- Paul Krugman: Four Fiscal Phonies
- Links for 2012-03-02
- "Microfounded and other Useful Models"
- "Value-free economics?"
Posted: 02 Mar 2012 12:33 AM PST
Republicans use concern over the deficit as a cover for their true agenda:
Four Fiscal Phonies, by Paul Krugman, Commentary, NY Times: Mitt Romney is very concerned about budget deficits. Or at least that's what he says; he likes to warn that President Obama's deficits are leading us toward a "Greece-style collapse."
So why is Mr. Romney offering a budget proposal that would lead to much larger debt and deficits than the corresponding proposal from the Obama administration?
Of course, Mr. Romney isn't alone in his hypocrisy. In fact, all four significant Republican presidential candidates still standing are fiscal phonies. They issue apocalyptic warnings about the dangers of government debt and, in the name of deficit reduction, demand savage cuts in programs that protect the middle class and the poor. But then they propose squandering all the money thereby saved — and much, much more — on tax cuts for the rich.
And nobody should be surprised. It has been obvious all along ... that the politicians shouting loudest about deficits are actually using deficit hysteria as a cover story for their real agenda, which is top-down class warfare. To put it in Romneyesque terms, it's all about finding an excuse to slash programs that help people who like to watch Nascar events, even while lavishing tax cuts on people who like to own Nascar teams. ...
Is there any way to make the G.O.P. proposals seem fiscally responsible? Well, no — not unless you believe in magic. Sure enough, voodoo economics is making a big comeback, with Mr. Romney, in particular, asserting that his tax cuts wouldn't actually explode the deficit because they would promote faster economic growth and this would raise revenue. And you might find this plausible if you spent the past two decades sleeping in a cave somewhere. ...
What, then, would their policies accomplish? The answer is that they would achieve a major redistribution of income away from working-class Americans toward the very, very rich. ...
There's one more thing you should know about the Republican proposals: Not only are they fiscally irresponsible and tilted heavily against working Americans, they're also terrible policy for a nation suffering from a depressed economy in the short run even as it faces long-run budget problems.
Put it this way: Are you worried about a "Greek-style collapse"? Well, these plans would slash spending in the near term, emulating Europe's catastrophic austerity, even while locking in budget-busting tax cuts for the future.
The question now is whether someone offering this toxic combination of irresponsibility, class warfare, and hypocrisy can actually be elected president.
Posted: 02 Mar 2012 12:06 AM PST
Posted: 01 Mar 2012 09:56 AM PST
More on today's apparent theme, at least for the moment, economic methodology. This is from Simon Wren-Lewis:
Microfounded and other Useful Models, mainly macro: This title harks back to one of the books that have influenced me most: Blanchard and Fischer's Lectures on Macroeconomics. That textbook was largely in the mould of modern microfounded macroeconomics, but chapter 10 was not, and it was entitled 'Some Useful Models'. One of their useful models is IS-LM.
The role of such models in an age where journal papers in macro theory are nearly always microfounded DSGE models is problematic. Paul Krugman has brought this issue to the forefront of debate, starting with his 'How Did Economists Get It So Wrong?' piece in 2009. His view has been recently stated as follows: "That doesn't mean that you have to use Mike's [Woodford] model or something like it every time you think about policy; by and large, ad hoc models like IS-LM are actually more useful, in my judgment. But you probably do want to double-check your logic using fancier optimization models."
This view appears controversial. If the accepted way of doing macroeconomics in academic journals is to almost always use a 'fancier optimisation' model, how can something more ad hoc be more useful? Coupled with remarks like 'the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth' (from the 2009 piece) this has got a lot of others, like Stephen Williamson, upset. I think there are a lot of strands here, many of which are interesting.
The issue I want to discuss now is very specific. What is the role of the 'useful models' that Blanchard and Fischer discuss in chapter 10? Can Krugman's claim that they can be more useful than microfounded models ever be true? I will try to suggest that it could be, even if we accept the proposition (which I would not) that the microfoundations approach is the only valid way of doing macroeconomics. If you think this sounds like a contradiction in terms, read on. ...[continue reading]...
I don't disagree, but my view on this is a bit different, e.g. see the post New Old Keynesians? (though the claim that the newer models weren't built to answer the important questions we needed to confront when the crisis hit is not as valid today -- much of the current work in macro is intended to fix this problem).
Posted: 01 Mar 2012 08:38 AM PST
Dan Little on the positive and normative distinction within economics:
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