In economics. Reader JohnH disparages attempts to measure r* (and r* plus expected inflation):
Question is, would anyone recognize the neutral rate if it stared them right in the face? And if it could be identified, would it be wearing its real face, a nominal one, or a “natural” one?
In macroeconomics, we try to measure lots of things that are not directly observable.
- Potential GDP
- Natural Output (which might deviate from potential if monopolistic competition is pervasive)
- Natural rate of unemployment (sometimes NAIRU)
- Total factor productivity (TFP)
- Real natural rate (r*)
- Expected future inflation
- Expected future dividends
- Expected future income (goes into “wealth”)
- Expected future tax payments (neo-Ricardian equivalence)
- Adjustment costs of capital
- Marginal utility of leisure
- Marginal utility of consumption
- Coefficient of relative risk aversion
- Risk premia
One approach: Since these are not observable, we shouldn’t try to estimate them. For me, I think even if a variable is not directly observable, we should try to obtain some sort of measure, bringing along a lot of humility about our estimates (or at least thinking about confidence intervals).
Well stated.
Many tornadoes are what are called “rain-wrapped”. Often times (though not all the time) they are not visible up to the moment they kill someone or rip apart peoples’ homes and strew the remains 2-5 miles off in the distance. I guess since we cannot see them directly meteorologists should give up all these games they have been playing for the last 40+ years of trying to find a “signature” identification by radar. “Why bother??—We can’t see/identify them.”
I have no problem with concepts and the attempting to measure and forecast phenomena which are neither particularly measurable nor forecastable…as long as such studies don’t become the primary focus, crowding out studies that would lead to increased general welfare and prosperity. Let us remember that it was economists at the University of Wisconsin-Madison who were instrumental in the design of Social Security and other New Deal programs.
I also have a problem with the sanctity of such concepts and measurements as well as their practical application and utility to public policy, particularly when the results, often wrong, seem to serve little purpose beyond a dogmatic, partisan and polarizing slugfest. And I have a problem when much of what macroeconomists study seems to unduly cater to wealthy, Wall Street interests and their obsession with interest rates and GDP, largely ignoring real wages of average Americans and its potential contribution to aggregate demand.
Sure, Wall Street will do what Wall Street does and they have plenty of money to hire their own staff economists to provide advice and lobby the Fed and Congress. But should academics be playing that game, too? Shouldn’t academics, particularly at well regarded universities, be studying a broader range of public policies, such as studying how increasing taxes on the wealthy could serve to address inequality and increase economic growth, how industry concentration and pricing power contribute to inflation, how unrealized capital gains income is neither reported in national income nor in many measurements of income inequality?
It seems to me that there is plenty of opportunity to go beyond the study of what is inherently unmeasurable and unforecastable and focus instead on the data that is more or less readily available but largely overlooked.
Angus Deaton goes beyond my concerns, raising issues about economists’ treatment of power, questions of ethics, primacy of efficiency over general welfare, etc.
https://mattersthepodcastforourtimes.substack.com/p/re-thinking-economics
Johnny has once again described a fictional world, one in which people fall short of their actual behavior. Often, Johnny declares that economics fails to address issues which large economic specialties address as a matter of course. Johnny routinely mistakes some issue that fascinates journalist for an obsession in economics; his insistence that economists are fixated on GDP, when the entire field of microeconomics has little to do with national aggregates.
Here, we are treated to the ridiculous implication that the study of monetary policy is drawing attention away from more valuable issues. How, exactly, does a Wisconsinites’s roll in designing social programs support Johnny’s claim? It doesn’t. That’s just the way Johnny mumbles.
Tricky Ducky, how many times do I need to remind you that last I checked the UW-Madison economics and public policy website made no mention of inequality. This is just one example among many that I provided that show mainstream economists’ neglect of inequality and their general tendency to provide cover for Corporate America by failing to notice readily available macroeconomic data that would prove inconvenient to Big Money.
But Tricky Ducky assures us that…don’t worry, be happy…some economist, somewhere has every major public policy issue covered…or at least someone wrote about it within the past 50 years…so he is free to ignore it. Meanwhile, Ducky himself barely follows real wages and shows his concerns for labor only when he needs to pitch lower interest rates, which, curiously enough, immediately boosts the asset portfolios of the wealthy…and maybe, someday, might possibly reduce unemployment.
Naturally, pondering the unobservable, untestable and unprovable–like r*– is harmless enough, though it does little to solve the major macroeconomic problems of the day. Of course, if Ducky had lived back on the day, he would probably have enjoyed counting angels on the head of a pin to see how many could fit!
You checked out their facility? No you did not but I did. And I noted one of Dr. Chinn colleagues who has quite the CV. Jonny boy . You are not only a moron. You are one insulting LIAR
JohnH: I don’t know how you did an exhaustive study of the LaFollette website and found no mention of inequality. I challenge you to do that once again – maybe read the faculty pages, see who works on inequality, poverty, etc.
I did check the facility pages a while back and made a comment which of course Jonny boy just ignored.
Timothy Smeeding. Professor Emertis who I noted to Jonny boy the last time your colleagues were smeared by lying little Jonny boy
Johnny is making the argument that attention to r* means that scholars aren’t paying attention to:
“… a broader range of public policies, such as…increasing taxes on the wealthy…industry concentration and pricing power… unrealized capital gains…”
Of course, Johnny is aware of any of these issues because they have been studies by economists. Johnny has not uncovered any of these issues himself. Nor has he bothered to explore the economic literature in any depth, or he’d be aware that these issues have been studied extensively. This is more than a Case of an ignorant person failing to understand his own ignorance; Johnny has made similar claims repeatedly, and has repeatedly been told that there is a wide research literature on every issue he has claimed economists don’t study. However ignorant Johnny may be, he is also a liar.
Just an example of the fact that there is room in academic thinking for both r* and other issues:
https://basicincome.stanford.edu/research/papers/what-we-know-about-universal-basic-income/
I’m not pointing out this paper to say “Oh, lookie! A fancy university paying attention to an import social issue in economics!” Though I could. I’ve linked to this paper because of this:
“In the last ten years, as Universal
Basic Income has moved up the policy
agenda, many reviews and reports
have taken stock of the evidence
on unconditional and universal cash
programs.”
Many reviews and reports. The Stanford article reviews ten studies. The bibliography cites 22. And these are far from the only works published on this issue.
It took about three minutes to find the Stanford paper and to count up the studies it cites. Johnny didn’t bother, because he doesn’t care. He’s not in the business of learning the truth. He’s in the propaganda business.
“Johnny is making the argument that attention to r* means that scholars aren’t paying attention to”
Me thinks Jonny’s real problem is he has made an utter fool of what r* even means. Jonny boy at his core is a gold bug always clamoring for tighter monetary policy and higher interest rates no matter what? After all Jonny boy thinks high real rates must means greater income equality despite all the arguments to the contrary.
And of course Jonny boy must dismiss the reality that recessions hurt the poor a lot. So Jonny boy gets all twisted in his panties over the premise that high real interest rates just might risk a recession.
Yea Jonny boy is truly an ignorant little partisan.
Truly hilarious…I’m not the one who is “has made an utter fool of what r* even means.” No, it’s not me…it’s the currently great economic performance and rock bottom unemployment coupled with high interest rates that is making a mockery of r*. And then, of course, there is the poll of economists, which shows that the actual value of r* depends on which economist you ask!
IMO r* is not the sun around which the economy revolves…it’s just one of many gravitational forces in the universe.
You did make a fool out of yourself but then you are so effing stupid you did not realize it? Dude – find another blog. Maybe one that does basket weaving.
UBI offers a pretty good indicator of the neglect economists here have shown in addressing poverty and income inequality. I did a search of this website by Duck Duck Go and found a grand total of three instances where it got mentioned…one by me!
https://econbrowser.com/archives/2021/11/oil-price-futures-and-forecasts
Of course, Ducky never tires of promoting lower interest rates, which immediately boost the asset portfolios of the wealthy…under the guise of helping the unemployed (eventually)…but he can never seem to manage to advocate for more robust automatic stabilizers which would immediately protect the unemployed. Hmmm–I decided to search here on “automatic stablizer” and managed to find a single result…back in 2008.
“I have no problem with concepts”
Yea you do. Economics is never been your forte so you decide to smear people who do understand economics.
“I also have a problem with the sanctity of such concepts and measurements as well as their practical application and utility to public policy, particularly when the results, often wrong, seem to serve little purpose beyond a dogmatic, partisan and polarizing slugfest.”
Concepts are sanctimonous? Dude – you are a moron. The only partisan here is little Jonny boy.
The rest of your rant is beyond stupid. But then you wrote it.
Let’s see:
‘Nobel Prize-winning economist Angus Deaton has revised his previous support for high immigration and free trade, recognizing their larger unaccounted costs on ordinary citizens.’
Huh – is he going all Stephen Miller on us? And yet Jonny boy praising this stance of position? OK – little Jonny boy must have missed this with all the other things Deaton said such as:
‘Like most of my age cohort, I long regarded unions as a nuisance that interfered with economic (and often personal) efficiency and welcomed their slow demise. But today large corporations have too much power over working conditions, wages, and decisions in Washington, where unions currently have little say compared with corporate lobbyists.’
Did Jonny boy totally miss all those discussions of monopsony power on this very blog. I have long been in favor of union power. Oh wait – it’s Jonny boy who dismisses the role of unions. Huh!
And there’s this:
‘I am much more skeptical of the benefits of free trade to American workers and am even skeptical of the claim, which I and others have made in the past, that globalization was responsible for the vast reduction in global poverty over the past 30 years. I also no longer defend the idea that the harm done to working Americans by globalization was a reasonable price to pay for global poverty reduction because workers in America are so much better off than the global poor.’
Of course most students of international trade have read this from 80 plus years ago:
Wolfgang Stolper and Paul A. Samuelson “Protection and Real Wages.” Review of Economic Studies 9 (1941).
But not little Jonny boy. And a lot of us including Paul Krugman have praised the work of David Autor on the China shock. But of course little Jonny boy thinks economists have ignored what we have been talking about for over 80 years. Let’s just admit it – Jonny boy is the most clueless moron ever.
Read any post by either John H or Econned , and you have no problem understanding their preferred subjects: themselves. Their favorite pronouns—I and my—pepper their comments and responses.
They possess overinflated egos that attempt to mask—but can never hide—their deficiencies in economics and, for the especially petulant and childish Econned, their jealousy of others far more qualified in numerous subjects than they are.
If they’re experts in anything, it’s obviously self indulgence.
Nicely said.
I guess each day it extends it’s a new record???
https://www.ft.com/content/9ff782a4-f96f-4f7e-ae8a-ede815a2f24e
March 15th= 424 Days
March 19th= 428 Days
When exactly do we mark it as “This time is different” ??
Thanks Menzie – I find your posts very helpful to cut through the fog and smoke screens – some of your commentators constantly throw up.
Moses – to your point – I wonder when the Larry “the least responsible macroeconomic policy we’ve had in the last 40 years” Summers crowd admits that they were wrong and Biden/progressive/Keynesian polices worked.
Unlike Obama who pivoted to austerity when unemployment was 9% to please the Republicans and media critics – Biden has taken a much more progressive approach. For example, “Obama scoffed at labor unions; Biden walked a picket line and appointed the most pro-worker National Labor Relations Board in decades. Obama’s Education Department screwed over student debtors; Biden has canceled $138 billion in student debt. Obama defended big business; Biden has been an antitrust warrior. Obama was a free trader, while Biden subsidizes domestic manufacturing. Obama offered to cut Social Security; Biden just torched Republicans during his State of the Union for planning the same thing.” https://slate.com/news-and-politics/2024/03/biden-economy-voters-polling-numbers-covid-recovery.html
It shouldn’t be forgot “AOC” and Sanders pushed hard for the student loan forgiveness, among other things. Yes, Dems should try to play to “the middle” sometimes, but losing their base due to apathy of Democrat politicians whistling in the wind while they lose their homes, is not a great idea. See “Hillary and NAFTA speeches”.
Dems let Reagan onward steal our anger. Democrats need to get back to that Theodore Roosevelt style anger. (Yes I know Teddy was Republican)
Physicists calculate and predict all kinds of things that cannot be seen. So there is that.
I still don’t believe in those atoms and molecules and chromosome thing-ies. #FAKENEWS.
That’s why I eat bat meat all the time. I never saw not no thar none virus on them thar bats. Where is it?!?!?!? Plus Batman would be dead by now.
Did you ever see a sick Batman toy with the Covid cooties in your cereal box?? #MAGAPROOF
Johnny is not much concerned with knowledge. Think how often he has been caught mischaracterising links he has posted in comments; he simply declares that some “authority” supports his view when it’s not true. Think how often he has lied about what economists think and do. Thunk how often he has claimed that the U.S. or Ukraine are to blame for Russia invading Ukraine.
My suspicion is that Johnny’s habit of misconstruing facts has weakened his intellect. He doesn’t think things through, because he’s in the habit of jumping to conclusions that suit his propagandists aims. The habit is so strong that even when he doesn’t have orders from his masters, he just can’t help it – he jumps to conclusions by habit. His shambolic argument here is a great example. Nothing holds together, nothing about it makes sense. It’s just a long mumble.
Ah, but you forget, on Planet JohnH there are only eight economists at any time. Each one has a Topic of Study selected at birth by rich people who spin a great Wheel of Fortune – with possible outcomes chosen by rich people – and, when the Wheel stops spinning, their research area from then until the end of their life is set; if the Wheel has not selected, for example, “how increasing taxes on the wealthy could serve to address inequality and increase economic growth,” (which is not, in fact, an entry on the Wheel,) why then, that won’t be studied, until (possibly) an economist dies and another is chosen.
Barbarians in the hinterlands have come up with uncouth concepts such as “how industry concentration and pricing power contribute to inflation,” but when they raid the Great Cities and are inevitably captured, they are cast into the outer darkness, where there is a wailing and gnashing of teeth. One of the most recent of these incursions was made by the tribe known as the “Boston Fed” (https://www.bostonfed.org/publications/current-policy-perspectives/2022/cost-price-relationships-in-a-concentrated-economy.aspx, ) Other examples are too numerous to mention, although a quick search of the Repository of (Almost) All Knowledge will turn up dozens, nay, hundreds of examples even for the inexpert researcher. Those with special access to the archives – AEA, ASA, INFORMS, and others – will of course be granted access to far more, and more in-depth, studies of the primitive beliefs of the barbarian tribes.
Why on earth weren’t Bräuning, Fillat and Joaquim estimating r* instead of working on the effect of industrial structure on price? The nerve of some people.
Who’s in charge of the Boston Fed? I’m going to write a stern letter.
hahahaha, this was about as good a comedy as Chris Elliot on the old Letterman shows. You cracked me up dude (in the best of ways, sardonic truth).
I actually feel a little for JohnH, I’m sympathetic to some of his positions, and maybe at one time of my life I was very much like a JohnH (don’t judge me). College sophomore Uncle Moses was very much like JohnH. But hopefully one grows, and discovers not every animal at the top of the food chain is evil. Although a good many of them are, which is what drives the JohnH’s of our world.
I can’t rip into JohnH too much, but I have no qualms with others who do, especially when it’s just solid comedy.
World class take down!
I find it rich that ponzi Johnny, he of the economic theory of high rates of return on low risk investments, feels the need to demand economists do the economic work that he demands should be done. as if he is knowledgeable enough to know what should or should not be studied, and should pass that knowledge off to the experts. ponzi Johnny, if you are so smart why not simply do the work yourself and publish that agenda? perhaps because you are not qualified to do that work, only qualified to spout propaganda? you share many similarities with econned.
How about a list of things that can never be unseen ?