Friday, July 23, 2010

Mankiw on What We Know and What We Don't Know

Yesterday I was complaining about the abysmal low level of discourse in macroeconomics. As if on cue, here's the nation's leading retailer of economic dogma to undergraduates, serving up as whole heapin' platter of what drives me so nuts.

Yes, I'm talking to you, little N. Gregory Mankiw, with your 800 students a year (and the 100,000 more on your textbook). Mankiw's topic for the moment is the Obama stimulus and you will not have perhaps already guessed that he doesn't like it (Mankiw is one of those academics who never seems to come upon a finding that surprises him--a pretty good negative index in any field of intellectual slackness, IMO).

Mankiw begins with suave plausibility: he gives the case of a doctor who treats a patient in reliance to a well-established theory of disease. The patient does not get better. The doctor can abandon the theory as discredited, or he can double down. Which shall he choose? To answer that question, he'd love to run a rigorous lab experiment. But he doesn't have that option. He has to make prudential professional calculation, also known as a guess.

In the same vein, the Obama folks decided they needed a stimulus to keep unemployment from hitting nine percent. They got the stimulus; unemployment hit 10 percent. Oh dear, they said, the economy must be much worse than we thought.

Reading the Obama story in the light of the doctor example, Mankiw responds: "There is no way to decisively prove or disprove the Obama administration's argument." So far, he is 100 percent right. An unsympathetic viewer would rank it as the worst sort of adhoccery--rank it alongside all those finance types who said that the 2008 meltdown was "a six sigma event," when in fact it may have been nothing more contentious than a proof of the bankruptcy of their theory.

Mankiw knows the culprit, and again, you can guess the name: John Maynard Keynes, propounder of what Mankiw calls "standard textbook theory." That last is pretty rich coming from somebody whose own fantastically successful "standard textbook" propounds just the opposite. But let pass. He's right enough, considering that there is a lot of Keynesianism in the air.

But run the tape slowly and watch the clever hand movement here: Mankiw hasn't said that Obama was "wrong." He hasn't even said that Keynsianism is wrong. He isn't even saying that Keynsianism is discredited. The most he has said is that on the basis of the evidence at hand, there is no basis in principle to choose between the principle and the application.

I'm actually still on Mankiw's side at this point, although I do have my hand on my wallet. I am open--eager, actually--for one of the nation's leading economics/explainers to enter into a thoughtful discussion of just how a thoughtful public person, lacking good evidence but doomed to decide, would go about choosing between these two.

Now you anticipate me. Of course we get nothing of the sort. What we get instead are two things. First, Mankiw offers a miscellany of target practice at some of the more absurd or indefensible "data" about the actual working of the stimulus. Most of these are, so far as I know, spot on, but they aren't particularly new and it seems almost beneath the dignity of an eminence to wear out his cortical tissue regurgitating stuff he's read in blogs. And in any event, they seem to have exactly nothing to do with his initial point about theory and practice.

But he's not done yet. Setting aside his Red Ryder air gun, he turns to a different tactic: he turns to rehashing some economist's studies that call into question the Obama package. Fine, except he seems airily indifferent to the fact that these are subject to exactly the same sort of analytical criticism that he offered at the beginning. So: at the beginning, he has derided the use of "multipliers" in Keynesian analysis. "Humility," he cautions; "economics is still a young science." Somehow all these cautions have gone to the wind when we get down towards the bottom of his paper and find him citing Obama's own Chrstine Romer as one who has generated "multipliers" who support his side of the case. " At odds with most traditional Keynesian analysis," he declares triumphantly. Well, fine, but if multipliers are so elusive, how can we possibly know she is right? Indeed, how can we care?

Mankiw goes on to summarize a number of other studies that deploy just the kind of techniques that he seemed earlier to deride. Perhaps the one most seemingly helpful to his cause is the Alesina/Ardagna study that undertakes a "results" comparison of different sorts of stimuli over time. Mankiw does seem to like this study and, perhaps coincidentally, it does appear to support the result he liked before. He doesn't seem troubled by the fact that it is vulnerable to the same kinds of criticisms that seemed to him so compelling earlier (is the United States truly comparable to Europe? Are the 80s comparable to the naughties?--there's a Krugman snippet with a pretty good comment thread here).

I don't want to tumble into complete nihilism here, as in "we report, you decide." I think the claims of economics are vastly overblown (or were, until the began to look so ridiculous in the late contraction). But it doesn't follow that they are worth nothing. I'm not even willing to give up on rational discourse. No, rephrase that: I love rational discourse. I just wish I heard a bit more of it from people who are so quick to see the mote in the other guy's eye without noticing the beam in their own.

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