Saturday, April 23, 2016

Noah Smith — Policy recommendations and wishful thinking


Contra Gerald Friedman on the Sanders economic program.

Perhaps the Sanders campaign needs to address this directly instead of through a surrogate like Friedman.

Again, the progressive "left" seems to be falling flat on the economic front. "They" are winning this debate except with true believers.

Noahpinion
Policy recommendations and wishful thinking
Noah Smith | Assistant Professor of Finance, Stony Brook University

23 comments:

Matt Franko said...

Forget it Tom they CANT:

"But he (Freidman) also rejected this critique, arguing that his figures are based on an alternative view of the world, stating: “To me, when the government spends money, stimulates the economy, hires people who spend, that stimulates more private investment. That remains, and at the next year, you’re starting at the higher level.” He admits that this “is not standard macro,”

What about "the deficit!" Freidman ?

Friedman is only looking at spending and not the deficit so I dont see how the MMT people can help....

Matt Franko said...

the here is Smith:

Friedman and Mason seem to be arguing that our belief about the facts should be driven, at least in part, by our desire to avoid a feeling of powerlessness. .....I don't like this approach."

Freidman is Determinst while Smith remains a Stochastic...

Then Smith of course reverts to metaphor: "Suppose you're a doctor, and your patient has knee pain, so you prescribe some anti-inflammatories. The inflammation goes away and the knee pain gets somewhat better, blah.... blah.... blah....."

Smith is both anti-Determinist and a metaphor user..... ie has no knowledge/understanding of what he is trying to talk about...

Ryan Harris said...
This comment has been removed by the author.
Simsalablunder said...

"Friedman is only looking at spending and not the deficit so I dont see how the MMT people can help...."

Sanders campaign is filled with MMT people who never look at spending? Yeah that's the problem…

Matt Franko said...

Sims they look at the ex post result of outlays minus receipts... not spending..

The Friedman quote is from a subsequent comms with Wolfers not the original paper... Freidman is channeling Joan Robinson there not MMT...

Look they think they can create a surplus by raising taxes on domestic savers while not addressing the issue of foreign USD savers via trade policy ... I dont see how they think they can do this... savers determine the amount they save...

Just go back to Brendan's comment question at Bill's which still remains unaswered by Bill (because Bill doesnt have the training..):

"As long as the private sector has the option to net save, then the private propensity to save will be the determining factor in the sign of the fiscal balance. "

Keyword from Brendan here "DETERMINING factor"...

Govt cannot determine the amount the domestic non-govt saves... non-govt savers determine that... they might be able to cut-off foreign savers via new trade policy like Trump is proposing...

Simsalablunder said...

"Sims they look at the ex post result of outlays minus receipts... not spending.."

They look at spending too among other things. You just constantly make these things things up.
Using your ridiculous sherry picking and attributing technique we know that you don't look at unemployment numbers. And if you by chance do you look at it ex post, and since it's ex post it doesn't matter and so on…

So far there isn't anything showing that MMT people have that much of influence on Sanders campaign simply because they're outnumbered by those others who are more or less in the mainstream camp. It's a mystery why you then choose to point finger at MMT people unless you have some massive priority issues or bully reflexes you can't control…

Matt Franko said...

Smith: "I don't like this approach. It seems anti-rationalist to me,"

Uh... yeah it is... and the opposite of rationalist is empirical....

Matt Franko said...

Sims,

Here from the Freidman thing:

"After increasing in the first years of the Sanders Administration, the Federal budget’s cash deficit will drop sharply and there will be a significant and growing surplus in a Sanders second term. Instead of a deficit of $1.3 trillion in 2026, there will be a large budget surplus."

Their whole paradigm here is one in terms of "deficits!" and "surplus!".... this is how they think... I'm just pointing out this cognitive tendency on their part....

They dont understand that the non-govt savers determine how much they save ... they think govt directly determines the domestic savings thru policy...

Or are you saying they are lying? for political reasons or something?

Matt Franko said...

You cant use a stochastic model to predict what is in truth a deterministic outcome...

Bob said...

Bernie who?

Tom Hickey said...

Govt cannot determine the amount the domestic non-govt saves... non-govt savers determine that... they might be able to cut-off foreign savers via new trade policy like Trump is proposing...

What? MMT is ALL about accommodating the nongovernment saving propensity through the fiscal stance. loosing and tightening it so that the sectoral balances sum to zero at full employment with the MMT JG mopping up residual UE after the automatic stabilizers do the heavy lifting.

That doesn't mean that the budget is irrelevant. It's not irrelevant but contributes to the government fiscal balance. It's just that the budget is not determinative since there are other factors operative in addition to it.

It's the government fiscal balance that is the balance of the government sector in the sectoral balance identity. Spending alone doesn't accommodate the nongovernment propensity to save. It is the $NFA position after deducting taxes.

Regarding Trump's plan to address the trade deficit with "protectionism," that's more direct attack on neoliberalism ("free markets free trade, and free capital flows") than MMT. Good luck with getting that passed any more than a "Keynesian" reversal of "fiscal discipline" by Bernie. At least Bernie's people understand the way the monetary system works. Trump himself doesn't and neither do the people who are advising him.

Politically, Bernie's chances of winning the nomination are not looking so good. Trump's look very good. So in a match up of HRC and Trump, the economic outcome is questionable whoever wins and the really important issue is who is more likely to take the US to war. That basically means, is HRC or the Donald more likely to listen to the crazies.

Tom Hickey said...

Choice of consuming or not consuming and investing or not investing are bivalent processes that are not determined by any known law because "uncertainty."

Propensity for households to save and firms to invest at any point are conditional and can only be arrived at inductively and stochastically. Automatic stabilization is configured to adapt before shifts in propensities are known to budgeters and can be acted on through an appropriations process.

Tom Hickey said...

Brad weighs in for Noah

Noah Smith: Policy Recommendations and Wishful Thinking

Brad's guiding principle:

People should say that policies are good if they tend to do good things–to make people freer and richer. People should not say that policies are good if they tend to build the Movement, for there is neither Correct Ideological Thought nor a universal class whose interests are identical to the general interest. And people should, especially, not misrepresent what policies are likely to do in the interest of building the Movement.

And where the Movement is good, the policies that advance it will also be the policies that make technocratic sense…

Matt Franko said...

Tom they are trying to accommodate the mainstream stochastic approach that seeks some sort of defined fiscal outcome...

You say here: "MMT is ALL about accommodating the nongovernment saving propensity through the fiscal stance. "

You CANT do that.. think about your words here "fiscal stance" what is that? Its an ex post result...

You cant achieve an ex ante goal by targeting an ex post result...

Here came across this:

"In context of ex-ante, the Swedish economist Myrdal also dealt with the question of the unit of time, which he proposed to solve by reducing the actual time-dimension of macroeconomic variables such as income, saving and investment to a point of time:

Some of these quantities refer directly to a point of time. That is true of "capital value" as also of such quantities as demand and supply prices. Other terms – as e.g. "income", "revenue", "return", "expenses", "savings", "investments" – imply, however, a time period for which they are reckoned. But in order to be unambiguous they must also refer to a point of time at which they are calculated. (Gunnar Myrdal, Monetary Equilibrium, London : W. Hodge 1939: 46–7)

Economist G. L. S. Shackle claimed the importance of Gunnar Myrdal´s analysis by which saving and investment are allowed to adjust ex ante to each other. However, the reference to ex ante and ex post analysis has become so usual in modern macroeconomics that the position of John Maynard Keynes to not include it in his work was currently considered as an oddity, if not a mistake. As Shackle put it:

Myrdalian ex ante language would have saved the General Theory from describing the flow of investment and the flow of saving as identically, tautologically equal, and within the same discourse, treating their equality as a condition which may, or not, be fulfilled. (Shackle, G.L.S. (1989) "What did the General Theory do?", in J. Pheby (ed), New Directions in Post-keynesian Economics, Aldershot: Edward Elgar.)"

https://en.wikipedia.org/wiki/Ex-ante

Seems like Keynes was caught up in the same thing as the MMTers are caught up in currently... so this is nothing new with these people...

Matt Franko said...

Tom any of us can have the best intentions but that doesnt mean we are properly trained and qualified...

Here:

http://mikenormaneconomics.blogspot.com/2016/02/what-is-calculus-and-why-do-we-study-it.html

"The fundamental idea of calculus is to study change by studying "instantaneous" change, by which we mean changes over tiny intervals of time."

None of these people are doing this...

Matt Franko said...

At least Bill refuses to get involved in the politics... which we cant say about many others...

Matt Franko said...

Hey are we politicians or scientists?

Tom Hickey said...

Tom they are trying to accommodate the mainstream stochastic approach that seeks some sort of defined fiscal outcome...

You say here: "MMT is ALL about accommodating the nongovernment saving propensity through the fiscal stance. "

You CANT do that.. think about your words here "fiscal stance" what is that? Its an ex post result...

You cant achieve an ex ante goal by targeting an ex post result...


Since the fiscal balance is non-discretionary wrt the budget, the choice is between government not being in the policy business and becoming a night watchman, and formulating policy in a way that adjusts to changing condition with a view to some desired outcome like full employment. MT does the latter with its approach using automatic stabilization and the buffer of employed.

Fiscal stance is the ratio of spending and taxation. More spending = loose, and more taxation = tight. According to functional finance, the fiscal stance that shapes policy should be either neutral, tight or loose depending on conditions and expectations. Fiscal stance relates to the fiscal balance. The budget is the foundation, adjustment is through automatic stabilization, and the residual is handled automatically also through buffers. For example, the US ran a very loose stance during the Great Depression and WWII. Recently, the US loosened with the stim in response to the crisis, and tightened with the sequester when the deficit and debt hawks get the upper hand.

Tom Hickey said...

Differentiation just yields changes in rate of flow. How is calculus applied in macro wrt to policy formulation when flows are uncertain or unknown in advance? Macro deals with aggregates that are not only ex post but also estimates. That's why buffers are required in policy formulation, analogous to reservoirs and sinks, or capacitors.

It would seem that the best macro can do is simulations based on assuming many contingencies and plotting different scenarios based on various assumptions. If these inputs then these outputs. But the inputs are not known either beforehand or even in real time.

Or perhaps I am not understanding your meaning, which is probably more likely.

Tom Hickey said...

At least Bill refuses to get involved in the politics... which we cant say about many others...

Bill is usually quite politically outspoken when he wants to be. Moreover, the fact that none of the MMT economists have waded into this leads me to believe that they have decided for whatever reasons to stay out of it.

Tom Hickey said...

Hey are we politicians or scientists?

Macro is a policy science. One's political stance determine one's assumptions.

Operations are descriptive. Causality is descriptive. Policy is normative, with the rationale is based on description and prediction that follows from imputation of causality.

Getting the description and causality right is the science. Policy involves prioritization and that is at least implicitly normative, involving values. Prioritizing inflation, growth and employment is based on norms, although the rationale usually involves "efficiency."

Jeff65 said...

I think the stuff up here is the attempt to justify Sanders' plan using a conventional model. The master's tools can't be used to dismantle the master's house, etc.

The Sanders plan has empirical evidence that it will work and that is more than its opponent's plans have - see FDR. It doesn't need further justification in my view.

The thing that grinds my gears are the claims to objectivity in Noah's article and supporting comments. It's exactly like saying "I don't have an accent." Why does he get a free pass on that?

Bob said...

Why does he get a free pass on that?

It's one of the perks of defending the status quo.