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Wednesday, May 30, 2012

What's in a Macro Model? Sumner vs. Noahpinion

      Sumner had a post yesterday about models 'Dude, Where's Your Model?" He basically ridicules the importance some macro guys put on models as some sort of pointless personal idiosyncrasy and also implies that somehow it's a generational thing-it's somehow a bit childish to insist on models:

     "Whenever I get taunted about not having a “model,” I assume the commenter is probably younger than me, highly intelligent, but not particularly wise. I often disagree with Paul Krugman, but he’s right that simple, off-the-shelf models are all we need to evaluate aggregate demand problems. Supply-side issues are another story—they are much more complicated."

      http://www.themoneyillusion.com/?p=14479

      My first reaction is why blame obsessiveness over models just on the young? Appeals to the older and wiser never endear one to me and I suspect that others feel this way too. I'm just saying that always strikes me as a big smug:

      'When you get to my age and maturity level you'll understand, young fella!'

       It hardly seems accurate either as many of the old guys are the most insistent on models-Lucas, Cochrane, and of course Stephen Williamson.

       However, if you examine Sumner's paragraph quoted above in its entirety you see he kind of gave himself an escape hatch when he says that supply side issues are different, "they're a lot more complicated."

    Talk about having your cake and eating it too. It's actually the supply side arguments that rely too much on models without any empirical verification. So when looking at say the Bush tax cuts, someone like Williamson will say of course they were stimulative as the models say they should be.

    Now add to this the fact that I-as I mentioned to Noahpinion in a follow up piece he did on Sumner- just an interested layperson who is never entirely sure what the whole fight over modeling and microfoundations is really all about  and you can see that Sumner's anti-model position can seem pretty seductive. After all why not just talk English?

     "To summarize, despite all the advances in modern macro, there is no model that anyone can point to that “proves” any particular policy target is superior to NGDPLT. There might be a superior target (indeed I suspect a nominal wage target would be superior.) But it can’t be shown with a model. All we can do is construct a model that has that superiority built in by design."

       "Models are toys to show our students. When we face serious real world dilemmas it’s time to put away the toys and get real . . . er, I’m mean get nominal."

         Now here's Noah's response.

         "Sumner essentially restates my big critique of modern macro: How do we know which model to use at any given time? There are a ton of macro models but no commonly accepted scientific standard for validating/rejecting them. So what we (the profession, the Econ Hive Mind, whatever) end up doing is choosing a model based on how plausible we think its assumptions are. We go with our intuition, gut feeling, or politics instead of data. Models are "stories", and we choose the story that sort of sounds the best."

        "But what should we do instead? Here is where Scott and I part ways. Scott basically says: Why constrain your story with math when you can just tell the story? And I say: Sure, but you're still just telling stories."

       "There are advantages to telling your stories in English instead of in Math. One is that you can be more flexible - you can add stuff to your story, or be ecumenical in your view of the world, without being worried about pesky internal contradictions. The other advantage is that you can explain your ideas to a wider class of people, who either don't understand Math or can't be bothered to read through it."

       "Of course, there are disadvantages as well. One is that you can't give quantitative predictions: If we deviate from NGDP Level Targeting by X%, how much will our incomes go down? And so forth. This problem can be solved by using simple "ad-hoc" or aggregate-only models, which are fairly easy for most people to grasp and can be modified without much effort. Then there's the second disadvantage of English storytelling, which is internal consistency. Formal models rely on their assumptions, but once you choose your assumptions, your conclusion is forced by the Math. With English storytelling, you can state conclusions that don't follow from your own assumptions, and often no one will be the wiser."

       http://noahpinionblog.blogspot.com/2012/05/economists-who-dont-do-it-with-models.html#comment-form

       See I think this is a real danger and Noah does a good job of showing the risks in "just speaking English"-again, the models are a foreign language to me; I get more that macro guys argue over them then why they are important a lot of the time. I find the arguments interesting-like when Noah had that John Farmer guy guest post with his model-I've decided that I think Farmer wrong incidentally, you should have disequilibrium as well as multi equilibria or at least there's no good reason why we shouldn't have disequilibrium; Farmer makes it clear he doesn't like disequilibrium but never makes the case why we should feel the same way-but in the end what's it all really about?

      A few weeks ago Sumner and I had a bit of an argument when he didn't like me arguing that a progressive consumption tax is a contradiction in terms.
    He got very impatient and asked why as I'm not a "public finance expert" I blog about "public finance issues." I found this a fairly condescending and uncharitable thing to say and suspected that I had frustrated him by questioning him-who am I the macro layperson to question the guy with all the macro degrees. For the background to all this please see

     http://diaryofarepublicanhater.blogspot.com/2012/05/should-i-take-back-every-nice-thing-i.html
    
     Sumner and I did bury the hatchet-again the point is not that he's a terrible guy

      http://diaryofarepublicanhater.blogspot.com/2012/05/sumner-and-i-achieve-dentente.html?showComment=1336572537358#c5055067587256829749

      Since then though I've noticed that he has said things like "I suspect that most of my commentators are self-taught. So am I."

        Now this latest where he mocks models as toys all makes him sound anti-elitist. But while I think he was condescending the time we argued about "public fiance"-he's not condescending in that way typically, that was something of an unusual episode for him-there are other ways of being elitist and even a different kind of condescension.

       It's also elitist and condescending when you take advantage of the asymmetrical knowledge you do benefit from to make seductive but wrong or misleading arguments that nobody is the wiser to refute. I think Sumner much more typically does this than the first type of condescension-'I'm the expert don't question me', he doesn't do so much of that.

        What he does more of I think is what Noah describes where:

         "With English storytelling, you can state conclusions that don't follow from your own assumptions, and often no one will be the wiser."

          I think he does this quite often. How often I can't even say-as Noah points out this is where models help. As I lack this I don't always know for sure but I'm often suspicious. I have said more than once I think that Sumner is truly the Milton Friedman of our age-in good ways and bad. Remember  Friedman's money supply growth rule sounded just as plausible and intuitive as Sumner's NGDPT sounds to us now before they tried it as it was a disaster. And so now I begin to understand more the importance of models-that Noah if you follow him you see he consistently insists on this.

          Without models all we have are interesting stories. If economics is even a dismal science rather than merely "another story we tell ourselves about ourselves" as Richard Rorty would put it-Sumner is an admirer of Rorty-then it must be more than mere storytelling.

          I think part of why Noah is so sensitive to this point is his background in physics. Clearly he left for macro out of passion but he also brings to it a physicist's passion for rigor. To start with then for lay people like me we can say that a model is what makes economics about more than mere storytelling.

    

2 comments:

  1. Storytelling............... aka Mythmaking!

    ReplyDelete
  2. Yes Greg. There at least has to be more or how can we say we're doing science?

    ReplyDelete