tag:blogger.com,1999:blog-2277215496195926573.post2864089327523195863..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: There is something wrong at the Federal Reserve.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-2277215496195926573.post-84876058550468613572010-12-04T07:18:09.495-08:002010-12-04T07:18:09.495-08:00Ralph,
Kling has a hard time understanding modern...Ralph,<br /><br />Kling has a hard time understanding modern monetary theory, not Modern Monetary Theory as in MMT. Stephen Williamson is a well respected academic macro researcher also associated with the Richmond Fed. He has absolutely nothing to do with MMT.<br /><br />Anyway, isn't Kling at GMU? Hardly a representative sample if you want to start drawing inferences about the economics profession.<br /><br />The "simple lack of demand" question is interesting. In my experience, MMT types are quite keen to point out the abject stupidity of mainstream models, but are also generally in the weird position of not really having well developed models yet believing in them absolutely.<br /><br />How do you know that the problem is "simple lack of demand"? The fundamental epistemological uncertainty here is not easy to resolve. If you can extrapolate the correct trend (stationary or unit root, e.g.) from the time series, then there is an obvious space for policy. That is, you can say that deviations from trend are inefficient and therefore that policy interventions can increase efficiency.<br /><br />But it would be hard to do this from a position of sincerity, since you obviously do not and cannot observe the underlying data generating process. Since you do not know the true model, you do not know the trend and cannot identify inefficient deviations in output with certainty. The neoclassical explanation is pretty crazy too, IMO (rational reaction to technology shocks), but they have the right approach to the fundamental uncertainty surrounding what we know about the data and how we think we know it. <br /><br />Bob Solow was saying back in the '60s that economics was over as a science and that we know everything we need to know about managing the economy. They say history rhymes and Post Keynesians are still humming the same tune (largely, at least). <br /><br />Not giving this problem the credit it deserves makes MMTers look short-sighted, and it makes them subject to partisan affects when cooler analysis would be beneficial (they know they are right, and therefore that their opponents are naive or mendacious). Extrapolating past trend into the horizon-less future is what got our financial sector into this mess in the first place.Anonymousnoreply@blogger.com