faulker020

Some academic fights I understand, like the argument over whether to use sticky prices in DSGE models. Others I have trouble comprehending. One of these is the fight between champions of structural and quasi-experimental econometrics. Angrist and Pischke, the champions of the quasi-experimental approach, waste few opportunities to diss structural work, and the structural folks often fire back. What I don't get is: Why not just do both? Each approach has unavoidable strengths and weaknesses. Francis Diebold explains these in a nerdy way in a recent blog post. I tried to explain these in a non-nerdy Bloomberg View post a year ago. The strength of the structural approach, relative to the quasi-experimental approach, is that you can make much bigger, bolder predictions. With the quasi-experimental approach, you typically have a linear model, and you estimate the slope of that line around a single point in the space of observables. As we all remember from high school calculus, we ca...

I have a soft spot for theories I thought of when I was 14. Back then I consumed a lot of epic fantasy books (and video games, and TV shows), in which an ancient evil is often just now returning after being banished (typically for a period of 1000, 5000, or 10000 years), and new heroes must arise to defeat it again, etc. etc. I reflected that my grandfathers had defeated cosmic evil, back in WW2, and that before that, my American forebears had defeated cosmic evil in the Civil War, so at some point we were due for another showdown with the ever-returning Forces of Darkness. I also figured that each generation after the war would be a little softer and more complacent than the last, and that this weakness would be one thing that encouraged the Forces of Darkness to make their comeback. And since it was about 75 years from the Civil War to WW2, I figured that each cycle lasted about four generations, and that it would be the generation after mine who would have to bear the brunt of the f...

Economists tend to use the word "capital" pretty loosely. It just means "anything you can spend resources to build, which lasts a long time, and which also can be used to produce value." That's really broad. For example, it could include society itself . It also typically includes " human capital ," which refers to people's skills, talents, and knowledge. Why do most economists define "capital" this way? Really, it's just a convenient way to make the kind of models they like to make. I tried to explain this in a wonky post a couple of years ago. But there are people out there who really don't like this broad definition of "capital". For example, the economist Branko Milanovic has repeatedly argued against use of the term. So has Matt Bruenig . And Paul Krugman agrees with them . They would rather restrict the word to mean what economists typically call "physical capital" - machines, buildings, and the like. W...

I wrote a Twitter thread about this a while back, but it got deleted in a periodic wipe, so I thought I'd reprise it here for posterity, and expand a little on the earlier point. For decades now, liberals - a term I'm using loosely to mean anyone on the American left - have mostly shunned gun ownership and gun culture. Around half of Republicans own guns , and 41% of those who call themselves "conservatives," compared to only 22% of Democrats and 23% of those who call themselves "liberals". Why? One reason is that liberals are more likely to live in big cities, where there is an assumption that violence will be stopped by the police (and by numerous witnesses), rather than by one's own defensive actions. But I think part of it is cultural - liberals, by and large, want to live in a society without widespread gun ownership, and many have decided to "be the change they want to see in the world." But leading by example hasn't worked. Gun contr...

The top question on my Reddit AMA was "When and why did you start hating on our lord and saviour Milton Friedman?". Two or three other questions were basically the same. And it's true, I have been on a Milt-bashing kick of late. I did a post evaluating how Friedman's macro theories had held up , and gave them a C+ overall. I wrote another post complaining about his "pool player analogy" , which people use to justify not checking their model assumptions against micro data. I wrote two Bloomberg posts declaring the Permanent Income Hypothesis dead ( post 1 , post 2 ). And I wrote a tweetstorm (since deleted in a periodic tweet-wipe) about how Friedman's libertarian policy program might have prevented racial integration in the United States. My revisionist campaign against the late Friedman has ruffled a lot of feathers. Uncle Milt is something of a secular saint among both economists and libertarians. If you say "people don't smooth consumption,...

This week's Bloomberg View posts : 1. " Still Seeking Growth From Tax Cuts and Union Busting " Can states win with a low-tax, anti-union strategy? A few are trying. How are they doing? The best way to answer this is to compare adjacent pairs of otherwise similar states. In this post, I take a look at Wisconsin vs. Minnesota and Kansas vs. Nebraska. Short version: laizzez-faire policies can create vast wealth for the poor and middle class don't seem to have much effect at all. 2. " Things Might Be OK if Trump Borrows From Abe " I don't expect this to happen, but if Trump decided to follow Shinzo Abe's playbook, he could end up being the kind of responsible, forward-looking nationalist leader that Abe has proven to be. This post is also a rebuke to all those gaijin writers who were yelling "Abe is a fascist!" a couple years back. 3. " Economics Gets a Presidential Demotion " Economists might think that all the economist-bashing in ...

I did an AMA on r/badeconomics (whose name is tongue-in-cheek, as it's actually much more econ-savvy than r/economics). It ended up being really long, since it was posted a day early. But that just made it more fun! Thanks much to excellent moderator Jericho Hill for setting it up, and to everyone who posted questions. Questions included: 1. Why do I diss Milton Friedman a lot these days? 2. Which is a bigger problem: 101ism, or the people who say econ is a bunch of neoliberal garbage? 3. Is heterodox econ the antidote to "economism"? 4. Do banks "lend excess reserves"? 5. Which economists in the public sphere do I respect the most? 6. How could the Euler Equation possibly be wrong? 7. Which pop econ books do I recommend? 8. Which economists in the public sphere do I respect the most? 9. What have economists changed their minds about the most in recent years? 10. Is the Permanent Income Hypothesis really "wrong"? 11. Does money need to be "backed...

I've been getting in arguments with immigration restrictionists for years now. The more reasonable restrictionists suggest that we need an immigration "pause" in order to assimilate the recent big wave of immigrants. They point to the Immigration Act of 1924 as an example, and suggest doing something similar today. The argument is not implausible. Integration is important . When the citizens of a country view themselves through a tribal lens, it can be very hard to get important things done , and the country can become dysfunctional and - eventually - poor. In the past, America has done well at combining many disparate ethnicities - Irish, Germans, Italians, Jews, Greeks, Poles, etc. There's plenty of reason to believe that this is happening again , with the mostly Hispanic and Asian immigrants of the recent wave. But there's an argument that we need to speed this process up, by pausing immigration. Without a pause, restrictionists say, the phenomenon of " r...

My employers, the editors of Bloomberg View, have an editorial out called " Why Not Make Economics a Science? ". I like this post, it gets at a very important point. But I think it leaves some very important things out, too. The article's main criticism of econ - or really, of macro, which most people casually call "economics" - is that it seems reluctant to discard theories: [T]oo many theorists...have drifted far from the real world...Before the 2008 financial crisis, for example, the standard models more or less ignored finance...Given such spectacular failures, you’d think the profession would have gone back to the drawing board. It hasn’t. True, some tweaks have been attempted...But the error at the core of modern macroeconomics -- that mathematical consistency matters more than empirical relevance -- prevails...Reviving economics as a science will require economists to act more like scientists . If models are refuted by the observable world, toss them out...