Saturday, June 09, 2012

Robot Barro?


Robert Barro is the third most cited economist in the world. He's the true inventor of "Ricardian" Equivalence, to which he was too humble to attach his own name. He's also the creator of the "rare events" theory of asset pricing, which I personally believe to be an epic win for finance theory. Most consider it inevitable that he will be awarded a Nobel Prize.

And yet today when I read Robert Barro's editorial in the Wall Street Journal (hat tip Greg Mankiw), I found myself significantly underwhelmed.

Most of Dr. Barro's column is dedicated to showing that our economy is recovering much more slowly than it should. This is fine, I guess; it's the same thing everyone else is saying. It would have been nice to see Barro at least acknowledge the possibility that the GDP "trend" is not a law of the universe. He could have given a nod to Greg Mankiw's "unit root" hypothesis (which holds that shocks to GDP are permanent). But all in all, I'm not going to argue with the idea that our recovery could and should be faster.

I have more problems with Barro's diagnosis of what ails us. Basically - you guessed it - it's "Obama's socialist policies", as documented by - you guessed it - Casey Mulligan:
What's interfering with a real recovery? Perhaps the Obama administration should stop casting blame elsewhere and examine the policies it has implemented to ease the pain of recession and falling housing prices... 
Consider the expansion of social-safety-net programs, including food stamps, unemployment insurance, Medicaid (prospectively) and housing and mortgage programs. In a study published last month by the National Bureau of Economic Research, University of Chicago economist Casey Mulligan observed that, because these programs were means-tested (falling or ending as income rises), expanding them raised the effective marginal tax rate on labor income. 
Specifically, Mr. Mulligan estimates that the effective marginal tax rate for low-income households went from around 40% in 2007, before the recession started, to about 48% in 2009, at the start of the recovery. Thus, while these programs may be attractive from the standpoint of assisting poor families, they dilute incentives to work.
Hmm. Really? I guess this might be right. So, with unemployment insurance ending right now, we should see a big, sudden rise in employment and GDP growth as these de-motivated people go get jobs, right? And we should expect to see the growth bump happen first in places where unemployment insurance ends earlier, right?

Let me know how that one works out, Casey.

After relying on the dubious hypotheses of C. Mulligan to diagnose the slow recovery, Barro offers his prescription (and it is here where I really become annoyed):
To achieve a real recovery, government policy should focus on individual incentives to work, produce and invest. Central here are tax rates and regulations, including especially clarity about future policies. In a successful policy package, the government would get its fiscal house in order and make meaningful long-term reforms to entitlement programs and the tax structure.
So, basically, the recommendation is "the exact same bunch of policies that Republicans have been pushing on America without pause since the days when people listened to 8-track tapes." Cut taxes, cut spending, deregulate. Cut taxes, cut spending, deregulate. Cut taxes, cut spending, deregulate. Cut taxes, cut spending, deregulate. We get it!

So now it's time for me to haul out all the old counterarguments to the standard Republican program. First of all, there's the obvious question: What happens when we've cut all the taxes and spending and deregulated all the regulations, and we happen to have another recession? What do we do then? Throw up our hands?

Then there's the historical point: Bush cut taxes and deregulated back in the early 2000s, and that didn't exactly do wonders for the economy. That can't have escaped notice, can it?

Then there's the fact that real government spending per capita is no higher than at the end of the 2009 recession. And the fact that the countries that have recovered quickly from the recession (South Korea!) have not cut taxes, cut spending, or deregulated. And the fact that fiscal austerity has not done wonders for any of the countries that have tried it since 2009.

And so on, and so forth. All of these points have been made before and will be made again. Because the advocates of "cut taxes, cut spending, deregulate" never seem to waver. They simply march ahead, blaring the message from the pages of the Wall Street Journal editorial page with all the self-doubt of an army of robots.

I mean, I like "individual incentives to work, produce, and invest". That sounds awesome to me; sign me up. Incentives rule. I just have an incredibly hard time believing that the things that are disincentivizing us from working, producing, and investing are taxes and regulation. There has got to be a lot more to the story! And what's more, it seems to me that recession-fighting policy should be something in addition to stuff we should do 365 days a year, 10 years a decade.

The thing is, Robert Barro is a really, really smart guy. He can come up with something better than the same old Republican chestnuts. Or does he think that sort of thing is needed to balance out Paul Krugman's constant calls for stimulus, in a Hegelian, dialectical, "I don't totally buy this but I'm going to say it to cancel out the guy on the other side" sort of way?

53 comments:

  1. The figures clearly show that America under Obama is austerian, not socialist. Education spending has been slashed, government construction has been slashed, total government spending has been slashed, government employment has been slashed, etc. And the tax cuts that there have been have not really done much to spur recovery

    So where does the impression come from that he's a socialist? Rhetoric? Just because he used the word forward as his campaign slogan?

    There have been a lot of hikes in regulation and barriers to entry of actual industry (and contrary to Republican propaganda this was also true under Bush, Bush and Reagan — big corporations love barriers to entry because it puts off the competition) and I'd guesstimate that these have probably been quite harmful in terms of employment and GDP growth (although not all of this will have come from the Federal level)

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    1. Anonymous7:50 AM

      Obama is a Socialist because Republican polling data show this buzz word is their best chance of defeating him and regaining the power that goes with the office.

      Truth is not facts and figures, truth is whatever you decide it is.

      Technically, Socialism is the government ownership of the tools of industry. Obama has not shown any tendency toward having the government take over control of the tools of industry.

      So, they invent this alternate definition of the term. Any money government spends on things they do not like, and any government regulation that reduces business's ability to burn, rape, pillage and plunder in the name of higher profits... well that is Socialism.

      New law that banks can't raise interest rates on credit card balances when you are 1 day late, and instead have to wait until you are two months late = Socialist.

      Can't move jobs from non-right-to-work to right-to-work in an effort to cut wages and benefits to increase profits = Socialist.

      Banks cannot take insane risks with FDIC insured deposits = Socialist.

      In short, it is Bush's "you are with us, or you are with the terrorists" all over again. You are either a corporatist, pushing the right of the corporation to always increase short-term profits regardless of long-term social harm, or you are a Socialist.

      Delete
  2. "What happens when we've cut all the taxes and spending and deregulated all the regulations, and we happen to have another recession?"

    What makes you think you can you have a recession in an economy with no regulations? Has Somalia had any recessions lately?

    Also, why do so many Americans find it remarkable that smart guys, even really, really smart guys, say and do silly things? Lots of smart guys are insane.

    Good rant though; I hope you feel better for it.

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  3. Martin3:16 AM

    "Specifically, Mr. Mulligan estimates that the effective marginal tax rate for low-income households went from around 40% in 2007, before the recession started, to about 48% in 2009, at the start of the recovery. Thus, while these programs may be attractive from the standpoint of assisting poor families, they dilute incentives to work."

    This reads to me as if Barro is saying that "the Great Slump" is in fact "the Great Holiday"; higher marginal taxes resulted in an increased demand for leisure and the 'unemployed' are just sitting around the house enjoying their free time and defaulting on their mortgages.

    I have a hard time believing that.

    "Let me know how that one works out, Casey."

    Sounds to me like you have a publishable paper or comment out there.

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  4. malcolm3:51 AM

    This is, of course, the same Barro who argued that fiscal multipliers are zero because a rationed full employment WWII economy exhibited a zero multiplier in 1943. Come on now. He shouldn't be defended on the grounds that he's really smart if he says really stupid things motivated by his politics and not the data. I too wait for the Mulligan boom.

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  5. Individual incentives as a solution are examples of what I call a musical chairs fallacy. 10 people start playing and, at the end, one winner is seated. All added incentives, training, and striving by the individual players is a waste: there will still be only one winner. The game needs to be changed in order to have a different outcome.

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    1. Anonymous8:06 AM

      Exactly correct.

      Let us say for the sake of argument that half the people collecting unemployment are not actually looking for work, content to sit home and collect their checks. That means that there are millions of people out really, really looking for work and not finding it.

      Is our overall economy helped if that number were to double from 3 million people really, really looking for work to 6 million people really, really looking for work?

      I suppose the argument would then be that it is our minimum wage that is preventing these people from finding work, and what we really need to do is both eliminate the minimum wage and eliminate government safety net.

      Well, then the Republicans would complain about how many people are not paying income tax and how the rich pay a higher % of the taxes then they represent in the population.

      I look at the Z.1 table D3 and see that we have increased debt from $4 to $38T between 1980 and 2012. $4T / 80M households / $18K median income = each households share of total debt was 2.9x median income. $38T / 120M households / $50K median income = each household's share of the total debt is 6.3x median income.

      I am sure that removing the social safety net and the minimum wage can only help this unsustainably high debt/income ratio.

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  6. This is typical of the Chicago school. Since things don't happen in the real world as they should according to the theory, you twist the way you look at the real world. Barro's work on endogenous growth is appalling in this respect.
    I don't know whether endogenous growth theory is still popular those days, after a decade of double-digit growth in BRICs economies, but it was all the rage in the early 90s. The problem with the theory was that the data provided evidence to the contrary: economic convergence (as you would logically expect because of the law of diminishing returns).
    There is one way of testing convergence: take a cross-section of economies with different levels of development, and compare growth between two points in time. Now, because growth is a long-term phenomenon, you have to observe it over a long period, like 20 years or more.
    Instead, Barro claimed that cross-sections suffered from Galton's Fallacy (they don't) and used time-series instead (i.e. the observation of quarterly growth or even smaller time periods). Of course, quarterly growth was affected by all sorts of short-term events, and time-series did not display any discernible pattern. And that was supposed to back the theory.
    How could a supposedly highly competent economist use time-series (an econometric tool that observes short-term variations) for capturing long-term trends in the economy?
    I was just the average student but I could see by myself that what most of those clever people said made very little sense.

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    1. The Chicago school took the lead from the old Soviet Union. Anyone who followed Soviet economics with its theories and predictions and wild contortions and excuse making when the real world didn't follow the Marxist dogma with find the current US economics debates horribly familiar. The US used to have a reputation for ignoring ideology - consider Revel's Without Marx, Without Jesus or the Novus Ordo Seclorum on our currency - but we've sadly turned into just the kind of ideologues we used to make fun of as we splashed by them struggling on the road. It's almost as if, when the old Soviet Union collapsed, all their economists and apparatchki went to work for the University of Chicago and the Republican Party.

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  7. Anonymous6:45 AM

    Robert Barro is an expert on http://www.stoa.org.uk/topics/bullshit/pdf/on-bullshit.pdf

    RE is false. In fact, it is so false it is "not even wrong."

    Last, he is constantly contradicts himself. In the paper you cite he says that a financial crisis is "like a war" that you have lost.

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    1. The contemporary proliferation of bullshit also has deeper sources, in various forms of skepticism which deny that we can have any reliable access to an objective reality and which therefore reject the possibility of knowing how things truly are. These ìanti-realistî doctrines undermine confidence in the value of disinterested efforts to determine what is true and what is false, and even in the intelligibility of the notion of objective inquiry.

      A lot of that going on in the econ world lately... But then he goes on:

      One response to this loss of confidence has been a retreat from the discipline required by dedication to the ideal of accurace to a quite different sort of discipline, which is imposed by pursuit of an alternative ideal of sincerity. Rather than seeking primarily to arrive at accurate representations of a common world, the individual turns toward trying to provide honest representations of himself.

      But this isn't what's going on in the case of RE, which I don't think anyone actually believes. I've wondered myself why this argument exists. I believe the absurdity of it is what draws economists to it. Making a logical argument leading to a correct conclusion is no fun, but if you can make an argument for a wrong conclusion, then you have either shown that it isn't wrong and you've discovered a truth that is unintuitive and can only be uncovered by someone brilliant, or at the very least you have constructed a paradox which can serve as a demonstration of your intelligence and a test of everyone else's. For many attracted to philosophy, the point of an argument is the argument, not the conclusion; the same mindset is common in econ.

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  8. It seems that a big part of the reason that we are having all our economic difficulties is that so many economists are happy to join the "army of robots" and stop giving sound advice. Are economists trained in such a way that being a robot seems like the best course of action?

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    1. Sort of. Macroeconomists, day in and day out, work with models that can't be usefully applied to the real world. So when it comes time to give advice they tend to fall back on instinct.

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  9. Anonymous8:51 AM

    The thing is, Robert Barro is a really, really smart guy.

    Even smart guys can be hacks.

    Why don't you call these people what they are?

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    1. But hacks get paid, right? Barro is a tenured Harvard prof; his income doesn't depend on toeing the Republican party line. Nor does his professional legacy, which I bet he cares about more than income. It's hard to believe that Barro is the anyone's servant.

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    2. Anonymous2:17 PM

      Well, he's already proven he doesn't care about his professional legacy by writing that piece. Or it may be that he only cares what a certain circle of economists think.

      And while he may not strictly need the income, he may also not be immune to the lure of paid speaking engagements and other extra-curricular income that have become common among academic economists.

      Delete
    3. At its heart, Barro's theory is less a theory of economics than it is a reflection of some deeply held quasi-religious beliefs. That's why he posits that people are essentially lazy and need spurs and prods to be productive.

      I can accept that he is a brilliant economist, but, at some point, he melded his underlying quasi-religious beliefs with his basic economic theory, with the quasi-religious beliefs becoming dominant. This is not an unknown phenomenon. For instance, Profs. John Christy and Roy Spencer, both qualified academics, have labored long and hard as climate-change deniers driven by their sectarian religious beliefs.

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    4. People with the 'wrong' views don't get endowed chairs at Harvard. Ideology is a filter not a payroll.

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    5. Charlie9:33 PM

      Even if he is not being paid, he could easily be angling for a prestigious position on the CEA or Federal Reserve or something or for a position for those close to him.

      If not a prestigious position, what about a lucrative chair at AEA or Mercatus or other "thinktanks" like those for himself or those he is championing?

      How about angling for research grants etc - the list of corrupting incentives is likely limitless

      How else do you explain the drivel?

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  10. 1) What did Bush deregulate in the early 2000s?
    and
    2) Citing Krugman graphs does no help your argument. What has federal spending per capita done since 2009?

    And the two worst financial crises this country has experienced have occurred since the Federal Reserve was established to quell the vicissitudes of the marketplace. Is it truly only Republican policies that cause all of the bad things? Of course there would still be recessions. The point of the matter is that it isn't the government's responsibility to come in and try to "help." Markets clear; governments clog.

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    1. Anonymous6:03 PM

      Sean

      You mistakenly assume that financial markets are rational. Thus, you assume that two bad episodes means that the Fed has done a bad job.

      In my view and lots of others (Soros, Munger), financial markets are completely irrational. Thus, only two bad episodes isn't doing bad at all.

      IOW, you need to start questioning your basic assumptions.

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  11. Anonymous10:11 AM

    Obama is a socialist because (1) he is black; (2) he is a Democrat; and (3) lots of comments on Yahoo News stories say he is. How can there be any doubt?

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  12. Anonymous10:38 AM

    "Robert Barro is a really, really smart guy"

    Well, your analysis makes him look pretty dumb, so one of two things from that:

    a) You're a really, really, really smart guy
    b) He's not so smart

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    1. Heh. If you played Dungeons and Dragons, you'd know that Intelligence and Wisdom are two different ability scores... ;)

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  13. Noah,

    My $0.02 is that your time will be better spent not parsing the highly politicized arguments of op-ed pieces by Krugman, Barro, etc.

    At the end of your piece you suggest why Barro and Krugman write the way they do in the media. Krugman has defended his approach by saying that this is the only way he feels he can be heard in today's 'dialogue'. However, I'm not sure that's a strong enough justification as this approach reduces the field of economics to looking like nothing more than a fancy rationalization for political views. And that is not good for any of us who work in the profession who are at least trying to engage in impartial scientific inquiry.

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    1. I'll add that Barro, Krugman, etc. would do well by economics to read/revisit Weber's classic paper 'Objectivity in Social Science and Social Policy'.

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    2. Anonymous5:03 PM

      Actually, Krugman defended his ironic/sarcastic style of writing, not the actual content. And I think that he is right. There are many people that would repeat obvious nonsences even if called upon them (look for example at some creationist crooks). It does not help to give such people consideration of doubt, it makes 'public dialogue' worse, not better.

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    3. Rationalist6:39 PM

      BUT - and a big but - Krugman supports his strong opinions with detailed data. Barro and Mulligan will have nothing to do with actual data. For them it is a matter of pure ideology - or a religion if you will. Hard to argue with such or disprove either. For instance - in response to Noah's "Let me know how that one works out, Casey" - I can assure him that the failure of the data to support Casey's contention re. the "disincentivized worker" he will come back with something like hysteresis effect - The long period outside the workforce has : 1. Changed those workers' leisure / labor preference such that they have higher utility from leisure (became more lazy) hence will wait for better labor market and higher wages to pull them back into the workforce or 2. The long absence from the labor forces caused their human capital to deteriorate in the face of the prevailing tough labor market they may not feel that they can compete hence they became discouraged (which is pretty much what happened in the first place even while they were getting the UI payments)

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  14. Barro needs to apply Ricardian equivalence to government. He would see that in order to cut taxes, cut spending, deregulate, we must first increase taxes, increase spending, and regulate, otherwise people will just expect cutting taxes, cutting spending, and deregulation to lead to increased taxes, increased spending, and regulation in the future. Therefore we must increase taxes, increase spending, and regulation now, in order to expect their decrease in the future.

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    1. That's so crazy, it might just work . . .

      JzB

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  15. We could go back to the last set of policies that we know brought us close to fiscal and financial stability: Clinton era tax rates and bring back Glass Steagall.

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  16. The point I was going to make is in your 2nd to last paragraph, that these are not to be considered policies to fight the Lesser Depression. It's just the same stuff right-wingers always trot out... I guess the problem is that all the stuff that works is already taken by "the left" and right wingers can't appear that they share the same planet with the rest of us...

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  17. Anonymous9:06 PM

    Economics always walks a fine line between philosophy and science, but at this point the Chicago boys seem to have fallen so far off that they're a full-blown cult.

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  18. 1. The originial work on "rare events" is this:

    Rietz, Thomas A., “The Equity Risk Premium: A Solution,” Journal of Monetary Economics, XXII (1988), 117-131.

    2. Do you really think Barro is an inevitable Nobel prize winner? What would he get it for?

    Steve

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    1. 1. I didn't even know about the Rietz paper! You're right...this totally came before Barro, and is a very similar idea. Thanks for the link!

      2. To be honest, I don't really know what people get Nobels for. Econ "Nobels" seem to generally be lifetime achievement awards rather than awards for specific discoveries. I personally think the econ Nobel is dumb, so...

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    2. Anonymous2:07 PM

      Barro fully acknowledges Rietz, which would have remained a very obscure (JME!) paper otherwise.

      My own reading is that the Nobel in economics is rarely given for a lifetime of achievements. That's why Barro's Ricardian equivalence wouldn't make the cut. Same with Fama's efficient markets. Even though both are incredibly powerful and influential (and for pretty much the same reasons, as it happens). But Barro's growth regressions could perhaps qualify, but he'd be up against Romer, Grossman, Helpman, Aghion, Howitt, Jones, Acemoglu, not to mention Uzawa! so it's unlikely he'd get it for that...

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  19. Anonymous1:40 PM

    "I didn't even know about the Rietz paper!"

    Noah! From the six sentence abstract of Barro's paper:

    "The model, an extension of Rietz [1988], maintains the tractable framework of a representative agent, time-additive and iso-elastic preferences, and complete markets."

    It's sometimes called the "Rietz-Barro" model in the literature. But in a sane world, *none* of them is about to get a Nobel prize for any of this. The model is nothing more than a calibration of probabilities to extreme events of such rarity that you can basically assign whatever parameters best suit your deepest complete-market-ratex biases. Contrast the truly profound work of Geweke/Weitzman (See Weitzman's "Subjective Expectations and Asset Return Puzzles", 2007) who have shown how extreme fat-tailed posteriors (look Ma, no moments!) can arise when Bayesian agents without knowledge of underlying structural parameters try to infer them even from an *infinite* number of observations of data generated by a well conditioned underlying process.

    1) Infinitely lived agents with perfect knowledge of the dynamic of the universe hedging their eternal consumption and human capital in the market of securities that span all future states of the universe; or

    2) Rational econometricians heroically endeavouring to update their evolutionarily developed prior probability measures, via excruciating collection and processing of available observations of the history of the states of the world.

    Which of these would you bet on as the foundation of progress in our discipline for the long run? If *anybody* is going to get a Nobel in this area, I hope it will be for the latter contributions.

    K

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    1. From the six sentence abstract of Barro's paper

      Dang, I'll try to remember to memorize every citation in every paper I read from now on... ;)

      Contrast the truly profound work of Geweke/Weitzman (See Weitzman's "Subjective Expectations and Asset Return Puzzles", 2007) who have shown how extreme fat-tailed posteriors (look Ma, no moments!) can arise when Bayesian agents without knowledge of underlying structural parameters try to infer them even from an *infinite* number of observations of data generated by a well conditioned underlying process.

      Yes, this is way cool. One of my favorite papers of all time.

      Which of these would you bet on as the foundation of progress in our discipline for the long run? If *anybody* is going to get a Nobel in this area, I hope it will be for the latter contributions.

      Man, don't be a dork. I was just trying to be complimentary to Barro before I trashed his column, and you very well know it, so quitcha trollin'.

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    2. I'll see your Geweke, Weitzman and raise you a Jobert, Platania, Rogers (2005).

      A Bayesian solution to the equity premium puzzle.

      http://www.statslab.cam.ac.uk/~chris/papers/EPP070306.pdf

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    3. Noah, it was in the abstract - that's naughty of you :(

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  20. Barro, like Mankiw, is a former economist, now a psuedo-economico political hack How else do you get onto the editorial page of Murdoch's WSJ?

    It doesn't matter if he is - or used to be - smart. All that intelligence has been co-opted into serving the right wing agenda.

    Which have been a massive fail for over 30 years. GDP growth has been in a down trend for these decades, and so have government spending and revenues - at all levels. Real median income has been dead flat. Every penny's worth of GDP growth and productivity gain has gone to the top. This is no coincidence It is, in fact, the root cause of the Great Stagnation.

    Grover Norquist has won, and everyone outside of the highest few percent has lost. And so has government of, for, and by the people. Henceforth, it's the new feudalism, and transnational mega-corporatoins, all the way down.

    We're screwed.
    JzB

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  21. Anonymous4:34 PM

    Noah: "Don't be a dork."

    To be, or not to be... a dork. Your plumping for Barro put me over the edge. Sorry.

    "I was just trying to be complimentary to Barro..."

    See, that was your first mistake. There's no excuse for that kind of thing!

    You know what's really funny? Barro calibrates his perfectly-efficient-infinitely-foresighted-totally-hedged agent asset pricing model to events like the great depression, an occurrence which his favourite perfectly-efficient-infinitely-foresighted-totally-hedged agent *macro* model could never accommodate in a trillion years. Very naughty! No Nobel for you, Bob. A properly integrated macro/capital asset model, once we have it, will reveal what a sham this is.

    "One of my favorite papers of all time." (Weitzman)

    Yup, me too.

    Seth: "Jobert, Platania, Rogers (2005)."

    Yes, I agree, even better and super clear paper. I thought Weitzman preprinted first which is why I mentioned him. Not sure. The most innovative stuff was first done by Geweke (2001), referenced by both, but it seems much of it may have been independently arrived at by several parties.

    K

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    1. See, that was your first mistake. There's no excuse for that kind of thing!

      Yeah, YOU get up here and blog under your real name..."K". ;)

      Delete
  22. Noah,

    As I wrote last time in comments:

    Then, there are economists like Taylor and Mankiw, who know full well the horrendous, monumental costs of libertarianism, but they'd rather have that than give up even relatively small amounts of personal freedom. They're true libertarians, not libertarians only because they fall for a fantasy that it creates more total societal utility. These people are especially dangerous because they have titles and prestige, and will use them to grossly intentionally mislead and confuse for the libertarian cause. A very interesting book is the China Study, by famed Cornell Nutritional scientist Colin Campbell. He talks about how long it took for it to be widely accepted in the public that smoking was very harmful, and part of the reason was that you had some doctors and people with prestigious titles who could be quoted saying smoking wasn't harmful.

    at: http://noahpinionblog.blogspot.com/2012/06/libertarians-embracing-public-goods-tim.html?showComment=1338924298646#c4577803512605622178

    Barro's clearly not an idiot or ignorant of the economics, he's just misleading and lying his ass off for his extreme libertarian cause.

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    1. Michael Harris3:17 AM

      After my RBC joke a few weeks back, I may as well throw in another.

      Q. How many macroeconomists does it take to change a light bulb?

      A. 100. Fifty to brandish their high-tech but home-made replacement bulbs, none of which fit properly, and fifty to argue about why it suddenly got dark in the first place.

      And all hundred to disagree on how many, and what kind of, candles the Fed should light in the meantime as everyone waits for the original bulb to miraculously start working again.

      Delete
  23. Anonymous6:33 PM

    Barro can also find support in Bloom, Baker and Davis (2010) who document the increased policy uncertainty under Obama. So don't get too annoyed. There are plenty of smart economists out there who agree with Barro.

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  24. Anonymous6:34 PM

    Richard Serlin is clearly fighting some strawmen libertarian.

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  25. Anonymous11:58 PM

    Mankiw's unit root hypothesis? That's rich. Surely you don't believe that Mankiw originated this hypothesis.

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    1. I have just coined a new term: "Primacy Troll"...

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  26. Barro is an ideologue who is happy to ignore or contradict the evidence even of his own work, if that evidence doesn't fit his a priori beliefs.

    http://www.asymptosis.com/an-open-letter-to-robert-barro.html

    Speaks volumes about the state of the economics "discipline"...

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  27. JohnR9:14 AM

    "..Robert Barro is a really, really smart guy."

    I'll tell you what, Noah - by now you must have noticed that "smart" is not the same thing as "intelligent". I work at a place which is filled with really highly-trained, highly educated, intelligent people. You wouldn't believe the stupid [stuff] I see people do on a daily basis. It turns out you can indeed be a highly educated, intelligent idiot. And that's not even factoring in ideology, which can make the baby Jesus cry. When ideology comes in the door, rational thought flies out the window (or, if no window is available, makes an arm-waving, running, cutout hole in the wall). Why should Barro be any different?

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  28. Anonymous2:18 PM

    No one should be surprised at such comments coming from Barro. Twenty years ago he did the same sort of thing with repeated ad hominem attacks on Laura Tyson. He derided her qualifications to be chairman of Clinton's CEA because her research was in trade economics, with an undertone of her being female and therefore not qualified. In fact, she was eminently qualified for the position not just because of knowledge of economics but also because of her communication skills, both in dealing with the president and the public. Later Barro continued the attack on Tyson in a "political" seminar at an AEA annual meeting. Bob Solow and Rudi Dornbusch spoke for Democrats and Allan Meltzer and Barro for Republicans. Barro's nastiness led Solow to remark that he didn't think there was much point to the discussion.

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  29. Everyday, we deal with many Incentives & Disincentives. Their is a Slight Disincentive to work with the programs mentioned, just as their is a Disincentive to turn down work or not look for work since you can Fined if you are caught doing so. The point shouldn't be controversial, nor should it be considered as some kind of One Incentive to Rule them all. It's part of a big mix, &, since it is supposed to influence Actual Human Behavior, it should be possible to find the people who respond to these Incentives.

    But there is also a set of Incentives & Disincentives in a Plan of QE plus a Reinforcing Stimulus. QE involves keeping Short Term Rates Low as a Disincentive to buy such products, while producing a Rising Long Term Inflation Rate as an Incentive to buy products which do well against Inflation, like Corporate Bonds ( Loans to Businesses ) & Stocks. There are a few Plausible Means to do QE.

    The Stimulus ( Govt Borrowing ) is used to Aid people in need, Invest in Infrastructure, allow a Sales Tax Holiday or Payroll Tax Holiday, give out Dated Coupons, a Tax Break for Investment,etc. You do not want to Raise Taxes or Shed Lots of Jobs as both lead to Debt-Deflation, so the Govt needs to Borrow. The Borrowing also Reinforces Inflation Expectations. The Sensible Approach is to produce a mix of responses as it is not easy to know which Incentives/Disincentives will work best in a Particular Crisis.

    The beauty of this Plan is you can empirically verify it to the extent that any Plan is Verifiable. You can question Investors & Businessmen, &, yes, workers too, to have some idea how things might be going. You can also follow the Bond & Stock Markets to see how they Actually React to Rising Long Term Rates & the introduction of various aspects of the plan. If you do these things, I predict you will find out that the Main Problems are Lack of Demand, both Short Term & Long Term. In fact, I think this Plan, which is part of the Chicago Plan of 1933 worked as described in the 1930s.

    What you can't to is sit on your ass Theorizing or simply Relate What Unnamed People you happen to know tell you. That's Anecdotal. You also can't say you're smart or an expert, at least to me. I need to see Evidence.

    One Final Point: The Reason you have the Govt Say it's going to Backstop the Crisis is precisely to Avoid Spending Money by allowing a period of Careful De-Leveraging, as opposed to a Messy & Needlessly Costly Panic. All this might be Paradoxical, but life if Paradoxical. Or something like that.

    Of course, I might be wrong. But I think I've been reasonably clear and made generous use of Incentives & Disincentives.

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