"I was one of the people who got all excited about the possibility of getting somewhere with very detailed agent-based models — but that was 20 years ago. And after all this time, it’s all still manifestos and promises of great things one of these days."That's my bete grise, secular saint Paul of Bellmore, who has a neat new model, co-authored not with Robin his wife, but with his Batman-type Robin, the fair-haired Heggers Eagersson.
Worth a read, Greek and all? Prolly not. Worth noticing? Well, yes, since the model incoporates credit rationing constraints, and certainly something of that sort is now crimping and may continue to crimp our global "spontaneous" recovery. Right now credit blocks in place on our jobbler households have entered into the policy mix needed to insure we remain in the Great Worldwide Advanced Economy Stagno.
But why this quote? Why this nerd post in general? Recall the explanation of canine ball licking.
At any rate the quote brings into focus a key part of macro as a holy grail quest. Our best policy models (think Samuelson et al.) are completely without "realistic" micro foundations. The basis of these models is a batch of ill fitting labels, assumptions, and applications. So when these models faced the high 70's wage-price spiral, bingo, time for a change -- and for more then 35 years now that has meant the sovereign community of econ-cons of both major flavors have chased after a unification of the small agents and the whole ball of wax, as if that might produce better policy guidance.
It didn't. Especially not after the theoricists had carved out a model which hung its hat on one gruesomely bald and bad assumption -- there is only one private agent! Get that, and its tie-in with micro was completed by in effect destroying the entire practice of state intervention. It became yet another edition of what amounts to Christian Science for the economy. "Touch nothing," as Hercule Poirot was wont to say. And then of course comes '08.
But Cio's dialectic never produces just one development. During this same period another approach emerged, and by its bold universalizing promise -- much like string theory -- attracted ambitious outsiders and marginalii. These models, unlike their rivals were nicely based on the assumption of multiple private agents. In fact they quickly became frightful monstrosities.
These are the models PK alludes to above -- these wonderful "literal" projects to build up from the agent units to an emergent set of macro behaviours. A road to conspiracy-free laws of economic motion.
And the results... what hath emoiged?
Lots of digital ant farms gobbling up lots of computing power.
Have we arrived at a new realism? Nope. Most full-figure interconnected Euclidianly resolved econ-con models are still at best metaphors -- either simple, tractable, and therefore dangerously misleading magic trick models, or the aforementioned ant farm models that feet-on-the-ground folks can only laugh at.
As a practical matter, PK needs to dump his own awful micro foundations -- all that "expectations" voodoo -- and stick to a few obviously paramount features produced by the very architecture of any vast credit-based corporate-dominated economy.
He also oughta confine his policy advice to one maxim: "Try something that intuitively suggests itself. If it doesn't work then double down. If that fails... try something else."
You don't need a full-fledged analytic model if you venture forth to do good by your fellow jobbler masses, at least macro-wise and at the national level, like the cream of the New Dealers. What you do, if you do anything, is rely on feedback. Try it out. Twist the dial, measure the outcome as best you can, then adjust the dial accordingly.
The theory Keynes cooked up, around the same time as FDR improvised us through the 30's, was really just a nice bedtime story that may have let a few advanced New Dealers sleep a bit better through that long night's journey into war.
Comments (13)
btw
of course
there's this guy:
http://www.levyinstitute.org/scholars/?auth=104
the work of fb's champion ghost
wynne gottfrigger
is exempt from all this 70's after math
dipshitting about with rationalized
unitary agency etc
in fact he hardly moves beyond
the initial tautological identities
of my erstwhile mentor
bob moon beam mundell's famous
early 60's internationalization
of the standard post war hicks is/lm model
--the models that actually work !!!--
sir wynneston merely used
a complete all the way around system
of ..land sakes ...book keeping
to establish
a few bare macro necessities
a skeleton version of economic reality
nothing causal nothing micro founded
a few seemingly straight forward
well defined centers of activity
but he produces results that have proven remarkably illusive when attacked by other more fashionable means
slap together some well specified if fantastically reified aggregate "financialized/monetized " numbers today put them in orderly next step motion
and watch what falls out next period
ie
watch what happens to these same
aggregate "finacialized / monetized " numbers tomorrow
i suggest any citizen oughta with an interest
in policy
read his "monetary economics "
its very simple stuff
and he exposes you to it
in add on chunks
builds it up thru several realizations
that all follow from each other
---- no math gang ..not really
just some analyticly consistent
appication of a few every day
common discourse general categories
ones we all juggle about in our heads already ---
makes for manageable gulps
and air tight insight
Posted by op | December 1, 2010 8:06 AM
Posted on December 1, 2010 08:06
http://www.levyinstitute.org/pubs/sa_dec_08.pdf
wynne's last gasp
Posted by op | December 1, 2010 8:48 AM
Posted on December 1, 2010 08:48
http://cowles.econ.yale.edu/~gean/crisis/p1306.pdf
another interesting "theorist "
Posted by op | December 1, 2010 8:54 AM
Posted on December 1, 2010 08:54
"Have we arrived at a new realism? Nope. Most full-figure interconnected Euclidianly resolved econ-con models are still at best metaphors -- either simple, tractable, and therefore dangerously misleading magic trick models, or the aforementioned ant farm models that feet-on-the-ground folks can only laugh at."
I thought that it was sort of the opposite. According to Mankiw and many others, the ant farm models are the only ones that feet-on-the-ground folks actually take seriously.
Posted by FB | December 1, 2010 11:04 AM
Posted on December 1, 2010 11:04
More importantly for the POV of those of us not economics professors is that way "models" are used to provide an ideological edifice effacing the way markets are rigged by powerful economic agents (such as the banks the own the Fed). Even the WSJ article ignores the role of speculative investment in jacking up housing prices (they just assume credit was too easy to get ahold of and don't ask why).
Posted by Peter Ward | December 1, 2010 12:00 PM
Posted on December 1, 2010 12:00
""models" are used to provide an ideological edifice effacing the way markets are rigged by powerful economic agents "
exactly
Posted by op | December 1, 2010 12:34 PM
Posted on December 1, 2010 12:34
I'm going to try your link, OP, and hope it get's me beyond the generality of Peter's otherwise smart remark -- the level of negative critique I've been stuck at for many years (centuries, it seems.) OK, so we see the role of powerful economic agents (I usually call them "forces" so as to avoid actually naming anyone), how would we proceed if by miracle (or collapse) they somehow lost their hold on events, and we were invited to chart a new course?
Posted by senecal | December 1, 2010 2:05 PM
Posted on December 1, 2010 14:05
u may find the models a bit too toonish
to convince u they reflect anything "real"
unless for ideological reasons
you're inclined to be convinced anyway
in other words
i doubt
"the ward curse "
will be lifted
Posted by op | December 1, 2010 4:02 PM
Posted on December 1, 2010 16:02
"According to Mankiw and many others, the ant farm models are the only ones that feet-on-the-ground folks actually take seriously."
massive computational agent based models ???
manky panky ???
i never knew he even discussed them
in fact
it was precisely
HIS sort of saw the milk maid in half
formal model i head in mind under the label of magic trick
Posted by op | December 1, 2010 4:07 PM
Posted on December 1, 2010 16:07
" markets are rigged by powerful economic agents"
it gets worse
the system of markets evolved over the last
500 years and the corporations that dominate them don't even have to rig these markets for the markets to produce "rents"
ie surpluses or profits if you will
unrelated to innovations in product
or reductions in costs
in fact its so bad
there are social welfare enhancing markets that can't even exist
the greenwald-stiglitz theorem and several others from the 80's -- getting on past 25 years old now ---
have completely demolished
the formal welfare max
touch nothing
free market only models
built in the high 50's
and still rolled out in most 101 textbooks
Posted by op | December 1, 2010 4:21 PM
Posted on December 1, 2010 16:21
Yeah it was his admission that the Fed and Treasury officials told him that for practical purposes they actually don't care about anyhting that he or any of the NKers, or anyone after the 60s really, has done.
They put out a DSGE model in the front sitting room, covered in plastic, for when the guests come over, but when left to their own devices they opt for the filthy old Keynesian lazy boy that they keep in the den.
lemme find the link..
"'New classical and new Keynesian research has had little impact on practical macroeconomists who are charged with ... policy. ... From the standpoint of macroeconomic engineering, the work of the past several decades looks like an unfortunate wrong turn.'"
http://www.economics.harvard.edu/files/faculty/40_Macroeconomist_as_Scientist.pdf
Woodford responds:
"'It is true that the modeling efforts of many policy institutions can reasonably be seen as an evolutionary development within the macroeconomic modeling program of the postwar Keynesians; thus if one expected, with the early New Classicals, that adoption of the new tools would require building anew from the ground up, one might conclude that the new tools have not been put to use. But in fact they have been put to use, only not with such radical consequences as had once been expected"
http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf
Posted by FB | December 1, 2010 6:32 PM
Posted on December 1, 2010 18:32
pk witnessing
"I have to say, when I got into economics, I expected evidence to matter more than it does — obviously telling people what they want to hear prevails more in the political arena than in academics, but even there the willingness to hang on to preferred narratives no matter the evidence is impressive."
http://krugman.blogs.nytimes.com/2010/12/01/reign-of-error/
Posted by op | December 2, 2010 10:47 AM
Posted on December 2, 2010 10:47
Krug: "even there [i.e. in Academia]"?
That's rich.
Posted by MJS | December 3, 2010 6:17 PM
Posted on December 3, 2010 18:17