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Why Micro is the Problem, Part Bristle-Bot

I have screamed for the last several years that the problem with economics isn’t that Macro is problematic; DSGE is a detour but—as Noah Smith shows here—it can be used as an access road.

The problem is assuming that “micromotives” must be universal.  For all of the emphasis about the glories of using natural logs because they reflect “what happens in nature,” economists who insist that micro principles must be foundational to macro behavior are idiots fail to study nature.

Now, via Michael Swanwick (whose wife Marianne taught me more about China in ten minutes than all of the analysts and economists who wrote about it did in the previous ten years), we see that even robots understand that individual behavior is not sustainable in a society.

If only economists could (re-*)learn that, they might get back on the road to being a science, instead of being lost in the woods of a perpetually self-indulgent wankfest.

UPDATE: Thers reminds me of this Brad DeLong post, where Belle Waring sums up the true problem of Modern Economics succinctly and better than I did (or, perhaps, can do):

The flavor of this discussion is indescribable. In its total estrangement from our political and social life today [and] its wilfull disregard of all known facts about human nature.

You cannot have a “social science” if your foundations are anti-social. No matter how many differential equations you use.

*I’m fairly certain it is a matter of re-learning. The Kuznets Curve, for instance, indicates an understanding that collective action does not reflect just “the sum of the parts.”

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An Unscientific Poll

Robert’s post gets me wondering, as we enter the seventh year of the Great Recession (NBER also doesn’t treat either 1873-1897 or 1929-1945 as a single period) that there’s probably a good reason for the “changing” attitude toward food stamps.

So let’s conduct an unscientific poll in comments:  in the past ten years–say, January, 2004 onward–have you or anyone in your immediate family / circle of friends applied for or received food stamps?  Answer yes or no. (If you’re not certain, answer no.)

I’ll start:  Yes.

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Discretion, Rules, and Regulations

It is naïve to think banks utilising complex trading strategies and products, across global markets, can be supervised using simple rules (even if calibrated to penal settings). Indeed, an important driver has been the necessity to address perverse incentives that are created by simple rules. – Stegan Ingves, 24 Jan 2013

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Jon Swift Memorial Blogroll Amnesty Weekend, 2013

This coming weekend is the annual Jon Swift Memorial Blogroll Amnesty, the reasoned, proportionate response to some of the Bigger Names suddenly deciding that they needed to cull their recommendations.  Swift’s brilliant (and certainly modest) proposal was that you should instead find five blogs with lower hits than you and recommend (i.e., promote) them, not drop them.

I don’t need to tell you to read Brad DeLong or Mark Thoma or Bill McBride—or David Altig or David Beckworth.or Jared Bernstein. Or anyone else who is probably already on the AB blog roll.
Things that have been disappearing from view as Blogroll Amnesty Years pass:

  • Single-person blogs
  • Blogs that are not always updated daily
  • Blogs that are not themed but are rather “what the owner feels like mentioning”

The following five are my recommendations for this year, in alphabetical order:

  1. Andrew Rickard (updated almost every day; in perfect timing, just went on a week’s hiatus)
  2. A Boat Against the Current (Mike does update almost every day)
  3. The Hunting of the Snark
  4. You and Me, Dupree
  5. Underbelly (who sent me to Andrew Rickard)

    and a bonus one, because you can never have enough (a) Canadian content or (b) food blogs, let alone both:

  6. Double Trouble, Kitchen Edition
(h/t to Skippy the Bush Kangaroo for the reminder)

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Updates and Notes

Just a quick one:

  1. I was wrong; Greg Sargent and Stan Collender were correct. And, yes, I could not be happier about this, though I still expect that any real evidence of Moderate Republican Senators will show up about the same time as a flock of Ugly Chickens (link not guaranteed to work; reference discussed here).

  2. Jared Bernstein, of whom I am occasionally brutally honest less than deferential, reveals a hithero unknown skill at comedy in this must-read post:

    Most coefficients in the table have the “wrong sign” or are insignificant, except the bold one, suggesting, counter to anti-union theory, states where union density grew most had the best employment growth.

  3. Current Canadian and future BoE leader Mark Carney manages to present both of these as part of his latest Monetary Policy Report:
    • Caution about high debt levels has begun to restrain [Canadian] household spending.
    • The three main downside risks to inflation in Canada relate to [lists two]…and the possibility that growth in Canadian household spending could be weaker
  4. And, with all due respects—and there are many—to Beverly’s multiple posts on President Obama’s “Seneca Falls, Selma, and Stonewall” speech, I’ll continue to disbelieve the Administration’s claims to believing in creating opportunities by its actions. As Dan Crawford noted here yesterday:

    Meanwhile, PBS reporter Martin Smith just reported that in response to his report, the Obama White House has decided to block access to Frontline reporters in their future reporting.

    That’s the Biden/Geithner/Summers Administration I’ve watched these past four years, and anyone believing it is dedicated to justice or creating opportunity is fooling themselves. (I would, of course, love to be wrong here, too. But it’s not the way to bet.) If that was “throwing down the gauntlet,” it’s now being used—as is all too usual—to slap the people who tell the truth, not those who break the law.

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That Time of Year Again

I end up posting this, I believe, every year. And every year, despite not trying at all, I find a newer and better reason to post it. This year, it’s because cities in Virginia, including Harrisonburg City, have their students in school today—a Federal holiday—but made damned certain the kids were out on Friday for [Robert E.]Lee-[Stonewall]Jackson Day. If Barack Obama deserves to reign in Hell over one thing alone, it is because he took locally-popular Democrats like KathleenI’m incompetent, so I will overrule the scientistsSibelius and Janet Napolitano and moved them to DC, weakening the strength of his own Party and (worse) having those Governors replaced by people who make life worse for his constituents in Sam Brownback and Jan Brewer. Jan Brewer probably isn’t as bad as Evan Meacham, but that’s the best anyone has said. Bob McDonnell at least proclaimed today Martin Luther King, Jr., Day,* even if the kids don’t get it off, the way they do for real heroes of his state.

*It would be petty of me to note that McDonnell’s proclamation conspicuously leaves the “Dr.” off the front of Doctor Martin Luther King, Jr. I guess a Ph.D. from Boston University isn’t worth all that much.

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What I Missed These Two Days

Hmm, anything unusual in the world?

Well, Greg Sargent tries to perpetuate the Myth of Moderate (but of course Unnamed) Republican Senators.  Stan Collender gets punked.  Nothing new on the first, but Collender’s previous piece about the realities of the Ancestral Party gives the lie to Sargent’s delusion.  Economics version: the Republican Party is at a stable equilibrium. And has been there or near it for at least sixteen years, which is probably two-thirds of Greg S’s life.  You might think he would notice.

The NRA—most recently seen attacking the President for being President, and before that discussing decade-old video games—released a video game so that four-year-olds can get practice using AR-15s to kill people.  I suspect McMegan and her literacy-impaired cohort, Jeffrey Goldberg, are lamenting that the kids are not being taught to be cannon fodder, but will wait for Susan of Texas (whose current marvelous takedown of Publicity Whore Andrew Sullivan is required reading for everyone fooled into paying money to support his ego) to provide details.

And Brad DeLong’s Better Half put up a post on tobacco surcharges that keeps me from having to figure out the latest AAA insurance policy offering.  If I were a marketing executive at a Life Insurance firm right now, I would be heavily advertising 20-year Term Life policies to 25 to 30-year-old smokers.

Oh, and Notre Dame football has another scandal surrounding it. Scott Lemieux says what needs to be said.  Apparently, “Catholics versus Convicts” is only a matter of who owned the police and the judges.

Probably a good two days not to have gotten out of bed.

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The Problem with Macro, and An Apology

There has been much discussion recently of the “problem” with Macroeconomics. See Nick Rowe, Noah Smith (who may have been punked by a self-selecting sample—or may not have), Mark Thoma, Brad DeLong, RDan’s collection here a while back, and the rest of The Usual Suspects.
Let’s ignore for the moment that the problem with Macro is Micro.  I think I have figured out the other problem with Macro, and I have Victor Matheson to thank for it.

In the midst of a post last week, I noted that there are perpetually claims from economists and that “chained CPI” is a “more accurate” measure of inflation. (Not coincidentally, Chained CPI runs below CPI.)  That not being enough I continued—in the calm, rational manner for which I am known (think a combination of Scipio Aemillianus and William Tecumseh Sherman)—by highlighting Professor Matheson’s otherwise rather innocuous comment chez DeLong that he remembered being told the same thing.

I gave Professor Matheson a “most notably,” when he was hardly the most extreme representative.  Indeed, anyone following the link to his comment would wonder why he was chosen.  It was mainly from this:

While I teach intro to macro, I am not an expert in the minute details of the CPI calculations, and I do remember the talk in the 90s was that the CPI overestimates the true costs of inflation by something like a percentage point or two every year.

But it is my misreading of that.  Note that, while Professor Matheson teaches Introduction to Macroeconomics (presumably Econ 301 or 302), he specifically does not say that he teaches that CPI overestimates the true cost of inflation.

But he does say that he heard it in the 1990s, and does not say he has heard that those claims are bollocks.
Before going further, I want to apologize to Professor Matheson for making him the poster child and putting words into his mouth that his fingers didn’t actually type.  (And, in direct answer to his question chez DeLong, Nancy Ortiz in comments to the previous thread, lays out the biggest problems with “chained CPI” specifically as a measure for Social Security [or generally for anyone without legacy wealth].)

PJR, again in the previous comments thread, correctly sends us to the Boskin Report, and is not impressed:

I conclude that the C-CPI probably answers the wrong question, consequently measures the wrong concept, and conflates inflation with behavioral responses to inflation.

To I trust no one’s great surprise, I consider that a generous interpretation.  Yet the myth persists.  Which is another reason we have a problem with Macro.

Chemists don’t teach Phlogiston Theory. None of the biologists, biochemists, or biophysicists I know talks about the glories of Lamarckism when differentiating between 3’ and 5’ DNA.  But economists still pretend, as they did a decade ago that Gary Becker proved that economics means that discrimination does not exist; that Real Business Cycle Theory can actually explain any significant portion of Business Cycles in either direction; that NAIRU is a workable concept, even as “skill shortages” cause it to be severely discontinuous in a world that claims to have continuous functions (and does not work if it doesn’t).

A world where CPI is a bad measure because people will choose dog food when they cannot afford Hamburger Helper (which we call “chicken-steak,” as if it were Patrick Stewart and Steve Martin negotiating [link will be understood by rjw’s students]) and that the IBM ThinkPads I bought three months ago costs about 1/10th what it did when it was new in 2001 (and I can probably sell it for…bupkis) means that “computing costs” have gone down for consumers.

Not to mention a world of “rational expectations” (“micromotives,” as it were) being generalized so that networks, social interactions, cliques, and indeed governments are treated solely as if they are the sum of the parts.

The problem with Macro remains Micro, and the problem with my previous post remains that I was more than a bit unfair to Professor Matheson of Holy Cross, for which I apologize to him and our readers.
(Discussion of the paper referenced yesterday is deferred to another day.)

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