Who Knows Macro?
Tyler Cowen does not like the tone of the stimulus debate.
A highly respected anti-stimulus economist puts up some anti-stimulus evidence in a highly imperfect test (in Barro’s defense, he did cover more than just WWII). The anti-stimulus economist is attacked by pro-stimulus economists. But the pro-stimulus proponents are focused on attack. They are not putting up comparable empirical evidence of their own for the efficacy of fiscal policy and there is a reason for that, namely that the evidence isn’t really there.
I don’t think that the proponents of a stimulus can claim superior intellectual firepower. It’s not as if Paul Krugman’s Nobel Prize was awarded for his work on macroeconomics. If John Huizinga does not qualify as a nonpartisan expert on macroeconomics, then nobody does.
Huizinga, Krugman, Bernanke and I took the same macro courses from the same professors. I spent a year as “forecast co-ordinator” for the staff of the Federal Reserve, which gives me the most experience of anyone in this debate with what Greg Mankiw calls the engineering approach to macro. The engineering approach is what is being implicitly adopted by stimulus advocates.
I think it would be educational to have a face-to-face debate between proponents and opponents of the stimulus. Unfortunately, I do not believe that the debate will be settled by empirical evidence. We have historical data, but we do not have controlled experiments in macro. In the end, we will be left with economists who believe different things for various reasons. A debate could serve to clarify the reasons.
Jan 23 2009 at 10:06am
I want to see these economists put their money where their mouth is. Bets, investment advice, something tangible. Let’s see how much they’re willing to bet on the success or failure of a stimulus.
Otherwise, I’ll stick with investors such as Jim Rogers. His criticism is more valuable: he bets his portfolio and his life (moving to Singapore) on it.
Jan 23 2009 at 10:21am
“I don’t think that the proponents of a stimulus can claim superior intellectual firepower.” Did any of them predict the current calamity? If not, you might as well ask me: at least I managed that.
Jan 23 2009 at 11:27am
Face to face debate is a form of theater. The person with the most dramatic charisma carries the day. I think a written exchange is better. Something like Friedman’s debate with his critics on monetarism.
Jan 23 2009 at 11:43am
I agree with ionides that there is very little if anything to be gained from face to face debate besides entertaining spectacle. A more formalized form of written exchange might be better, though, than scattered blog postings.
Jan 23 2009 at 12:12pm
Did any of them predict the current calamity?
It might have been for the wrong reasons, and with some of the wrong side-effects, but Krugman did call the housing bubble.
Jan 23 2009 at 1:29pm
If all of you used shock collars and the audience had the buttons, that might be worth seeing.
Jan 23 2009 at 2:29pm
Giving people credit for predicting the crash is tricky. While I agree with some of Krugman’s points over the years, for example, he did also predict a recession for a very long time before it happened. Does that just mean his timing was off, or is he a broken clock that’s right twice a day, or some of both? Ends up being a matter of opinion.
Jan 23 2009 at 5:50pm
I’m with Yancey! If not shock collars, at least soaked sponges to bean the highest-status person on stage!
Take it on the road and call it Econoramapaloosa, Audience Precipitation. Awesome!
Jan 23 2009 at 7:09pm
No matter who says what about anything the law of unintended consequences will rule. All of the experts will be wrong.
Jan 24 2009 at 7:15am
“I do not believe that the debate will be settled by empirical evidence. We have historical data, but we do not have controlled experiments in macro.”
That sounds very similar to one of the ideas in Ludwig von Mises’ Human Action:
“The information conveyed by historical experience cannot be used as building material for the construction of theories and the prediction of future events. Every historical experience is open to various interpretations, and is in fact interpreted in different ways.”
Mises’ developed an a priori system describing human behavior in response. What are your thoughts on his praxeology? How can such thinking benefit us in these troubled times?
Jan 24 2009 at 1:13pm
I have a better idea. Let all stimulus opponents send me their money and I will demonstrate how it works. Be sure to send me lots as I do not simply want to reduce your spending.
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