Tyler Cowen of Marginal Revolution is not happy with the "new macroeconomics" of J.W. Mason, and others. He places a good chunk of the blame for this on Twitter. For example:
“Running the economy hot” is a metaphor — it is better to respond with an actual model/argument, and noting the recovery was slow last time [in 2009-14] does not suffice!
Do note that the lack of a model has also been put forth as a big problem with MMT. No one is asking for much here ... supply ... demand ... something.
Yes, the era of blogging has passed. Probably peaking around 2007 or so, when people with big institutional backing started moving into the space. But Tyler Cowen and I go way back on this (I'm not name-dropping, just noting that we and others were really fascinated by the possibilities in the early 2000s), and some of us are still doing it. So Cowen is a little biased against tweets. Here's some excerpts:
1. ... On Twitter both good and bad ideas go viral far more rapidly.
3. It is too easy to tell people that they “completely misunderstand” something ... This leads to many bad tweets, typically tweets that…completely misunderstand something or someone ...
4. It attracts a younger set of writers than blog macro did. That makes it ... less informed about economic history, recent decades in particular. Very recent evidence and experience is considerably overstressed ...
5. Twitter macro is poor at spelling out the entirety of an empirical literature ... Blogs in contrast are/were most likely to take a more exhaustive approach to literature survey, sometimes too exhaustive [you never noticed that about Tufte, did you??]
6. ... Most coherent macro mechanisms do in fact take more than 280 characters to spell out. ...
8. Econ Twitter involves more “don’t really know anything at all” kinds of people
9. I genuinely do not understand why more tweeters do not set up free blog or Substack accounts, and, if only five times or so a year, write a longer post or column explaining and defending their views and tying them into the broader literatures. This seems to me to betray a certain kind of intellectual laziness ...
11. It is easier to express meaningful agnosticism in a successful blog post than in a successful tweet. This is one of the biggest problems with Twitter macro, and indeed with Twitter more broadly. It is also hard to express trade-offs in a successful tweet, another major problem. “We must do this” kinds of thinking are instead encouraged. [you may have noticed I often present both sides, well I hope, and sometimes won't dismiss something I dislike]
12. ... on Twitter. The morality is often third-rate or worse.
13. The one-sentence (supposed) refutation is very much overrated on Twitter ...
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For better or worse, this all seems to have promoted the economics far left (those with the label Marxist/radical/heterodox/post-Keynesian, that sometimes these days also go into stealth mode, mingling amongst progressives who might not be that far left). These used to be uber-serious people. Not any more.
Many of these people were influenced by the success of Bernie Sanders starting in 2016.
I cannot emphasize enough that prior to the very end of 2015, Bernie Sanders was regarded as a joke ... by everyone. He would not even call himself a Democrat.
Bernie Sanders went from having no cred, to some cred, by putting up good numbers against Clinton in the primaries. It does not seem to have dawned on most people that if Clinton was a bad candidate against Trump in 2016, and a bad primary candidate against Obama in 2008, that it probably doesn't say much that Sanders did well against her in early 2016.
Anyway, this might be a good time to revisit this story, which I bet you've never heard. In February 2016, Democratic economists (mostly associated with the Obama administration) started pointing out forcefully that there was little theoretical justification or empirical evidence to support Sanders campaign claims (here, here, here, and here).
Eventually, Sanders got himself some economists, and had them write a report on his plans, the evidence, and so on (Friedman was the lead author). This was quickly reviewed by top people in macroeconomics. From this blog:
But they were very diplomatic about a technical issue. They can’t explain a result that Friedman got. But they’re willing to speculate. And their speculation is that he made a conceptual mistake in his economics that led to math errors.
That’s a big deal: presidential candidate makes economic proposals that sound too good to be true supported by economist that can’t do the economics right.
Even better, the mistake is at an advanced undergraduate level, and related to issues covered in your handbook. They relate to growth vs. level effects, and permanent vs. transitory effects of macroeconomic shocks.
We are not quite up to this point as I write this, but we will cover it in the next class or two:
So what do Romer and Romer find in Friedman? They can’t explain some of his more outlandish assumptions about growth. Here’s what they suspect: Friedman presumed that a temporary shock to growth rates had a permenent effect on them, leading to estimates of ongoing growth and level effects. In the investment example, this is like assuming that one lucky stock pick in turn makes all your stock picks lucky … forever … and your investment nest egg pulls away rapidly and permanently from your competitors. The implication is that Friedman’s work is no better than a fairy tale.
We have a conjecture about how Friedman may have incorrectly found such large effects. Suppose one is considering a permanent increase in government spending of 1% of GDP, and suppose one assumes that government spending raises output one-for-one. Then one might be tempted to think that the program would raise output growth each year by a percentage point, and so raise the level of output after a decade by about 10%.
To the public, this sounds like jargon. To a macroeconomist, this sounds like “made a mistake on Tufte’s ECON 3020 Exam 3 that he’ll take off full credit for”.
And this, from March 2016, sounds a lot like the criticisms being made of the "Biden stimulus package" today:
I remarked above that the surface issues of Romer and Romer are more accessible to the general public. Here’s their summary of what they find (their original had emphasis that does not come through a cut and paste operation):
Unfortunately, careful examination of Friedman’s work confirms the old adage, “if something seems too good to be true, it probably is.” We identify three fundamental problems in Friedman’s analysis.
• First, all the effects of Senator Sanders’s policies that he identifies are assumed to come through their impact on demand. However, his estimates of those demand effects are far too large to be credible—even given Friedman’s own assumptions.
• Second, in assuming that demand stimulus can raise output 37% over the next 10 years relative to the Congressional Budget Office’s baseline forecast, Friedman is implicitly assuming that the U.S. economy is (and will continue to be for a long time) dramatically below its productive capacity. However, while some output gap likely still exists, the plausible range for the output gap is much too small to accommodate demand effects nearly as large as Friedman finds. As a result, capacity constraints would likely lead to inflation and the Federal Reserve raising interest rates long before such high growth rates were realized.
• Third, a realistic examination of the impact of the Sanders policies on the economy’s productive capacity suggests those effects are likely to be small at best, and possibly even negative.I encourage you to, but won’t require you to, read the Romer and Romer paper. It’s fairly accessible, and has lots of clear thinking about the data, different viewpoints, and how economists assess policy.
That advice was from 5 years ago in this class, but it seems especially relevant today. And I think that Tyler Cowen's criticism of Twitter economics is that it has allowed a lot of otherwise smart people to buy into this nonsense without thinking through the details.
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It gets worse.
After being publicly exposed on this topic ... Sanders never admitted the mistakes in the position paper with his name on it, or withdrew it from circulation.
In 2016, Sanders faded away as the Democratic Party machine, more or less stole the candidacy for the less popular Clinton. The Sanders people came back strong in the years in between to make sure that the primary system for 2020 better represented the people who vote Democratic. More power to them; Sanders really did get screwed over in 2016. Unfortunately, we now seem to have advisors in the Democratic White House that aren't really in the center of the Democratic Party.
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