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Score the War

by Bruce Webb

Davis Obey asks some hard questions that should have been asked long ago. My eye was caught by question one which prompts the title of my post. Why insist that Health Care be budget neutral and come in below some arbitrary target? Why did we even allow these wars to be funded with Supplementals and never received a ten year score? Why not Score the War?

Chief House Appropriator Urges Obama to Change Course On Afghanistan

“There are some fundamental questions that I would ask of those who are suggesting that we follow a long term counterinsurgency strategy:

1. As an Appropriator I must ask, what will that policy cost and how will we pay for it? We are now in the middle of a fundamental debate over reforming our healthcare system. The President has indicated that it must cost less than $900 billion over ten years and be fully paid for. The Congressional Budget Office has had four committees twisting themselves into knots in order to fit healthcare reform into that limit. CBO is earnestly measuring the cost of each competing healthcare plan. Shouldn’t it be asked to do the same thing with respect to Afghanistan? If we add 40,000 troops and recognize the need for a sustained 10 year or longer commitment, as the architects of this plan tell us we do, the military costs alone would be over $800 billion. And unlike the demands that are being made of the healthcare alternatives that they be deficit neutral, we’ve heard no such demand with respect to Afghanistan. I would ask how much will this entire effort cost, when you add in civilian costs and costs in Pakistan? And how would that impact the budget?

2. Do we really believe that there is an international consensus for such a long-term endeavor, or will we in fact, with the exception of some tokenism, be going it alone? Are we really prepared to “go it alone”?

3. What policy is in fact achievable? We should be asking not what policy is theoretically the most intellectually coherent, but which policy is actually achievable given the only tools we have in the region; the Afghani and Pakistani governments. Is there sufficient leadership, popular support, and political will, not in the United States but in Afghanistan, necessary for effective governance to take hold?

4. What makes us think that a much more aggressive and expansive role for U.S. troops will not harden elements of the Taliban and make them a more potent force, forcing them to stand up to the “occupier”?

5. Does it all add up? The so-called COIN, or counterinsurgency strategy, calls for a certain number of troops and police based on a country’s population. In Afghanistan that equates to 600,000 people in uniform. But the Afghani government has never maintained more than 200,000 before. Can they really sustain a three-fold increase?

6. Do we really have the tools to overcome language, culture, history and a 90% illiteracy rate to sufficiently transform such a country?

There are many things we could do to “provide for the common defense” and more that we could do to “promote the general welfare”, and maybe this one is so vital that we have to do it come what may. But if the Generals tell us this is going to be a ten year war why not be adults and have an open discussion of what that means in dollars?

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Pull Quote of the Day: The Police Know The Truth

From Constance Ash’s discussion of Capitalism: A Love Story:

There are some scenes that that must have been shot around the period when enraged screwed-over people gathered at the New York Stock Exchange yelling, “Jump! Jump! Jump!” Moore has said in an interview, that while at the NYSE the NY cops came up to him and the crew. He told them “Hey guys, we’re just here to film a little comedy and we won’t be long,” thinking they were going to run him and crew off. The cops responded, “Mike, these bastards took a billion and a half dollars out of our police retirement fund so you just take your time.” [emphasis mine]

The real damage is known, and yet to come. Can we start us the term “jobless, pensionless recovery,” or do we have to wait until Justin Fox realizes it?

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PSA: D-Squared Rivals Quiggin

I recently mentioned D-Squared’s four-part review (evisceration?) of Freakonomics.

I had forgotten he wasn’t finished.

Part Five is now posted. And the conceit of the pieces—”that there is something terribly, horribly wrong with the state of modern economics”—that dates back to 2003(!) is all the more validated.

John Quiggin should include all five parts as an Appendix to his forthcoming Zombie Economics book. Just sayin’.

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Marginal Cost

Robert Waldmann

Kevin Drum writes

Nicholas Tabarrok (brother of Alex) is a producer of small indie films. But he’s frustrated because there’s no way for him to increase his audience by lowering the price to see his pictures:

When I make, say, an $8M film it has to compete at the same price level as the studios’ $80M or $100M film. It costs the consumer the same $12 at the multiplex.

….A few years ago Edgar Bronfman Jr, during the time his family briefly owned the Universal film studio, suggested that theaters actually charge different admission prices for different pictures so those films that cost less to make had correspondingly lower ticket prices than the mega-budget studio pictures.

I think the next time the Tabarrok family gets together Alex might take Nicholas over for a quiet chat about the concept of “marginal cost.”

Oh notice the second link is to

Also this is the very first time I have ever had the impression that Kevin Drum might have gained something by studying economics more — until now his thoughts on economics have consistently dominated those of most trained economists

update: Various commenters explain at length that I don’t understand how movie distribution works at all. The distributor takes a share of ticket sales not a fixed rental, so the deal with the distributor certainly does affect marginal cost.

I should have guessed that this is how it works, since we have big distributors providing insurance to little theaters and we have big distributors making sure that theaters sell tickets for the price that maximizes the revenue to be shared between the big distributor and the theaters.

revised (probably still confused) thoughts after the jump.

Marginal cost is the cost of providing one more of the product. The cost of making the master copy (you know of making the movie) is a fixed cost. The profit maximizing price for a product is a function of marginal not average cost.

OK so the price of tickets is effectively set by the distributor not the movie theater owner. What is the distributor’s marginal cost ? Well it has nothing to do with the budget to make the film. That is a sunk cost when one gets around to distributing (as the cost of editing and typesetting a book is sunk and fixed, the marginal cost is ink, paper, labor operating the printing press, wear and tear of the printing press, binding etc).

The marginal cost is the distributor must give the theater owners something plus the cost of making and shipping a copy of the film (which is roughly zero). This is low. I am a bit chastened having shown my ignorance, but I would guess that most of the cost of distributing a film is the cost of advertising. Uh oh.

So there are two choices — ticket price and advertising budget. A condition for profit maximization is that one gets the same ticket sales X by cutting the price of a ticket by Y and cutting the advertising budget by XY. I don’t see the cost of making the film in that calculation.

However, I *know* that I don’t understand advertising. I am personally certain that no advertisement has ever had any effect on my consumption. Most people believe that. We are obviously wrong. But this time I know I don’t get it.
The key variable explaining the price of tickets is the overall elasticity of demand for that film.

Everything written below is based on total ignorance and not worth reading.

Now the marginal cost of selling a film viewing experience can be higher than the ushering and cleaning costs. If the film is sold out, no seats available in the theater, then the marginal cost is …. well huge (I guess you could show the film on another screen and send the people who wanted to see the scheduled film home saying it was sold out).

The sold out theater effect explains why matinee tickets are cheap. Yeah a super duper mega hit film might justify more expensive tickets because tickets are often sold out. But only for the first few days. I have never, ever, ever had the experience of going to a movie theater hoping to see a film and being told that it is sold out.

Notice that there is already an incentive to go to films that aren’t super popular. I go to arty art flick with subtitles and I can sit where I want with no strangers anywhere near me. I go to MegaColossal and I better get there early if I want to really see the screen.

Basically so long as there are empty seats in front of each screen, it makes no difference to the theater which film you watch. Therefore it is profit maximizing for the theater to charge the same price to see each film.

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message size should not exceed :-(

Robert Waldmann

Does anyone hate the limit on comment length as much as I do ?
Kharris had a very interesting comment on a post of mine below. I wrote a long reply.
I can’t post that reply in the comment thread so Kharris’s comment and my reply are is after the jump.

Warning amateur philosophy of science below. Also I’m typing what I always type.

update: Kharris had another comment (which was not too long to post in the thread) which said much of what I said in my reply. I add that comment and my reply to that comment after the jump.

View details

Just a quibble over terms. It might be useful to distinguish between theory and hypothesis in this discussion. And you may want to argue that what you’ve said stands, that hypotheses tend not to be rejected in economics, but I would argue that the hypothesis which is refuted by data in economics is generally treated the same as in physics. Rejected or accepted at the X% level, for the purposes of the particular hypothesis formalized for the particular statistical test.

Now, there are problems with formalizing hypotheses in economics that grow out of theory, and that does tend to screw things up. Starting from the assumption that multipliers are at some level a reality more or less guarantees that you can find multipliers. It is hard to imagine formalizing an hypothesis that “multipliers do not reflect reality at any level” so that it can be tested against the data.

At the level of theory, economics is a very different creature from the physical sciences. Think in terms of Kuhn. His notion is that theories don’t go out of use because they are wrong. They just keep piling up troubling, contrary results until a new theory comes along that better explains the data. There is, however, no economic graveyard. Say’s law still stalks the earth. Freidman admitted that the development of instability in monetary velocity mean his monetary policy prescriptions won’t work, but there seem to be people who didn’t notice him say it. It’s a quibble, I know, but I think what policy makers are willing to accept as approximately true is theory, rather than hypotheses.

Economics can falsify hypotheses left and right. Economics doesn’t seem to be able to falsify theory, except in very specific character. If Kuhn would tell us to bury it, we attach “neo” and keep marching – neo-classical, neo-Keynesian, neo-fascist.

Robert Waldmann

Good discussion. Not a quibble. I will explain how I use the terms (this is really standard in history of science and in natural sciences).

1) a hypothesis is a statement about the world which might be true.

2) a theoryNS is a hypothesis which has been tested repeatedly and not rejected.

NS stands for natural sciences. Note the word hypothesis is often used to mean “testable hypothesis” (for example in statistics). Here I am using it in it’s ordinary English sense so that it might not be testable except jointly with other statements.

By this terminology, I’d say there isn’t any economic theoryNS.

So what do I call that which you call a theory ? I call it the hypothesis of interest. In practice we can’t test the hypothesis which interests us except along with auxiliary hypotheses that we don’t care about.

So a testable hypothesis is a hypothesis of interest and a bunch of statements which don’t interest us. A lot of what happens in economics is testable hypotheses are tested and rejected and economists decide that the part that was rejected was the uninteresting part and the interesting part is like a theoryNS. This is silly. It is not proven false, but the experience of adding auxiliary hypotheses, deriving testable predictions, testing and rejecting sure doesn’t support the hypothesis of interest.

Somehow a statement which has never implied a true prediction gains huge status in the literature, not as something known to be true, but as a default assumption so that you can write a model in which you relax one of the default assumptions but not the others.

It is true that statements which really interest us can’t be tested except along with auxiliary hypotheses which don’t interest us. But there is something strange about an idea, aguess, gaining the status of a theory without ever winning any of its contests with data.

I know of few hypotheses in economics which have explained something, fit data that they weren’t fiddled to fit. One of those few is the pernament income hypothesis.

Below I discuss testing it as an example.

OK I might have something actually useful to say here. Occam said “entities are not to be multiplied without need” (translated from Latin). This is interpreted as saying thatif there are competing hypothesis which fit the data, we should favor the simplest hypothesis, roughly the one with the fewest fudge factors or free parameters. “Favor” means treat as our working hypothesis which means we keep testing it until it is rejected. Maybe it even means we give advice which would be good advice if it were exactly true.

Economists interpretation of Occam’s razor is quite different. In economics some simplicity is more important than other simplicity. Basically there are default assumptions (rationality, no liquidity constraints, price flexibility, perfect competition, non-increasing returns to scale, economic behavior can be understood with utility functions which give utility as a function only of consumption and leisure etc) and relaxing one of them is severely punished. On the other hand, playing with funny utility functions is OK. The list is strange. It includes statements which economists agree are false.

How did this list of statements get to be the default assumptions ? Given that hypotheses of interest can’t be rejected unless you add auxiliary hypotheses, how could the list of default assumptions ever change ? What if anything does this exercise have to do with social science ?

I explain TheoryNS with an example — the usual example.

Take Newton’s model of the solar system. It was simple, 3 laws of motion plus 1 law of gravity plus the approximation that the sun and planets were rigid spheres and no other forces had measureable effects.

This hypothesis fit a huge massive gigantic amount of data. It also worked for far away stars (implications for location and red shift). It was just the most successful hypothesis ever. So it was called a theory. It has been rejected by the data, but it only was called a theory after it had been tested and not rejected with masses and masses and masses of data.

Economists try to test a hypothesis of interest and get nowhere.

Say we are interested in the permanent income hypothesis and we want to test it with aggregate data, so we have to add the auxiliary hypothesis that aggregate demand can be represented as demand by a representative consumer. Oh we also have to assume that utility functions are time separable and separable in consumption and everything else. Now we test the testable hypothesis and obviously it’s false.

The result is that the permanent income hypothesis is a default assumption. You can write a model with liquidity constraints, but, somehow, the economists version of Occam’s razor punishes you.

I bring up the difference between hypothesis and theory in part because in lay and political discourse, the notion of “theory” is often misunderstood. Darwin’s theory gets a bad rap because it’s “just a theory” form people who misunderstand what a theory is, take a theory to be an educated guess. Science attaches “hypothesis” to an educated guess. Theory is what we attach to broad, elaborate explanations of general phenomena. Generally, theory also implies “as well-founded as any explanation we have for now” – but not in economics.

Robert Waldmann

Oooops. Kharris, I responded at great length to your comment above. Js-kit wouldn’t let me post my comment here so now it is a blog post.

The point I was making at gruesome length is almost exactly what you wrote right here

“Generally, theory also implies “as well-founded as any explanation we have for now” – but not in economics.”

I will put your second comment in the post. Also I will quibble.

I think that standard economic theories are as well-founded as any explanation we have for now. That is an easy standard to meet if we have no well-founded explanations at all.

I think that in natural science a theory must not just be the best available explanation (which means fits the data with the fewest fudge factors) but also a clearly good or well founded explanation (which means fits a huge amount of data with few fudge factors).

I think there is a simple operational definition of a theory. A statement is a theory when it becomes impossible to remember all the data which it fits. The usual example is that it is impossible to remember all of the data of where planets were except to recall it all fit Newton’s model except for the precession of the orbit of Mercury. It is impossible to remember all of the anatomical and DNA sequence data that fit’s the theory of natural selection except by remembering that unimportant anatomical details and DNA sequences are what one would expect if the theory of evolution by natural selection were true.

This means that theorists who are making a new hypothesis and want it to fit known data must learn and use the existing theory. So Einstein had to make sure that his theory of gravity had the same implications as Newton’s for moderate densities, velocities, pressures and sheers. So special relativity gives Newtonian mechanics as an almost perfect approximation for speeds far below the speed of light. So the neo Darwinian synthesis (due to August Weisman not just Darwin) had to give the same implications for minor anatomical details as Darwins semi Lamarkian theory.

Theorists bow to old theories and not to raw data, because it is simply impossible to remember all of the raw data correctly summarized by the old theory.

Clearly there is no such thing in economics. There is a bit of it. Old Keynsian equations become stylized facts which must be explained even after theorists turn up their noses on them as theory.

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Support for Opt Out Public Option

Robert Waldmann

There is a surprising consensus for having a public option but allowing states to opt out.

Paul Krugman likes the idea

Josh Marshall likes the idea (and notes that Sen Schumer likes the idea)

DailyKos frontpager McJoan likes the idea

In that post Mcjoan also notes that Max Baucus and Howard Dean support the idea

Here McJoan notes that senators Stabenow, Menendes and Ben Nelson ! like the idea

Yes Ben Nelson and Paul Krugman agree.

The idea. You read it here first.

The point is that it sounds like a compromise which is federal and respects state’s right *and* it forces opponents of a public option to reveal that they oppose it not because it would be bad for policy holders but because it would be bad for insurance companies.

As Krugman writes

“the idea of putting red-state governors on the spot, having to decide whether to deny their voters cheaper policies, definitely has some appeal.”

update: digby likes it too.

Got greedy and checked Jane Hamsher who is against opt out. Ooops.

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A Research Agenda

cross posted with Gavin Kennedy

Rdan here…Gavin Kennedy in his blog Adam Smith’s Lost Legacy notes how the ‘invisible hand’ is used in modern economics and especially the media, and begins to lay out the challenge. The entire post follows:

Monday, October 05, 2009

A Research Agenda

“Even Adam Smith, the canny Scot whose monumental book, ‘The Wealth Of Nations’(1776), represents the beginning of modern economics or political economy – even he was so thrilled by the recognition of an order in the economic system that he proclaimed the mystical principle of ‘the invisible hand’: that each individual in pursuing his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition was almost certain to be injurious. This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their college course in economics.”

(Paul A. Samuelson, Economics: an introductory analysis, 1st edition, p 36, 1948, McGraw-Hill, New York.)

This paragraph, from one of the world’s most popular textbooks by the distinguished Nobel Laureate, Paul Samuelson, encapsulates the modern myth of the invisible hand, which is often sanctified with the other myth that Adam Smith was its original inspiration.

Samuelson’s warning that the “unguarded conclusion” had already done “as much harm as good” was soon discarded and was as soon forgotten by his colleagues (including by Samuelson himself in the eighteen editions of his textbook, Economics, that followed to 2009).

The metaphor of “an invisible hand” is now ubiquitous in almost all economics textbooks (miss-teaching generations of students), in many articles in peer-reviewed journals, in campus lectures, policy statements, political debates, mainstream media, and among scores of economic Blogs across the global Internet.

My current research is about the making of those myths from their early beginnings in the 20th century up to today’s treatment of the “invisible hand”, its credibility somewhat mixed of late following the global “credit crunch” of 2007-09, and what might be the main causes of its popularity, how it developed into a “Panglossian” error of perception, why it is mythical and why the popular belief that it is related to anything written by Adam Smith endures even when the evidence to the contrary is so strong.

In writing about the history of an idea throughout a period from the 1770s to the 21st century there is a danger that the appeal limits itself to a tiny band of specialist historians, presumably divorced from the interests of modern readers.

Well, that may be the case if my subject was, say, a history of the anachronistic labour theory of value, more suited as a PhD subject. But the essential beauty of a study of the evolution of the metaphor of the “invisible hand”, and its promotion into a major “idea”, “concept”, “theory”, even “paradigm” of economics, is that despite its longevity (much older than Adam Smith’s ambivalent use in the 18th century), the metaphor in its modern forms entered serious discourse and gained its undeserved credibility among academics and policy makers at the highest-level of politicians in the world’s legislatures, who applied its implications in their real “hands off” versus “hands on” treatments of the economies they managed.

In short, from the 1950s onwards, the metaphor of the invisible hand became operational, and not just descriptive, in practice.

How and why did this happen? What have been, and are, the consequences for economic policy and practice? What evidence is there, besides Samuelson’s 1948 warning about it doing “almost as much harm as good”, that any economists over the past 60 years realised the emptiness of the myth? What happened from their belief in Panglossian outcomes from mythical invisible hands to their actual policy recomendations? Does modern capitalism need the invisible hand myth or would it be better off without it?

These and related themes are the central questions to be addressed throughout Lost Legacy.

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Cochrane Vs Krugman

Robert Waldmann

Look everyone is bored with this but I promised an e-mail correspondent that I would write about it. I can’t force myself to read Cochrane, but I obviously just read Fox’s quotes of Cochrane. I think I have something new to add to the pointless discussion of professor Cochrane.

Warning: I go too far after the jump.

I think he isn’t just ignorant, I think he is dishonest.

According to Fox, he wrote

“The centerpiece of our crash was not the relatively free stock or real estate markets, it was the highly regulated commercial banks.”

Now he can’t believe that the commercial banks were more central than investment banks. No one could be that ignorant. He also can’t fail to have noticed that commercial banks are more tightly regulated than investment banks (especially recently after capital requirements for investment banks were massively relaxed). Writing “commercial banks” when everyone knows that “investment banks” would be closer to the truth is not plausible ignorance.

Cochrane may be completely ignorant about the macro literature except for that recently written somewhere near a great lake, but he must know that investment banks suffered more dramatically than commercial banks. I’m not sure he has noticed that there are no longer any investment banks — that is all banks in the US are now parts of partly FED regulated firms, but I am sure that he knows that Bear Sterns, Lehman, and Merrill Lynch are not commercial banks.

One more thing about Fox, he concedes that Krugman’s arguments are not based on formal models, he fails to note that the arguments made by the Fresh water economists aren’t based on any models at all.

I’d be the first to agree with Cochrane that Krugman’s vigorous pro-stimulus arguments are based more on hunches and guesswork and politics and history than on any kind of rigorous economic model. I’ve been even less impressed, though, with anti-stimulus arguments that claim to be based on rigorous models but are utterly devoid of historical perspective, curiosity and common sense.

They have models in which the labor market clears, they are not quite crazy enough to argue that there is no unemployment right now. They make arguments which don’t make sense and which certainly are less based on any formal model than Krugman’s arguments. Fox clearly knows this. That’s why he puts in the disclaimer “claim to be based”. However, he is a journalist so he can’t note that the arguments are definitely not based on formal models. This is he says she says journalism. I’m sure Fox has read Krugman and DeLong on the lack of a model behind the arguments. It is easy to see if there is a model or there isn’t (hint there are models on Krugman’s blog — Fox can check if Fama or Cochrane have presented a model which supports their conclusions. He can ask them to send him their model. He should be able to tell if there is a model of if there isn’t and if the model leads to the conclusion.

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Justin Fox assumes that economists are the only people who have used mathematics

Robert Waldmann

Justin Fox writes

That in itself is an interesting switch, and I wish Krugman had more directly confronted his transformation from guy who extolled “the scientific-mathematical outlook that is arguably the true glory of our civilization” to guy who writes that “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”

Since I absolutely agree with both of those statements right now, I detect no transformation. Fox asserts that if Krugman thinks that great things have been accomplished using the mathematical scientific approach then he must think that great things have been accomplished in economics by economists using the mathematical scientific approach.

His assertion that there is a transformation makes no sense if one considers the possibility that non economists, say physicists for example, might have accomplished great things using the mathematical scientific approach.

I’d say that economists have not accomplished much using the mathematical scientific approach, because economists almost never use an approach which is both mathematical and scientific.

The defining characteristic of science is that it is empirical and that hypotheses which are rejected by the data are abandoned (OK so the defining characteristic is that there are theories which bow to facts, just collecting facts is something else).

This is absolutely not true of mathematical economic theory. Rejected hypotheses are still maintained when we look at other subjects. Policy advice is guided by the assumption that rejected hypotheses are approximately true. The fact that a rejected hypothesis may still be a useful approximation is regularly interpreted as implying that famous hypotheses introduced by famous economists must be a useful approximation to the truth. Given that method of reasoning about the world, evidence is irrelevant (I give examples below).

In contrast there are economists who have committed science (examples, David Card, Larry Katz, John Bound, John Van Reenen, Claudia Goldin, Bruce Meyer, Alan Krueger, Christina Romer, Joshua Angrist and Richard Freeman). However, they all use quite little mathematics (in their science anyway). They do use theory — that is they attempt to determine causation from correlation by making identifying assumptions (that is assuming something is exogenous and is an uncaused cause). However the theory is theory which is immediately comprehensible to the man on the street and immediately convincing. For example, Angrist assumed that a special relationship between day of birth and wages for US men who turned 18 during the Vietnam war which is correlated with their draft number (dates were picked out of a big jar at random by two generals in the draft lottery) probably shows the effect of being subject to the draft. That is an assumption, theory brought to the data (such assumptions are always needed). It is one that normal people will immediately agree is reasonable (if they can imagine that it could conceivably be false). (the reader will note that Robert Waldmann is not on Robert Waldmann’s list).

There is mathematical economics and there is scientific economics. The overlap is minimal.

Fox is writing about the debate between Krugman and Cochrane. He argues that Cochrane is nothing like a scientist. He seems not to have thought about that when deciding that if Krugman thought that there is wonderful mathematical science then he must have thought that there was wonderful mathematical scientific economics.

Fox assumes that Krugman was like a cargo cultist who assumes that since physicists have achieved great things applying mathematical tools then it must be that economists who do something like what physicists do will achieve great things. This sort of idiocy is widespread, but Fox presents no evidence that Krugman ever shared it. He has always argued for theoretical work which presents models as examples of what might be going on — that is as a way to clarify thought and not as something to be taken seriously (in the sense that Sargent uses that word). He has long complained that the only science that economists know exists is physics (by the way the ignorance of economists about biology is astounding — they seem to have no idea that so much was accomplished with so little math).

Now Fox might have a case that Krugman has transformed. I too have the sense that his views have changed. However he doesn’t make this case. I conclude that his comment on how Krugman has transformed is Ballance.

Well that was a long tirade about an aside.

Examples of assuming a famous hypothesis *is* (not may be is) approximately true even if it is rejected by the data.

1) Mankiw on Modigliani & Miller in a discussion of Baker, DeLong and Krugman at Brookings he said that dividends don’t matter to first order because dividends didn’t matter in the Modigliani-Miller model which was the first neoclassical model to address the question.
2) Lucas said we know that there is Ricardian equivalence (the time he asserted that the balanced budget multiplier is zero because without a deficit “there is nothing for the multiplier to multiply).
3) Solow to Katz that Harvard didn’t have to raise salaries of junior faculty as it wasn’t having trouble filling the positions. Solow is one of the rediscoverers of efficiency wage models in which he asserts that this reasoning is invalid.
4) Krugman argued that the policy implications of old growth theory with perfect competition are correct 20 years ago when his academic work consisted basically of models which fit that data better in which the policy implications are different.
5) Barro estimated a fiscal multiplier of 0.8 and concluded it would be best to “start with” models in which it is zero. Then he contributed to the policy debate assuming it was zero.

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