You go boy! I'm referring to Noah here. I love this-he calls him out for his 'small-sample Frequentist Event Studies' and he's exactly right. It's also a nice comeback as Sumner has being knocking Noah as a 'Bayesian' lately-in the world of economists these are fighting words: Bayesian! small-sample Frequentist.
http://www.themoneyillusion.com/?p=25795
Sumner seems to think that calling someone a Bayesian is damning indeed as he recently also suggested Krugman is one.
http://www.themoneyillusion.com/?p=25098
Noah really nails it here:
"Blogs are great, but they have their limitations. A lot of macro bloggers want to use specific real-world events to validate or invalidate their theories - "Market Monetarism", "Keynesianism", and so forth. This is not bad if done in a sort of Bayesian way - in other words, looking at events and slightly modifying or updating one's worldview. For example, the events since 2007 have gradually made people less and less worried about inflation. But when done in a small-sample-Frequentist sort of way - looking at a single event and viewing it as an up-or-down test of a grand theory - this kind of inference is incredibly inaccurate."
http://noahpinionblog.blogspot.com/2014/01/bad-event-studies.html?showComment=1389240745791#c5880901669133857697
Noah is kind of playing it 'Centrist' here-the Keynesians are wrong for making it a test in April, 2013 and the MMers are wrong for making it a test in January of this year. Still I can't help but notice how much the MMers are misconstruing what Krugman and other Keynesians said. As Noah notes, Sumner wrongly suggests that he agreed with Konczal's post back in April.
We have a tall tale that keeps getting taller. Here is Bill Woosley totally misconstruing what Krugman said:
"Scott Sumner's first post on Econlog was about the "test" of Market Monetarism. Market Monetarists have generally taken the view that monetary policy, broadly understood, is able to keep spending on output on a target growth path regardless of fiscal policy. In particular, fiscal austerity can be offset."
"Sumner had already commented on Paul Krugman and Mike Konczal's prediction that the fiscal austerity in 2013 would throw the economy into recession along with their statement that it would provide a test of the Market Monetarist claim that the Fed can offset the effect of such a contractionary fiscal policy. Sumner has generally been of the view that the Fed would in fact provide a monetary offset."
1. Fiscal policy is very effective, but didn't really change because everyone had already expected the sequester since 2011. Monetary policy really changed, but isn't very effective. And the economy wasn't hit with any particularly big shocks.
2. Fiscal policy is utterly ineffective. Monetary policy is extremely effective, but the Fed decided to keep the U.S. at 2% inflation and a lower NGDP path than the pre-2007 trend. And who cares what exogenous shocks there were, since the Fed is so powerful.
3. Fiscal policy and monetary policy are both pretty effective. Congress decided to tighten and the Fed decided to ease in 2013, balancing each other out. And there were no big exogenous shocks.
4. Fiscal policy is much more effective than monetary policy. There was a real regime shift toward austerity in 2013. But it was canceled out by positive exogenous shocks, from the economy's natural tendency toward recovery, from the unexpected stability of Europe, from Japan's rapid growth, from shale gas, etc.
"I could go on. There are more combinations."
"Now you see why this is so hard, right?"
http://www.themoneyillusion.com/?p=25795
Sumner seems to think that calling someone a Bayesian is damning indeed as he recently also suggested Krugman is one.
http://www.themoneyillusion.com/?p=25098
Noah really nails it here:
"Blogs are great, but they have their limitations. A lot of macro bloggers want to use specific real-world events to validate or invalidate their theories - "Market Monetarism", "Keynesianism", and so forth. This is not bad if done in a sort of Bayesian way - in other words, looking at events and slightly modifying or updating one's worldview. For example, the events since 2007 have gradually made people less and less worried about inflation. But when done in a small-sample-Frequentist sort of way - looking at a single event and viewing it as an up-or-down test of a grand theory - this kind of inference is incredibly inaccurate."
http://noahpinionblog.blogspot.com/2014/01/bad-event-studies.html?showComment=1389240745791#c5880901669133857697
Noah is kind of playing it 'Centrist' here-the Keynesians are wrong for making it a test in April, 2013 and the MMers are wrong for making it a test in January of this year. Still I can't help but notice how much the MMers are misconstruing what Krugman and other Keynesians said. As Noah notes, Sumner wrongly suggests that he agreed with Konczal's post back in April.
We have a tall tale that keeps getting taller. Here is Bill Woosley totally misconstruing what Krugman said:
"Scott Sumner's first post on Econlog was about the "test" of Market Monetarism. Market Monetarists have generally taken the view that monetary policy, broadly understood, is able to keep spending on output on a target growth path regardless of fiscal policy. In particular, fiscal austerity can be offset."
"Sumner had already commented on Paul Krugman and Mike Konczal's prediction that the fiscal austerity in 2013 would throw the economy into recession along with their statement that it would provide a test of the Market Monetarist claim that the Fed can offset the effect of such a contractionary fiscal policy. Sumner has generally been of the view that the Fed would in fact provide a monetary offset."
Overall, though Noah's point is that such an 'event study' can hardly be rigorous. We have a correlation but it can be construed in so many different ways as he shows.
"But the biggest problem with this sort of inference is that there are just too many free parameters. There are Fed intentions, Congressional intentions, the effectiveness of QE, the impact of austerity, and the nature of exogenous shocks that hit the economy at the same time as the policies. So here are some interpretations of 2013 that seem consistent with a casual reading of the data:"
1. Fiscal policy is very effective, but didn't really change because everyone had already expected the sequester since 2011. Monetary policy really changed, but isn't very effective. And the economy wasn't hit with any particularly big shocks.
2. Fiscal policy is utterly ineffective. Monetary policy is extremely effective, but the Fed decided to keep the U.S. at 2% inflation and a lower NGDP path than the pre-2007 trend. And who cares what exogenous shocks there were, since the Fed is so powerful.
3. Fiscal policy and monetary policy are both pretty effective. Congress decided to tighten and the Fed decided to ease in 2013, balancing each other out. And there were no big exogenous shocks.
4. Fiscal policy is much more effective than monetary policy. There was a real regime shift toward austerity in 2013. But it was canceled out by positive exogenous shocks, from the economy's natural tendency toward recovery, from the unexpected stability of Europe, from Japan's rapid growth, from shale gas, etc.
"I could go on. There are more combinations."
"Now you see why this is so hard, right?"
I think Delong put it best when he pointed out that if policy was really neutral in 2013-thanks to monetary offset where cumulatively fiscal and monetary policy were not a drag or a lift you should see about a 2/5 closing of the output gap. As we don't see it, policy was not neutral and so cumulatively, monetary and fiscal policy did have some net drag on growth in 2013.
God help me, even Major Freedom kind of gets ir right-or at least in the right direction here:
"Empiricism never makes conclusive propositions concerning the economy. All theories that are valid theories are hypotheses, which could be falsified in the future."
"Thus, even if you want to test the MM theory, and even if you think the last year is a valid test of MM theory, Krugman can always use empiricism to doubt the outcome of the experiment. He can say that other factors, heretofore unaccounted for, explain why the economy rebounded. Even if you directed his attention to “monetary offset” as the unaccounted for variable, then that would not conclusively confirm MM theory either. For even if NGDP didn’t fall, then other unaccounted for variables could have influenced the experiment such that what you thought was caused by NGDP rising, wasn’t actually caused by that at all. That is what your worldview of “testing” and “empiricism” calls for. That is the structure of empiricism."
"You however seem to want a conclusive proposition to come out of the last year’s “experiment”. So does Krugman to be fair. But you are not permitted to do so in empiricism. You must grant that there is a possibility that there was a rebound during 2013 because of other variables that you have not accounted for besides MM prediction variables. If you don’t grant that as a possibility, then you are not engaging in empirical testing, but something else."
I don't put much stock in his preoccupation with 'empriciism' vs. 'rationalism'-it's a certain kind of Austrian obsession that has little to do with economics. Yet he's certainly right here that Krugman is not somehow boxed in much less conclusively refuted here-though I think Noah's explanation of why is much better than Major's 'empriicism vs. rationalism' debate which seems to me to belong to philosophy not economics. Noam Chomsky has much better things to say about it than Major.
Not that I'm endorsing-or not endorsing-Chomsky here. A little far of field.
Sumner desperately wants to convince us that Krugman is somehow shamed, embarrassed, etc. All this terrible embarrassment exists nowhere but in his own overly stimulated imagination.
"The final sentence is of course what Keynesians used to call "voodoo economics", until they started making the same "something for nothing" claims that used to be associated with Art Laffer. That doesn't make those claims false, although given the dismal record associated with massive infrastructure investment in Japan, I'd say Laffer's theory is more promising. It's also an odd time to make the fiscal multiplier argument, just two days after Krugman's widely ridiculed explanation for why his "test" of monetary offset was a valid test in April when things seemed to be going his way, but was no longer a test today because . . . well apparently because of factors that were plainly visible in April."
By the way I'm having trouble getting my comments published over at Econlog. They did publish one though even that they held first and since then I have two comments they have yet to publish. I guess we see ho important 'liberty and freedom' really are to them.
"
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