Two types of economists

One type of economist looks at the real world, and notices causal relationships. They notice that central bank policies have a massive impact on asset markets all over the world.  They build models to try to understand that impact, and try to derive implications for improving monetary policy.

Another type of economist starts with their models–the more abstract and unrealistic the better.  Then they notice that according to their models central bank policy should have no impact at all.  And so that’s what they assume to be the case.

Friedman and Schwartz (1963) represent the first type.  My book on the Depression (coming out in December) represents my attempt to follow in their footsteps.

PS.  At 2pm I’ll have a fairly long post on Bernanke’s memoir, at Econlog.  I didn’t mention names here because I’m painting with a broad brush and any individual might claim (perhaps with justification) that I’ve oversimplified.  But I do see these tendencies in both the New Keynesian and New Classical communities, at least at the zero bound.  I’m actually making a plea for economists to pay more attention to the valuable information embedded in asset price movements.

PPS.  It’s deeply discounted at Amazon (51 cents off), plus free shipping.


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25 Responses to “Two types of economists”

  1. Gravatar of Lee Kelly Lee Kelly
    25. October 2015 at 06:20

    I would definitely be the second type.

  2. Gravatar of marcus nunes marcus nunes
    25. October 2015 at 06:42

    Second type:
    https://thefaintofheart.wordpress.com/2015/10/25/looking-for-wally-when-there-are-many-wallies/

  3. Gravatar of Major.Freedom Major.Freedom
    25. October 2015 at 07:01

    No, there is no such thing as the first type.

    The human experience cannot “notice”, via observation, any causal relationship. You can’t actually see cause. You can only see sequences of events.

    What is required to know causation is the very “start with a theory” that you attributed to the type 2 person in your list.

    You START with the a priori theory that inflation of the money supply causes prices to rise, and that is how you then interpret the causal relationship between what the Fed does and what happens to asset prices.

    Now there are good a priori theories that follow from first principle of human action, and there are bad a priori theories that contradict the categories of human action. Inflation causing a rise in asset prices follows from good a priori theory.

    NGDP being the cause of unemployment is an example of a bad a priori theory because it does contradict the categories of human action, specifically the temporal and logical sequence of means and ends. Labor precedes, both temporally and logically, the creation of capital goods and consumer goods. Moreover, wage payments precede spending on capital goods and consumer goods.

    Therefore wage payments going up or down cannot possibly be “caused” by changes in NGDP. It is the other way around. Changes in wage payments causes changes in NGDP.

    If a central bank targets NGDP, they would not be keeping wages stable by keeping NGDap stable. They would be inadvertantly keeping wage payments stable to the extent NGDP is caused to be stable by the stable wage payments.

  4. Gravatar of Major.Freedom Major.Freedom
    25. October 2015 at 07:06

    But only if there happens to be a one to one relationship between wage payment changes and NGDP changes, which in reality we cannot know beforehand.

  5. Gravatar of TravisV TravisV
    25. October 2015 at 07:07

    Dear commenters,

    Other than Prescott, what prominent economists is Prof. Sumner referring to? Kling? Cochrane?

  6. Gravatar of Becky Hargrove Becky Hargrove
    25. October 2015 at 07:25

    Finally…your book in December!

  7. Gravatar of ssumner ssumner
    25. October 2015 at 07:52

    Travis, I added a PS.

  8. Gravatar of TravisV TravisV
    25. October 2015 at 08:03

    Prof. Sumner,

    Thanks, appreciate your P.S., looking forward to your Bernanke post!

  9. Gravatar of TravisV TravisV
    25. October 2015 at 08:09

    Some classic old posts by Prof. Sumner:

    – “I don’t believe you (you’re a liar)”
    – “We’re all Austrians now . . . make that Keynesians.”
    – “Princeton Rules the World”

    http://econlog.econlib.org/archives/2014/12/nobody_is_going.html

    https://www.themoneyillusion.com/?p=3316

    https://www.themoneyillusion.com/?p=1791

  10. Gravatar of Lorenzo from Oz Lorenzo from Oz
    25. October 2015 at 14:24

    Wow, December, that’s, like, less than two months away! 🙂

  11. Gravatar of Bonnie Bonnie
    25. October 2015 at 15:11

    Will there be an electronic version of your book? Storing my library on my tablet/smartphone allows me to read whenever and wherever I can steal a moment without having lug books around.

  12. Gravatar of Ray Lopez Ray Lopez
    25. October 2015 at 16:57

    ??? Sumner to his zombie followers: “Night is day and day is night”. Followers: “Yes, yes, master”. Sad.

    First, Sumner gets a dig at Woodford with his ‘second type’ economist. Woodford is known for –correctly–completely ignoring Sumner, as Sumner contributed nothing to theory other than a word picture.

    Second, seemingly written to shock me, Sumner states that he is a ‘first type’ economist, yet Sumner has stated he has never read Bernanke’s 2003 FAVAR econometrics paper, which shows the Fed nearly impotent (merely 3.2% to 13.2% effect on a variety of variables from Fed policy shocks, from 1959 to 2001, the golden era btw of monetarism), because he does not trust the study to be repeatable (!, when it’s a historical study so anybody can replicate the data!). Sumner doesn’t believe in empirical data when it does not fit his worldview.

    Sumner, the “Rush Limbaugh” of economics.

  13. Gravatar of Don Geddis Don Geddis
    25. October 2015 at 17:16

    Congratulations on the publication of your book. (I put in my pre-order!)

  14. Gravatar of CA CA
    25. October 2015 at 21:20

    I’m gonna buy 2!!

  15. Gravatar of kt kt
    26. October 2015 at 05:36

    ditto Bonnie’s question

    will there be a kindle version?

  16. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    26. October 2015 at 05:56

    Three Spanish economists say, Esto no ha terminado hasta que ha terminado

    http://www.voxeu.org/article/greatness-great-moderation

    ‘The Great Moderation is not over in spite of the Great Recession even if we use a historical dataset beginning in the 19th century. The Great Moderation was originally associated with a decrease in output volatility and was considered a great achievement in terms of reducing risk and of decreasing the frequency and depth of recessions. However, after carefully analysing the characteristics of the Great Moderation, they seem to be more clearly associated with the shape of expansions. Perhaps the benefits associated with an apparent increase in stability are paid for at a very high price. Feeble expansions may be the price to pay for low volatility.’

  17. Gravatar of Alfred Alfred
    26. October 2015 at 08:18

    Just want to add my voice to those asking for a Kindle version. I haven’t purchased a physical book in years.

  18. Gravatar of Cameron Cameron
    26. October 2015 at 09:54

    Scott,

    It looks like your book is number 2 among “Economics” books on amazon at the moment. Guess what #1 is.

    Do you have any idea whether there will be a digital copy?

  19. Gravatar of Charlie Charlie
    26. October 2015 at 10:13

    Longtime reader, first time commenter. Congratulations on the book Dr. Sumner! I put in my pre-order. Can’t wait to read!

  20. Gravatar of TallDave TallDave
    26. October 2015 at 10:57

    Scott — When will the Kindle edition be released? I hate trees as much as the next guy, but I have small children for whom all paper is an irresistible magnet for crayons. Also, I no longer remember how normal books work.

  21. Gravatar of ssumner ssumner
    26. October 2015 at 12:48

    Lorenzo, December 1st!

    Bonnie and kt, I’m told there will be, perhaps a bit later.

    Ray, Woodford?

    Thanks Don.

    CA, Everyone should buy 2, in case it gets lost, or the dog chews on it.

    Patrick, Thanks, I have a new post.

    Alfred, I hate kindle, and I get less royalties 🙁

    Cameron, Yes, see my reply to Bonnie.

    Thanks Charlie.

    Talldave, I think in somewhere around late December, but am not certain.

  22. Gravatar of TravisV TravisV
    26. October 2015 at 15:00

    Prof. Sumner,

    (1) Why is the book called the “Midas Paradox” rather than “Midas Curse”?

    (2) Is anyone expected to review the book prior to publication? Glasner? Glasner? Glasner?

    (3) Is “Steve Sailer” at http://www.unz.com the same guy you worked with on papers years ago? Hey, we both went to Rice University! Wow, Sailer’s gone off the deep end on low-skilled immigration (along with Mickey Kaus)!

  23. Gravatar of ssumner ssumner
    27. October 2015 at 11:53

    TravisV, In my heart it will always be The Midas Curse, but the publisher wanted a different name. Seemed that bookstores didn’t want to carry something called “curse”, sounds too depressing.

    If I had to defend “Paradox”, I’d point to the fact that the attempt by countries to accumulate lots of gold paradoxically left them much poorer.

  24. Gravatar of ssumner ssumner
    27. October 2015 at 11:54

    TravisV, I’m not sure about reviews, and you are thinking of Stephen Silver, who is at The Citadel (unless he is retired.).

  25. Gravatar of TravisV TravisV
    28. October 2015 at 08:31

    Thanks, Prof. Sumner! Steve Silver, ha, whoops!

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