There were two posts yesterday. The first was “The Oz Effect:”
So more than half of the health advice Dr. Oz gives is either baseless — there’s no evidence for his claims — or wrong — there is evidence, and it contradicts what he says. Julia Belluz tells us not to be surprised:
He is, after all, in the business of entertainment.
But the thing is, there are a lot of Ozzes out there, including in areas you might not consider the entertainment business.
Recently some conference planners tried to recruit me for an event in which I would be presenting the alternative view to the main experts — Arthur Laffer and Stephen Moore. This would be the Art Laffer who among other things warned about soaring inflation and interest rates thanks to the rapid growth in the monetary base (ask the Swiss), and the Stephen Moore who was caught using fake numbers to promote state-level tax cuts.
Obviously these “experts” appeal to the political prejudices of a business audience, but taking their advice would have cost you a lot of money. So why isn’t their popularity dented by the repeated pratfalls? Are they, also, in the entertainment business?
To some extent, the answer is yes. Simon Wren-Lewis had an interesting piece on why the financial sector buys into really bad macroeconomics; he suggested that financial firms aren’t really interested in anything but very short-term forecasting, and that
economists working for financial institutions spend rather more time talking to their institution’s clients than to market traders. They earn their money by telling stories that interest and impress their clients. To do that it helps if they have the same worldview as their clients.
Thinking about Dr. Oz also, I’d suggest, helps explain a related puzzle: even if you grant that the right wants alleged experts who toe the ideological line, why can’t it get guys who are at least competent? Why do they recruit and continue to employ people who can’t do basic job calculations, or read their own tables and notice that they’re making ridiculous unemployment projections, and so on?
My answer has been that anyone competent enough to avoid these mistakes would also be unreliable — he or she might at some point actually take a stand on principle, or at least balk at completely abandoning professional ethics. And I still think that’s part of the story.
But I now also suspect that the personality traits you need to be an effective entertainer on inherently not-so-much-fun subjects like health or monetary policy are inherently at odds with the traits you need to be even halfway competent. If Dr. Oz were the kind of guy who pores over medical evidence to be sure he knows what he’s talking about, he probably couldn’t project the persona that wins him such a large audience. Similarly, a hired-gun economist who actually knows how to download charts from FRED probably wouldn’t have the kind of blithe certainty in right-wing dogma his employers want.
So how do those of us who aren’t so glib respond? With ridicule, obviously. It’s not cruelty; it’s strategy.
Yesterday’s second post was “More Macro Modeling Meta:”
Simon Wren-Lewis, not surprisingly, gets my motivation in writing down an intertemporal-maximization model of the liquidity trap right; although originally, back in 1998, I wasn’t arguing with the market monetarists — I was arguing to some extent with old-fashioned monetarists, and to a larger extent with myself, trying to figure out how to think about this thing.
And I think there’s a larger, vaguer point about how to do economics here.
Where I came in was with the question — for Japan in the 90s, for most of the advanced world now — of whether the central bank can boost the economy simply by “printing money” when short-term interest rates are near zero. IS-LM analysis says no; but there were and still are many economists insisting that this conclusion can’t be right, that basic monetary economics says that increasing the money supply always raises prices in the long run and output in the short run if prices are sticky. And IS-LM is, after all, an ad hoc model that isn’t careful about budget constraints or expectations, so surely the notion of a liquidity trap would go away if you did it right.
I actually believed this myself. But unlike most of the people who say things like this, I actually set out to “do it right”– that is, write down an explicit model, as simple as possible, that didn’t fudge the budget constraints or the role of expectations. And what it told me was that the claim that monetary expansion always “works” is wrong.
The force of this conclusion does not depend on the little model being realistic — after all, the claim was that doing it right would show that the liquidity trap was a myth, so if even a simple, unrealistic model said otherwise, that was enough to prove the claim wrong.
Now, you might argue for the effectiveness of monetary policy at the zero lower bound by appealing to some kind of friction — imperfect capital markets, bounded rationality, something. OK, go ahead and explain to me how that works. The point, however, is that most ZLB denial does not, in fact, rest on a sophisticated argument about frictions; it relies, again, on the assertion that we “know” that money has to be effective, that this is a fundamental proposition. And this turns out to be false, just like the proposition that with rational expectations fiscal stimulus must always crowd out private spending.
Alternatively, you could argue that experience shows that monetary expansion is effective even at the zero lower bound. Again, however, ZLB denial does not rest on empirical evidence; it’s supposed to rest on fundamental economics that turns out not to be fundamental at all. And the empirical evidence actually goes the other way. Even in 1998 I could appeal to lessons from the 1930s; today we have lots more evidence, and it all looks like this:
So if you are convinced that monetary expansion must work, please tell me why. Don’t push words around; as I said, you’re probably engaged in deceptive word games, even if that’s not your intention. Give me a careful analysis of what people are doing, and how the frictions, whatever they are, cause the basic result of monetary impotence to go away.
Now, about the broader and vaguer implications: I don’t think of this story as a demonstration that a New Keynesian approach is superior to IS-LM. After all, what it ended up doing was confirming that IS-LM got it right. And look, people don’t actually engage in the kind of optimization NK models assume. Much of the time — and I know Simon and I aren’t in full agreement here — I think ad hoc, IS-LMish models are better for a first cut: they’re easier to work with, and I see no compelling evidence that fancier intertemporal approaches provide a better picture of reality.
Still, when I am making a policy argument using IS-LM, especially if it’s at odds with conventional policy wisdom, I like to cross-check it against an NK approach, to see if I can get a similar result. It’s just a way of kicking the tires, of increasing the odds that I’m really talking sense. And I also want to cross-check all the theoretical arguments, Hicksian or New Keynesian, against whatever evidence I can scare up.
All of this is a lot more work than, say, intoning solemnly about the dangers of a debased currency, or even than pointing to nominal GDP and asserting that the Fed could have achieved a different result if only it wanted to. But as Keynes said, economics is a difficult and technical subject, though no one will believe it.