Comments on: Macroeconomic Policy: The Elephant in the Room http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/ Global Perspectives on Finance, Development, and Environment Thu, 09 Feb 2012 15:49:02 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: anon http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-5993 anon Tue, 24 Aug 2010 02:36:18 +0000 http://triplecrisis.com/?p=291#comment-5993 Indulging macroeconomic fantasies is well and good for rich countries, but for starving nations, honestly, a pure micro approach is better because you can't put food on the table with a naked sham. Indulging macroeconomic fantasies is well and good for rich countries, but for starving nations, honestly, a pure micro approach is better because you can’t put food on the table with a naked sham.

]]> By: Ilene Grabel http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-142 Ilene Grabel Wed, 17 Mar 2010 17:10:00 +0000 http://triplecrisis.com/?p=291#comment-142 Another issue is that some important ideas that macroeconomists hold to be true are not empirically supported. These ideas function as ideologies rather than as empirically verifiable and/or internally consistent theories. An example of this is the universal embrace by neo-liberals of independent central banks. The majority of the economics profession assumes that independent central banks promote low inflation, which is assumed to be an essential goal for developing countries. But empirical evidence shows that (a.) independent central banks in developing countries are not consistently associated with low levels of inflation, and (b.) more importantly, that wringing inflation out of developing economies should not be the main goal of macroeconomic policy since inflation reduces economic growth only when it rises above moderate levels (which varying studies define as being in the range of 20% to up to 40%). Another issue is that some important ideas that macroeconomists hold to be true are not empirically supported. These ideas function as ideologies rather than as empirically verifiable and/or internally consistent theories. An example of this is the universal embrace by neo-liberals of independent central banks. The majority of the economics profession assumes that independent central banks promote low inflation, which is assumed to be an essential goal for developing countries. But empirical evidence shows that (a.) independent central banks in developing countries are not consistently associated with low levels of inflation, and (b.) more importantly, that wringing inflation out of developing economies should not be the main goal of macroeconomic policy since inflation reduces economic growth only when it rises above moderate levels (which varying studies define as being in the range of 20% to up to 40%).

]]> By: Garrett Connelly http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-139 Garrett Connelly Tue, 16 Mar 2010 13:20:08 +0000 http://triplecrisis.com/?p=291#comment-139 Right on, Alejandro, The IS-LM framework of reference is attempted abstraction of thermodynamic reality into the realm of commerce (there are many reasons for avoiding statistical representation thermodynamic reality, one is admitting that knowledge of a precise state is impossible). It is illogical to study abstract reductions of demand and supply when the decision to be made involves something like a just wage or transfer of natural resources to an income generation account because of theoretical graph intersections, the latter being a decision which may remove a life form from its right to continued existence. Right on, Alejandro,

The IS-LM framework of reference is attempted abstraction of thermodynamic reality into the realm of commerce (there are many reasons for avoiding statistical representation thermodynamic reality, one is admitting that knowledge of a precise state is impossible). It is illogical to study abstract reductions of demand and supply when the decision to be made involves something like a just wage or transfer of natural resources to an income generation account because of theoretical graph intersections, the latter being a decision which may remove a life form from its right to continued existence.

]]> By: Alejandro Nadal http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-129 Alejandro Nadal Fri, 12 Mar 2010 04:43:51 +0000 http://triplecrisis.com/?p=291#comment-129 Some assumptions and abstractions are essential, but all too frequently they serve to block out things that go against our beloved fixed ideas. A good example of models that are both irrelevant and (perilously) close to intractability: new-Keynesian dynamic stochastic general equilibrium models. These models assume away aggregation problems and explosive trajectories. There is very little room in them for any interesting macroeconomic problem. Perhaps that explains their popularity. Some assumptions and abstractions are essential, but all too frequently they serve to block out things that go against our beloved fixed ideas. A good example of models that are both irrelevant and (perilously) close to intractability: new-Keynesian dynamic stochastic general equilibrium models. These models assume away aggregation problems and explosive trajectories. There is very little room in them for any interesting macroeconomic problem. Perhaps that explains their popularity.

]]> By: Matías Vernengo http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-128 Matías Vernengo Thu, 11 Mar 2010 21:28:40 +0000 http://triplecrisis.com/?p=291#comment-128 I would say relevance rather than truth. And neoclassical models have always posed a harsh trade off between relevance and tractability, but that is not necessarily the case. Macroeconomic models with effective demand and no natural rate are relevant and can be very tractable. I don't buy the idea that you must choose. I would say relevance rather than truth. And neoclassical models have always posed a harsh trade off between relevance and tractability, but that is not necessarily the case. Macroeconomic models with effective demand and no natural rate are relevant and can be very tractable. I don’t buy the idea that you must choose.

]]> By: Matías Vernengo http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-123 Matías Vernengo Thu, 11 Mar 2010 16:15:33 +0000 http://triplecrisis.com/?p=291#comment-123 I think the problem with most macro models used for policy is that there is a surprising acceptance of the notion of a natural rate of unemployment. That's why the role for fiscal policy is limited to recessions, and monetary policy is only used to keep inflationary expectations under check. And that's also why Blanchard's rethinking of macroeconomic policy (http://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf) is limited to increasing the inflation targeting. It's a bit incredible that this proverbial black cat in the dark room that nobody has ever seen dominates macro policy. I think the problem with most macro models used for policy is that there is a surprising acceptance of the notion of a natural rate of unemployment. That’s why the role for fiscal policy is limited to recessions, and monetary policy is only used to keep inflationary expectations under check. And that’s also why Blanchard’s rethinking of macroeconomic policy (http://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf) is limited to increasing the inflation targeting. It’s a bit incredible that this proverbial black cat in the dark room that nobody has ever seen dominates macro policy.

]]> By: Garrett Connelly http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-121 Garrett Connelly Thu, 11 Mar 2010 03:57:12 +0000 http://triplecrisis.com/?p=291#comment-121 The tension between a downward trend in real wages during a time of increasing productivity results from raw political power, no ifs ands or buts. And it's true that price stability is not something to seek automatically, across the entire economy, some prices obviously need to be rationalized with hefty increases, still, maintaining the function of currency as a store of value over time is something justice requires us to pay attention to. The tension between a downward trend in real wages during a time of increasing productivity results from raw political power, no ifs ands or buts. And it’s true that price stability is not something to seek automatically, across the entire economy, some prices obviously need to be rationalized with hefty increases, still, maintaining the function of currency as a store of value over time is something justice requires us to pay attention to.

]]> By: Sandwichman http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-117 Sandwichman Wed, 10 Mar 2010 04:07:56 +0000 http://triplecrisis.com/?p=291#comment-117 A macroeconomic model is only as good as its assumptions. But there are certain assumptions that we know are false that you must make and there are other assumptions that we know are true that you may not make for a macroeconomic model to be tractable. The question then becomes, "what do you want? truth or tractability?" A macroeconomic model is only as good as its assumptions. But there are certain assumptions that we know are false that you must make and there are other assumptions that we know are true that you may not make for a macroeconomic model to be tractable. The question then becomes, “what do you want? truth or tractability?”

]]> By: Kevin P. Gallagher http://triplecrisis.com/macroeconomic-policy-the-elephant-in-the-room/comment-page-1/#comment-116 Kevin P. Gallagher Wed, 10 Mar 2010 02:03:59 +0000 http://triplecrisis.com/?p=291#comment-116 Very, very well put Alejandro. Coming from Mexico, you know this only too well. Mexico's (low) inflation targeting and tight fiscal policy made the Mexican peso persistently overvalued to the dollar--especially relative to competitors like China, South Korea, and Malaysia. Add a privatized then deregulated banking sector that made credit too expensive for domestic firms. Add the North American Free Trade Agreement that imposed draconian restrictions on policies for industrial competitiveness. Sum all that and you get slow growth, the environmental costs of which are 10 percent of GDP. You get persistent poverty and one of the most unequal countries in the world. A green new deal that tried to operate in such an environment would be doomed to fail. Very, very well put Alejandro. Coming from Mexico, you know this only too well. Mexico’s (low) inflation targeting and tight fiscal policy made the Mexican peso persistently overvalued to the dollar–especially relative to competitors like China, South Korea, and Malaysia. Add a privatized then deregulated banking sector that made credit too expensive for domestic firms. Add the North American Free Trade Agreement that imposed draconian restrictions on policies for industrial competitiveness. Sum all that and you get slow growth, the environmental costs of which are 10 percent of GDP. You get persistent poverty and one of the most unequal countries in the world. A green new deal that tried to operate in such an environment would be doomed to fail.

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