Brad DeLong — When and why might a “confidence” shock be contractionary? Karl Smith’s approach can bring insights

Sectoral balances.

WCEG — The Equitablog

When and why might a “confidence” shock be contractionary? Karl Smith’s approach can bring insights

Brad DeLong

Karl Smith muses on economics

Mark Thoma asks for thoughts on the following point:

"Psychologists mock what economists call the micro­foundations of consumer behavior…. That this framework is suitable for aggregate systems in a globalized economy simply because the tribe called economics has agreed to adhere to these ad hoc assumptions makes no sense. Increased interactions with disciplines that economists have often mocked as unscientific would greatly improve economists’ understanding of the real world and would be more truly scientific. …"

Read the rest at Modeled Behavior

Musing on Economics

by Karl Smith

(h/t Mark Thoma)

Answer: A model is just a model. Don't try to get it to say what it doesn't, about the implications of max u, for instance.