Comment on DeLong on Buchanan
Read Brad’s post.
my comment on “Milton Friedman’s redefinition of “neutral monetary policy” to mean “whatever monetary policy keeps nominal GDP on its trend growth path” led people prone to motivated reasoning in a laissez-faire direction completely and horribly astray… astonishing failure to mark one’s beliefs to market”
Someone should write a book “Economic Theory: What Went Wrong”. You had a draft in your mind some years ago. PseudoDeLong wrote that economics had been healthy, although inevitably influenced by ideology. In the good old days, there were fruitful debates between libertarians like Friedman, Stalinists like Sweezy and everyone in between.
Then Lucas and Prescott made a mess of things, abandoning evidence for pure theory. Or rather, they made a non mess of things, focusing on their favored models and ignoring non messy reality.
This is an attractive story, but it does not correspond to the actual history of what was actually written and said. It is, roughly, salt water good, fresh water bad. Fresh water means both back engineering theory from free market policy preferences and favoring rigorous analysis of the implications of absurd assumptions both to common sense and to empirical rigor “progress don’t regress” “Theory ahead of business cycle measurement”.
The problems are (at least) two. First the fresh/salt division isn’t identical to left/right. The terms were introduced by Hall a salty conservative. Sargent and Hansen are distilled water center-lefties.
But second, many salty righties manage to be almost as receptive to actual evidence as Prescott. You present an example. I think Friedman is another. Actually Lucas himself is a brilliant rhetorician — he can do it with words as well as with equations.
Notice, I classify Friedman as a salt water economist. I do insist that Friedman and Lucas are methodological opposites (it isn’t merely that their statements contradict, so they can’t both be right, one is the negation of the other so they can’t both be wrong)
They are on the same team with teammates named Laffer, Kudlow and Moore. They are (or sadly were) geniuses, but they work back from the conclusion and are more loyal to small government ideology than to their stated methodologies. This must be true, because they consider themselves part of the same school even though they have opposite methodologies.
And underneath all their theorizing — unnoticed from their high plane — labor unions in the US could have blossomed to continental European expansiveness or disappeared down the unenforceable NLRA black hole like they in actuality did — the alpha and the omega of the average person’s economic and political welfare — and none of their theories would have changed an iota.
I read about the death of Murray Gell-Mann in the Guardian this morning and viewed the video of him talking about how his 8fold way came about.
What he said about deeply held ideas holding up the progress of physics seems to me to apply to economics.
I agree that this is more complicated than many realize, with Bob Hall a “salty conservative,” and so on. I have one possible disagreement. It has to do with Friedman and Lucas. I checked, and while Lucas has declared that the supply side tax cuts were a “free lunch,” Friedman seems to have been unhappy about tax cuts that were not accompanied by spending cuts, and forecast that Laffer was wrong ans that tax cuts would reduce tax revenues. More complications.
BTW, the Subject head has Buchanan in it, but he makes no appearance. I guess that was in the original DeLong post but not carried over to here.
Physics may have gotten lost in math as Sabine Hossenfelder points out, but economics has always been about ideology first. Mathematics is just a rhetorical device.
Physics lost its way because so much of the mathematics produces hypotheses that cannot be experimentally observed. Economics, in contrast, simply ignores the evidence as long a the checks keep cashing.
@Barkley Yes it is true that Laffer et al are a bridge too far for many right wing economists. Friedman recognized that to spend is to tax (eventually — if the treasury rate is greater than the growth rate of GDP (which it isn’t)).
Buchanan is in Brad’s post. He is an example of a rock salt conservative who was other than completely intellectually honest.
@Kaleberg I think Physics’s problem is near complete success. It stalled because the standard model fits all of the data (except for the existence of gravity which isn’t in the model at all). The not even false 11 dimesional space with strings in it theory was a reaction to there being only one puzzle left (fitting gravity in). It moved to untestable hypotheses after a huge amazing series of testable hypotheses which passed the tests.
The problem in economics is the opposite. There are no hypotheses which have survived first contact with data. So economists decided that the rational expectations hypothesis, the efficient markets hypothesis, and the permanent income hypothesis are not hypotheses but are models which are false by definition but might be useful and so let’s assume they are useful (“might” makes right).
Ah re-reading I see that my reply is a more verbose version of your comment.
On math vs ideology, I note that young leftists who get PhDs near great lakes come back, still leftist, but also doing the fresh water stuff. The founders may have been clever ideologues, but many followers are overwhelmed by math. I think there is a paper somewhere about how US born economists choose the school ideologically, so fresh/salt sort by right/left but foreign born economists have no idea what they are getting themselves in to. I note that, last time I checked, there were almost no US born PhD candidates a U Minnesota (I heard this from someone who claimed to have been the only one in her year).
It is simply a fact that a lot of mathematical economics which is used by small government conservatives was developed by socialists. I don’t think there is a single important right of center general equilibrium theorist.
Or to put it another way, it may be rhetorical device, but it is an extremely effective rhetorical device.