Food, beautiful women, and me

Karl Smith made the following observation yesterday:

At the same time Scott Sumner provides with a rhetorical tool that might help me convey what is otherwise extremely difficult to convey. That is:

Never reason from a food choice

Tyler Cowen made the following observation yesterday:

Don’t think of the model as “what happens to a restaurant when there is an exogenous increase in the beauty of its women” (recall Scott Sumner — “don’t reason from a beautiful women [price] change!” ).  Think of the model as “what does lots of beautiful women predict about the place of a restaurant in its product life cycle?”

This leads me to wonder:

1.  Can I copyright this maxim, and collect fees anytime someone uses it?

2.  In 100 years will my market monetarist ideas be completely forgotten?  Will I be a historical footnote—perhaps recalled as the economist who coined the phrase “never reason from a  . . . ?”  (BTW, I would consider myself very lucky if I became a historical footnote.)

It also got me thinking about what else we shouldn’t reason from:

Never reason from an interest rate change and never reason from an exchange rate change don’t count, as they are obvious, and are actually just special cases of prices.

1.  Never reason from a wealth change:  Is wealth falling due to factors that would be expected to reduce GDP (i.e. late 1929, or late 2008) or is wealth falling for reasons that would not be expected to reduce GDP (late 1987, January 2006 to April 2008)?

2.  Never reason from a current account deficit:  Does the current account deficit reflect healthy growth triggered by immigration and neoliberal reforms (Australia)?  Or does the CA deficit reflect reckless government borrowing (Greece prior to the recession)?

3.  Never reason from a price level:  Does the very low price level reflect highly efficient government policies that hold costs down (Hong Kong)?  Or does it reflect very inefficient government policies that keep the country poor (many LDCs)?

4.  Never reason from an increased propensity to save:  An increased propensity to save might cause more actual saving and more growth, or it might not boost actual saving, but rather depress AD.  What determines which will occur?  Monetary policy.  And it turns out that monetary policy also drives AD.  So talking about saving propensities adds nothing to our analysis of aggregate demand changes.

5.  Never reason from an endogenous money claim:  Don’t say; “money is endogenous, therefore . . . “   Unless the central bank targets money (which is very rare), the money supply will respond endogenously to changes in money demand that occur when some other variable is being targeted (interest rates, exchange rates, inflation expectations, etc.)  But central banks generally target those other variables by changing the money supply in such a way as to stabilize the target variable.  So an observation that money is “endogenous” tells us nothing about the effect of changes in the money supply.

6.  Never reason from an aggregate wage change:  (Yes wages are a price, but I haven’t discussed this one yet.)  Higher real wages could be healthy, reflecting faster productivity growth.  Or they could be unhealthy, reflecting deflation and sticky nominal wages.

Other suggestions?

PS.  Speaking of reasoning from a change in beautiful women:  About 10 years ago my wife brought me to a nightclub in Beijing full of very beautiful young women who seemed anxious to meet me.  If that happens to you then you should feel free to draw the obvious inference—at my age there is no other rational interpretation.  (Oh wait, I might have been dreaming . . . )


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49 Responses to “Food, beautiful women, and me”

  1. Gravatar of Steve Roth Steve Roth
    19. April 2012 at 05:24

    Never reason from anything…absent anything else?

    Or are you suggesting that we can reason from an NGDP change alone?

  2. Gravatar of ssumner ssumner
    19. April 2012 at 05:39

    Steve, Yes, you can safely reason from an NGDP change.

  3. Gravatar of D R D R
    19. April 2012 at 05:43

    It’s like magic!

  4. Gravatar of Becky Hargrove Becky Hargrove
    19. April 2012 at 05:44

    Steve Roth,
    When you reason from all of those points, you are looking (and measuring) the entire system from outside the system itself, which does not really tell you how the system is constantly shifting from the inside.

  5. Gravatar of Steve Roth Steve Roth
    19. April 2012 at 06:01

    “you can safely reason from an NGDP change ”

    But Scott, yesterday in your beautifully titled post (“It all boils down to lots and lots of things”) you said:

    “NGDP growth and inflation are the “only” way to ascertain the stance of monetary policy.”

    Isn’t the implication of this statement that you can only reason from the two together?

    Which gets me thinking, once again, of the great video at the end of this Nick Rowe post:

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/08/the-macroeconomics-of-double-pole-dancing.html

  6. Gravatar of Becky Hargrove Becky Hargrove
    19. April 2012 at 06:03

    Steve,
    The issue for me is in your approach and the constant debate as to the positions between the elements themselves. As a non-economist, I’m not saying that there is no purpose in doing so, only that we need to be doing a lot more right now than taking snapshots of the moving parts.

  7. Gravatar of Frederic Mari Frederic Mari
    19. April 2012 at 06:07

    Where is the original blog-post about “don’t reason from a beautiful woman’s price change?”, inquiring minds want to know?

    Where you trying to make an argument that beautiful women vary their prices according to future NGDP growth?

  8. Gravatar of Robert Robert
    19. April 2012 at 06:21

    Never reason from a blog.

  9. Gravatar of Negation of Ideology Negation of Ideology
    19. April 2012 at 06:23

    The funny thing to me is I had no idea “Never reason from a price change” was originated by you until now. I assumed it was one of those maxims that economists use all the time like “There’s no such thing as a free lunch” or “in the long run, we’re all dead” and I wondered why I’d never heard it before.

    I know, this is not a very insightful comment, but I’m glad to know there was a reason I wasn’t familiar with the saying.

  10. Gravatar of Lee Kelly Lee Kelly
    19. April 2012 at 06:23

    Never reason from ‘never reason from a price change’. This post is, like, so meta.

  11. Gravatar of Samuel Samuel
    19. April 2012 at 06:51

    “Never reason a x change…” is just economist’s version of the distinction between well-posed and ill-posed problems.

    http://en.wikipedia.org/wiki/Well-posed_problem

    Reasoning from a price change is akin to doing an inverse problem, reasoning about the model parameters from data when we should be reasoning about data from our model’s parameters.

    Similarly, never reason from a retinal projection.

    http://en.wikipedia.org/wiki/Inverse_problem_in_optics

  12. Gravatar of John John
    19. April 2012 at 07:45

    Scott,

    I get the general point of that expression but what does it mean exactly. For instance if you see a price change you want to try to find something that explains it. Isn’t that reasoning from a price change?

  13. Gravatar of Major_Freedom Major_Freedom
    19. April 2012 at 07:53

    7. Never reason from an aggregate demand change. As one should never reason from a price change “P”, and as one should never reason from a supply change “S”, then obviously one must not reason from a “P times S” change either. Does a fall in aggregate demand reflect a distorted aggregate capital structure and thus overvalued aggregate accumulated savings and capital, due of course to past inflation? Or does it reflect a sudden destruction of currency that physically prevents demand from being maintained?

  14. Gravatar of Major_Freedom Major_Freedom
    19. April 2012 at 08:03

    8. Never reason from a http://www.themoneyillusion.com change. Does an additional blog post reflect the meandering of an economist whose doctoral program and intellectual investment was financed by the Federal Reserve, the very institution being “critiqued”? Or does it reflect merely another attempt in a long line of attempts of proposing an end game solution that will finally, after 100 years of tinkering and foisting disaster upon disaster on a hapless public, make central banking “work”?

  15. Gravatar of J.V. Dubois J.V. Dubois
    19. April 2012 at 08:13

    Now I see why you made that optimistic China posts. It was just a Freudian slip, what else could you write about such a country :)

  16. Gravatar of Benjamin Cole Benjamin Cole
    19. April 2012 at 08:28

    Excellent blogging.

    As to beautiful women: “They flee from me who one time did me seek.”

    Also, not that I am interested, but what was the name of the nightclub in China?

  17. Gravatar of Don Geddis Don Geddis
    19. April 2012 at 08:52

    @Negation: Many “old sayings” actually come from somewhere specific. Your second one is Keynes, “A Tract on Monetary Reform” (1923): “The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.”

  18. Gravatar of The Window Washer The Window Washer
    19. April 2012 at 08:53

    Trademark it. Josh Brown did it when he came up with “Face Ripper”

    http://www.thereformedbroker.com/?s=face+ripper

  19. Gravatar of Greg Ransom Greg Ransom
    19. April 2012 at 09:00

    Never reason from a policy rule to an explanatory mechanism …

  20. Gravatar of Greg Ransom Greg Ransom
    19. April 2012 at 09:05

    Don’t reason from the filter mechanism of a discipline to the explanatory competence of its research output.

  21. Gravatar of Greg Ransom Greg Ransom
    19. April 2012 at 09:09

    Don’t reason from the hiring criterion of top 5 Grad programs to the explanatory compentence of a discipline’s dominant research paradigm.

  22. Gravatar of Greg Ransom Greg Ransom
    19. April 2012 at 09:11

    Don’t reason from the peer review process to the empirical, scientific or explanatory merit of a journal publication.

  23. Gravatar of Greg Ransom Greg Ransom
    19. April 2012 at 09:14

    Don’t reason from the fact that a phenomena cannot be “modeled” or predicted in advance to the false claim that the phenomena doesn’t exist and isn’t of central causal significance.

  24. Gravatar of dwb dwb
    19. April 2012 at 09:20

    OT, but I found this interesting, on CPI accuracy:

    http://www.bloomberg.com/news/2012-04-19/cpi-conspiracy-theories-persist-even-with-broad-checks.html

    been a while since I’ve a decent estimate of how much CPI overstates inflation. Intuitively I think the overstatement might be cyclical (because when technological change or productivity growth is high it might not capture potential substitution or quality improvements fast enough).

    When i look at wishbook, i think the overstatement is even larger (for goods).

    I wish someone would do a billion-price version of ngdp. i wish i had time to do it myself.

  25. Gravatar of marcus nunes marcus nunes
    19. April 2012 at 09:27

    Missing: Ner reason from a GDP component change – just from NGDP itself.

  26. Gravatar of marcus nunes marcus nunes
    19. April 2012 at 09:27

    Missing: Ner reason from a GDP component change – just from NGDP itself.

  27. Gravatar of Morgan Warstler Morgan Warstler
    19. April 2012 at 09:33

    The price of beautiful women falls in direct proportion to the increase in mixed race marriages. Racists are doomed to expensive pretty women.

  28. Gravatar of Negation of Ideology Negation of Ideology
    19. April 2012 at 10:23

    Don Geddis – Thanks, I knew “In the long run we are all dead” was from Keynes, though I didn’t know the rest of the quote. And I knew “There’s no such thing as a free lunch” is from Milton Friedman. Or maybe I should say the quotes are generally associated with them, or perhaps popularized by them, as I don’t know if Keynes and/or Friedman were quoting someone else.

    I had just assumed that Scott was quoting some earlier economist whenever he said “Never reason from a price change”, instead of quoting himself.

  29. Gravatar of Liberal Roman Liberal Roman
    19. April 2012 at 10:35

    Patent, copyright and trademark the “Don’t reason from…” claim and then vigorously pursue lawsuits of anyone who uses it to illustrate the absurdity of our IP laws.

  30. Gravatar of Ryan Ryan
    19. April 2012 at 10:38

    “Never reason from anything other than NGDP.”

  31. Gravatar of John David Galt John David Galt
    19. April 2012 at 10:51

    It seems to me that last maxim is backward. Never reason from GDP (a deceptive abstraction that includes useless things like government spending) to wealth change (which is what we should care about, if we can measure it).

    Cowen’s maxim reminds me more of one of my own: always choose a Chinese restaurant by how many Chinese people are eating there.

  32. Gravatar of ssumner ssumner
    19. April 2012 at 11:10

    Steve, Bernanke said NGDP and inflation, but he was just being polite to inflation targeters–it’s actually just NGDP, inflation adds nothing.

    I love that video.

    Frederic, There is no original, Tyler made that version up. The original post said never reason from price change. I think the original comment was in a post in 2009 that criticized a homework problem in Mankiw’s text–perhaps you could find it with search.

    You said;

    “Where you trying to make an argument that beautiful women vary their prices according to future NGDP growth?”

    No, but that’s a good hypothesis.

    Thanks Negation.

    Samuel, Good analogy.

    John, It means don’t draw implications. Don’t say “interest rates are rising hence we can expect such and such to happen to the economy.” It depends why rates rose.

    MF, The Fed financed my dissertation?

    Ben, Is that Shakespeare? I forgot which hotel, but 10 years in China is an eternity, I’m sure it’s gone.

    Why do you ask?

    JV, Yes, my judgment must have been clouded. But don’t forget that my wife was with me.

    Greg, I actually agree with most of that.

    dwb, That guy’s crazy.

    Marcus. That’s a good one.

    Morgan, The Chinese are fascinated with mixed race children.

    Liberal Roman, Good idea.

    Ryan, Agreed.

    John Galt, My wife (who is Chinese) agrees.

  33. Gravatar of Benjamin Cole Benjamin Cole
    19. April 2012 at 11:56

    Sir Tom Watt, of whom I know every little.

    I didn’t even know that was his line. I just remembered it, approaching my year 57 mark.

    I am happily married, but saw a cutie last night good-enough looking to “make a bishop throw a Bible through a stained glass window.”

    The Watt quote might be better written with a comma, as “They flee from me, who one time did me seek.”

    Being a man is almost as frustrating as being a Market Monetarist, and some of us have the excellent good fortune to be both.

  34. Gravatar of Major_Freedom Major_Freedom
    19. April 2012 at 12:11

    ssumner:

    MF, The Fed financed my dissertation?

    The Fed financed, and continues to finance, not only economics at U of Chicago, which is why you were brainwashed with monetarism in the first place, but in many other schools as well.

    See Lawrence White (2005) “The Federal Reserve System’s Influence on Research in Monetary Economics”

    http://econjwatch.org/articles/the-federal-reserve-system-s-influence-on-research-in-monetary-economics

  35. Gravatar of Major_Freedom Major_Freedom
    19. April 2012 at 12:17

    And here:

    http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

  36. Gravatar of BobR BobR
    19. April 2012 at 12:27

    Never reason from a change in income inequality?

  37. Gravatar of dwb dwb
    19. April 2012 at 13:12

    @mf
    i dont know what to say about that rubbish except if you cant beat em, join em. i couldnt read all 4 billion words on you posts, too busy taking that cash from the fed. i think you need to get a girlfriend (boyfriend, or both WE) to keep you busy.

  38. Gravatar of Major_Freedom Major_Freedom
    19. April 2012 at 13:36

    dwb:

    i dont know what to say about that rubbish except if you cant beat em, join em. i couldnt read all 4 billion words on you posts, too busy taking that cash from the fed. i think you need to get a girlfriend (boyfriend, or both WE) to keep you busy.

    Ignorance, ignoring, insulting, pooping on the chess board, whacking the pieces, declaring victory…

  39. Gravatar of Andrew C. Andrew C.
    19. April 2012 at 14:18

    Never reason from an endogenous variable change.

    But do bicker over what variables should be considered endogenous.

  40. Gravatar of dirk dirk
    19. April 2012 at 15:12

    Never reason from a sex change.

  41. Gravatar of Nick Rowe Nick Rowe
    19. April 2012 at 16:08

    Scott: “Never reason from an interest rate change and never reason from an exchange rate change don’t count, as they are obvious, and are actually just special cases of prices.”

    You beat me to it! But it’s not at all obvious to some macroeconomists.

    I can remember a couple of my Carleton colleagues (Steve Ferris and the late John McManus IIRC) making your point in a slightly different way 20 years ago. Like this:

    Q. “What happens if the price of eggs rises, other things equal?”

    A. “The price of eggs immediately falls back down again.”

  42. Gravatar of Nick Rowe Nick Rowe
    19. April 2012 at 16:19

    Scott: Off-topic. MattY:

    “I say all this, I note, not to argue that we need to scrap paper money. The point is that it’s very bad for the Fed to have a policy rule that breaks down in moments of severe crisis. It’s like having an umbrella that dissolves in water. We either need to run a background level of inflation that’s high enough to avoid zero bound episodes, or else shift the policy lever to something [other than a nominal interest rate NR] that’s not effected by these issues.”

    http://www.slate.com/blogs/moneybox/2012/04/19/digital_currency_ends_recessions.html

  43. Gravatar of marcus nunes marcus nunes
    19. April 2012 at 19:31

    Nick
    I did a post on that one from MattY:
    http://thefaintofheart.wordpress.com/2012/04/19/4840/

  44. Gravatar of CA CA
    19. April 2012 at 19:47

    “Never reason from a sex change.”

    Ding ding, we have a winner! Well done Dirk, I’m still laughing!

  45. Gravatar of ssumner ssumner
    20. April 2012 at 13:49

    Ben, Words of wisdom. (I’m also approaching age 57.)

    MR, I paid for my own education, and I can’t see where my criticism of the Fed has hurt my career.

    BobR, That’s a good one. A depression often makes income more equal, as capital income falls more sharply–that happened in the 1930s.

    Andrew, That sums it up pretty well.

    Dirk, That too.

    Nick, I like that better than my example–it clarifies the absurdity of the “other things equal” assumption.

    Marcus, Thanks for the link.

  46. Gravatar of Major_Freedom Major_Freedom
    20. April 2012 at 14:02

    ssumner:

    M[F], I paid for my own education, and I can’t see where my criticism of the Fed has hurt my career.

    Your school and your curriculum and your professors were not paid by you. Monetary research is bought and paid for by the Fed.

    Your “criticism” of the Fed is in reality a sanctioning of the Fed. You’re not blogging about how the Fed positively harms others via its very existence, nor how its very control over money is destructive. You’re just “criticizing” it for using an Uzi instead of a Bazooka.

  47. Gravatar of ssumner ssumner
    22. April 2012 at 07:52

    MF, Then where did my tuition money go? And why was the UC so critical of the Fed?

  48. Gravatar of MichaelM MichaelM
    25. April 2012 at 22:46

    Hm, four day old comment thread….do I?

    Of course I do.

    Scott, I think MF is saying that the very reason monetary research is a ‘thing’ at Chicago is because the Fed helps to finance it in order to staff itself with well trained monetary economist. Don’t know how much there is to that, but clarity is always great.

    As to the wider point of this post…

    I think this just highlights how ceterus paribus doesn’t actually exist in the real world. Every measurable variable out there is effected by more than just one other parameter. Reasoning from the measured variable to other parameters is making empirically unjustified assumptions about the effective parameters.

    Clever saying, though.

  49. Gravatar of Never Reason From a Price Change | Calloftheloon's Blog Never Reason From a Price Change | Calloftheloon's Blog
    27. September 2012 at 12:52

    [...] This is a very useful saying and reminds us all that we can very rarely look at the reduced-form equation. We need to look at the whole system of equations. Scott Sumner discusses some other things we shouldn’t reason from here. [...]

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