Be careful what you wish for. Last February 2nd I started this blog with very low expectations. During the first three weeks most of the comments were from Aaron Jackson and Bill Woolsey. I knew I wasn’t a good writer, years ago I got a referee report back from an anonymous referee (named McCloskey) who said “if the author had used no commas at all, his use of commas would have been more nearly correct.” Ouch! But it was true, others said similar things. And I was also pretty sure that the content was not of much interest to anyone.
Now my biggest problem is time—I spend 6 to 10 hours a day on the blog, seven days a week. Several hours are spent responding to reader comments and the rest is spent writing long-winded posts and checking other economics blogs. And I still miss many blogs that I feel I should be reading. In part 2 I’ll talk a bit more about the personal side of blogging, but first I’d like to take stock of what I have done in the first year.
As you may know, I don’t think much of the official methodology in macroeconomics. Many of my fellow economists seem to have a Popperian view of the social sciences. You develop a model. You go out and get some data. And then you try to refute the model with some sort of regression analysis. If you can’t refute it, then the model is assumed to be supported by the data, although papers usually end by noting “further research is necessary,” as models can never really be proved, only refuted.
My problem with this view is that it doesn’t reflect the way macro and finance actually work. Instead the models are often data-driven. Journals want to publish positive results, not negative. So thousands of macroeconomists keep running tests until they find a “statistically significant” VAR model, or a statistically significant “anomaly” in the EMH. Unfortunately, because the statistical testing is often used to generate the models, and determine which get published, the tests of statistical significance are meaningless.
I’m not trying to be a nihilist here, or a Luddite who wants to go back to the era before computers. I do regressions in my research, and find them very useful. But I don’t consider the results of a statistical regression to be a test of a model, rather they represent a piece of descriptive statistics, like a graph, which may or may not usefully supplement a more complex argument that relies on many different methods, not a single “Official Method.”
An example of this is the post I did on liquidity traps, which argued against reductionist models that “it all boils down to” cash and T-bills being prefect substitutes, or “it all boils down to” central bank credibility, etc. Rather a liquidity trap is a phenomenon that must be analyzed by considering economic factors like the ability of the central bank to buy alternative assets, or to charge interest penalties on excess reserves, or to set an inflation target, or to engage in currency depreciation, or to target the price of gold, or to do quantitative easing, or the relative merits of inflation and price level targeting, or the issue of central bank independence, or whether central banks can target CPI futures contracts. And I could go on and on. It is a complex problem that requires analysis at the level of politics, economics, psychology, diplomacy, etc.
At the same time (and this may seem to contradict what I just said), I believe strongly in Occam’s Razor. If you want to study NGDP, focus on the impact of monetary policy on NGDP growth expectations. Don’t make things needlessly complex by looking at C, I , G, NX, the credit markets, etc. It’s not that those things don’t matter, but rather they are best examined by considering how they impact monetary policy.
Over the past year I have mostly ignored supply-side economics, focusing on what I thought was the most pressing policy issue, the shortfall in AD. Thus I started with a simple NGDP model, and kept making it more complex by looking deeper and deeper at factors that impact the supply and demand for base money. I looked at the technical mistakes the Fed made, and then the faulty models that led them astray. I even argued that cognitive biases often led them to ignore their own models, as when they assumed a sharp fall in NGDP was a “real” problem, when all of modern macro suggests it was a failure of monetary policy.
I like Rorty’s pragmatism; his view that scientific models don’t literally correspond to reality, or mirror reality. Rorty says that one should look for models that are “coherent,” that help us to make sense of a wide variety of facts. I want people who read my blog to be saying to themselves “aha, now I understand why the economy continues to drag along despite low interest rates,” as they recall that low rates are not an indication of monetary stimulus. I think Deirdre McCloskey once used the term ‘ooomph’ to describe models that are powerful enough to make sense out of a wide range of seemingly meaningless and unrelated observations. It’s all about persuasion. And people are persuaded by coherent models.
OK, so how am I doing? Over the last year, I have found that most people (in and out of economics) judge models by their predictive prowess. But what can we do with models like mine, which says that it almost impossible to outguess the markets, or to predict turning points in the business cycle? Recall my maxim “good economists don’t make predictions, they infer market predictions.” So I don’t think simple prediction is the right test. It’s more complicated than that. I’m going to throw you a curve ball and mention 5 items off the top of my head. By themselves, none are particularly important. But I will argue that each one is like a pixil on a high def TV set. Something that gradually brings the picture into focus, that helps one see the world in a new way:
1. A couple months ago I noticed that the Fed’s reserve requirement increases of 1937 raised short term rates by about a quarter point.
2. Last summer I noticed that almost all the economists who had publically supported policies of targeting the forecast, thought monetary policy was much too tight in late 2008.
3. Last summer Svensson got the Swedish Riksbank to adopt negative rates on reserves.
4. Late last year there was a big upsurge on criticism of the Fed by liberal bloggers.
5. Last month I discovered a 1999 Bernanke paper that criticized the BOJ in much the same way I am criticizing the Fed.
According to the Official Method, none of these tidbits matter. But I have noticed that they have had some impact on my readers. They are each slightly persuasive about some aspect of my argument.
1. All year I was criticized for dwelling on the contractionary impact of the Fed IOR program, which paid only a quarter point after December 2008. Then I discovered that the 1937 program, which has been widely criticized by economic historians for increasing the demand for reserves and reducing the multiplier, also raised rates by only a quarter point. It doesn’t make me right—everyone else may be wrong about 1937′s RR increases being important, but it is interesting.
2. The second observation helped me explain that once you start to think about policy in terms of targeting the forecast, the whole subject of “policy lags” seems much different. Now you see policy failing in real time, and watch with a sense of helplessness while others blandly assure us that eventually the Fed’s “easy money” policy will pay off, even though the markets expect it to fail. It was nice to see people like Hetzel and Hall and Thompson and Glasner and Woolsey and Jackson also notice that policy was too tight in late 2008. I.e. people who have advocated targeting the forecast.
3. When I proposed negative rates on reserves, lots of commenters told me I didn’t understand central banks. That they’d never consider the idea and it wouldn’t work. The actual Swedish program was too watered down to have much effect either way. But what was important was that it was adopted. Immediately it seemed like my commenters took me a bit more seriously. Here was an unknown economist at Bentley recommending a seemingly crazy idea that none of the big names considered, and then a famous Princeton professor gets the Riksbank to adopt it. And other well-known economists like Hall and Mankiw start discussing the idea.
4. I first got a lot of attention with an open letter to Krugman asking him to join me in supporting unconventional QE (longer term securities) and also inflation or NGDP targets. In March he swatted me away, although it wasn’t clear exactly which point he disagreed with. I also had several posts saying fiscal stimulus won’t work and the Dems would face a debacle in the 2010 elections unless the Fed gets much more aggressive. When many liberal bloggers became much more critical of the Fed late in the year, I sensed that my supporters saw this as an “I told you so” moment. Maybe that’s unfair to the liberals, as it seems unlikely that the Fed is going to do anything useful in response, but at least it seemed to confirm my earlier view that the Fed was our only hope.
5. I was quite shocked when Marcus sent me the 1999 paper by Bernanke criticizing the BOJ. Several of my commenters said the paper could have been written by me. Not just the call for monetary stimulus, or (in another paper at that time) the call for level targeting. Bernanke also made comments about how people confuse low rates with easy money, with how falling NGDP is a foolproof indicator that money is too tight relative to the needs of the economy. In other words, the whole package. And once again this had an effect. People thought “here was the highly respected Bernanke making all of the same arguments that monetary crank Sumner is making.”
So that’s the goal of my blog, to constantly use theoretical arguments, empirical data, clever metaphors, and historical analogies that make people see the current situation in a new way. Whatever works, as long as it is not dishonest. At the same time I cannot escape the world we actually live in. I will be judged on the basis of predictions I make, and even predictions that I haven’t made but that I seem to have made. I realize that if the US suffers from very high inflation in the next few years it will be widely seen as discrediting my model, no matter how often I point out that the EMH merely tells us that the market forecast is the optimal forecast, not perfect foresight. Bob Murphy will haunt my dreams.
If I had had this blog for the past 10 years, I would have gotten a lot of credit for my constant complaints that Fannie and Freddie were dangerous time bombs waiting to explode. But I would not have deserved that credit, as I never thought this kind of disaster had even a 50% likelihood. I just thought it was bad public policy to take the risk. And I would have been blamed for missing the housing bubble, again for the wrong reason. I still don’t think the Fed should target bubbles, I think they should target NGDP expectations. But that’s how the game is played, whether I like it or not. It’s like on those Sunday football shows. Each pre-game commentator will be judged on his win/loss record in predictions, even though it’s just luck, and says nothing about the astuteness of his analysis of football strategy and coaching.
Part 2. Don’t ask me to become a blogger
While I am trying to get people to see the world of macroeconomics in a new way, blogging has led me to see reality in a new way. In late February last year I woke up and started my daily routine of reading the internet (which is my newspaper.) When I saw my name mentioned in a Tyler Cowen post, it was kind of a shock. It was at that point that my view of reality began to change. Of course even today I am far from famous, I’m sure most economists have never heard of me. But I have gone from being almost totally obscure, to being well-known in the money/macro blogging community. The blog has had over 10,000 comments and around a million hits.
I used to have lots of free time. When I would email a more famous economist I usually got no response. I was surprised and disappointed by this non-reaction. Now I understand why they would often ignore me. You cannot become highly successful and continue to be polite to everyone (unless of course your name is Tyler Cowen.) There just aren’t enough hours in the day.
In addition, you notice that as you become better known, you don’t seem to have any more influence than before. I used to wonder why Krugman always seemed to downplay his influence. He’s got the best blogging gig in the world, at the NYT. He might be the favorite economist of the Democrats who now run Washington. He’s got his Nobel Prize. He must feel like he’s on top of the world, the James Cameron of blogging. But as the Chinese like to say, “Desire is a valley that can never be filled.” You always want more influence. I can now see how Krugman would be frustrated that no one paid attention to his argument that we needed more stimulus. So imagine how un-influential I feel, despite my minor success this year.
In the real world I am not nearly as successful as it may appear from my blog. I got turned down by the AEA convention. In 2008 and 2009 I sent papers on the economic crisis out to journals like the JMCB and the JPE, journals that I have published at in the past. But now for the first time in my life the articles come back without even being sent out to a referee. “It’s not the sort of thing we publish” they’d say. I gather this means they don’t see enough equations. I hope it doesn’t mean “because it addresses the most important macroeconomic problem since the 1930s.” If you look at macro journals from the early 1930s they were actually discussing the current problems with the economy. Indeed as recently as the 1990s I often published non-technical papers in the JMCB. But those days are gone. They are looking for more VAR studies, more DSGE models. So at the higher levels of economics I am pretty much a dinosaur.
When I am in a “sour grapes” mood, I take comfort from the fact that Friedman was a dinosaur in the last 25 years of his life. I know what you’re thinking “yeah, but he actually did some extremely influential work before he became dismissed as irrelevant.” I do things backward. I published zero papers before getting tenure, and 30 afterwards. Maybe my ideas will catch on after I’m dead. I know, only one out of every 1,000,000 people who thinks they’re another van Gogh, actually is. Maybe it will be Nick Rowe, not me. (My hunch is it will be Robin Hanson–he’s a true innovator. I’m just a pack rat that re-arranges the ideas of others in provocative ways.) But without hope life is impossible. Speaking of the dead, my “ideal reader” for my monetary posts was Friedman, who unfortunately died in 2006. I wouldn’t have had to explain to him that low rates don’t mean easy money. Or the difference between easy money and easy credit. In terms of still living “ideal readers,” I had in mind Tyler Cowen. So it was a weird coincidence that he was the first to promote my blog.
Regrets? I’m pretty fatalistic about things. I suppose it wasn’t a smart career move to spend so much time on the blog. If I had ignored my commenters I could have had my manuscript revised by now. But I think everything happens for a reason. (Yeah, I know, but are they good reasons.) The commenters played an important role in the blog. By constantly having to defend myself against their criticism, I further refined my arguments. In addition, I got a better idea of how other people look at monetary economics. I don’t have any major regrets. I suppose at times I was too grouchy with commenters. You forget that even though you’ve heard the fallacious argument 50 times, it might be the first time they made it. I wish I could always be as polite as Nick Rowe. Perhaps I poked fun at Krugman too much. But I see him as a sort of public figure. And anyway, I also said lots of nice things about him. In contrast, he’s not prone to equivocate with “to be sure” very often when he’s trashing some Chicago school Nobel Prize-winner. So I can always point to someone even less polite.
But on the bright side it has been a lot of fun interacting with other economists, people I’d never get a chance to debate if not for my blog. I had online debates or discussions with Mark Thoma, Lee Ohanian, John Cochrane, and, at the Cato Unbound, with James Hamilton, Jeffrey Hummel and George Selgin. Then there have been interactions with other monetary bloggers, such as Bill Woolsey, Nick Rowe, Arnold Kling, David Beckworth, Josh Hendrickson, Bob Murphy and Ambrosini. (Woolsey helped me immensely by pointing out errors in some of my early posts.) Or with other bloggers who don’t even specialize in monetary economics, like Greg Mankiw, Matt Yglesias, Megan McArdle, Ryan Avent, Will Wilkinson, Michael Pettis and (infuriating as they can seem at times) DeLong and Krugman. And how could I forget all the George Mason bloggers. It was Tyler Cowen who first put me on the map, and he and his colleagues (plus Mankiw) are most responsible for my limited success. I’d cut off my right arm to be able to attend those GMU faculty lunches everyday with Cowen, Caplan, Hanson, Roberts and all the rest of the geniuses. (Fortunately I’m left handed.)
Update: I forgot that David Henderson at Econlog is not at GMU, I should have mentioned his name as well. And I’m sure there are a few others I forgot, my memory isn’t very good. The three bloggers at Econlog are outstanding. And of course I forgot Alex Tabarrok at MarginalRevolution. I never should have started naming people, someone is always left out.
Happiness isn’t based on anything you achieve, but rather the anticipation of future happiness. As sports fans know the most fun position to be in is the underdog challenging the evil empire. So that aspect of the blog has been kind on an enjoyable fantasy, even if on close inspection it’s all nonsense. Ambrosini had a recent post subtitled “Dude, you’ve already won the debate.” If only. But whether I in some sense “win” in the long run isn’t really that important to me. I’ve already got most of what I wanted, which is for people I respect to find my arguments intriguing. BTW, he then took me to task for continuing my easy money crusade after its sell by date. OK Ambrosini, my new year’s resolution for 2011 is to stop obsessing about tight money unless we have fallen into outright deflation.
So where do I go from here? This question reminds me of a comment made by Joseph Conrad (my favorite novelist) after he got his first book published. He is referring to his editor:
If he had said to me , “Why not go on writing, I should have been paralyzed. I could not have done it. But he said to me, “You have written one book, it is very good. Why not write another? Do you see what a difference that made? Another? Yes, I would do that. I could do that. Many others I could not. Another I could. That is how Edward made me go on writing. That is what made me an author.
I used to think I had just a few ideas, and once I used those up I’d have nothing more to say. As you’ve noticed (sometimes painfully) that is not my problem. I suppose it came from being a loner for several decades. As I weighed ideas in my mind I’d go from A to B to C, and then back to A. Even when I’d think of a different angle, I’d rarely write it down and therefore I would soon forget. Once I started blogging I realized I had more than three ideas, and even better, my interaction with commenters kept triggering new ways of thinking about the problem. It’s not that I have come up with any earthshaking ideas, but it allows me to keep refining the argument, continually probing at the issue from different angles. If you’d told me last year “write 1000 pages on monetary policy,” I would have recoiled in horror. I figured I’d do a couple dozen posts, run out of ideas, and then merely comment on current events. I had no idea that writing is thinking. But now here I am a year later, and my blog is 1000 pages of sprawling essays. Yes, there’s plenty of repetition, but even if you sliced out all the filler, I bet you could find a 200 page book in there somewhere.
Still, at the current pace my blog is gradually swallowing my life. Soon I won’t be able to get anything else done. And I really don’t get any support from Bentley, as far as I know the higher ups don’t even know I have a blog. So I just did 2500 hours of uncompensated labor. I hope someone got some value out of it. Right now I just want my life back.
But I suppose I could do one more post.
And after that, maybe one more final post wouldn’t seem so difficult.
But please don’t ask me to become a blogger. It’d be like asking me whether I ever considered becoming a heroin addict. Just one more post. One day at a time. . . .