He refers to Mankiw’s classification of macroeconomists as “scientists” and “engineers” then writes
Because the data are not powerful enough to reject any hypothesis against an interesting alternative, the macroeconomic “scientists” divorced themselves from the “engineers,” who continued to use macroeconometric models. In my view, neither the scientists nor the engineers accomplished anything. The scientists did mathematical masturbation, with some occasional, isolated empirical work that satisfied journal referees based on whatever fads were taking place at the moment but had no lasting persuasive impact. The engineers provided forecasts and policy simulations that were precise in form and totally unreliable in substance. In any case, the engineers were kept out of economics departments.
I agree except that I think that Mankiw’s use of the word “scientist” is nonsensical and has nothing to do with its ordinary English meaning except as used by economists who flatter themselves.
My outburst along with my thoughts on his discussion of the stimulus after the jump. These were comments so I address Kling in the second person.
I agree with Kling’s thoughts on the Macro dark ages.
I have only one objection and it isn’t to your thought at all. I do not accept Mankiw’s terminology. You write “The scientists did mathematical masturbation.” I agree, but, if we are right, then they aren’t scientists. Rather they are mathematicians (although mostly not of a level which would meet the grade in a second rate math department).
The defining characteristic of natural science is that theories bow to facts. Theoretical physicists have high standing in the profession (higher than empirical physicists) but, if their theories are contradicted by the data, they are abandoned. The physics profession as a whole, is governed by data so theoretical physicists bow to empirical physicists (who sure are engineers) even though they feel superior.
And that’s physics. One of the problems with those Mankiw defined as “scientists” is that physics is the only science they ever think of. In biology, it is perfectly possible for a Nobel Laureate to admit without embarrassment that he needs to ask for help with calculus except for the simplest things (Salvatore Luria personal communication 1983). His role in the MIT biology department (then clearly the best in the world) was similar to that of Samuelson over at the economics department).
Many economists sincerely identify a scientific approach with a mathematical approach. I hope the fact that this is nonsense is obvious to everyone reading this.
I’d ask Mankiw if he can find 10 natural scientists who would consider those he calls “scientists” to be scientists.
Now as to your criticisms of the engineers — well what would you do ? I’m new to this blog, so I note my ignorance without apology. What is your current policy proposal (say you became 218 representatives, 60 senators and the President what would be done ? Would you wait to act until you had made a new approach to macro based on Hayek and Minsky ? I don’t think that would be optimal.
On the stimulus, as far as I can tell, Kling says that Hayek showed that a stimulus was bad if reallocation of labor is needed (no hint as to evidence nor any response to critics of Hayek) objects that Obama isn’t libertarian, and says that Americans have to suffer to punish financiers who used excessive leverage. I can’t tell very far though. He doesn’t seem to offer any explanation of how the stimulus can have bad effects and rather seems to think that an economy without a crisis and a stimulus would be better than one with both. Unfortunately an economy without a crisis is not on offer. I edit down his thoughts but you should click the link.
1. We have a heterogeneous labor force, and that will require Hayekian market adjustment, not central planning. [snip]
2. The stimulus plan is highly partisan and ideological in nature. [snip]
3. I have a Minsky-esque view of the nature of the crisis. That is, we have gone from being risk-loving (ponzi finance, in Minsky’s terminology) to ultraconservative (hedge finance, as he calls it). I don’t think we can (or should) put back together the Humpty-Dumpty of securitization and leverage that we had before. Businesses need to expand out of good, old-fashioned profits. Fiscal stimulus ought to be aimed at improving profitability.
I don’t see how any can describe the stimulus plan as “central planning.” Evidently Kling uses “central planning” to mean “not laissez faire.” It would be easier to see if he has an argument if he would use words with their standard meanings.
My comment on his arguments
I don’t agree at all with your first argument.
As far as I can understand it, you are arguing that the Beveridge curve has shifted out. I believe it has shifted in in the past 16 years. In other words you seem to be arguing that natural rate of unemployment has increased which explains why Alan Greenspan was wrong to guess that low unemployment in the mid 90s did not imply that monetary tightening was needed.
Neither you nor Hayek has explained why higher unemployment is needed to shift out of over-expanded sectors than was needed to shift into them. You can’t explain why a stimulus would interfere with reallocation of talent, nor am I aware of any empirical evidence supporting Hayek’s view (quite the opposite I’d say high unemployment causes people to stick to jobs which don’t optimally use their skills and interferes with reallocation basically what we need to get people out of where they are and to where they are productive are job vacancies and their is this thing called the Beveridge curve).
Your point 2 explains why you would prefer a different stimulus. Obviously you fundamentally disagree with Obama about most areas of policy other than, maybe, the case for fiscal stimulus right now. I think you could just say “I’m at CATO so obviously I don’t like any bill proposed by Obama” and leave it at that. In any case I’d say it means you would prefer a different stimulus, but does it mean you think that no stimulus would be better than Obama’s proposal ?
The only link between your point 3 seems to be that you seem almost to be arguing that a stimulus would be bad, because it would reduce economic suffering and people should suffer to punish them for their folly and teach them better. A rather broad brush approach. I don’t see why someone who hasn’t even bought a house losing his job is an efficient deterrent for say AIG writing CDSs. I mean is your argument, as it seems to be, the worst it is the better it is ?
That is the only link I can see between your respect for Minsky and your opposition to the stimulus.