Further thoughts on Paul Romer

I did a post over at Econlog, discussing Paul Romer’s recent crusade against academic malfeasance.  It turns out that I didn’t do my homework, relying solely on Romer’s numerous blog posts on the subject.  Now that I’ve had a chance to read rebuttals by people like David Andolfatto and Stephen Williamson, I’m a bit more skeptical of Romer’s project (and I was already pretty skeptical in the Econlog post.)  But it was this remark by Nick Rowe that really set me off:

Paul Romer might like my old post “Macroeconomics when all goods are non-rival“, (even though it’s short run macro and not growth theory like he does). And I was doing (short run) macro with monopolistic competition (pdf) (a couple of months) before it was fashionable. So it’s especially silly (not to mention intolerant of disagreement) for him to make this accusation of me: “After twenty years of playing whac-a-mole with the die-hard price-taking neo-Marshallians, I can tell you exactly where the argument will go next. When the choices are stated as clearly as Dietz does, the neo-Marshallians will claim that there is no such thing as a nonrival good. Nick Rowe has already started laying down a smoke screen of obfuscation on this point.” Nope. He got that one totally wrong, on both counts.

And that sort of response doesn’t create a productive environment for new ideas. People need space to muse over old and new ideas, without the authorities making nasty accusations about their motives.

If you are going to be rude and obnoxious to an economist with lower academic status, you might at least try to avoid being laughably wrong.  For those why don’t know, to call Nick Rowe a “die-hard price-taking Marshallian” is about as silly as calling Milton Friedman a die-hard Keynesian.  In this case, Paul Romer literally doesn’t know what he’s talking about.

Paul Romer is a brilliant economist, but like a certain other brilliant economist blogger, when he takes a stab at trying to evaluate the motives and quality of his fellow economists, he quickly becomes a very ordinary human being.  (Maybe that’s an unfair comparison, I haven’t seen Romer claim that Donald Trump might win the nomination.)

Here’s the latest from Romer, posted yesterday:

Faced with macro fluctuations, there are some policies, such as providing support for cartels, that the government should not try. There are other policies, such as countercyclical purchases of construction services, that it could safely try. After all, it is hard to see the harm that could come from buying more when the price is low. If economists stick to the well established methods of science, it shouldn’t be that hard to tell the difference.

There is no reason to stifle the development of new lines of theoretical or empirical inquiry out of fear that some terrible harm will ensue. If economists stick to science, the insights that are wrong will fade away. Only the ones that are right will having lasting influence. Sticking to science means both paying attention to scholars who are exploring new paths and refusing to pay attention to breakaway groups. No matter what they say, when they stop engaging with outsiders who disagree, they stop doing science.

Hard to see the harm?  So are we now to believe that “the well-established methods of science” means making the simple error of reasoning from a price change?  No, there is nothing in economic theory that says that more construction should be done when the price is low.  That would be true if the price is low because there is more supply of construction services, but not if the low price is caused by less demand for construction services.  And at least since 2008, the fall in the cost of construction services is almost certainly do to a decline in demand.

After 2008, there was a virtual collapse in housing construction across the US.  If governments had responded to that development by building lots of roads, sewers, schools and other projects in the desert outside Phoenix, I don’t think it would have been a wise use of resources.  Military construction?  What’s the marginal value of spending another trillion dollars on jet fighters, when our primary enemies are ISIS and Al Qaeda?  How about high speed rail?  That’s fine in theory, but because of environmental red tape those projects take at least a decade to be “shovel ready”, by which time the recession will be over.  In fact, government investment should have declined after 2008, as the small areas where an increase would have been useful (say filling potholes) were nowhere near substantial enough to offset the drop in construction of infrastructure for new housing developments that quite sensibly occurred in the sunbelt.  So a claim that seemed patently obvious to Romer is in fact very likely wrong.

PS.  This post has nothing to do with Romer’s dispute over the right way to do growth theory.  I’m not well informed on the issue, and suspect that if I was I wouldn’t agree with either Romer or his UC school opponents.  I don’t think mathematical models are very useful in economics, with a few exceptions.  For me, Friedman and Schwartz’s Monetary History is a model (at least in term of method) of what macroeconomic research should be.  So both Romer and Lucas are too mathematical for my taste.  I was deeply influenced by Lucas, but it was by his verbal arguments.

PPS.  I just found out that Romer was at the UC at the same time as I was.  We both had Lucas advise our dissertation.  He’s one month younger than me.  And yet I don’t recall ever meeting him.  Possible reasons:

1.  Perhaps he was a high status student; I was definitely not a high status student.

2.  It was a very big program.

3.  I have a poor memory (so perhaps I did meet him, and don’t recall.)


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27 Responses to “Further thoughts on Paul Romer”

  1. Gravatar of Tom Brown Tom Brown
    9. August 2015 at 06:12

    Shun the blog post not the person. (c:

  2. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    9. August 2015 at 06:14

    I have read some of the posts by Romer and others on the issue. I am not an economist, I am an engineer and now a financier. My alma mater is very strong in math, so I believe I am not a beginner on the issue. Math is good because it is precise, concise. One can depict a description of the world in two lines, in comparison to a few pages of verbal description. I believe the main contention of Romer, one I subscribe to, is when people use formulas to make their case look like science, but then their definitions are not precise, vague concepts are represented by a single variable in an equation, when they could not possibly be. I can’t say anything about the personal attacks on both side, and I could not care less, but I think he has a point on the use of math in economic research.

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    9. August 2015 at 06:21

    ‘…as the small areas where an increase would have been useful (say filling potholes) were nowhere near substantial enough to offset the drop in construction of infrastructure for new housing developments that quite sensibly occurred in the sunbelt.’

    And governments didn’t even fill more potholes (I speak from painful personal experience. I used to be in the business of filling potholes and repairing other damaged concrete). The ARRA stimulul funds were mostly used to maintain the wages and benefits of government work forces.

    Since the laws require ‘prevailing’ (aka, union) wage rates on federal government projects, and it is not at all difficult for local roads to be entangled somehow with federal transportation funding, prices are as sticky as they come for infrastructure.

  4. Gravatar of Becky Hargrove Becky Hargrove
    9. August 2015 at 06:40

    I’ve had a lot of respect for Paul Romer over the years. But the fact he has so much trouble envisioning time as holding non rival potential (or value), may help to explain why he experienced difficulty with the charter city concept.

  5. Gravatar of ssumner ssumner
    9. August 2015 at 06:55

    Tom, That’s right.

    Jose, Yes, he has a point about the misuse of math, but is it an interesting point, or an obvious point?

    Patrick, That’s right.

  6. Gravatar of Bob Murphy Bob Murphy
    9. August 2015 at 07:20

    Hey Scott,

    Great stuff. I am going to do a post on this too, because Romer claiming that guy on Twitter was arguing “Everybody does it” was Orwellian.

    But, can you do a post and give us more context for that Stigler 1955 paper? Even with Romer’s extended quotation at the end of his post on it, it wasn’t clear to me what Stigler’s overall point was. I think if I maybe saw the intro, it would be clearer if Stigler were simply documenting the situation, versus saying, “Hate the game, not the player” (as Romer says he means).

  7. Gravatar of Ray Lopez Ray Lopez
    9. August 2015 at 07:31

    Sumner relishing throwing mud, what a candid post.

    Sumner: ‘I’m not well informed on the issue, and suspect that if I was I wouldn’t agree with either Romer or his UC school opponents.’ – no surprise there!

    Sumner’s “PPS”- he went to the same school as a prominent economist and Sumner: (1) just found out about it (“I just found out that…”), and, (2) claims to have never met the guy because the program was too big, Sumner was a loser, and/or, Sumner has a bad memory.

    I do admire Sumner for leading with his chin, for being brutally honest at times about his many failings, and for not liking math in economics. He’s an Everyman, the Homer Simpson of economic ‘science’, but is he the blogger who saved the world?… LOL.

  8. Gravatar of Scott Freelander Scott Freelander
    9. August 2015 at 08:14

    Ray,

    If Scott’s so pathetic, why do you continue to post comments at all hours of the day. Obviously, you have nothing more important to do.

    No economist is an expert in every area of the subject. He’s still forgotten more economics than you or I will ever know, and I’ve forgotten more than you’ll ever know.

  9. Gravatar of ssumner ssumner
    9. August 2015 at 09:53

    Bob, Stigler said:

    “A few men have such unusual powers that their contemporaries recognize their claims without the usual exaggerations: Smith and Marshall are the only economists who seem to me indisputably to belong in this supreme class.”

    Isn’t “supreme class” generally viewed as a compliment? In any case, it’s up to Romer to provide evidence for his claim, and that quotation obviously doesn’t do so.

    Ray, You keep mentioning over and over again that I might be the blogger who saved the world. I appreciate that, but honestly I don’t think I deserve the honor. On the other hand if you want to keep using that line, . . . well I guess I’m not going to stop you.

  10. Gravatar of bill bill
    9. August 2015 at 10:19

    Patrick,
    Great point. Even if as a taxpayer I’d support filling potholes and repairing bridges during recessions when, in theory, it could cost less, it’s against the law to pay less.

  11. Gravatar of collin collin
    9. August 2015 at 10:26

    After 2008, there was a virtual collapse in housing construction across the US. If governments had responded to that development by building lots of roads, sewers, schools and other projects in the desert outside Phoenix, I don’t think it would have been a wise use of resources.

    Isn’t that what Japan has done the 15 years? In fact looking at Japan there should not be a infrastructure building in 10 years. I still think the basic problem for developed societies is it takes too long young people to have settled careers and family formation.

    Also, before Thursday it made sense to hedge your bets (not predict) Donald Trump would take the nomination. Jeb! is not a strong frontrunner (Romney was much better) and Donald supporters were the most emotional charged supporters so with a crowded field winning NH, SC or NV could take 25% of the vote which is not unrealistic for Donald in the three states.

    Now after the Fox News & Donald ‘war’, Donald pathway to a Third Party/Independent looks more realistic.

  12. Gravatar of Ray Lopez Ray Lopez
    9. August 2015 at 10:33

    @Scott Freelander – I am pleased to not know more ‘economics’ than you or Scott, since you two are brainwashed, akin to what some highly respected economists wrote in a working paper recently (see Tyler Cowen’s blog today for details): ” By the way, the four economists who wrote the paper (NBER) are working at “…the Federal Reserve Bank of Dallas, Princeton, Yale and Sciences Po in Paris.” And get this:

    They concluded that the abolition of the private sector in China and the return to a command economy would yield an annual average GDP growth rate of 4 to 5 per cent between now and 2050.

    Bogus dismal science. The only good thing you can say about Sumner’s monetarism is that it is largely harmless (since money is neutral). Krugman, with his fiscal prescriptions, and these four economists above, are far more dangerous.

  13. Gravatar of TravisV TravisV
    9. August 2015 at 10:44

    Re: Romer, Arnold Kling has a unique different take at askblog: “Paul Romer and I Could Not Disagree More”

  14. Gravatar of Scott Freelander Scott Freelander
    9. August 2015 at 11:05

    Ray,

    Money is neutral? In the short-run? What was it that happened in Zimbabwe then? Or the 70s in the US?

    This is coming from someone who recently listed mortgage-backed securities as money market instruments, showing everyone you don’t know the first thing about finance or economics.

  15. Gravatar of Mike Sax Mike Sax
    9. August 2015 at 11:38

    You mean Trump can’t win? Oops.I don’t know if Krugman really thinks Trump could win-he just said he has no idea either way-but what he really means I’m guessing is he’d love if Trump would win.

    As would I and Bruce Bartlett.

    http://www.politico.com/magazine/story/2015/07/moderate-republicans-donald-trump-tea-party-conservative-fringe-2016-120675.html#.Vcer4PlViko

    Barlett thinks this would be good for the GOP>

  16. Gravatar of ThomasH ThomasH
    9. August 2015 at 14:16

    I do not understand the references to governments paying “prevailing wages” on the activities they carry out. Whether it’t good or bad does effect the activities that should increase when borrowing costs and opportunity costs of project inputs fall. As long as governments are optimizing, their levels of activity should increase. There are some potholes that are not worth filling at full employment that are worth filling when employing the marginal pot-hole filler (whatever he’s paid) or renting the marginal back hoe does not reduce filling and back-hoeing elsewhere in the economy. Not to do so is “austerity.”

  17. Gravatar of ssumner ssumner
    9. August 2015 at 15:15

    Collin, Trump never had any chance, at all.

    Mike. I tend to assume people mean what they say, but that’s just me.

  18. Gravatar of benjamin cole benjamin cole
    9. August 2015 at 16:30

    I don’t know all the ins and outs of the Romer controversy. But I think Romer put his finger on it: macroeconomics has become politics in drag.

    Where is a Milton Friedman today, who three times criticized the Fed for being too tight? (1930s, 1956-7, 1992).

    There is no right-wing economist today who will say the Fed has been too tight. It is simply not done.

  19. Gravatar of ssumner ssumner
    9. August 2015 at 16:51

    Ben, You said:

    “There is no right-wing economist today who will say the Fed has been too tight.”

    I will. 🙂

  20. Gravatar of Ray Lopez Ray Lopez
    9. August 2015 at 19:09

    @Scott Freelander: “Money is neutral? In the short-run? What was it that happened in Zimbabwe then? Or the 70s in the US? ” I am happy to educate you: Zimbabwe was runaway hyperinflation where money neutrality is violated. In the 70s it was a supply constraint that caused inflation (oil shock) not the Fed. And our own host believes that the Fed’s tripling of their reserves by buying MBS was indeed equivalent to money market instruments (i.e., ‘no risk’). Take it up with him.

  21. Gravatar of Bob Murphy Bob Murphy
    9. August 2015 at 20:07

    Benjamin Cole, so what? There is no right-wing economist today who will say Mao relied too heavily on price signals. It is simply not done. I guess they’re all hacks?

  22. Gravatar of Requiem Requiem
    10. August 2015 at 09:20

    It’s just me or economists today are more concerned with motives than economic theory?

  23. Gravatar of Jeff Jeff
    10. August 2015 at 10:03

    If Romer is right that Lucas’s verbal arguments don’t match his math (at all), and you were persuaded solely by Lucas’s verbal arguments, … Well, you do “the math” ;-).

  24. Gravatar of Jeff Jeff
    10. August 2015 at 11:23

    Also, if you’re serious about people meaning what they say, you should read Romer on Rowe again, because he doesn’t say *Rowe* is a Marshallian. He says Rowe is laying a smoke-screen through which said Marshallians can run.

  25. Gravatar of Bob Murphy Bob Murphy
    10. August 2015 at 22:13

    Jeff #10, if you really want to zing Scott, you should dig up the post(s) where Scott says words to the effect of, “Yeah, I know Bernanke is saying this as Fed chair, but he can’t possibly mean it. Ron Paul must be giving him the willies.” (I’m exaggerating for the joke, but Scott definitely has posts like that.)

  26. Gravatar of TD TD
    11. August 2015 at 05:56

    What happened to the Sumner I know, who loves prediction markets so dearly? Predictwise has Trump at a 7% chance of winning the nomination, I’d say that fits the idea that he “might win the nomination.”

  27. Gravatar of ssumner ssumner
    11. August 2015 at 06:15

    Jeff, Romer and I both agree that Lucas’s work in the 1970s was very high quality. That’s what I’m referring to.

    As for the Nick Rowe quote, it seems clear to me that Romer is implying that Rowe is a Marshallian, but perhaps I misread it.

    Bob, Fair point, I don’t believe government officials necessarily believe everything they say.

    TD, Wow, that’s free money! But good point, I wonder if it’s possible to profit from those odds by selling short, or if the market is not liquid or efficient enough. That’s certainly interesting.

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