5 ms·

The distinction is usually referred to as saltwater vs freshwater economists (referring to the geographical location of the university's). Apart from MIT there

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.

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.