It's about time the rest of the profession started to agree with me.*
Michael Woodford has come out in support of NGDP targeting. Whoo!
...I mean, dude's several years late. Took him long enough. Still, I'm glad to finally have him on board.
There's a lot we could do to discuss bank regulation, changes in debt, making the system more stable even with a better monetary target. Yes yes yes. Having a better set of models (including dynamic models, if I ever get around to really understanding them) would be nice. But my primary focus is still the current incompetence of central banks. Get the NGDP thing hashed out first, because it's the easiest thing to do. Go from there.
*And by "me", I really mean "Scott Sumner", who is most responsible for popularizing the idea.
ETA: There's another point I wanted to add about a relatively recent Krugman post. I'm not going to have a lot of time, probably for the rest of this year at least, but it's a topic I'm thinking about still and want to come back to. Says Krugman:Some economists really really believe that life is like this - and they have a significant impact on our discourse. But the rest of us are well aware that this is nothing but a metaphor; nonetheless, most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point or baseline, which is then modified - but not too much - in the direction of realism.
Before this year, this was precisely my belief, too. And it kinda sorta still is. The problem, though, is that for too many economists, their thoughts get anchored on the unrealistic ideal, which means they take far few steps toward reality. There are precious few people who are adequately careful with words, even among people who should be professionals. Reality gets lost in the noise of so many different connotations. This isn't exclusive to economics. The same sort of muddy thinking happened in evolutionary biology, with professional biologists getting stuck in ridiculous ideas of "group selection" until people like Richard Dawkins broke out the advanced game theory and ended the verbal ambiguity with hard mathematics.
We're having trouble convincing people because we use too many words. Simple as that. It's possible that not one economist in ten has studied enough history to understand what we're saying. And the equations? They all start from ideal premises. And how do we step away from the ideal premises? More words.
Here's more KrugmanWhy do things this way? Simplicity and clarity. In the real world, people are fairly rational and more or less self-interested; the qualifiers are complicated to model, so it makes sense to see what you can learn by dropping them. And dynamics are hard, whereas looking at the presumed end state of a dynamic process - an equilibrium - may tell you much of what you want to know.
These motives are the reason why other fields facing similar concerns adopt similar strategies. As I wrote long ago, evolutionary theory - the biological kind - looks remarkably like neoclassical economics.
What would truly non-neoclassical economics look like? It would involve rejecting both the simplification of maximizing behavior, going for full behavioral, and rejecting the simplification of equilibrium, going for a dynamic story with no end state.
And he goes on to discuss computer simulations, something which the Australian economist completely approves of.** Krugman obviously doesn't always read other people's points very carefully, but it's clear he is aware of these issues. I would say, though, that he likely underestimates the degree to which the average economist's mind gets anchored to the fantasy and is unable to think more dynamically, because they've been trained only in the simple and elegant orthodox way rather than being exposed to different approaches.
I, for one, wouldn't recommend discarding comparative statics, but I do think we've reached the point where we can start genuinely supplementing it with dynamic no-equilibrium approaches.
**This is very on the nose. After his dispute with Keen, I have to wonder whether Krugman went back and read more of his stuff. It wouldn't surprise me if he did.
...I mean, dude's several years late. Took him long enough. Still, I'm glad to finally have him on board.
There's a lot we could do to discuss bank regulation, changes in debt, making the system more stable even with a better monetary target. Yes yes yes. Having a better set of models (including dynamic models, if I ever get around to really understanding them) would be nice. But my primary focus is still the current incompetence of central banks. Get the NGDP thing hashed out first, because it's the easiest thing to do. Go from there.
*And by "me", I really mean "Scott Sumner", who is most responsible for popularizing the idea.
ETA: There's another point I wanted to add about a relatively recent Krugman post. I'm not going to have a lot of time, probably for the rest of this year at least, but it's a topic I'm thinking about still and want to come back to. Says Krugman:Some economists really really believe that life is like this - and they have a significant impact on our discourse. But the rest of us are well aware that this is nothing but a metaphor; nonetheless, most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point or baseline, which is then modified - but not too much - in the direction of realism.
Before this year, this was precisely my belief, too. And it kinda sorta still is. The problem, though, is that for too many economists, their thoughts get anchored on the unrealistic ideal, which means they take far few steps toward reality. There are precious few people who are adequately careful with words, even among people who should be professionals. Reality gets lost in the noise of so many different connotations. This isn't exclusive to economics. The same sort of muddy thinking happened in evolutionary biology, with professional biologists getting stuck in ridiculous ideas of "group selection" until people like Richard Dawkins broke out the advanced game theory and ended the verbal ambiguity with hard mathematics.
We're having trouble convincing people because we use too many words. Simple as that. It's possible that not one economist in ten has studied enough history to understand what we're saying. And the equations? They all start from ideal premises. And how do we step away from the ideal premises? More words.
Here's more KrugmanWhy do things this way? Simplicity and clarity. In the real world, people are fairly rational and more or less self-interested; the qualifiers are complicated to model, so it makes sense to see what you can learn by dropping them. And dynamics are hard, whereas looking at the presumed end state of a dynamic process - an equilibrium - may tell you much of what you want to know.
These motives are the reason why other fields facing similar concerns adopt similar strategies. As I wrote long ago, evolutionary theory - the biological kind - looks remarkably like neoclassical economics.
What would truly non-neoclassical economics look like? It would involve rejecting both the simplification of maximizing behavior, going for full behavioral, and rejecting the simplification of equilibrium, going for a dynamic story with no end state.
And he goes on to discuss computer simulations, something which the Australian economist completely approves of.** Krugman obviously doesn't always read other people's points very carefully, but it's clear he is aware of these issues. I would say, though, that he likely underestimates the degree to which the average economist's mind gets anchored to the fantasy and is unable to think more dynamically, because they've been trained only in the simple and elegant orthodox way rather than being exposed to different approaches.
I, for one, wouldn't recommend discarding comparative statics, but I do think we've reached the point where we can start genuinely supplementing it with dynamic no-equilibrium approaches.
**This is very on the nose. After his dispute with Keen, I have to wonder whether Krugman went back and read more of his stuff. It wouldn't surprise me if he did.