Ideology?

I've been making some progress on a paper, but Paul Krugman is at it again, so I need to go into defense-of-macroeconomics mode.

We'll start where Krugman finishes:

And if the perception spreads, instead, that business-cycle macro is just ideological posturing, that influential economists choose their doctrines to suit their political prejudices, and that the field not only fails to progress but sometimes actually retrogresses, this will be bad for the profession as well as the world.

My neighbor Joe Schmoe told my other neighbors that I kick my cat. Joe and I were having dinner together the other night, and Joe told me: "You know, everyone's saying you kick your cat." To which I replied: "I don't kick my cat. Even though she is now transferring her hair to my clean towels, I have no desire to kick her."

Joe: "But it would be bad for you and the world if people perceive that you kick your cat."

What Krugman discusses in his blog post is a paper by Roger Gordon and Gordon Dahl, reporting the results of an opinion survey by the Booth School at the University of Chicago. Basically, a panel of academic economists from the top economics schools in the US was put together, and these people were asked their opinions on particular policy questions. Perhaps surprisingly, these people tend to agree.

But Krugman isn't buying it. The crux of his argument is that

...macroeconomics – and in particular the study of recessions and policy responses thereto – is special, and ... the Booth panel responses just don’t provide sufficient information on what is happening in that corner of the field.

Is macroeconomics special? Certainly not, in terms of how we do our work. One of the key aspects of post-1970 macroeconomic research has been the free flow of ideas among macroeconomics, labor economics, industrial organization, economic theory, and other fields. If macro seemed like a foreign language to non-macros in 1969, that is certainly not the case today. It's basically the same language, and the same toolkit.

Which brings us to the next issue. Krugman thinks that the Chicago Booth panel of experts doesn't include enough macroeconomists to give us a good read on how views differ. Well, these are successful economists who have, for the most part, been trained in mainstream PhD programs where macroeconomics is taught in the PhD core. They work in top departments where they can talk to macroeconomists. As I noted above, modern macro is amenable to communication - it's easy for people outside the field to drop into macro seminars and conferences and get ideas. Indeed, the average person on this panel knows at least as much about macroeconomics as Paul Krugman does. I don't see how the knowledge of the panel limits their ability to make judgements about "macro" issues.

Is the Booth panel asked about a lot of topics that do not involve macroeconomics? No. If you look through the list of topics, there are very few that you won't find addressed in the research of practicing economists who call themselves macroeconomists.

So, it seems hard to make a case that the survey evidence tells us any more or less about consensus in macroeconomics than it does about consensus in labor economics. Suppose, however, that we're skeptical about the whole survey exercise. Who cares about the armchair opinions of some group of economists, who may or may not have the relevant evidence and theory at their fingertips? Maybe Krugman has something else he can tell us to make his point?

The remainder of his piece focuses mainly on remarks by prominent macroeconomists taken out of context, represented by Krugman as doing "...my best to justify that belief quantitatively, with as little subjective interpretation as possible." Some people might politely call this "stretching the truth."

First up is Tom Sargent, who Krugman claims "denounced the president." If you read the Sargent interview which is the original source, you'll see that's not what Sargent did. Here's the quote:

In early 2009, President Obama’s economic
advisers seem to have understated the substantial professional uncertainty and disagreement about the wisdom of implementing a large fiscal stimulus. In early 2009, I recall President Obama as having said that while there was ample disagreement
among economists about the appropriate monetary policy and regulatory responses to the financial crisis, there was widespread agreement in favor of a big fiscal stimulus among the vast majority of informed economists. His advisers surely knew that was not an accurate description of the full range of professional opinion. President Obama should have been told that there are respectable reasons for doubting that fiscal stimulus packages promote prosperity, and that there are serious economic researchers who remain unconvinced.

You'll notice that the President hasn't been denounced here. At worst, Sargent is calling into question the judgment of Obama's economic advisors, who apparently were not giving him an accurate picture of the relevant economic science. Sargent's interview, interesting in many respects, is perhaps most famous for this:

Rolnick: You have devoted your professional life to helping construct and teach modern macroeconomics. After the financial crisis that started in 2007, modernmacro has been widely attacked
as deficient and wrongheaded.
Sargent: Oh. By whom?
Rolnick: For example, by Paul Krugman in the New York Times and Lord Robert Skidelsky in the Economist and elsewhere. You were a visiting professor at Princeton in the spring of 2009. Along with Alan Blinder, Nobuhiro Kiyotaki and Chris Sims, you must have discussed these criticisms with Krugman at the Princeton macro seminar.
Sargent: Yes, I was at Princeton then and attended the macro seminar every week.
Nobu, Chris, Alan and others also attended. There were interesting discussions
of many aspects of the financial crisis. But the sense was surely not that modern macro needed to be reconstructed. On the contrary, seminar participants were in the business of using the tools of modern macro, especially rational expectations theorizing, to shed light on the financial crisis.
Rolnick:What was Paul Krugman’s opinion about those Princeton macro seminar presentations that advocated modern macro?
Sargent: He did not attend the macro seminar at Princeton when I was there.
Rolnick: Oh.

If you thought that Paul Krugman was a person who likes to criticize what macroeconomists do without spending much time learning about what macroeconomists do, that's another shred of evidence for you.

The second guilty party is Ed Prescott, who is quoted as saying:

Stimulus is not part of the language of economics.

Actually, I like that. What Ed is saying is that "stimulus" is a word that is used for marketing purposes. He's saying: "Ask me a question I can answer." The relevant economic questions are: What happens when government spending on goods and services increases? Does it matter what the government spends on? Does the state of the economy matter for these effects? If so, how? Does it matter how the spending is financed? What if the government cuts taxes? What happens? Does it matter what taxes we cut or who receives the tax cuts? What about transfers? These are important questions, and I'm sure Ed agrees. So, whatever the charge against Ed is supposed to be, I say not guilty.

Last up is Bob Lucas, who gets the most severe blast.

Finally, Robert Lucas made a personal attack on Christina Romer for advocating stimulus, calling it “shlock economics” and questioning her intellectual honesty.

You can read what Lucas actually said here. Lucas was answering a question at an open forum about the usefulness of large macroeconometric models. Here's the complete exchange:

QUESTIONER: Ben Steel, Council on Foreign Relations. Bob, I edit a journal called International Finance and I get a lot of submissions from people who build big models -- big economic models -- and the shortest referee reports I get back condemn these submissions by saying this model is subject to the Lucas critique. In the last session, we had quite an animated discussion which spilled over into the lunch about models on fiscal multipliers, what they are.

On the one extreme, we have models by people like Mark Zandi at Moody's who say that the fiscal multiplier for the spending initiatives we're discussing are on the order of 1.5. On the other hand, we have people like Robert Barro at Harvard who say there's zero or negative. How would you go about applying the Lucas critique to these types of models to sort of educate us in how we should think about the validity of these models?

LUCAS: Do I need the Lucas critique for -- I'm with Barro is the short answer. (Laughter.) The Moody's model that Christina Romer -- here's what I think happened. It's her first day on the job and somebody says, you've got to come up with a solution to this -- in defense of this fiscal stimulus, which no one told her what it was going to be, and have it by Monday morning.

So she scrambled and came up with these multipliers and now they're kind of -- I don't know. So I don't think anyone really believes. These models have never been discussed or debated in a way that that say -- Ellen McGrattan was talking about the way economists use models this morning. These are kind of schlock economics.

Maybe there is some multiplier out there that we could measure well but that's not what that paper does. I think it's a very naked rationalization for policies that were already, you know, decided on for other reasons. I don't -- I'd like to talk about the Lucas critique but I don't -- I don't think we can -- (chuckles) -- deal with that issue.

Christina Romer's name comes up here alright, but Lucas's tone is more empathetic than anything. I don't see any disrespect. The schlock Lucas is referring to is not a reference to Romer in particular, but to the use of large macro models for policy analysis. There's consensus on that. Most of the macroeconomics profession thinks of old-fashioned large-scale macroeconomic models as useless for anything but forecasting. Students working on doctoral dissertations aren't busy modifying some sector of the FRB/US model or some such, as might have been the case in 1968.

The bottom line Krugman wants to push is that macroeconomics, among fields in economics, is unusually contentious, and that this contentiousness is driven by ideology. In other words, Republican economists and Democrat economists filter both theory and evidence to support preconceived beliefs about how the world works.

Since Krugman brought up Sargent's name, it's useful to read this New York Times article, written after Sargent got his Nobel prize. Here's a good quote:

He doesn’t wear his political opinions on his sleeve. “They really don’t matter in my research,” he said. But because others have applied labels to him, he decided it was worth setting the record straight. He’s a Democrat, he said, “a fiscally conservative, socially liberal Democrat,”

That would be an accurate description of my politics, actually. Sargent goes on:

“If you go to seminars with guys who are actually doing the work and are trying to figure things out, it’s not ideological,” he said. “Half the people in the room may be Democrats and half may be Republicans. It just doesn’t matter.”

Excellent. That describes my experience exactly.

Apparently Krugman thinks that the theoretical apparatus that came out of Lucas's and Prescott's work is somehow ideologically biased. How could that be? Take Lucas's Expectations and the Neutrality of Money paper, for example. The basic model he works from is Samuelson's overlapping generations model. Do you think Samuelson was a Republican? When Kydland and Prescott wrote Time to Build and Aggregate Fluctuations, they were basically tweaking a well-developed modeling framework that came from the work of Solow, Cass, Koopmans, Brock, and Mirman. It's highly likely that none of those people were/are Republicans.

As I've stated before, I don't think that macroeconomics, among fields in economics, is unusually contentious, or unusually ideologically driven, though I'm sure you can find examples of both if you look. I agree with Paul Krugman that much of the Republican party is a despicable bunch, and not worth voting for. But I don't like it when he attempts to sow dischord, by picking on well-respected septuagenarian (or almost septuagenarian, in Sargent's case) macroeconomists and mischaracterizing their public statements. That's pretty despicable.

By the way, have you heard Krugman kicks his cat?