7 ms·

The MIT Gang

88 points by drallison 11y ago

overpaidgoogler 11y ago
The distinction is usually referred to as saltwater vs freshwater economists (referring to the geographical location of the university's). Apart from MIT there is also Princeton and Stanford in the saltwater camp. And Krugman is right that the saltwater economists were vindicated by the recovery from the GFC. However Krugman is not a good spokesperson for saltwater economists. Most econ professors I know from saltwater university's say they cannot even understand his points (note that Krugman did not win his Nobel prize for macro, but for trade). In particular he is wrong to bundle together views on debt crises, recessions, and general attitudes to the free market. By the time you are in a debt crisis, it's a bit late to stimulate the economy with even more government debt. At some point you actually have to figure out a way to pay money back.
- caminante 11y ago
  On a tangential note, I ran across Dr. Hall's personal page[1] last night and learned (at least according to him) that he coined the "saltwater v. freshwater" classification in his 1976 essay.[2] FWIW, it's refreshing to hear that eggheads can't follow Krugman. It puts me in good company! [1] http://web.stanford.edu/~rehall/ http://web.stanford.edu/~rehall/ [2] http://web.stanford.edu/~rehall/Notes%20Current%20State%20Empirical%201976.pdf http://web.stanford.edu/~rehall/Notes%20Current%20State%20Em...
  - overpaidgoogler 11y ago
    The problem with Krugman is that he used a very "old school" Keynesian intellectual framework, while the rest of the field has moved on. The ideas of Keynes were not abandoned, but they were rendered in a form that is more consistent and coherent with neoclassical economics. Meanwhile Krugman has never been a prominent researcher in macroeconomics, but his Nobel prize and outspoken views on macroeconomics lead many people to that erroneous conclusion.
    - darkmighty 11y ago
      I've always wondered what would happen if we held important positions and decisions in the same regard we hold and review important economic theories, decide on climate change (IPCC panel), or choose among cryptographic hash functions (SHA competition) -- demanding each opinion be backed by a researcher well reputed in the relevant field, and overall statistical/theoretical justifications were demanded for each decision -- to try and make some provably or at least well supported significant decision in terms of optimality to reach certain clearly established goals.
- washedup 11y ago
  We really need a way to simulate how the economy will react under certain policies. The current model is based on one hypothesis about how the economy works, when such policies may have been only tested once or twice before, AND when the test conditions were different in a lot of ways. Because of the complex nature of economic systems, prediction is extremely difficult. We have yet to see if the monetary policies being used today will be a success or not. Many people point to signs of weakness and cracks in the economic foundation. Until interest rates are brought back to 2007 levels, we cannot say that the economy is stable. What happens to high levels of debt when interest rates begin to go up? People begin to default, credit is restricted, and spending drops. It will certainly bring higher volatility across the entire global economy, and the FED is nervous about how much. While MIT might be today's most influential powerhouse of economic thinkers, we still don't know how successful they were at applying theory to practice. The debate about Keynes is still up in the air.
  - overpaidgoogler 11y ago
    I don't see any fundamental difference between what your call simulation and what economists call models. The only difference is that your believe in the possibility of models so accurate that one could easily verify that they give correct predictions, as opposed to existing models which are subject to continual debate. The reason it is so hard to stimulate the economy is that it represents the sum total of a large part of all human activity. So for example to test the impact of a particular kind of fiscal stimulus, you would have to accurately model the response of individuals to their new circumstances, as well as the response of markets (which involve individuals with conscious knowledge of the new policy, and thus their own beliefs about its effects). It is this last factor that makes the economy so hard to stimulate. You are not only simulating actions, but beliefs, and beliefs about beliefs, etc. It's ironic that economics is criticised for following physics to closely, when it is precisely this last factor that makes economics fundamentally unlike physics. The closest thing to modern macro if mean field theory.
    - washedup 11y ago
      I mean computer simulation. Something that you can test many, many times that accurately reflects (or at least within reason) the affects of tweaking the parameters. I understand it's a difficult problem, but there has been some success in this field, and with cheap computer power it becomes easier. Check out this paper: http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf
- eutectic 11y ago
  Can you give specific examples of other economists making better predictions than Krugman by avoiding the mistakes you claim he makes?
  - washedup 11y ago
    Not sure if there are any examples. Economists have never been very accurate because of the nature of economic systems. They are complex adaptive systems, which means that they are very sensitive to initial conditions. Because of the inherent unpredictability we have yet to discover an economic policy that works in the long-run.
  - overpaidgoogler 11y ago
    First, can you describe what the predictions were and what you consider their significance to be?
    - eutectic 11y ago
      The economic slowdown could last 5-10 years and cost trillions of dollars (June 2009): http://news.bbc.co.uk/1/hi/business/8081813.stm http://news.bbc.co.uk/1/hi/business/8081813.stm Semi-prediction of a housing bubble (August 2002): http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip... Inflation and interest rates will remain low in in spite of stimulus and QE (many times). A diagnosis of potential problems with the euro, many of which have come to pass (2001): http://web.mit.edu/krugman/www/euronote.html http://web.mit.edu/krugman/www/euronote.html This is by no means an exhaustive list, but it is quite hard to find a major misstep that he has made as a direct result of his Keynsian beliefs.
      - yummyfajitas 11y ago
        A better question would be, "what predictions did Krugman make which disagreed with non-Keynesians that turned out right (or wrong)?" Various ideological enemies of Krugman made these same predictions. All you are really saying is that Krugman, along with everyone else, gets the easy ones right.
- guelo 11y ago
  How is trade not a big part of macroeconomics? That's a dumb thing to says. On your debt crisis points, it makes all the difference if the debt is denominated in the country's own currency or not.
  - DavidHm 11y ago
    His prize was for research on international trade and globalization. This is a very very narrow field, which is dwarfed by the reach of macro economics. In short, his credibility about macro, especially in regards to the effects of debts and deficits, is questionable.
- BurningFrog 11y ago
  I think Krugman is best understood as a pundit these days. That's his main job now, and he does it very well. But good punditry is often bad science, and vice versa.
pmorici 11y ago
It's hard to take anything Krugman writes seriously. All his writing is so intertwined with his politics It's impossible to sort the factually sound parts from the rest and he has a track record of saying some truly wrong things with great conviction.
- eutectic 11y ago
  What do you think are his political views, and how do they influence his economic writing?
  - nolepointer 11y ago
    It's not evident by the article, but his blog [0], in which this article appears, is titled "The Conscience of a Liberal." Make of that what you will. [0] http://krugman.blogs.nytimes.com/ http://krugman.blogs.nytimes.com/
    - slowmovintarget 11y ago
      He painted Milton Friedman as a radical in the top post's article ("radical free-market ideology", "Chicago School", "Milton Friedman's 'win'"). The idea that free-market proponents in the 70s and 80s were "radical" is at best a lie, and at worst revisionist history.
      - pessimizer 11y ago
        I'd say that at best, it's a subjective description that most of the economists he applied it to would be proud of coming from any other mouth. It's certainly not a strong enough statement to be a lie.
      - mikeyouse 11y ago
        He painted the Chicago Boys, who went back to Latin America and gave political cover to anti-communist dictators using death squads, as radicals.. Krugman has a lot of respect for Friedman's contributions to understanding stagflation and the development of monetarism. http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/ http://www.nybooks.com/articles/archives/2007/feb/15/who-was... The Krugman haters should find some nice balance in the above essay after Friedman's death where Krugman praises Friedman's economic chops but laments his looser standards when he gets too political. By predicting the phenomenon of stagflation in advance, Friedman and Phelps achieved one of the great triumphs of postwar economics. This triumph, more than anything else, confirmed Milton Friedman’s status as a great economist’s economist, whatever one may think of his other roles.
dluan 11y ago
My beef with Krugman is his absolutism, which comes as way more smug when he's post-rationalizing.
- jeffbax 11y ago
  Yeah, his problem is he's so lost in his own ego these days he's just a blatant ideologue at this point. He's uncharitable to his opponents, unwilling to acknowledge his own biases, and is more and more like the Bill O'Reilly of the left just better educated. His smugness and amazing ability to totally ignore any evidence to the contrary just makes me roll my eyes. His ability to spin is uncanny, these being but two small examples of many http://econlog.econlib.org/archives/2015/07/krugman_on_cana_1.html http://econlog.econlib.org/archives/2015/07/krugman_on_cana_... http://econlog.econlib.org/archives/2015/04/krugmans_insigh.html http://econlog.econlib.org/archives/2015/04/krugmans_insigh....
Tycho 11y ago
Does anyone here take Krugman seriously?
- MrTonyD 11y ago
  I started reading his blog about 8 years ago - thinking he was a flake. But over and over again he correctly predicted things that disagreed with everything I was seeing in the papers, and using a reasoning that everyone else was ignoring. So, yeah, I do take him seriously.
guelo 11y ago
I don't understand how conservative economists who have been constantly predicting runaway inflation since 2008 have any credibility remaining.
stevedekorte 11y ago
Inflation did not remain low, it just went into the capital markets and luxury goods first because all the new money (~$3T so far) was effectively handed to big finance to buy their junk bonds above market prices. The wealthy can only consume so much in basic consumer goods (steaks, coffee, paper towels, soap, etc) so we wouldn't expect consumer prices to increase immediately, but we can expect them to increase inevitably. Had the newly printed money been sent to each citizen instead, consumer prices would have risen almost immediately.
AndrewUnmuted 11y ago
People replying to this article may do well to remember that Krugman also attended MIT to receive his PhD in economics. It's quite unfortunate that the man chooses to intentionally disregard all he learned and espoused while attending such a massively well-respected institution.
refurb 11y ago
The truth, although nobody will believe it, is that the economic analysis some of us learned at M.I.T. way back when has worked very, very well for the past seven years. That makes me laugh. I wouldn't measure economic success over a period of 7 years. Yes, the economic policies seemed to have brought the US economy out of its slump. However, let's see how we do over the next 7 years. The danger of "printing money" is not so much the printing, it's the pulling back once the economy recovers. Since the Fed will get a ton of crap for moving too fast and slowing down the recovery, it tends to err on the side of moving too slow. The problem with that is a rapid increase in inflation, followed by a spike in interest rates. Any idea what might happen to housing prices when interest rates jump from 4% to 10% (historically they floated around 6%)? Every increase in interest rates reduces the buying power of those looking for homes. And what happens if they move way too late? Rampant inflation and an erosion of savings. We're still not anywhere close to being out of the woods yet.
georgeglue1 11y ago
For context, MIT has had the consensus best overall economics program for the last ~30 years. Harvard, Stanford, etc. compete closely with MIT in many fields, but MIT is still the most desirable destination for graduate students and assistant professors. It's no surprise that MIT students achieve a lot, and it's not surprising they can't succeed when put in intractable positions.
dmritard96 11y ago
Its interesting how his attitude as stated at the bottom of the piece is that they (the economists) were 'right'. Its so interesting because you would think that brilliant people would realize that their claims aren't falsifiable. There was no AB test for the recession and there are a ton of reasons that their decision could have had relatively little to do with anything.
- closetnerd 11y ago
  Exactly this. I'm amazed he has the audacity to make such a claim. No sooner does he the make claim does he start attacking right wing politicians for not realizing it instead of making a reasonable effort to justify it.

88 points by drallison 11y ago

The distinction is usually referred to as saltwater vs freshwater economists (referring to the geographical location of the university's). Apart from MIT there is also Princeton and Stanford in the saltwater camp. And Krugman is right that the saltwater economists were vindicated by the recovery from the GFC. However Krugman is not a good spokesperson for saltwater economists. Most econ professors I know from saltwater university's say they cannot even understand his points (note that Krugman did not win his Nobel prize for macro, but for trade). In particular he is wrong to bundle together views on debt crises, recessions, and general attitudes to the free market. By the time you are in a debt crisis, it's a bit late to stimulate the economy with even more government debt. At some point you actually have to figure out a way to pay money back.

caminante 11y ago
On a tangential note, I ran across Dr. Hall's personal page[1] last night and learned (at least according to him) that he coined the "saltwater v. freshwater" classification in his 1976 essay.[2] FWIW, it's refreshing to hear that eggheads can't follow Krugman. It puts me in good company! [1] http://web.stanford.edu/~rehall/ http://web.stanford.edu/~rehall/ [2] http://web.stanford.edu/~rehall/Notes%20Current%20State%20Empirical%201976.pdf http://web.stanford.edu/~rehall/Notes%20Current%20State%20Em...
- overpaidgoogler 11y ago
  The problem with Krugman is that he used a very "old school" Keynesian intellectual framework, while the rest of the field has moved on. The ideas of Keynes were not abandoned, but they were rendered in a form that is more consistent and coherent with neoclassical economics. Meanwhile Krugman has never been a prominent researcher in macroeconomics, but his Nobel prize and outspoken views on macroeconomics lead many people to that erroneous conclusion.
  - darkmighty 11y ago
    I've always wondered what would happen if we held important positions and decisions in the same regard we hold and review important economic theories, decide on climate change (IPCC panel), or choose among cryptographic hash functions (SHA competition) -- demanding each opinion be backed by a researcher well reputed in the relevant field, and overall statistical/theoretical justifications were demanded for each decision -- to try and make some provably or at least well supported significant decision in terms of optimality to reach certain clearly established goals.
washedup 11y ago
We really need a way to simulate how the economy will react under certain policies. The current model is based on one hypothesis about how the economy works, when such policies may have been only tested once or twice before, AND when the test conditions were different in a lot of ways. Because of the complex nature of economic systems, prediction is extremely difficult. We have yet to see if the monetary policies being used today will be a success or not. Many people point to signs of weakness and cracks in the economic foundation. Until interest rates are brought back to 2007 levels, we cannot say that the economy is stable. What happens to high levels of debt when interest rates begin to go up? People begin to default, credit is restricted, and spending drops. It will certainly bring higher volatility across the entire global economy, and the FED is nervous about how much. While MIT might be today's most influential powerhouse of economic thinkers, we still don't know how successful they were at applying theory to practice. The debate about Keynes is still up in the air.
- overpaidgoogler 11y ago
  I don't see any fundamental difference between what your call simulation and what economists call models. The only difference is that your believe in the possibility of models so accurate that one could easily verify that they give correct predictions, as opposed to existing models which are subject to continual debate. The reason it is so hard to stimulate the economy is that it represents the sum total of a large part of all human activity. So for example to test the impact of a particular kind of fiscal stimulus, you would have to accurately model the response of individuals to their new circumstances, as well as the response of markets (which involve individuals with conscious knowledge of the new policy, and thus their own beliefs about its effects). It is this last factor that makes the economy so hard to stimulate. You are not only simulating actions, but beliefs, and beliefs about beliefs, etc. It's ironic that economics is criticised for following physics to closely, when it is precisely this last factor that makes economics fundamentally unlike physics. The closest thing to modern macro if mean field theory.
  - washedup 11y ago
    I mean computer simulation. Something that you can test many, many times that accurately reflects (or at least within reason) the affects of tweaking the parameters. I understand it's a difficult problem, but there has been some success in this field, and with cheap computer power it becomes easier. Check out this paper: http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf http://arxiv.org/ftp/arxiv/papers/1412/1412.6924.pdf
eutectic 11y ago
Can you give specific examples of other economists making better predictions than Krugman by avoiding the mistakes you claim he makes?
- washedup 11y ago
  Not sure if there are any examples. Economists have never been very accurate because of the nature of economic systems. They are complex adaptive systems, which means that they are very sensitive to initial conditions. Because of the inherent unpredictability we have yet to discover an economic policy that works in the long-run.
- overpaidgoogler 11y ago
  First, can you describe what the predictions were and what you consider their significance to be?
  - eutectic 11y ago
    The economic slowdown could last 5-10 years and cost trillions of dollars (June 2009): http://news.bbc.co.uk/1/hi/business/8081813.stm http://news.bbc.co.uk/1/hi/business/8081813.stm Semi-prediction of a housing bubble (August 2002): http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip... Inflation and interest rates will remain low in in spite of stimulus and QE (many times). A diagnosis of potential problems with the euro, many of which have come to pass (2001): http://web.mit.edu/krugman/www/euronote.html http://web.mit.edu/krugman/www/euronote.html This is by no means an exhaustive list, but it is quite hard to find a major misstep that he has made as a direct result of his Keynsian beliefs.
    - yummyfajitas 11y ago
      A better question would be, "what predictions did Krugman make which disagreed with non-Keynesians that turned out right (or wrong)?" Various ideological enemies of Krugman made these same predictions. All you are really saying is that Krugman, along with everyone else, gets the easy ones right.
guelo 11y ago
How is trade not a big part of macroeconomics? That's a dumb thing to says. On your debt crisis points, it makes all the difference if the debt is denominated in the country's own currency or not.
- DavidHm 11y ago
  His prize was for research on international trade and globalization. This is a very very narrow field, which is dwarfed by the reach of macro economics. In short, his credibility about macro, especially in regards to the effects of debts and deficits, is questionable.
BurningFrog 11y ago
I think Krugman is best understood as a pundit these days. That's his main job now, and he does it very well. But good punditry is often bad science, and vice versa.

pmorici 11y ago

It's hard to take anything Krugman writes seriously. All his writing is so intertwined with his politics It's impossible to sort the factually sound parts from the rest and he has a track record of saying some truly wrong things with great conviction.

eutectic 11y ago
What do you think are his political views, and how do they influence his economic writing?
- nolepointer 11y ago
  It's not evident by the article, but his blog [0], in which this article appears, is titled "The Conscience of a Liberal." Make of that what you will. [0] http://krugman.blogs.nytimes.com/ http://krugman.blogs.nytimes.com/
  - slowmovintarget 11y ago
    He painted Milton Friedman as a radical in the top post's article ("radical free-market ideology", "Chicago School", "Milton Friedman's 'win'"). The idea that free-market proponents in the 70s and 80s were "radical" is at best a lie, and at worst revisionist history.
    - pessimizer 11y ago
      I'd say that at best, it's a subjective description that most of the economists he applied it to would be proud of coming from any other mouth. It's certainly not a strong enough statement to be a lie.
    - mikeyouse 11y ago
      He painted the Chicago Boys, who went back to Latin America and gave political cover to anti-communist dictators using death squads, as radicals.. Krugman has a lot of respect for Friedman's contributions to understanding stagflation and the development of monetarism. http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/ http://www.nybooks.com/articles/archives/2007/feb/15/who-was... The Krugman haters should find some nice balance in the above essay after Friedman's death where Krugman praises Friedman's economic chops but laments his looser standards when he gets too political. By predicting the phenomenon of stagflation in advance, Friedman and Phelps achieved one of the great triumphs of postwar economics. This triumph, more than anything else, confirmed Milton Friedman’s status as a great economist’s economist, whatever one may think of his other roles.

dluan 11y ago

My beef with Krugman is his absolutism, which comes as way more smug when he's post-rationalizing.

jeffbax 11y ago
Yeah, his problem is he's so lost in his own ego these days he's just a blatant ideologue at this point. He's uncharitable to his opponents, unwilling to acknowledge his own biases, and is more and more like the Bill O'Reilly of the left just better educated. His smugness and amazing ability to totally ignore any evidence to the contrary just makes me roll my eyes. His ability to spin is uncanny, these being but two small examples of many http://econlog.econlib.org/archives/2015/07/krugman_on_cana_1.html http://econlog.econlib.org/archives/2015/07/krugman_on_cana_... http://econlog.econlib.org/archives/2015/04/krugmans_insigh.html http://econlog.econlib.org/archives/2015/04/krugmans_insigh....

Tycho 11y ago

Does anyone here take Krugman seriously?

MrTonyD 11y ago
I started reading his blog about 8 years ago - thinking he was a flake. But over and over again he correctly predicted things that disagreed with everything I was seeing in the papers, and using a reasoning that everyone else was ignoring. So, yeah, I do take him seriously.

guelo 11y ago

I don't understand how conservative economists who have been constantly predicting runaway inflation since 2008 have any credibility remaining.

stevedekorte 11y ago

Inflation did not remain low, it just went into the capital markets and luxury goods first because all the new money (~$3T so far) was effectively handed to big finance to buy their junk bonds above market prices. The wealthy can only consume so much in basic consumer goods (steaks, coffee, paper towels, soap, etc) so we wouldn't expect consumer prices to increase immediately, but we can expect them to increase inevitably. Had the newly printed money been sent to each citizen instead, consumer prices would have risen almost immediately.

AndrewUnmuted 11y ago

People replying to this article may do well to remember that Krugman also attended MIT to receive his PhD in economics. It's quite unfortunate that the man chooses to intentionally disregard all he learned and espoused while attending such a massively well-respected institution.

refurb 11y ago

The truth, although nobody will believe it, is that the economic analysis some of us learned at M.I.T. way back when has worked very, very well for the past seven years. That makes me laugh. I wouldn't measure economic success over a period of 7 years. Yes, the economic policies seemed to have brought the US economy out of its slump. However, let's see how we do over the next 7 years. The danger of "printing money" is not so much the printing, it's the pulling back once the economy recovers. Since the Fed will get a ton of crap for moving too fast and slowing down the recovery, it tends to err on the side of moving too slow. The problem with that is a rapid increase in inflation, followed by a spike in interest rates. Any idea what might happen to housing prices when interest rates jump from 4% to 10% (historically they floated around 6%)? Every increase in interest rates reduces the buying power of those looking for homes. And what happens if they move way too late? Rampant inflation and an erosion of savings. We're still not anywhere close to being out of the woods yet.

georgeglue1 11y ago

For context, MIT has had the consensus best overall economics program for the last ~30 years. Harvard, Stanford, etc. compete closely with MIT in many fields, but MIT is still the most desirable destination for graduate students and assistant professors. It's no surprise that MIT students achieve a lot, and it's not surprising they can't succeed when put in intractable positions.

dmritard96 11y ago

Its interesting how his attitude as stated at the bottom of the piece is that they (the economists) were 'right'. Its so interesting because you would think that brilliant people would realize that their claims aren't falsifiable. There was no AB test for the recession and there are a ton of reasons that their decision could have had relatively little to do with anything.

closetnerd 11y ago
Exactly this. I'm amazed he has the audacity to make such a claim. No sooner does he the make claim does he start attacking right wing politicians for not realizing it instead of making a reasonable effort to justify it.