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Monday, January 16, 2012

What if the long run is now? What if this is as good as it gets? What if the graph below is true? is true.


PerpetualCynic said...

That's the problem with economics, it isn't a science. Too much ideological theory (with silly assumptions) and not enough answers to real problems. Sure, that's the nature of dealing with the actions of humans, but the discipline isn't a science, as the recent Fed minutes showed us, laughing at the possibility of the "great recession". You guys make the weathermen look good.

Randall Parker said...

You should find yourself very uncomfortable to know that I agree with most of what you say here.

But I think we know enough to see what is happening to the welfare state and entitlement mentality. See Greece and Europe in general.

PerpetualCynic said...

I believe the problem is that to what extent(s)? Japan has quite the large debt/gdp.

You guys can always say something is a problem but rarely provide a solution. Let me guess, cut spending? On what? By how much? Or maybe raise taxes? For whom? By how much? But how many within your discipline don't agree? Sciences (generally) don't have this problem.

Randall Parker said...

I can only speak for myself. You correctly point out that economics is not an exact science. I wish it were. It is not. But take out a $100 bill and put it on the sidewalk. What would physics say is going to happen to that money? Then what would economics say?

I would adopt the Bowles-Simpson plan lock, stock and barrel. All tax expenditures would be DOA and Martin Feldstein estimates that would save $1 trillion per year in perpetuity. That's economics. If you don't like that then we are talking politics and my profession can't help there (except the public choice people to tell you why politicians act as they do). Our tax code is a political document and not an economic document. I would reverse that and there is a juicy number of what can be gotten with tax reform.

I would also adopt the Paul Ryan plan since our future and that of Europe's and our actuarial future is all about entitlements, entitlements and entitlements. All the rest is details.

I realize this is not like talking about the laws of gravity, but that is the nature of the discipline. If people don't agree with me that's fine. It would be a boring world to know it all. All we can do is weigh the evidence and the credibiltiy of the argument and let the market place of ideas sort this stuff out. All opinions are not created equal.

ArrrrrghDeeee said...

"But take out a $100 bill and put it on the sidewalk. What would physics say is going to happen to that money? Then what would economics say?"

Depends on the economics:
Adam Smith would say the invisible hand will decide the ultimate fate of that money. J.F.Nash would say do what is best for yourself given the expected payoffs of those around you. Friedman would undoubtedly say you are "free to choose", but if you choose to pick up the $100, to smooth it out intertemporally as it is a temporary increase in income. Lucas would say don't let $100 bills from your past dictate your decision with this new $100 bill. Levitt will somehow relate your picking up the money to an increase in abortions and ultimately a decrease in crime for the year 2036. Marx and Engels would say to return the money to the government who is best suited to decide how to allocate the money amongst everyone. Stiglitz would assert the phantom $100 is a market failure due to information asymmetries resulting in a non-Pareto efficient outcome (until the government steps in). Coase and Posner would likely analyze the potential legalities of taking possession of said currency in order to best decide a course of action. Fama, Malkiel, and Samuelson would say that the $100 bill isn't even really there or someone would have already picked it up. Hayek would say the money laying on the street is due to over-regulation and excessive government meddling. Based on the economics of Robert Mugabe, that $100 would provide you the ability to purchase an egg........for about the next hour. Prescott would say it probably doesn't even matter what happens to the money as the $100 is only nominal. Pigou would analyze the effects on others involved with taking the money or not. Mankiw would say the effect of picking up the $100 would not be felt for some time as the effect of the short-run income fluctuation would be sticky. Thinking that as long as one has the ability to walk and pick up the money (which undoubtedly means that one can afford healthcare), one probably already has too much money, Krugman would probably say to give it to a neighbor in need. Bernanke would probably say to give it to a bank "in need".

Just a little laugh for you, nice to catch you on the web Dr.

Randall Parker said...

Who is better than you? That is absolute classic.