Monday, August 02, 2010

Eric Falkenstein spanks Ezra Klein

Ezra Klein has a post promoting Blinder and Zandi's model that shows massive good effects from more government deficit spending. As the model is a 1970's vintage approach, an approach that attracted the nations best minds for decades, and was abandoned because they don't work better than rather simple alternatives (eg, a vector autoregression of GDP, Fed Funds, and the Baa-Aaa spread).

I found this amusing because it highlights that journalists grab whatever science supports their ends. The details are not important, you have a professor with lots of publications, he has a complicated scientific argument, it makes you an objective, rational journalist. He even quotes Narayana Kocherlakota saying macro models work, not realizing the Kocherlakota was actually talking about a very different class of models than the one Blinder and Zandi use, and forgetting that of course a macroeconomist would say macro theory works.
I spent 3 years of my life working directly for private sector macroeconomists, and the main thing I learned is they don't know anything useful. It's like studying the labor theory of value: if you really understand and have tested it empirically, you use such knowledge on the subject only in arguing with naive people who think the theory can buttress their arguments. I try to rationalize my waste of time on this subject by saying 'well, I now know really well what we don't know', but as the list of irrelevant theories is infinite, if I could redo my career I would have just ignored it all from the outset.

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