Dramatically, Noahpinion calls it "The Return of the Macro Wars".
Because the Biden administration is borrowing and spending a lot of money, a huge debate has erupted about whether that’s OK. And where the original Macro Wars were fought on the blogs, the current ones are more likely to play out on Econ Twitter.
The most interesting thing about the new Macro Wars is that academic research is almost a total non-factor. ...
Why? If academics themselves weren’t involved in the debates, you could say that OK, maybe these people are just ignorant of the literature. But academics are involved, and they do know the literature; they’re just not invoking it much.
The unspoken truth here is that those people who are just not invoking theory much are mostly people who don't have very good publication records. Are these people using Twitter because they are closed out of traditional publication outlets? Or are they using Twitter to cover up the fact that they weren't that good to begin with? Or are they using Twitter to push something they like that others think is crazy?
Then Smith harks back to the observational equivalence problem I mentioned above:
... The problem is that macro theory is just really, really hard. ...
Complicating this is the fact that macroeconomic data is really, really crappy.
The question is, does that mean we don't now anything? Maybe.
Does it mean we can't know anything? Maybe.
Does it mean that politicians are better at macroeconomics than macroeconomists? I don't think that follows at all from those last two questions.
So what are people doing instead?
In the meantime, people are using heuristics, rules of thumb, and simple calculations to make their arguments. Theory has taken a back seat, simple heuristics (mostly Keynesian heuristics) are the order of the day.
In fact, I think that even heuristics derived from empirical macro research — fiscal multipliers, output gaps, etc. — are taking a back seat to simpler ideas, expressed in the form of memes. it’s worth asking whether this represents a paradigm shift in macroeconomic theory — not theory as academics do it, but theory as employed by central bankers, legislators, ...
Heuristic is a good college level word that you should look up. Do note that in other posts I've indicated that I'm OK with giving someone else a shot, and freely admitted that observational equivalence can make it hard to figure what's good and what's bad.
Smith then gets right to Mason's point:
I think Mason isn’t quite right, first of all because the Biden bill mostly isn’t fiscal stimulus, but more importantly because actions don’t constitute theory. Biden’s relief bill — and the even bigger infrastructure bill, if it passes — is actually an experiment. Like a minimum wage hike or a more permissive immigration policy, Biden’s massive spending is a bet that something economists traditionally thought would cause substantial negative consequences actually won’t be that bad.
If Biden’s bet fails, we’re in trouble. But if it succeeds, we’ll learn something valuable about the way the economy works.
Cross your fingers.
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Tyler Cowen linked to Noah Smith's post, and added this:
... I do not view contemporary macroeconomics as wonderfully predictive, but it does put constraints on what you can advocate or for that matter on what you can predict. I saw the Republicans go down this path some time ago, and now the Democrats are following them — it ain’t pretty. I think what we are seeing now is that (some, not all) Democratic economists want Democrats to be popular, and to win, and so they will rearrange macroeconomic thinking accordingly....
I'd add emphasis to this in red state Utah: if you think the Republicans have demonstrated better fiscal policy over the last 20 years, you're fooling yourself. They were the first ones to go off the rails with a spending binge (9/11 and Iraq), and we should not be surprised that the Democrats followed that with the "Obama stimulus package" in 2009, or the "Biden stimulus package" in 2021. Or, for that matter the 2 "Trump stimulus packages" in 2020, or the Trump/Republican Senate/Democratic Congress run up in 2018-19.
In no way am I claiming that this spending was not necessary or justified. We can definitely be in favor of it, and no problem if you are. Instead, what you should think about is the asymmetry: has there ever been a crisis that resulted in less spending??
Perhaps the problem is we've given free rein to people whose job it is to spend other peoples' money. Maybe we need to think more about whether you should make decisions about your money, or they should make decisions about your money.
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