informed discussion. What is truly unifying is how this seems to be a mirror-image of Heisenberg Uncertainty and Wave-Particle Duality, and this relationship is instructive. I would assert that the apparent fact of the dimension and direction of time is what causes the similarity. And at it's core, economics is a description of flows that are remarkably similar in complexity to electromagnetic systems - only economics has more degrees of freedom - more dimensions - and the elasticity of those dimensions is always dynamically defined by ideas in people's heads - the distribution of those ideas, their varying rates of propagation in the population, and the characteristics of the population, itself (it's superficially humans, but ultimately the population could only ever be fully modeled by also accounting for the (economic impact of) all bacteria, viruses, and even particle states).<br /><br />Just as physics had to come to terms with the idea that it is no longer possible to *fully* model a system built on quantum uncertainty, economics must also come to terms with the idea that there will never be a complete economic model - because as soon as you accurately describe what "is" you necessarily modify the rules agents "ought" to employ. Furthermore, the idea that we will approach "the truth" or "reality" asymptotically is an illusion caused by focusing on small populations. Yes, you can get more and more accurate - to a very small error - if considering a small population. But as soon as you try to apply that to the reality-sized population, sync influences and the inherent error quickly grow too large to allow usefully accurate predictions beyond a mutually agreeable horizon.<br /><br />We probably need to fall back, like physics did (both the Schrodinger-Heisenberg unification, as well as the AdS/CFT Correspondence), and emphasize the pursuit of working out how saltwater macro describes the same thing, in different form, as freshwater macro. Keynes described an abbreviated special case (or sub-set of states) within both transformations, as did Hicks, as did Lucas, as does NK, as does Cochrane, as do modern liberals and conservo-libertarians. The only remaining erroneous position may well be a futile static encampment on one "side" of this unified socio-politico-econometric super-symmatry.J. Hansenhttp://stormculture.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63948683424215878632014-12-09T13:32:15.746-06:002014-12-09T13:32:15.746-06:00I'm not criticizing Keynes, or some mysterious...I'm not criticizing Keynes, or some mysterious novel economics that might come from reading keynes again and coming up with something new. I'm criticizing "Keynesian economics," as practiced by his followers, and implemented in their explicit, objective, and written down models, and policy advice they have generated for decades. To this debate, it does not matter at all what Keynes wrote. It matters what Keynesians write. To a different debate, "did Keynesian economics really capture what Keynes was saying?" it might. But that's not our debate. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-65504412343580905612014-12-09T13:25:41.826-06:002014-12-09T13:25:41.826-06:00The parallel to Newton and the Principia is active...The parallel to Newton and the Principia is actively misleading here. No physicist has claimed Newton was wrong--even Relativity extends Newton's theories, doesn't invalidate them. But if you want to criticize Keynes, yes, I think it would be kind of important to know what you're challenging.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42862884419859612012014-12-09T11:33:03.183-06:002014-12-09T11:33:03.183-06:00Let's just remind ourselves of what Keynes sai...Let's just remind ourselves of what Keynes said and how New Keynesians lost the plot. <br /><br />Perhaps the reader feels that this general, philosophical disquisition on the behaviour of mankind is somewhat remote from the economic theory under discussion. But I think not. Tho this is how we behave in the market place, the theory we devise in the study of how we behave in the market place should not itself submit to market-place idols. I accuse the classical economic theory of being itself one of these pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future (Keynes 1937, 215).<br /><br />Could it be any clearer? If you are going to put micro-foundations into Keynes it must be on the basis of observed social behaviour. This is making the case for insights from philosophy and psychology into macro-economics, and most certainly nothing like the REH. <br /><br />How interesting you are defending New Keynesian Economics. Perhaps this is a new consensus in formation. Like the one we had just before 2008. Ironically it is precisely the group-think behaviour that Keynes observed!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-83359828556305721682014-12-09T11:25:45.192-06:002014-12-09T11:25:45.192-06:00According to your wikipedia page, your father was ...According to your wikipedia page, your father was a historian. Surely he must have told you at some point that the history of humanity is not a story of continual linear progress? Or does he believe that all information from the past is factored and built on in agent's decisions and knowledge cumulative - just like the REH?<br /><br />Civilisations rise and fall. People have short memories. Knowledge expands and is forgotten and is subject to swings in conventional wisdom, fads, and power relations (none of these things modern macro-theory , ie. applied mathematics, handles well). The fact that people forgot the lessons of the Great Depression, the singular most important case study for macro-economic policy, especially in a deflationary trap, AND tried to incorporate rational expectations into Keynes when the whole argument was that markets do not equilibrate because agents are irrational is a very good case in point. It demolishes arguments that we do not need to refer back to the classics in a second.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34265831567819689762014-12-09T11:06:49.595-06:002014-12-09T11:06:49.595-06:00Best empirical evidence is in Milton Friedman'...Best empirical evidence is in Milton Friedman's A Theory of the Consumption Function. Have a look. Friedman dismantled post-war Keynesian policy's three pillars: - 1.the fractional mpc leading to the govt spending multiplier - see above. 2. Govt fix of the Great Depression - have a look at his Monetary History with Anna - people are still fighting abt this. 3. In his AEA presidential address he laid out what would become the Phelps-Lucas rational expectations takedown of the accelerationist phillips curve. Above all - don't get hung up in the nonlinearities in modern DSGE work. You can linearize this stuff and get (roughly) the same story - there are some 2nd order risk thingys also. And do not go nuts over our inability to forecast - we have never really been good at forecasting. It's the nature of the beast - you always fight the last war then adapt.Bob Floodnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55620975502192846972014-12-09T10:47:42.303-06:002014-12-09T10:47:42.303-06:00Everything in the Principia can be expressed in eq...Everything in the Principia can be expressed in equations. This is simply not true of the General Theory or ANY work of economics. Equations in economics MUST be accompanied with a story that makes sense or they will not convince. The stories that underlie the equations of "modern" macro I find unconvincing, as they rely on absurdly hyper-rational actors. The Keynesian stories rely on people who sound real. When you read the General Theory it's hard not to get the feeling that Keynes's understanding of the motivations behind the actions of masses of people was profound.<br />The current Keynesian argument is that the government could create demand by spending money to create jobs. This demand would unlock the inactive money in the private sector as investors sought to make profits by supplying the demand. That sounds like real people. Those opposed to government spending seem to think that these potential investors will not invest because they fear inflation in the future or higher taxes to make up for the stimulus spending. This story doesn't sound real.<br />You don't need to read the Principia to understand the equations involving gravity, and you can prove them by dropping a roc off the roof.<br /><br />Sasha CookeAnonymousnoreply@blogger.com