JS Global Macro Notes

Quote from Martinghoul:

Yeah, but that's the thing... The process of understanding the world around us often starts with stuff that appears like real quackery. My favorite example of this phenomenon is J.J. Thompson's "plum pudding model" of the atom. Sure, it's been shown to be pretty much all wrong, but one could imagine that it paved the way for things that eventually were shown to make sense.
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As far as I can tell all significant theoretical discoveries regarding macroeconomic and monetary affairs had already been realized by about 1930. Almost everything since has consisted of pro-interventionist propaganda, or been a matter of replacing good theory with bad psuedoscience so its practitioners can make a name for themselves, secure cushy tenured university positions and NYT op-ed columns, etc.

These days the economics profession is bought and paid for by the Fed. The real goal of its output (and also that of the grand viziers at the Fed itself) is to justify the central bank's existence, and more broadly the whole psuedo-scientific edifice that's been constructed over the past fifty-sixty years. Anything else is really just incidental.
 
Quote from darkhorse:
Hmm. I question whether that's a valid comparison. New scientific theories are proven through experimentation and successful prediction over time, wherein the model says that if A, then B, or given X, the result of Y should be Z, and is proven right.

Putting forth pseudoscientific reasoning and / or spurious correlation as a justification for dubious economic policy, on the other hand, has nothing to do with the rigor of scientific theory or the means by which novel theories are stress tested.

If what you are saying is that quackery is bad here and now, but can lead to something good later, it still stands to reason that application of the scientific method is the only rational means by which this could come about.

Bad policy based on bad ideas (e.g. the discredited Phillips curve) will never lead to forward advancement if no one is calling out the quackery for what it is in the first place.
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Well, I have to respectfully disagree with you... IMHO, everyone has the same inputs into the model. Therefore, I cannot define it as quackery. The weights that different people assign to those inputs can and do vary wildly, but that is the way these largely subjective things work.

Moreover, I know that I don't know many things, which means that I am very cautious to completely dismiss things that appear extremely silly to me. The revival of the gold standard discussion, for example. I can't think of an idea that is more wrong-headed and "fuckwitted", to borrow your term, and yet here we are.
 
Quote from Specterx:
As far as I can tell all significant theoretical discoveries regarding macroeconomic and monetary affairs had already been realized by about 1930. Almost everything since has consisted of pro-interventionist propaganda, or been a matter of replacing good theory with bad psuedoscience so its practitioners can make a name for themselves, secure cushy tenured university positions and NYT op-ed columns, etc.
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Well, with all due respect, I emphatically disagree with this. I think we haven't even begun to scratch the surface. I also believe there's actual interesting work that has been done and continues to be done. While there's a fair bit of funny stuff that goes on in economics (just like it goes on everywhere in academia), I, for one, am not going to dismiss it all out of hand.
These days the economics profession is bought and paid for by the Fed. The real goal of its output (and also that of the grand viziers at the Fed itself) is to justify the central bank's existence, and more broadly the whole psuedo-scientific edifice that's been constructed over the past fifty-sixty years. Anything else is really just incidental.
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Well, I have to respectfully disagree with this. There's a lot of stuff happening in the economics profession that is genuinely interesting and has nothing to do with the Fed and macro.
 
Quote from Martinghoul:

Yeah, but that's the thing... The process of understanding the world around us often starts with stuff that appears like real quackery. My favorite example of this phenomenon is J.J. Thompson's "plum pudding model" of the atom. Sure, it's been shown to be pretty much all wrong, but one could imagine that it paved the way for things that eventually were shown to make sense.
More...

But the discussion is not whether people come up with very bad theories before reaching better ones. The discussion is whether the government should impose totally unproven quackery on society, at considerable cost and disruption, without providing any evidence that it is true or will achieve its ends.
 
Quote from Martinghoul:

Well, to be sure, there's probably some reasonable empirical grounds to believe that the Taylor Rule is a reasonable model (with the emphasis on model). Many central banks across the world (BoE, BoC, RBNZ, etc) use these approaches. Like all models, these aren't perfect, but then what in life is?
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What matters is not whether they are widely adopted or imperfect, but whether they are useful or harmful compared to the alternatives.

One cannot debate the proper role of central banks without asking what they are there for - to stop the financial system collapsing during panics; to stop inflation getting out of hand; and to reduce the extent of financial collapses by restricting credit once a boom becomes too speculative and herd-driven.

A rule which ignores 2 of those purposes and focuses solely on one of them, is always going to be a deeply flawed simplification. We have seen the disastrous results of the Taylor rule first-hand - Greenspan keeping credit loose during the biggest bubble for almost a century, the ECB keeping liquidity tight during the biggest financial panic since the Great Depression. This rule should be thrown out and replaced with something that accounts for booms and busts as well as the normal periods in between.
 
Quote from Ghost of Cutten:
But the discussion is not whether people come up with very bad theories before reaching better ones. The discussion is whether the government should impose totally unproven quackery on society, at considerable cost and disruption, without providing any evidence that it is true or will achieve its ends.
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Well, firstly, governments impose unproven quackery on society all the time, so if this is one of these cases you'll have to forgive me if I fail to muster the required outrage. Secondly, no unproven quackery is being imposed (so far), given that the particular people we're discussing represent a minority view on the committee. Thirdly, the problem, everywhere and always, is to provide some objective proof that the unproven experiment is quackery. In the absence of such objective proof (which is almost always the case with complicated issues), I believe that the "wisdom of crowds" is the best way to reach the optimal decision. This is precisely what's going on here, with Evans & Rosengren finding themselves in a minority on the FOMC. This is, generally speaking, the pattern with most central bank committees and I, for one, can't think of a better way to deal with the issue.
Quote from Ghost of Cutten:
What matters is not whether they are widely adopted or imperfect, but whether they are useful or harmful compared to the alternatives.
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Agree 100%.
One cannot debate the proper role of central banks without asking what they are there for - to stop the financial system collapsing during panics; to stop inflation getting out of hand; and to reduce the extent of financial collapses by restricting credit once a boom becomes too speculative and herd-driven.

A rule which ignores 2 of those purposes and focuses solely on one of them, is always going to be a deeply flawed simplification. We have seen the disastrous results of the Taylor rule first-hand - Greenspan keeping credit loose during the biggest bubble for almost a century, the ECB keeping liquidity tight during the biggest financial panic since the Great Depression. This rule should be thrown out and replaced with something that accounts for booms and busts as well as the normal periods in between.
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To paraphrase, it's not the Taylor rules that kill people, it's people that kill people. It's not fair to blame the models (Taylor Rule, Gaussian Copula, Black-Scholes, etc) for the failures of the people who were supposed to apply them. Ultimately, models provide signals, but it's people who are responsible for making decisions based on these signals. ECB, which you have mentioned yourself, is a good example of this.
 
Quote from Ghost of Cutten:

One cannot debate the proper role of central banks without asking what they are there for - to stop the financial system collapsing during panics; to stop inflation getting out of hand; and to reduce the extent of financial collapses by restricting credit once a boom becomes too speculative and herd-driven.

A rule which ignores 2 of those purposes and focuses solely on one of them, is always going to be a deeply flawed simplification.
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To some degree this misses the point: CBs (at least the most important ones: Fed, BoJ, ECB etc) may couch their decisions in math and technical jargon but the essence of their mission is not technical, but rather political.

The present overriding goal of the major CBs, aside from enhancing their own power and survival prospects, is to facilitate attaining the political objectives of the governing elite and bureaucratic classes; this can include the Fed's efforts to sustain a perpetual economic boom regardless of cost, facilitating government spending via debt monetization in the USA, and for the ECB both propping up the Euro project as well as providing heavy artillery support to one side or another in intra-Eurozone political struggles. Viewed in this way the history since 2008, and more broadly since Greenspan came on-scene in 1987, becomes entirely comprehensible.
 
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