Sunday, April 8, 2012

Interfluidity — Because the stakes are so small?

SRW would like to see market monetarists, mainstream saltwater economists, and Post Keynesians to tone down the debate, quit nipping at each other's ankles, and play nice. He is not suggesting that they can "work it out" so that they emerge with agreement on a common idea but rather suggests there is room for integration of useful tools.

Read it at Interfluidity
Because the stakes are so small?
by Steve Randy Waldman


paul said...

SRW must be a "centrist".

The centrist position on building a bridge would end up with a bridge halfway across the river.

How do you compromise with wrong?

When the dust settles giving ground on these kinds of issues ends in failure.

Tom Hickey said...

Read the Scott Sumner's post on the money multiplier I just linked to. How it is possible to work with people that have no idea of money and banking, and finance in the economy? SRW is presuming that their monetary tools actually work. That's what the kerfuffle is about.

wh10 said...

Yeah Tom. The thing that's been troubling me as of late is how much the natural rate plays into this. Sometimes I think this is the key issue underlying everything, and other times, like when I read Sumner, it's that people just don't get how the operations work. But does a proper understanding of the operations exist independently of the natural rate, in a world where the natural rate exists? Not sure if that makes sense.

Matt Franko said...

P, Imagine trying to design and build a bridge using only words..... this is how their brains work. Rsp,

Tom Hickey said...

wh10, the key to me is presumption of the neutrality of money. They think that the real economy exchanges goods for goods and the money side of it is just the nominal record. There is no inclusion of money & banking, finance, or credit as a factor shaping the economy. As Dirk Bezemer observed in "No One Saw This Coming":
Understanding Financial Crisis Through Accounting Models (2009), this ignorance lead to economists being asleep at the switch while the crisis was building. On the other hand, he points out that Wynne Godley and Randy Wray predicted what was going to happen and why in 2000. A bunch of other heterodox economists got it right, too. The conclusion he comes to is that orthodox models are deficient and unreliable.

It's a lot more than just the natural rate. They just aren't playing in the right ballpark.

Detroit Dan said...

The "natural rate" strikes me as a waste of time. It's only apparent purpose is to justify the nonsensical views of the world pushed by Monetarists, New Keynesdians, and other misguided souls.

One of the purposes of macroeconomics should be to explain how the economy works so that we can have an intelligent national discourse. Modern Monetarism and New Keynesian obfuscate more than they clarify. I guess this is good for the priesthood, but bad for the rest of us...

Dan Kervick said...

As Detroit Dan says, the problem is too many economists who have no real sense of how things actually work in the real world. For them, the economy consists of curves dancing around in pure macroeconomic space, aggregate quantities linked by mathematical formulas to other aggregate quantities. Their understanding of causal relations and the social and institutional structures that inhabit the world these macro models attempt to describe is vague at best, and sometimes non-existent.

Somebody told them when they were 18 that the central bank is the entity that controls what happens to quantity X, or that quantity X has an inverse relationship to quantity Y. They don't understand how the central bank controls X, and what the actual material connection is between X and Y. But they believed the things they were told when they were 18, and they still believe those statements.

Bob Roddis said...

I find these New Keynesian/Post Keynesian/MMT disputes fascinating. I would even deem them slightly humorous except that the subject matter and the usual reactions to them are so depressing. As I explained to the imperious “Lord Keynes”:

When you Keynesians finally decide upon the true nature and essence of your nasty funny money system, let us all know, ok? I find this dispute amazing because you guys cannot even agree upon what this thing you love really is. It is nothing but a regime that allows the surreptitious transfer of purchasing power without the victims realizing what hit them, just as it was intended to do. It is purposefully indecipherable precisely to hide its true nature from average people who are its prime victims.

Anyway, isn't this all just a question of fact, a matter of following the keystrokes, however difficult that might be in practice to accomplish? Just follow the "money", such as it is.

paul said...

@ Bob Roddis

Please bring some arithmetic with you when you come here to comment. Use that arithmetic to support your arguments if you can. If you can't…well…

What you tend to bring is gibberish and I (we?) don't speak that language.

If you can demonstrate that there is math hidden somewhwere in your worldview you might find some kind of common ground.

Leverage said...

paul got it right: there is no compromise with wrong.

Only 'economics' could become with such stupid idea when it comes to reality (that it can be 'manufactured' by 'consensus').

There is what is real and what it isn't. money multiplier is fantasy, if real world does not work that way, wrong ideas shouldn't be promoted.

But I guess that in the end is not that different from science: one funeral at a time, maybe in case of economics it's four funerals at a time though, as wrong ideas look like to survive longer time.

Bob Roddis said...


If there is one piece of pie left and I eat it, there is no pie left for you.

1 - 1 = 0

If I have enough money to buy that last piece of pie and you have no money, but the government creates some new funny money out of nothing and gives it to you so you can out-bid me for the pie, you’ve effectively stolen that piece of pie from me.

1 - 1 = 0

Even if it isn’t the last piece, whatever piece you purchased with your new funny money is now gone. That’s why counterfeiting is illegal. It’s not that complicated.

I don't think one needs arithmetic to prove that something cannot be in two places (or bellies) at the same time. The fact that you guys deny these basic attributes of the known universe is tellling.

paul said...

@Bob Roddis

Actually we use the same closed system math that you seem to be using here.

There is simply more than 1 in the system we use.

So far we are on the same page.

Tom Hickey said...

The Keynesian contention is that if the pie is shrinking because the economy is contracting, and neither are firms investing nor credit expanding, then "outside money" is required to offset the amount not being spent on goods that are able to be produced with existing resources, i.e., full output at full employment. This outside money can come from either increasing net exports or government or a combo thereof. If the global pie is shrinking due to economic contraction, then increasing net export is difficult to impossible. That leaves government to provide the outside money to generate the effective demand needed to close the output gap.