5 ms·

But he does it in a very specific framework that is never challenged. That's the trick and what, I think, the grandparent is referring to.

OrderlyTiamat 6y ago
> in a very specific framework that is never challenged. I'm not trying to be glib here, but that seems to fit with the intent and title of the piece, does it not?
- RobertoG 6y ago
  Yes, but that's my point too. The framework is never challenged. He says "The first and most important thing [..] is that a strong negative shock to demand [..] leads to a loss of output and employment" Fair enough. Not even a comment of what causes the demand shock, but it's OK. And then he jumps to: " Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession." The are a lot of assumptions there than are not for discussion, are just part of the framework. He says: "The third thing to know is that if central banks go crazy increasing the money supply, the result will be high price inflation." This is just not true, the central bank can increase the money supply all that they want, if the money is not spend in the economy there is not going to be inflation. This has been tested empirically by Japan in the last decades and the Fed and ECB more recently, but it seems that the theory is not going to change, not matter what the reality says. The fourth truth is truth, I think :-)
  - notahacker 6y ago
    It's hardly surprising that a short news piece summarising the conclusions of an entire field of study does not engage itself with challenging the frameworks used. Nominal wage stickiness, recessions etc has been the subject of an enormous amount of study (and wage stickiness is sufficient, but not actually necessary to cause recessions). And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha. Liquidity traps were already baked into the theory. Imagine if somebody dismissed the field of computer science as a distraction from database problems based on a blogger listing CAP theorem as one of its essential conclusions
    - RobertoG 6y ago
      What you says is true. It's a little unfair to criticize his description of economics for what he says in a short article, but I'm not criticizing so much what he says here but his point that there are four essential truths of Macro that justify the current framework. >"And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha." I disagree with that. There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized). There is a good way to see it. If you know the mainstream model of macroeconomics, you can make predictions, are the predictions about the last decades right or wrong? What the model (the framework that the author is defending) says about what would happen with big increases of bank reserves in the system? Because the predictions were wrong, instead of changing the theory, they speculate that the world has change while they were not looking. It seems to me that would not be allowed in other sciences.
      - notahacker 6y ago
        > There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized). Repeating a falsehood does not make it any less false. QE policy was designed by mainstream economists who did not want to see massive inflation, and as they predicted they did not see massive inflation, for reasons [partly] explained in the second sentence on that topic you have for some reason overlooked. The concept that the relationship between money supply and inflation was contingent on another variable called "monetary velocity" dates back to 1911 and the extent to which monetary stimulus produce growth rather than inflation in recession is the fundamental debate of macroeconomics. QE and Zero Lower Bound debates were not new in 2008 either. Your assertion that economists' reaction was to "speculate that the world has change while they were not looking" no discussion is a confession of your own ignorance of contemporary macro, nothing more. (There's nothing wrong with being ignorant of contemporary macro - more exciting hobbies than reading macro papers exist - but plenty wrong with dismissing an entire field of study by reading and understanding only the first sentence of a summary paragraph) I go back to my CAP theorem example. It would be possible to conclude from a one-line summary of CAP theorem that computer scientists cling to theory as an excuse for not working on better sharding technologies or anticipating the possibility of building databases at social media scale. But it would also be laughably wrong.

OrderlyTiamat 6y ago

> in a very specific framework that is never challenged. I'm not trying to be glib here, but that seems to fit with the intent and title of the piece, does it not?

RobertoG 6y ago
Yes, but that's my point too. The framework is never challenged. He says "The first and most important thing [..] is that a strong negative shock to demand [..] leads to a loss of output and employment" Fair enough. Not even a comment of what causes the demand shock, but it's OK. And then he jumps to: " Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession." The are a lot of assumptions there than are not for discussion, are just part of the framework. He says: "The third thing to know is that if central banks go crazy increasing the money supply, the result will be high price inflation." This is just not true, the central bank can increase the money supply all that they want, if the money is not spend in the economy there is not going to be inflation. This has been tested empirically by Japan in the last decades and the Fed and ECB more recently, but it seems that the theory is not going to change, not matter what the reality says. The fourth truth is truth, I think :-)
- notahacker 6y ago
  It's hardly surprising that a short news piece summarising the conclusions of an entire field of study does not engage itself with challenging the frameworks used. Nominal wage stickiness, recessions etc has been the subject of an enormous amount of study (and wage stickiness is sufficient, but not actually necessary to cause recessions). And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha. Liquidity traps were already baked into the theory. Imagine if somebody dismissed the field of computer science as a distraction from database problems based on a blogger listing CAP theorem as one of its essential conclusions
  - RobertoG 6y ago
    What you says is true. It's a little unfair to criticize his description of economics for what he says in a short article, but I'm not criticizing so much what he says here but his point that there are four essential truths of Macro that justify the current framework. >"And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha." I disagree with that. There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized). There is a good way to see it. If you know the mainstream model of macroeconomics, you can make predictions, are the predictions about the last decades right or wrong? What the model (the framework that the author is defending) says about what would happen with big increases of bank reserves in the system? Because the predictions were wrong, instead of changing the theory, they speculate that the world has change while they were not looking. It seems to me that would not be allowed in other sciences.
    - notahacker 6y ago
      > There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized). Repeating a falsehood does not make it any less false. QE policy was designed by mainstream economists who did not want to see massive inflation, and as they predicted they did not see massive inflation, for reasons [partly] explained in the second sentence on that topic you have for some reason overlooked. The concept that the relationship between money supply and inflation was contingent on another variable called "monetary velocity" dates back to 1911 and the extent to which monetary stimulus produce growth rather than inflation in recession is the fundamental debate of macroeconomics. QE and Zero Lower Bound debates were not new in 2008 either. Your assertion that economists' reaction was to "speculate that the world has change while they were not looking" no discussion is a confession of your own ignorance of contemporary macro, nothing more. (There's nothing wrong with being ignorant of contemporary macro - more exciting hobbies than reading macro papers exist - but plenty wrong with dismissing an entire field of study by reading and understanding only the first sentence of a summary paragraph) I go back to my CAP theorem example. It would be possible to conclude from a one-line summary of CAP theorem that computer scientists cling to theory as an excuse for not working on better sharding technologies or anticipating the possibility of building databases at social media scale. But it would also be laughably wrong.