September 12, 2003

Tyler Cowen Blasts Off for the Gamma Quadrant

The usually highly-intelligent Tyler Cowen digs himself in deeper: he attempts to justify his shrill, sloppy, and self-righteous (though not quite ad hominem) misreading of Paul Krugman with an argument that entails the conclusion that Milton Friedman is not a free-market economist:

Thanks for the coverage, please note also that my blog post has real praise for Krugman and his book. I still see a contradiction in Krugman, I don't think I am misreading him. Consider the second quotation, which you call the macro one. Krugman believes, as do you (and many others), that Keynesian demand management can improve economic performance. This argument typically comes bundled with a belief in some kind of rigidity or price stickiness, or various other microeconomic imperfections. In other words, it requires a belief that markets fail at some micro level, which contradicts quotation one. There are other economists, as you yourself note, such as Friedman and Hayek, who believe that these micro imperfections are not so important. Krugman does not believe in the market as much as these other (respected) economists, again contra quotation one. The point is not that the logical error is so interesting but rather that Krugman's writings now use (sloppy) rhetoric so freely...

Contrary to what Cowem says, the differences betwen Milton Friedman and Paul Krugman on this micro/macro question are very small: if Brother Paul is anti-free market because he believes that there is such a thing as too little aggregate demand, so is Uncle Milton.

Milton Friedman believes the government has a *powerful* role to play in demand management: if the free market causes the money multiplier to fall, the central bank needs to funnel *huge* amounts of liquid assets into the banking system to prevent macroeconomic disaster. If aggregate demand and the price level are properly managed, however, Friedman believes that markets work very well--and much better than government command-and-control.

When you attempt to justify your claim that Krugman contradicts himself with an argument that leads you to classify Milton Friedman as an anti-free market economist, you are, as Ken Rogoff likes to say, adrift in the Gamma Quadrant and out of contact with reality.

Posted by DeLong at September 12, 2003 12:07 PM | TrackBack

Comments

Obviously Brad I agree with you. But I think at the end of the day all this talk of 'beliefs' about whether or not markets function perfectly at some highly abstract level is to go off the rails in the first place. The key issue isn't how you put micro foundations on your macro model,or macro models on your micro foundations, but how your empirical observations can modify your understanding of both with the passage of time. Here the key point is a to-and-frow between model and data.

Popper rightly railed against Marxism and Freudianism for theirelack of falsifiability. Well I would add 'austrianism' to the list (in fact now I come to think of autrianism probably has its intellectual origins in the same Vienna Popper was trying so hard to get away from). Where are the tests? Is it possible for anything important ever to change in this timeless universe? What would show whether or not the beliefs were justified? And meantime can we get on with the job of trying to make things work just a little better.

Or should we all have to cross our chests in public whilst whispering eppure si muove in sotto voce?

Posted by: Edward Hugh on September 12, 2003 12:44 PM

Arguing with Paul Krugman is fine but using Donald Duck Duckin as a source is not fine but rather a play for radical right goon support.

Posted by: Emma on September 12, 2003 01:12 PM

Why is Austrianism non-falsifiable, and therefore non-scientific, while neo-Keynesian is the opposite? Both seem to be in the same boat.

Both fall short of the kind of definitive testability that Popper demanded of a theory. I suppose that Popper would have said that economics is not really a science. The alternative to that is to somehow relax Popper's requirement.

Posted by: Joe Willingham on September 12, 2003 03:40 PM

"Why is Austrianism non-falsifiable, and therefore non-scientific, while neo-Keynesian is the opposite? Both seem to be in the same boat."

Because followers of Austrianism tend to reject empirical data.

Posted by: Tom on September 12, 2003 07:19 PM

How do they do that? Do you mean that they build abstract models and don't try to confront them with the data?

Another question: Do you think that one particular macroeconmic theory is provable beyond a reasonable doubt? Or do you think that more than one theory is compatible with the data?

Posted by: Joe Willingham on September 12, 2003 07:37 PM

Joe:

You wrote:
I suppose that Popper would have said that economics is not really a science.

You suppose correctly. In particular, the ability to explain virtually any behavior with correctly constructed utility curves drove him crazy.

I'm less harsh than he was' but then, I don't find falsifiablity the be-all and end-all that he did.

Posted by: Jonathan Goldberg on September 12, 2003 08:52 PM

It's weird. I don't know who this Tyler chap is, but I'm amazed by the ignorance of this stuff.

the conservatarian borg thinks "keynesianism" means free money for poor people and "monetarism" means... oh hell, I don't even know what the hell Kudlow and the gang think it means.

We're all Keynesians now, and have been for a long time, and quibbles about the appropriate tools for short term aggregate demand management should not be linked to broader ideological issues.

Posted by: Atrios on September 12, 2003 09:17 PM

Joe Willingham, "Both [Austianism and neo-Keynesianism] fall short of the kind of definitive testability that Popper demanded of a theory."

Huh? Neo-Keynesianism *is* falsifiable. The model predicts, for example, that government measures against a slump (fiscal or monetary) will move the economy out of the slump. Now, of course, since the national economy is a large, noisy system, you have to do statistical analyses of these things, but the notion that "economic downturns are often the result of insufficient aggregate demand" is falsifiable.

Jonathan Goldberg gives a much better example of a lack of Popperian falsifiability, and one lying right at the heart of economics: "In particular, the ability to explain virtually any behavior with correctly constructed utility curves drove him crazy."

Posted by: Stephen J Fromm on September 12, 2003 09:24 PM

"... if Brother Paul is anti-free market because he believes that there is such a thing as too little aggregate demand, so is Uncle Milton."

Cosma lives!

He really ought to scribble some more in those notebooks of his.

Posted by: Russell L. Carter on September 12, 2003 09:25 PM

Shucks. I didn't mean to post anything substantial at all (see previous post...if it gets posted, that is...).

Rather...what is it with the "gamma quadrant" reference? Is this some allusion to "Star Trek: The Next Generation?"

Posted by: Stephen J Fromm on September 12, 2003 09:25 PM

From what I can tell academic economists are much less neatly divided into factions than are the people who play economists on TV.

Posted by: Joe Willingham on September 12, 2003 09:26 PM

Joe Willingham wrote, "From what I can tell academic economists are much less neatly divided into factions than are the people who play economists on TV."

So Martin Feldstein, who thought Clinton's increase in the top marginal rate would really hurt the economy, isn't an "academic economist"?

Posted by: Stephen J Fromm on September 12, 2003 09:33 PM

So Dr. Feldstein was wrong. So what? Brad has admitted that he was wrong most of the time in his criticisms of Alan Greenspan. That doesn't lessen my respect for Professor deL. Win a few lose a few.

Posted by: Joe Willingham on September 13, 2003 12:59 AM

Joe Willingham, "So Dr. Feldstein was wrong. So what?"

You entirely miss my point, which is that academic economists *can* be divided into camps--e.g. the camp that actually believes that a marginal rate of (IIRC) 39.6% on the highest incomes will harm the economy, and the camp which doesn't.

Posted by: Stephen J Fromm on September 13, 2003 07:58 AM

Quite a comical logical chain -

"Krugman believes, as do you (and many others), that Keynesian demand management can improve economic performance. This argument typically comes bundled with a belief in some kind of rigidity or price stickiness, or various other microeconomic imperfections. In other words, it requires a belief that markets fail at some micro level....

Krugman does not believe in the market as much as...other (respected) economists....

The point is not that the logical error is so interesting but rather that Krugman's writings now use (sloppy) rhetoric so freely...."

Posted by: anne on September 13, 2003 08:23 AM

Austrianism sorts love the pain of others. There is always a fine reason to let the magical markets adjust while families suffer hell. Recession? No problem, the market will allocate resources anew. Who are you to complain? I'll take Keynes, who cared when families suffered.

Posted by: anne on September 13, 2003 08:30 AM

"I don't find falsifiablity the be-all and end-all that he did."

I think it may be worth spelling things out here. There's a kinda loose and a tight sense of 'falsifiability'. The second rides on a logical asymmetry - you can never 'prove' but you can 'falsify'.

But all of this then rides inside the looser sense that any theory needs some facts against which you can test. I was using the looser sense. But of course then you have the circularity that all your 'facts' are theory driven somewhere.

I think, unfortunately we're simply back to a 'men and women of good will' type criteria, wooly and liberal as it sounds. The point is there's a problem. Now do you want to do something about it?

I only regard myself as Keynesian in what I take to be the spirit of Keynes (ie I'm not into all this sticky this, sticky that stuff): viz rejecting old dogmas, looking at what's happening and what may be new, rolling your sleeves up and getting under the bonnet even though there's no manual to hand etc. And being prepared to say: for god's sake there must be something we can do.

Austrianism, (or supply siders for that matter) usually retreat to some highly abstract level, use new data only to confirm old theories, and tend towards suggesting doing nothing, which is why as Brad points out even Milton Freidman isn't an Austrian.


Posted by: Edward Hugh on September 14, 2003 01:01 PM
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