W. Peden sent me this tweet from last April:
Let’s get the two silly comments at the end out of the way first. If the Fed adopts NGDPLT then they’ve “done enough,” and I’ve consistently argued that unless they do more Japan is likely will fall short of 2% inflation (excluding the sales tax bump.)
Of course the beauty of tweets is that they are so short, and hence Noah is free to deny that he was endorsing Mike Konczal’s view that this was a sort of test of market monetarism. I think most readers of Noah’s tweet would assume that he linked to the column because it actually had something interesting to say. And remember, Noah seems to believe that it doesn’t matter what you meant to say, it matters how people read your posts. The reader is never wrong; it’s always the writers fault. I read it as an endorsement, so as far as I’m concerned that’s all that matters. What Noah intended is completely irrelevant.
So I’m going to assume Noah did think that this was a sort of test of MM. And now that the results are in, and the economy performed almost exactly as MM’s predicted and very differently from what Keynesians expected, how does Noah update his priors? This is from a comment section:
For what it’s worth, my prior – that neither fiscal nor monetary policy has a big effect – has been strengthened by events in the U.S., though Abenomics is causing me to slightly question that.
I would have hoped that it would have a more favorable view of MM. Suppose we had “lost?” Doesn’t his tweet suggest that it would have been “so much for market monetarism?” I then asked him to clarify whether he meant real or nominal GDP, and he responded:
I meant no real effect, but I wonder about nominal effects too…
In most models money is neutral in the long run, and hence has nominal effects. I suppose there are ultra-Keynesian liquidity trap models where money has no nominal effect, even in the long run. But in those models fiscal policy is really powerful. So I’d be interested in seeing Noah’s model here. Maybe I’m reading too much into this, as perhaps the key term is “big effect.” In any case, I’ve been quite disappointed to see the blogosphere response to The Great Market Monetarist Experiment. But I can’t say I’ve been surprised.
BTW, here’s a Smith post on Bayesian reasoning:
There has been much discussion lately concerning the word “derp” and its appropriate usage. For example, Josh Barro used the word to describe conservative bigmouth Erick Erickson, and Paul Krugman used it as well. This prompted a primer on the history of the term, followed elsewhere by the usual hand-wringing by self-appointed cultural policemen annoyed by the word.
Now, I myself have used the word “derp” quite a lot. Possibly more than any other pundit I know, with the exception of Dave Weigel. But in any case, not only do I consider myself an expert in the use of “derp”, I also have a very precise idea of what “derp” means, and how it should be used. I think “derp” is incredibly useful as a term for an important concept for which the English language has no other word.
It has to do with Bayesian probability.
Bayesian probability basically says that “probability” is, to some degree, subjective. It’s your best guess for how likely something is. But to be Bayesian, your “best guess” must take the observable evidence into account. Updating your beliefs by looking at the outside world is called “Bayesian inference“. Your initial guess about the probability is called your “prior belief”, or just your “prior” for short. Your final guess, after you look at the evidence, is called your “posterior.” The observable evidence is what changes your prior into your posterior.
It’s a long post, but I think you see where he’s going. I certainly won’t call Noah a derp. Partly because the tweet and blog comments are far too vague, and partly because he doesn’t seem at all like an ideologue. Instead, I’d be very interested in knowing what Noah thinks of a Nobel Prize Laureate who says that 2013 will be a test of market monetarism, and when the results come in exactly as the MMs predicted says that no real test is possible, because other things are never equal, but doesn’t use that “ceteris isn’t paribus” reasoning when using single data points to criticize his ideological opponents. Perhaps Noah will do another post on derps, to fill us in.
PS. As I said earlier, I didn’t think 2013 was a good test of MM. (There is no “wait and see” in macro.) What disappointed me is that lots of other people did think it was a test, were all set to pounce on us when they thought we’d lose, and then said “nevermind” when we won.