Historia de las ideas económicas. Paul Krugman versus Roger Farmer

Expongo aquí dos visiones distintas sobre el evidente fracaso de la microfundation en la Macroeconomía. La primera es de Krugman, la segunda de Farmer  Lo hago porque simple complaciencia en las historias brillantemente contadas. Ah! Y además estoy de acuerdo con ellos, aunque discrepan en algún punto. 

Microfoundations and the Parting of the Waters

The blogospheric debate about microfoundations, saltwater/freshwater and all that has, I think, been illuminating. Among other things it’s serving almost as an oral history of What Really Happened – minus the oral part, but not mediated by the usual slowness and overthinking of formal publication.

And I think the intellectual history is useful, because it gives you some idea of how people came to make the choice of which side to be on. It’s certainly possible to make the case for an eclectic, fairly salty approach on general principles, as Simon Wren-Lewis, Noah Smith, and Nick Rowe do. But the abstract logic gains force when you recall how it actually happened.

Oh, and I was there – not as a participant in the growing macro war, but as a student at the time the great divide was taking place. I felt the seduction of the microfoundations-uber-alles doctrine, but also got to watch as the demand for microfoundations, originally grounded in appeals to empirical power, became free-floating, a dogma to be defended in the teeth of the evidence.

So, if you had to choose a beginning, it would be the famous Phelps volume. The papers in that volume all started with two observations, of which the first was that there was overwhelming evidence for some kind of short-run non-neutrality of money. None of the papers in that volume questioned the proposition that nominal shocks had large real effects. You can see why if you look at annual changes in nominal versus real GDP between 1950 and 1970:

 

Obviously there was a near one-to-one correspondence. Obviously, too, it was really hard in that era, with its lack of major supply shocks, to tell a story in which real GDP was driving nominal spending rather than vice versa. So the Phelps volume began with the stylized fact that in the short run nominal demand, driven for example by changes in monetary policy, gets reflected largely in quantities rather than prices.

But as the papers also observed, it was hard to explain that fact in terms of standard microeconomics: with everyone acting rationally, money should have been neutral even in the short run. Traditional Keynesian analyses simply said that people aren’t completely rational, that they have money illusion – or maybe that contracts are focal points in which nominal wages or prices matter because of salience, even though they should be arbitrary. But these were ex post rationalizations rather than being derived from some kind of fundamentals.

So the Phelps crowd came up with a lovely story: you see, it was all about information. Individuals and firms couldn’t tell, in the very short run, whether a rise in the price they were being offered represented a shock specific to them – people for some reason wanted more of their widgets — or a general change in demand. It was rational to respond to an idiosyncratic rise in demand by producing more, so confusion could explain why short-run aggregate supply seemed upward-sloping. 

As Phelps and others (including Milton Friedman, who was thinking along similar lines) realized, this meant that the apparent tradeoff between unemployment and inflation would be unstable: sustained inflation would get built into expectations, and would no longer produce low unemployment. The stagflation of the 70s seemed to confirm this prediction, and brought the microfoundations project immense prestige. Encouraged by all this, freshwater economists gleefully proclaimed Keynes dead, the subject of nothing but “giggles and whispers”.

But here’s the thing: after that initial success, Phelps-Lucas/type microfoundations quickly collapsed both intellectually and empirically. Intellectually, the problem was that rational individuals simply should not have been confused in the way the models demanded; there’s too much information out there, whether in newspapers or in asset prices. You just couldn’t get a Lucas supply curve out of a model looking even vaguely like the real economy.

Empirically, the problem was that slumps last too long. Even if you wave away the information problem, confusion about aggregate versus idiosyncratic shocks can last for quarters, maybe, but not years.

So the truth was that microfoundations in macroeconomics had its moment, but failed utterly at the one thing it was sold, above all, as being able to do – namely, give a better explanation of why nominal shocks have real effects. Time, you might think, to reconsider the project.

And some did. There was a revival of Keynesian thinking in the late 70s and early 80s, albeit one that tried to cram as many microfoundations into the models as possible without being grossly unrealistic.

But many economists had so committed themselves to the idea that Keynes was dead and rationality roolz that they simply dug in deeper. Rationality-based microfoundations must be right; if their microfoundations couldn’t explain why nominal shocks have real effects, then nominal shocks must not have real effects – it’s all real shocks. And so real business cycle theory was born.

So now we have people debating whether models with microfoundations lead to better predictions, both of the future and of policy impacts, than models with ad hoc elements; as Wren-Lewis and Smith say, this is by no means obvious if the microfoundations are wrong, as they often clearly are. But what you want to realize is that this isn’t going to convince the microfoundations crowd. After all, more than thirty years ago they decided that the joy of microfoundations trumped the utter failure of microfounded models to work in practice, and they have now trained successive cohorts of students in this view.

There are, it’s true, some hints of a guilty conscience – as Matt Yglesias points out, there’s the odd tendency of freshwater types to immediately accuse anyone with saltwater ideas of being dishonest. (I’m not a nice guy, but if look at what I said about, say, Cochrane, it was that he was ignorant, not corrupt.)

Oh, and the notion that there had been a convergence of views by 2007, which was then ruptured by the crisis, was a saltwater delusion. People like Olivier Blanchard convinced themselves that the other side was listening; it wasn’t. The hysterical reaction to the notion that fiscal policy is effective at the zero lower bound demonstrated that the freshwater types had never bothered to learn the least thing about how New Keynesian models worked.

So there’s a lot of history here; but the main driver behind this history was, I believe, the inability of many economists to accept the fact that they took a wrong turn.

Neo-Paleo-Keynesianism: A suggested definition

There has been a lot written on the blogosphere in recent weeks about the microfoundations of macroeconomics. Tony Yates argues in favour of micro-founded structural models. Adam Posen is sceptical of micro-foundations and Simon-Wren Lewis, Noah Smith and Nick Rowe call for a more eclectic approach. For those looking for a neat summary of these debates, Paul Krugman traces the history of macroeconomic ideas.  Responding to a  piece by Brad Delong, he argues that there has been a recent resurgence of what he calls “neo-paleo-Keynesianism”.  This is very useful concept and I have much in common with the ideas expressed in Paul's piece. This essay offers a novel definition of the term that Paul coined and an invitation to fellow academics to join me in pursuing an agenda based on this definition.

I agree with Paul Krugman: macroeconomics has taken the wrong path.  I disagree with Paul’s reading of when that happened.  The error has nothing to do with new-classical versus new-Keynesian approaches; it is a more fundamental error that pervades both new-classical and new-Keynesian schools of thought. Macroeconomics took a wrong turn in Cambridge Massachusetts in 1955 when Paul Samuelson, in the third edition of his textbook, introduced the idea of the “neoclassical synthesis” (see Pearce and Hoover for a discussion of the influence of Samuelson’s textbook). Everything since then has been the economic equivalent of the scientific theory of phlogiston. 

Many economists are exposed to the philosophy of science through Milton Friedman’s book, Essays in Positive Economics. Friedman promoted the views of Karl Popper who argued (here) that science progresses when theorists make bold conjectures that are confronted by facts. Those conjectures stand until they are refuted by the evidence.  Occasionally, economics students are exposed to the ideas of Thomas Kuhn who talks (here ) of paradigm shifts and scientific revolutions. Rarely does the economics curriculum of a Ph.D. program have time to push much further into the methodology of science.   That’s a pity since there is much to be learned from alternative philosophies. 

Axel Leijonhufvud has argued persuasively (here) that we have much to learn from Imré Lakatos, a philosopher of science who spent much of his career at the London School of Economics. Lakatos, (here) in contrast to Popper and Kuhn, sees science as a set of competing scientific research programs.  His approach is a useful one for understanding the current debate amongst practicing macroeconomists who are facing a series of natural experiments that provide serious challenges to both new-classical and new-Keynesian agendas.

According to Lakatos, all tests of scientific theories are necessarily tests of joint hypotheses.  The sciences, both physical and social, are best characterized as interacting communities of scholars.  Those scholars adhere to research programs that interpret the evidence through different lenses. 

Each research program has a ‘hard core’ and a ‘protective belt’. When an event in nature appears to refute a theory, the scientist must decide which of the possible components of his theory should be rejected in order to reconcile his worldview with the outcome he observed.  Assumptions that make up the hard core of a research program will never be rejected; instead, the scientist will amend one of the assumptions in its protective belt.

The new-Keynesian research program is the descendent of Samuelson’s ‘neoclassical synthesis’.  According to that synthesis, the economy is ‘Keynesian’ in the short-run when not all markets have had time to clear:  it is ‘classical’ in the long run when all price adjustment has run its course.  It is these twin propositions that form the hard core of the new-Keynesian program. According to that program, market economies are self-correcting, and although the adjustment to the long-run equilibrium may take time, that adjustment will, eventually, occur. 

Despite its name, the new-Keynesian research program is neither new, nor Keynesian. The idea, that real economic activity may be different from its long run steady state as a consequence of sticky prices, is firmly rooted in monetarist tradition.   It originated in the eighteenth century and is summarised by David Hume in his delightful essay, Of Money. Keynes argued, in contrast, in the opening chapters of The General Theory, that high unemployment of the kind that persisted in the Great Depression is one of many possible steady state equilibria. 

How can we recover this idea, without discarding three hundred years of microeconomic principles? I will refer to a research agenda that maintains the notion of unemployment as a steady-state equilibrium as paleo-Keynesianism. When combined with general equilibrium theory in a way that provides a micro-foundation to this key idea, I will refer to the resulting synthesis as neo-paleo-Keynesianism.

In contrast to new-Keynesian ideas, neo-paleo-Keynesianism does not assume that ‘frictions’ prevent wages or prices from clearing markets.  It does not deny that wages and prices move slowly, relative to quantities. But that observation does not mean that we must assume that there are menu-costs, contracting costs or any other artificial barrier to price adjustment. As I explain (here), sticky prices may simply be part of a rational expectations equilibrium.  Robert Lucas was exactly right when he argued (here) that markets are always in equilibrium. But accepting that proposition does not require us to accept that equilibrium is unique; nor must we accept that equilibrium is optimal, or that unemployment is voluntary. 

The neo-paleo-Keynesian (NPK) research program is unashamedly neo-classical. It seeks to reconcile Keynesian ideas with the microeconomics of general equilibrium theory; and it does so in a new way.  As with new-classical and new-Keynesian economics, neo-paleo-Keynesianism constructs models of rational actors who interact in markets.  In contrast to new classical and new-Keynesian programs, neo-paleo-Keynesianism contains two propositions that are absent from the hard core of these agendas: 1) there is a continuum of possible equilibrium unemployment rates and 2) the unemployment rate that prevails is determined by the ‘animal spirits’ of investors. 

How might one accomplish this agenda? One approach that I describe (here) combines a search theory of unemployment with an asset-pricing model and (here) I develop a model driven by animal spirits that returns to paleo-Keynesian ideas without invoking sticky prices or wages.  My survey paper (here) explains what is different about neo-paleo-Keynesianism, from the new-Keynesian alternative.[1]

What is wrong with new-Keynesian economics and why should we prefer the NPK approach? Lakatos provides us with an answer. Research programs are not refuted, as in Popper, nor are they dramatically overturned, as in Kuhn. They simply attract more new adherents than their competitors. In the language of Lakatos, research programs are progressive or degenerative.

In the normal course of events, a successful research program meets challenges to its hegemony by modifying hypotheses in its protective belt.  A progressive research program is one that occasionally makes a prediction that is confirmed by experiment or, in the case of macroeconomics, by history. A degenerative research program is one that struggles with continued refutations by continually modifying its protective belt in ever more inelegant ways. 

The new-Keynesian research program, like the new-classical program before it, is degenerative. Like Ptolemaician astronomy, it explains new data by adding ever increasing layers of complexity. And like that theory; new-Keynesian economics has not succeeded in making a single prediction that has been confirmed by fresh evidence that was unavailable when the theory was constructed.

So where does that leave the neo-paleo-Keynesian? What event is explained by this approach? First and foremost, there is the persistence of long-term unemployment in the wake of a financial crisis. For a new-Keynesian, it is hard to explain why wages and prices have been so sticky that employment still has not recovered more than five years after the onset of the stock market crash. For a neo-paleo-Keynesian it is an expected outcome for a theory in which high involuntary unemployment is an equilibrium state.

There are those who claim that we should return to the Keynes of the General Theory while rejecting the attempt to build microfoundations. That is the message, for example, of post-Keynesians like Paul Davidson. While there are attractive elements to that path, I do not believe that we should abandon all of classical economics.  There is much to like in the ideas of demand and supply and several branches of economics have had notable successes by following the idea that actors are rational and goal oriented. Examples that come to mind are auction theory that was used successfully to sell the rights to the electromagnetic spectrum in the UK and matching theory that was used to develop kidney exchanges. 

The path of combining multiple equilibria with ‘animal-spirits’ has the potential to explain many of the puzzles thrown out by recent experience. I showed (here) that it offers an alternative explanation of the monetary transmission  mechanism, one that outperforms the new-Keynesian alternative, and I argue (here) that active stabilization of financial markets offers an alternative approach to traditional fiscal policy as a means of maintaining full employment.

If Keynes were alive today, one thing is certain; he would not be a Keynesian in the sense in which that term is used today. Keynes was notorious for changing his views on a daily basis and was said to be capable of holding several conflicting opinions at the same time. Would he be a neo-paleo-Keynesian? Who knows?  What seems certain, to me, is that existing ideas have failed us.  For me, that’s enough to try something new. 

---

[1] I am not the only one that is seeking a return to paleo-Keynesian ideas. Others I would place in this category include Stephanie Schmitt Grohé and Martín Uribe (here) who drop classical principles of market clearing and return to the Keynesian concept of involuntary unemployment.  Narayana Kocherlakota constructs (here) a model of incomplete factor markets, Greg Kaplan and Guido Menzio (here) combine search in the labor market with search in the product markets and Pascal Michaillat and Emmanuel Saez (here) takes prices as parametric. All of these papers are examples of multiple steady state equilibria.

¿Está enfermo el capitalismo? Pruebas gráficas de las raíces de la crisis.

En los gráficos siguientes expongo los fenómenos inusuales, rompedores, que llevaron a la Gran Crisis Financiera de 2008. Los dato son de EEUU, pero pueden ser replicados para otros paises que tuvieron una burbuja especulativa (si hubiera estadísticas accesibles. Sacar series como éstas del BdE o del INE es un dolor de muelas).

En ellos intento buscar pistas sobre lo que ha pasado y sigue pasando en cierta medida.

Taylor frente a Krugman

Taylor ha respondido furibundo a Krugman, con toda la razón del mundo. Taylor había publicado una puesta al día  del tema "Secular Stagnation", con las conclusiones de que tanto la política monetaria como la fiscal habian demostrado poca eficacia para retomar el ritmo económico normal. Ojo, no dice que no haya servido como politica anticíclica, cosa que no pone en duda: lo que duda es haya obtenido un resultado espectacular, y, además, que a estas alturas vaya a servir para encauzar el largo plazo.

In the paragraph that bugged Paul, I expressed doubts that fiscal and monetary policy would address a long-run secular stagnation problem, and instead suggested focusing on a structural pro-growth agenda. 

Krugman ha reaccionado como si le hubieran mentado a la madre. Ha embestido con su acreditada mala leche, porque le ha salido un economista, al que consideraba de su escudería, que dice:

"Free Market Economy is Awesome and Fragile"

La economía no es, como la gran mayoría de economistas creen, simétrica en el tiempo. Un problema económico es causado por la causa A. Se cree que corrigiendo esa causa, eliminándola, o contrarrestándola, la economía volverá a su senda de "normalidad" (elijo adrede esta palabra en sustitución de "equilibrio").

Esto es totalmente erróneo. Entre otros cosas, porque el tiempo no es reversible. En el tiempo se producen reacciones a esa alteración que, por muy libres que sean los mercados, pueden alejar la economía de la normalidad.

Rebatiendo a Rogoff: Euro is not a OMA

En El País, encuentro un artículo de Keneth Rogoff, sobre los problemas de deuda en Europa y las distintas soluciones propuestas.

En lo único que coincido con él es que la solución disciplinaria aplicada hasta ahora es un absoluto fracaso.

Errores de ayer y hoy

Krugman, en el País , destaca los errores que cometió la FED al principio de la crisis. Han salido publicadas las transcripciones de aquellas reuniones, y sobresale de ellas la obsesión que tenían muchos, incluido Bernanke, con la amenaza inflacionista.

Es justo decir que entonces hubo una gran subida del precio del petróleo, la cual elevó los niveles de la inflación. Pero es una débil excusa, que sólo se comprende por la desatención de los modelos económicos al uso (principalmente los llamados modelos neokeynesianos, que no son más que modelos monetaristas a los que se les incorpora una rigidez de precios u salarios), por la Gran Gaja Negra  que lo jodió todo: el sistema financiero. Antes de que fueran conscientes de ello los sesudos mandamases de la FED, el apalancamiento bancario, a base de innovacion financiera (muy laureada), había alcanzado un grado de apalancamiento (deudas sobre capital u reservas) incluso superior al observado en la crisis de 1929.

Ante hechos significativos parecidos, la reacción de la FED fue igual de errónea que entonces, pero, afortunadamente, por poco tiempo. La caída de Lehman desató una reacción de los mercados que amenazaba con llevarse por delante bancos buenos y malos, y la FED reaccionó bajando los tipos al límite y poniendo en marcha su primer fase de expansión de sus activos: es decir, del dinero emitido. Pronto se demostró que las amenazas inflacionistas eran crasamente erróneas, al contrario. 

¿Por qué ese fallo de los mejore economistas del mundo? 

Porque los orgullosos economistas se habían encerrado más y más en una torre de marfil donde fabricaban como churros unos modelos económicos con supuestos cada vez más alejados de la realidad, pero de una gran belleza matemática. Recuerdo a un economista puntero que vino a hacer una estancia en el bdE, y se prestó a dar unas charlas sobre sus investigaciones. A la pregunta de qué era lo que más le motivaba cuando trabajaba en un modelo, dijo que la belleza (¿?). 

Los modelos al uso desdeñaban y desdeñan la Caja Negra, porque habría sido complicarlo meterla u hacerla compatible con unos supuestos de perfecta racionalidad intertemporal de los agentes y eficiencia de los mercados. 

Los mercados financieros han demostrado hasta el hastío que no son eficientes, que tienen al exceso en un sentido u otro, que minisvaloran el riesgo cuanto más desarrollada está una burbuja, y cambian de sentimientos unilateralmente y acumulativamente. Cuando coje una tendenca alcista o depresiva suele acelerarse y contagiarse. La regulación entonces vigente se demostró insuficiente, pero además, no se cumplía porque en épocas de auge los políticos no quieren romper el encanto de que casi todo el mundo se hace rico. 

Sin sector financiero, un modelo macro sencillo, sea monetarista o sea Neokeynesiano, conecta directamente la acrividad real (PIB) con el tipo de interés real (r). El tipo de interés real es el nominal menos la tasa se inflación. El tipo de interés nominal es determinado por la FED. Si es más bajo que el tipo natural o de equilibrio, se producirán expectativas inflacionistas que luego darán lugar a mayor tasa de inflación. Si está por encima, la actividad bajara por debajo del pleno empleo, aumentará el paro, y la inflación bajará. Puede decirse que cuando las cosas son "normales" este modelo simplista describe bastante bien la economía. Aparentemente, los años noventa fueron una de esas épocas, en que la gestión monetaria era fácil, casi de piloto automático, no había más que controlar suavemente que la inflación no se alejara demasiado tiempo del equilibrio. 

Pero por debajo de tanta felicidad, la desregulación financiera, en nombre de la eficiencia de los mercados, empezó a nutrir las operaciones innovadoras que llevarían a la burbuja. Cuando quisieron darse cuenta, tenían una burbuja creciendo a grandes zancadas, y nadie quería ser responsable de pincharla. 

Lo peor es que tampoco tenían un modelo contrastado para salir de la crisis post burbuja. Y menos que nadie Europa. EEUU se atrevió a una política heterodoxa que NO aumentó la inflación, y permitió a los sectores avanzar en su desendeudamiento y a la economía crecer y bajar el paro. 

Estos errores son de consecuencias gravísimas, como puede colegir cualquiera que diga en la cuenta de que la crisis lleva siete años. El gobierno miente cuando dice que estamos saliendo. A la lentitud que va mejorando, faltan años para normalizar los niveles de deuda. La banca, como vimos ayer (http://www.miguelnavascues.com/2014/03/anos-de-recesion-y-provisiones.html), está todavía muy lejos de su rescate total .El paro seguirá muchos años por encima de un nivel medianamente normal. 

Macroeconomics: What went wrong?

Genial conferencia de Paul Krugman en 
http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the-crisis/,  de la que selecciono algunos párrafos (si lo hago es porque cuenta la misma historia que yo, pero mejor contada -obvio: yo la he aprendido de él-, sobre microfundations y sus consecuencias):

 I assume that most of those hearing or reading this speech at all closely are aware of the great divide that emerged in macroeconomics in the 1970s. For those who aren’t familiar with the story: in the 1930s Keynesian economics emerged as a response to depression, and by the 1950s it had come to dominate the field. There was, however, an undercurrent of dissatisfaction with that style of modeling, not so much because it fell short empirically as because it seemed intellectually incomplete. In “normal” economics we assume that prices rise or fall to match supply with demand. In Keynesian macroeconomics, however, one simply assumes that wages and perhaps prices too don’t fall in the face of high unemployment, or at least fall only slowly. 

Why make this assumption? Well, because it’s what we see in reality – as confirmed once again by the experience of peripheral European countries, Portugal included, where wage declines have so far been modest even in the face of very high unemployment. But that’s an unsatisfying answer, and it was only natural that economists would try to find some deeper explanation.

The trouble is that finding that deeper explanation is hard. Keynes offered some plausible speculations that were as much sociological and psychological as purely economic – which is not to say that there’s anything wrong with invoking such factors. Modern “New Keynesians” have come up with stories in terms of the cost of changing prices, the desire of many firms to attract quality workers by paying a premium, and more. But one has to admit that it’s all pretty ad hoc; it’s more a matter of offering excuses, or if you prefer, possible rationales, for an empirical observation that we probably wouldn’t have predicted if we didn’t know it was there.

This, understandably, wasn’t satisfying to many economists. So there developed an alternative school of thought, which basically argued that the apparent “stickiness” of wages and prices in the face of unemployment was an optical illusion. Initially the story ran in terms of imperfect information; later it became a story about “real” shocks, in which unemployment was actually voluntary; that was the real business cycle approach.

Hago aquí un corte para meter una pequeño inciso:  cuando PK habla de Real Buisness Cycle y DSGE models , incluyan por favor a los euristas, es decir, españoles-todos-prietas-las filas (CENFILITICOS -hijos del CENFIde MA-LÔ -  included, of course)... izquierda caviar, please,  que son así de esquizoides...

And so we got the division of macroeconomics. On one side there was “saltwater” economics – people, who in America tended to be in coastal universities, who continued to view Keynes as broadly right, even though they couldn’t offer a rigorous justification for some of their assumptions. On the other side was “freshwater” – people who tended to be in inland US universities, and who went for logically complete models even if they seemed very much at odds with lived experience.

Obviously I don’t believe any of the freshwater stories, and indeed find them wildly implausible. But economists will have different ideas, and it’s OK if some of them are ones I or others dislike.

What’s not OK is what actually happened, which is that freshwater economics became a kind of cult, ignoring and ridiculing any ideas that didn’t fit its paradigm. This started very early; by 1980 Robert Lucas, one of the founders of the school, wrote approvingly of how people would giggle and whisper when facing a Keynesian. What’s remarkable about that is that this was all based on the presumption that freshwater logic would provide a plausible, workable alternative to Keynes – a presumption that was not borne out by anything that had happened in the 1970s. And in fact it never happened: over time, freshwater economics kept failing the test of empirical validity, and responded by downgrading the importance of evidence.

This was, by the way, not a symmetric story: saltwater economists continued to read Lucas and his successors. So only one side of the divide shut itself off from opposing views.

And this inward turning had what can now be seen as a fateful consequence: freshwater macro, basically something like half or more the macroeconomics field, stopped teaching not only new Keynesian research but the past as well. And what that meant was that when crisis struck, we had half a generation of economists who not only had no model that could make sense of the crisis, but who blithely reproduced classic errors of the past. Keynes spent a good part of his magnum opus, The General Theory of Employment, Interest, and Money, refuting Say’s Law – the proposition that income must be spent, so that shortfalls of demand are impossible, and government spending in particular cannot add to demand. Yet in 2008 and 2009 we had well-known professors from Chicago and elsewhere opposing stimulus because … income must be spent, so government spending cannot increase demand. Intellectually, much of the profession had unknowingly regressed 75 years.

... So what’s wrong with that? Well, DSGE models have three aspects that make them unsuited to times like these. First, they’re unwieldy; you can’t easily sketch out your argument on a piece of paper, and you can’t easily translate it into ordinary language to explain it to a politician. Second, they normally assume that the data we see come from a regular process of random shocks, with strong incentives for the modeler to assume that the shocks are more or less normal, not involving large, low probability events – which leaves you unready for the Big One when it happens. Finally, the desire to make the things tractable tends to favor linearity, or at least models that can be done in terms of linear approximations; again, that’s not a modeling style that leaves you ready to deal with sudden financial crisis, which may involve multiple equilibria and at the very least involves regime change in which the effects of a given policy or shock may suddenly become quite different.

Sobre la microfoundation y otros embrollos

Este es un debate que culmina en Noahpinionblog: /why-bother-with-microfoundations, donde se recogen además las aportaciones de los participantes principales (Wren-Lewis, Krugman, De Long, et al). Por eso, si quieren, vayan  directamente ahí.
Desde los años setenta, la macro se ha complicado más y más por intentar fundamentarla en unos buenos basamentos micros, es decir, principios de comportamiento de los sujetos individuales. Se piensa que sólo la macro bien fundamentada en unos principios así es respetable. Lo demás, como el modelo IS-LM, aunque dé resultados prácticos, es un juguete de niños sin base sólido.
Yo sufrí, cuando estudiaba, ese cambio de la macro-macro a la macro/"microfunded", lo que era una tortura, pues perdías la base de la intuición y te metías en un galimatías de ecuaciones muy rigurosas, pero que te explicaban poco de la realidad. Mientras, la política económica ha seguido igual: cogiendo lo que le conviene ideológicamente de uno u otro académico, que se hace famoso precisamente por ese aporte político, no porque esté en lo cierto (vean el excelente post de Glasner: keynes-v-hayek-enough-already).

Durante los años de posguerra 1940-60 (hablo por aproximación), el dogma de fe era Keynes, y la política fiscal y monetaria se justificaban con un keynes ad hoc. Los premios Nobel eran para los keynesianos, como Samuelson, Tobin, Solow... Entonces vinieron Friedman y luego Lucas, demostraron que la inflación no generaba empleo, sino más inflación, y dieron la vuelta a la tortilla: lo importante era la estabilidad de precios y los mercados, que ellos e encargarían de crear crecimiento y empleo. Entonces, en pocos años, le dieron el Nobel a Friedman y a Hayek. Ero lo que tocaba. Lucas lo recibió en 1994, creo, en pleno auge de la expectativas racionales. Los manuales se hicieron más rigurosos, lo que quiere decir más matemáticos.
Paralelamente, se habían refundado los bancos centrales, que pasaron a tener como único objetivo (salvo la FED) la estabilidad de precios. Fue esta ideología lo que impulsó la creación del euro.Básicamente, la creencia unificadora cuando empecé a trabajar era "Rational Expectations", y la crítica de Lucas. En suma, no había espacio para lo que no fuera mercados. Incluso se debatió en los años 80 el objetivo de inflación cero.
Esto es lo que imponía una exigencia de rigor a los modelos macros: deberían evitar la crítica de Lucas, que decía que si los parámetros de un modelo no están bien "microfunded", los agentes podían incorporarlo a su acerbo informativo y modificarlo. Si la autoridad  decide, con un modelo, que va a crear empleo (aprovechando la curva de Phillips) aumentando la inflación y la gente se da cuenta, reaccionará en su comportamiento y modificará sus expectativas a esa mayor inflación, con lo que sí, habrá aumentado la inflación, pero no el empleo, porque los salarios habrán aumentado paralemente.
Sin embargo, hay un abismo entre la practicidad de los modelos simples, ad hoc (como los llama Krugman), que obtienen previsiones razonables con supuestos sencillos (no microfunded),  y el  de modelos con infinidad de variables interdependientes de los modelos rigurosos, pero engorrosamente irreales.

Wren-Levis, el iniciador del debate, dice que si para modelo macro encontramos varios modelo micros que avalan tal modelo, ¿para qué entonces preocuparse de la engorrosa fundamentación micro?
En realidad, la economía no es una ciencia dura. Como dice Noah sigueindo a Krugman - que da en el clavo al decir que las micro sesudeces que nos imponemos son metáforas, sin más valor empírico que cualquier afirmación arbitraria:

Krugman: And when making such comparisons between economics and physical science, there’s yet another point: what we call “microfoundations” are not like physical laws. Heck, they’re not even true. Maximizing consumers are just a metaphor, possibly useful in making sense of behavior, but possibly not. The metaphors we use for microfoundations have no claim to be regarded as representing a higher order of truth than the ad hoc aggregate metaphors we use in IS-LM or whatever; in fact, we have much more supportive evidence for Keynesian macro than we do for standard micro.

Noah: I think that this is the real argument against microfoundations as they are currently used in macro. Basically, Krugman is saying that the "microfoundations" we now use really deserve to have quotes around them, because they actually don't describe individual behavior.

Por cierto, les había dicho que cada vez me gusta más Noah?
Por mi parte, cada vez estoy más convencido de que las acciones individuales de los sujetos no llevan siempre a niveles macro óptimos, pues mientras accionan las variaciones de la renta cambia sus expectativas y sus decisiones. Creo que esa es la gran aportación de Keynes, si no me equivoco. La ruptura con la creencia de que los sujetos por sí solos alcanzan el máximo nivel e PIB y de empleo. No siempre.
Yo creo que la microfundación buscada no es tan rigurosa en realidad; tiene una carga ideológica que apesta. Prueba nº1: el euro. El euro es un contradiós que se ha justificado en microfuntations lucasianas que hieden a ideología. En realidad se ha construido un tinglado macro para justificar un principio micro falso: que la gente (alemanes españoles, irlandeses, griegos) no sólo es racional, sino que es igual de racional. Es una microfuntation AD HOC. De hecho, la microfundation, sea de Lucas o sea de Krugman, tiene un alto contenido normativo, del tipo "debería ser": es decir, "puede que la gente no sea racional, pero debería serlo"... "al menos tan racional como yo..."

simple y genial lección de...

... Historia de la Teoría Económica. En Krugman. "Lucas-in-context-wonkish"

Lucas In Context (Wonkish)

Via Mark Thoma, Noah Smith is puzzled by Robert Lucas. I thought it might be helpful to think of Lucas now in terms of the history of economic thought. By the way, I basically lived through the story I’m about to tell, so this is more or less first-hand.

So, here’s the history of macro in brief.

1. In the beginning was Keynesian economics, which was ad hoc in the sense that on some important issues it relied on observed stylized facts rather than trying to deduce everything from first principles. Notably, it just assumed that nominal wages are sticky, because they evidently are.

2. In the 1960s a number of economists started trying to provide “microfoundations”, deriving wage and price stickiness from some kind of maximizing behavior. This early work had a big payoff: the Friedman/Phelps prediction that sustained inflation would get “built in”, and that the historical tradeoff between inflation and unemployment would vanish.

3. In the 1970s, Lucas and disciples take it up a notch, arguing that we should assume rational expectations: people make the best predictions possible given the available information. But in that case, how can we explain the observed stickiness of wages and prices? Lucas argued for a “signal processing” approach, in which individuals can’t immediately distinguish between changes in their wage or price relative to others — changes to which they should respond by altering supply — and overall changes in the price level.

4. In the 1980s, the Lucas project failed — pure and simple. It became obvious that recessions last too long, and there are too many sources of information, for rational confusion to explain business cycles. Nice try, with a lot of clever modeling, but it just didn’t work.

5. One response to the failure of the Lucas project was the rise of New Keynesian economics. This basically went back to ad hoc assumptions about wages and prices, with a bit of hand-waving about menu costs and bounded rationality. The difference from old Keynesian economics was the effort to use as much maximizing logic as possible to interpret spending decisions. I find NK economics useful, if only as a way to check my logic, although it’s not really clear if it’s any better than old-fashioned Keynesianism.

6. The other response, by those who had already invested vast effort and their careers in the Lucas project, was to drop the whole original purpose of the project, which was to explain why demand shocks matter. They turned instead to real business cycle models, which asserted that the ups and downs of the economy are caused by technological shocks magnified by rational labor supply responses. Full disclosure: this has always seemed absurd to me; as many have pointed out, the idea that the unemployed during a recession are voluntarily choosing to take time off is something only a professor could believe. But the math was impressive, and RBC became a self-contained, self-replicating intellectual world.

7. The Lesser Depression arrives. It’s clearly not a technological shock; clearly, also, nobody is confused about whether we’re in a slump, as the old Lucas model required.

In fact, it looks a lot like what Keynes described, and old-Keynesian models work very well, thank you, both at explaining it and in making predictions about such things as interest rates and the effects of fiscal austerity. But the descendants of the Lucas project know that Keynes was wrong — it’s what their teachers and their teachers’ teachers have been saying all these years. They cannot accept anything resembling a Keynesian explanation without devaluing everything they’ve done with their intellectual lives.

So it must be Obama’s fault!

Y aquí, la voz del oponente, laureado Nobel Robert Lucas:
 http://online.wsj.com/article/SB10001424053111904194604576583382550849232.html?KEYWORDS=robert+lucas

Krugman

Pequeño post de Krugman sobre la comparación USA/EU, de Simmon Johnson comentado aquí ayer] que pongo entero por su brevedad y acierto:

The Halt and the Lame

Simon Johnson writes about who’s worse — America or Europe?Basically I agree with his assessment: Europe has more fundamental problems in sheer economic terms, because it adopted a single currency without the necessary institutions to make it workable. America has a long-run budget problem, but our current mess is entirely political. Unfortunately, that doesn’t make it any easier to solve.

What’s extraordinary, though, is the paralysis that has taken over essentially the entire advanced world. America is hamstrung by its crazy right; Europe by its single currency that can be neither abandoned nor accompanied by sufficient reforms to make it work; Japan by lousy demography and monetary timidity that is now deeply ingrained in expectations.

Technology continues to advance; resource shortages are not severe enough to pose a major constraint; climate change is terrifying in its long-run implications, but hasn’t inflicted much damage yet. The only major problem we have right now is the one that was supposed to be easy to solve: a simple lack of adequate demand. And we’re totally failing in our response.

in the long run, Keynes must be spinning in his grave.