Structural Issues

Ken Rogoff and Ed Phelps both commenting on the need to think about future growth prospects and "structual" supply-side problems.

I think they both are getting at something important, but we probably need more research (and commentary) in this area to pin things down. What are the real structural problems here? What policies would target them specifically? While Phelps suggests a few idea, it's an op-ed so they lack specifics. Even in sound-bite form, though, they don't sound like the answer to me, save the tax-credit for low-wage workers which is worth looking into.

Kartik Athrey on Macroeconomics

He writes

Comparing, even momentarily, [work in professional economics journals] with its explicit, careful reasoning, its ever-mindful approach to the accounting for feedback effects, and its transparent reproducibility, with the sophomoric musings of auto-didact or non-didact bloggers or writers is instructive. For those who want to really know what the best that economics has to offer is, you must look here. And this will be hard.

He's surely right that there is a lot of trash on the Internet. I don't watch CNN or MSNBC because you're not going to learn shit from that kind of news.

But he's biased by the type of macro he learned--this comes out clearest when he compares recessions to earthquakes as if they both are natural disasters. He puts an excessive emphasis on mathematical clarity, as if passing Tyler Cowen's "notecard test" is irrelevant. (The notecard test is that you should be able to articulate your argument in the space of a notecard your grandmother would understand. Or you argument isn't clear.)

Also, from what I've read DeLong is the leader in hammering bloggers, journalists and even economists for not having a clear model behind their claims.

I think he's also mistaken that people don't pretend to be experts on other issues in the news. Last May everyone in the news became an expert overnight on deep-sea oil drilling and marine ecology.

Greg Mankiw on Stimulus

Greg Mankiw has a good article on clinical economics and the stimulus package. It summarizes all the point he's made on his blog in the past year and a half.

WARNING: Mankiw is a Republican and it's probably best to keep that in mind when his writing leans toward politically charged issues.

While I think most people would benefit from a careful reading, I think one of his take-aways will be missed. Mankiw thinks economists should have more humility, yet he goes through the trouble of citing a few papers on why his favorite remedies might be best. A lot of people (maybe including Mankiw) put too much weight on those studies.

He also points out that maybe people won't spend because they fear future tax cuts, reviving Ricardian equivalence, an idea with even less empirical support than a large government-spending multiplier. He then suggests that long-term interest rates may rise, choking off investing spending, without noting that this never happened. Brad DeLong has flogged that point like a dead horse, and Mankiw could have done reader a favor by pointing it out.

Still, I like Greg Mankiw. Along with Oliver Blanchard, Ben Bernanke, and perhaps Nouriel Rubini he is one of the best macroeconomist commenting on the crisis.

Update: Brad DeLong with a counter point.

Links plus Thoughts

1. How Shy People Work. I think this signaling game is poorly played. It's probably true that if you tasked a third party to pick which people a person likes spending time with it'd be easier if the person was shy. The problem is that the view from inside your head is very different from reality--e.g. it's probably easy to see if someone is interested in your best friend but hard to see if someone is interested in you--so I think no one notices. If you treat everyone like they're your #1 customer or best friend they might all believe it.

2. The legacy of Peter Orzag. More economist should try to be like him, though I think he went overboard on the Dartmouth data.

3. Mark Thoma explains a big debate in macroeconomics. The issue here is the shape of the aggregate supply curve--it is vertical or does it just slope upward? My intro macro teacher did a poor job explaining the relation between micro-foundations and the curve and it killed most people on the final.

4. Can you buy happiness? If you're buying ice cream, TIME reports.