Thursday, May 31, 2012

Random Tired Comments

 A long exhausting day, so not much posting tonight.  But I want to post a link to this, which gives some data supporting the fact that we as a country, looking at all levels of government, have not by any means been stimulating the economy in a Keynesian fashion; in fact it is pretty breathtaking how contractionary our overall spending policies have been. 

I also want to point to this and this, largely because I'm  a fan of the Noahpinion blog, but also because I noticed a kind of intellectual dislocation between these two posts.  In the first he talks about economics without math, and even without models, economics as a kind of storytelling art.  In this view of economics, we all choose which story to believe (ie, balancing our budgets are good and create long term prosperity, or the free market price mechanism allocates all resources to their best use).   He examines the claim that the math doesn't add that much new information, and has been spectacularly unsuccessful in turning economics into a testable science---or at least that it hasn't made it more testable than the stories without the math.   For example, one story is that price inflation is a direct result of increasing the supply of money; in fact there are people who simply use those two interchangeably, and claim that inflation is defined as an increase in the supply of money.  But those people claimed 4 years ago, when the Fed started pumping money into the economy as a furious pace, that we would experience hyperinflation within a short time.  That's the directional result their story told.  We have not experienced hyperinflation, or even much of any inflation since then, which seems to provide some evidence that their story is wrong.  What additional evidence would we have had if we had worked from math models, whose parameters could be manipulated to yield any of a wide range of outcomes?

He comes out more or less defending the modeling-and-math process, on the grounds that even if we haven't yet provided real laboratory level proof that one macro model is better than another by using math, the mathematical precision at least provides a template that might someday provide that kind of proof.  His words:

“In other words, the basic, fundamental problem with macro, as things stand, is that it's not scientific. Making it less formalized, or less mathematical, doesn't get around that problem. And it seems pretty likely to me that if macro ever does come up with a way to tell if models are right, it's going to require that those models be of the formal mathematical type.”

So he goes for the math version rather than the plain story version.  But in the second post, he tells a story with no math, the story that private equity (ie, leveraged buy-out) firms increase efficiency in the firms they conquer, and as a result in the whole society in which they exist, and he shows a lot of circumstantial data that, to him, supports the story.   I doubt the security of the support he feels, and when I’m more rested I’ll try to respond to him.  But it’s interesting that he is using the story approach, instead of the math-and-model approach, to make this particular argument.

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