In a recent essay Kartik Athreya suggests that almost all economics bloggers are basically quacks, hardly worth paying attention to. OK, take a deep breath and don’t get defensive Sumner; constructive criticism is always welcome:
In summary, what I’d like to convince the public that economics is far, far, more complicated than most commentators seem to recognize. Because if they did, they could not honestly write the way they now do. Everything “depends”, and this is just the way it is. And learning what “it” depends on, exactly, takes enormous eï¬€ort. Moreover, just below the surface of all the chatter that appears in blogs and op-ed pages, there is a vibrant, highly competitive, and transparent scientific enterprise hard at work. At this point, the public remains largely unaware of this work. In part, it is because few of the economists engaged in serious science spend any of their time connecting to the outer world (Greg Mankiw and Steve Williamson are two counterexamples that essentially prove the rule), leaving that to a group almost defined by its willingness to make exaggerated claims about economics and overrepresent its ability to determine clear answers.
That’s right; no need to pay attention to Gary Becker, John Taylor, Paul Krugman, and all the other quacks who lack Athreya’s sophisticated understanding of the “science” of economics. BTW, any time someone wields the term ‘science’ as a weapon, you pretty much know they are an intellectual philistine. Am I being defensive yet?
To get serious for a moment, in this essay Athreya is confusing a bunch of unrelated issues:
1. The style of bloggers; are they polite or not?
2. The ideology of bloggers
3. The views of bloggers on methodological issues
4. Are bloggers competent to opine on important public policy issues?
I don’t recall ever reading a Greg Mankiw post that I didn’t feel knowledgeable enough to write. On the other hand I’ve read lots of Mankiw posts that I didn’t feel clever enough to write. That’s an important distinction. Mankiw is a great economist in the “scientific” tradition, and he’s a great blogger—but for completely different reasons. He’s a great blogger for the same reason he is a great textbook writer. There are other bloggers who are also very clever; Krugman, Tyler Cowen, Robin Hanson, Steve Landsburg, Nick Rowe, etc, etc. Several on that list also wrote textbooks.
I don’t know if Krugman has done a lot of recent research on macro, but he knows enough about the literature to offer an informed opinion. I often disagree with the views of Krugman, DeLong, Thoma, et al, on fiscal policy, but they can cite highly “scientific” papers by people like Woodford and Eggertsson for all of their fiscal policy views. There must be dozens of economics bloggers who either teach at elite schools, or have a PhD from elite schools, and who are qualified to comment on current policy issues.
Athreya also takes on those who (he claims) lack formal qualifications in economics. Here’s how he opens his essay:
The following is a letter to open-minded consumers of the economics blogosphere. In the wake of the recent financial crisis, bloggers seem unable to resist commentating routinely about economic events. It may always have been thus, but in recent times, the manifold dimensions of the financial crisis and associated recession have given fillip to something bigger than a cottage industry. Examples include Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich. In what follows I will argue that it is exceedingly unlikely that these authors have anything interesting to say about economic policy. This sounds mean-spirited, but it’s not meant to be, and I’ll explain why.
Before I continue, here’s who I am: The relevant fact is that I work as a rank-and-file PhD economist operating within a central banking system. I have contributed no earth-shaking ideas to Economics and work fundamentally as a worker bee chipping away with known tools at portions of larger problems.
Where do I begin? Yes, bloggers who address important public policy issues sometimes “seem unable to resist” commenting on the biggest economic crisis since the 1930s. Unlike Athreya, I don’t judge people by their credentials, but rather by the quality of their arguments. Yglesias is the only person listed above that I read routinely. Although he is much more liberal than I, and we differ on many public policy issues, I find his reasoning ability on economic issues to be superior to the majority of professional economists that I have met or read.
I guess no one will accuse me of being one of those “worker bees” who churn out ever more macro studies that follow accepted scientific methods. I notice that those economists had little or no useful advice to offer the Fed when the current crisis hit in 2008. I may be incorrect in my policy views, but at least I am trying to offer pragmatic policy suggestions.
But maybe it’s not the fault of economists. Maybe there is nothing that could have been done to prevent this crisis:
I find the comparison between the response of writers to the financial crisis and the silence that followed two cataclysmic events in another sphere of human life telling. These are, of course, the Tsunami in East Asia, and the recent earthquake in Haiti. These two events collectively took the lives of approximately half a million people, and disrupted many more. Each of these events alone, and certainly when combined, had larger consequences for human well-being than a crisis whose most palpable eï¬€ect has been to lower employment to a rate that, at worst, still employs fully 85% of the total workforce of most developed nations. However, neither of these events was met by (i) a widespread condemnation of seismology, the organized scientific endeavor most closely “responsible” for our understanding of these events or (ii) a flurry of auto-didacts rushing to oï¬€er their own diagnosis for what had happened, and advice for how to avoid the next big one. Everyone understands that seismology is probably hard enough that one probably has little useful to say without first getting a PhD in it. The key is that macroeconomics, which involves aggregating the actions of millions to generate outcomes, where the constituents pieces are human beings, is probably every bit as hard. This is a message that would-be commentators just have to learn to accept. For my part, seventeen years after my first PhD coursework, I still feel ill at ease with my grasp of many issues, and I am fairly confident that this is not just a question of limited intellect.
This confuses two unrelated issues, the ability to predict a crisis and the ability to prevent a crisis. In 1932 no one could have predicted the rapid inflation that occurred during 1933. But we know exactly what policy choices caused that inflation, the sharp depreciation of the dollar that began in April 1933. We could have easily prevented the inflation. (Thank God we didn’t.) We knew how to prevent the sharp fall in NGDP after mid-2008; we simply chose not to do so. In contrast, we do not know how to prevent earthquakes and tsunamis.
Athreya ignores the role of the medium of account, and the importance of nominal shocks. Yes, the economy is incredibly complex, but nominal aggregates are relatively simple. The Fed has a monopoly on the supply of the medium of account. It’s their job to target some sort variable linked to aggregate demand (prices, NGDP, etc.) The tsunami of falling AD all around the world that occurred in late 2008 was not some sort of mysterious event, but rather reflected the loss of monetary policy credibility. The Fed has the tools to prevent something like that from occurring. Bernanke explained to the Japanese how to use those tools in 2003. The fact that he refused to use them in 2008, and never explained why, is certainly grounds for criticism.
A lot of the more scientific economists have a very limited understanding of economic history. Many do not realize that in the Great Depression some of the most promising ideas came from those on the fringes, like George Warren and Irving Fisher, and that most “respected” economists were peddling snake oil. Today it is bloggers who are offering ideas on how to boost AD, the sort of ideas that almost everyone now agrees should have been tried in the 1930s, and it is respected economists who are often recommending that no further effort be made to boost AD. One example in the latter category is Athreya’s boss, the president of the Richmond Fed. According to press reports he is pressing for tighter money (as if money isn’t already tight.) Perhaps he’s not convinced that models linking nominal GDP growth with unemployment are sufficiently “scientific.”
In the 1930s many “respected” economists warned that inflation was just around the corner, even as prices kept falling. Today, many of the more conservative respected economists are issuing the same warning, despite the fact that the markets are signaling lower that target inflation and despite the fact that conservative economists (claim to) believe that markets are efficient. It seems to me that it is mostly bloggers (on both the left and the right) who insist that the real problem is disinflation. So who’s right Mr. Scientific Economist, the bloggers with their market signals, or the scientists with their abstract models that were completely unable to predict the current crisis, are unable to explain 16 years of deflation in Japan, but are somehow able to tell us that inflation is the real long term threat?
I don’t think the real problem is that bloggers oversimplify. If you disagree with someone their views will always seems simplistic. No, the real problem here is that Athreya likes some simplistic models more than others:
The punchline to all this is that when a professional research economist thinks or talks about social insurance, unemployment, taxes, budget deficits, or sovereign debt, among other things, they almost always have a very precisely articulated model that has been vetted repeatedly for internal coherence. Critically, it is one whose constituent assumptions and parts are visible to all present, and can be fought over. And what I certainly know is that to even begin to talk about the eï¬€ects of unemployment, debt, deficits, or taxes, one has to think very hard about many, many things. Examples of this approach done right in the context of some of the topics mentioned above are recent papers by Robert Lucas of the University of Chicago, Jonathan Heathcote of the Minneapolis Fed, or Dirk Kreuger and his co-authors.
When you combine this passage with his previous praise for Steve Williamson’s blog, it becomes pretty clear what sort of research Athreya considers scientific. What would be an example of non-scientific research? How about Milton Friedman’s partial equilibrium approach to monetary economics and business cycle theory? I am a big fan of Lucas’ work on rational expectations, especially the Lucas Critique. Those were genuine improvements over Friedman’s macro theory. But that is all. Lucas’s insistence that good macro can only be done by carefully embedding all the assumptions in general equilibrium models with micro foundations turned out to be an intellectual dead end. There is not a single idea in monetary economics of use to policymakers that can’t be explained in partial equilibrium terms on the back of an envelope.
If blogs had been around in the 1960s and 1970s, Friedman would have been the world’s best economics blogger. Here’s what Friedman said about the Japanese crisis in 1998:
The governor of the Bank of Japan, in a speech on June 27, 1997, referred to the “drastic monetary measures” that the bank took in 1995 as evidence of “the easy stance of monetary policy.” He too did not mention the quantity of money. Judged by the discount rate, which was reduced from 1.75 percent to 0.5 percent, the measures were drastic. Judged by monetary growth, they were too little too late, raising monetary growth from 1.5 percent a year in the prior three and a half years to only 3.25 percent in the next two and a half.
After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.
The same point is made in Mishkin’s textbook. And Mishkin is a respected “scientific economist” by anyone’s standards. So why is it that 90% of the respected scientific macroeconomists don’t understand this? Why do most keep insisting that the Fed has conducted an “accommodative” or “easy” money policy since 2008? Maybe they think that doubling the base is easy money, and are unaware that the Fed started paying interest on base money in October 2008. As Cochrane pointed out, this means that reserves are now effectively bonds, not money.
My claim is that despite all these fancy mathematical models, most scientific economists lack Milton Friedman’s intuitive grasp on what is really important, what is really going on below the swirling mass of data with which we are constantly bombarded. And I don’t pick Friedman merely because I happen to agree with his politics, Krugman is also very good at looking below the surface (when he doesn’t let ideology get in the way.)
I’m afraid that we won’t get the answers we need from “worker bees.” Matt Yglesias may not have an economics PhD, but he has a sure grasp of the importance of preventing a sharp break in NGDP growth, something that some much more distinguished economists seemed to overlook in the turmoil of the recent financial crisis.
If Athreya really thinks we are so shallow, then I encourage him to enter the fray, start his own blog. I’d love to debate monetary policy with him. He might find out that bloggers know a bit more than he imagined.
HT: David Beckworth