Paul Krugman: Still Say's Law After All These Years: "When John Maynard Keynes wrote The General Theory, three generations ago, he structured his argument as a refutation of what he called “classical economics”, and in particular of Say’s Law, the proposition that income must be spent and hence that there can never be an overall deficiency of demand…. I will say… that Say’s Law (Say’s false law? Say’s fallacy?) is something that opponents of Keynesian economics consistently invoke to this day, falling into exactly the same fallacies Keynes identified back in 1936. In the past I’ve caught Brian Riedl and John Cochrane doing it; now Peter Dorman finds Tyler Cowen in their company. Cowen can’t see why corporate hoarding is a problem. Like Riedl and Cochrane, he concedes that there might be some problem if corporations literally piled up stacks of green paper; but he argues that it’s completely different if they put the money in a bank, which will lend it out, or use it to buy securities, which can be used to finance someone else’s spending. But of course there isn’t any difference. If you put money in a bank, the bank might just accumulate excess reserves. If you buy securities from someone else, the seller might put the cash in his mattress, or put it in a bank that just adds it to its reserves, etc., etc.. The point is that buying goods and services is one thing, adding directly to aggregate demand; buying assets isn’t at all the same thing, especially when we’re at the zero lower bound. What’s depressing about all this is that Say’s Law is a primitive fallacy – so primitive that Keynes has been accused of attacking a straw man. Yet this primitive fallacy, decisively refuted three quarters of a century ago, continues to play a central role in distorting economic discussion and crippling our policy response to depression."
Daniel Kuehn: Wow, I am really trying to put off writing this afternoon... one last good link: "Part of the problem is, people talk about this thing they call 'hoarding' which cuts them off from thinking about this as a spectrum. Instead of talking about 'hoarding', as many underconsumptionists would, Keynes talked about demand for liquidity. You could still give money to financial intermediaries - you didn't have to put it in the cupboard - and keep funds relatively more liquid than they would be otherwise. On this spectrum of liquidity, the most liquid is stuffing your mattress. The least liquid is actually building a plant. But there is a spectrum in between. Liquidity preference influences the interest rate , which also impacts the demand for funds. This is the real problem. A decline in the supply of liquidity also reduces the demand for liquidity through its effect on the interest rate: and that means a fall in output."
Peter Dorman: EconoSpeak: The Difficulty of Thinking Macroeconomically, Exhibit C: Tyler Cowen and the Corporate Cash Hoard: "I’m sympathetic with Cowen’s struggle: I see the same difficulties in my economics classes every year. Students can usually see only one or two linkages at a time; it is really hard to see the whole thing as one simultaneous entity. It doesn’t come easy even for professional economists, since writing a set of equations is one thing, but visualizing them on an intuitive level as an integrated system is another. The fact is, there are a lot more Tyler Cowen’s in this world than Paul Krugman’s, which is one reason why it is so difficult to get a sensible discussion of macroeconomic policy."
Andrew Gelman: P-values and statistical practice: "The formal view of the P value as a probability conditional on the null is mathematically correct but typically irrelevant to research goals (hence, the popularity of alternative—if wrong—interpretations). A Bayesian interpretation based on a spike-and-slab model makes little sense in applied contexts in epidemiology, political science, and other fields in which true effects are typically nonzero and bounded (thus violating both the “spike” and the “slab” parts of the model)…. I do not trust such direct posterior probabilities. Unfortunately, I think we cannot avoid informative priors if we wish to make reasonable unconditional probability statements."
Noah Smith: Noahpinion: The Koizumi years: A macroeconomic puzzle: "Paul Krugman rightly points out that Japan's growth during the period of 2000-2007 - roughly, the Junichiro Koizumi era - was a lot stronger than most people realize, and was in fact even stronger than growth in the U.S…. Quite right. Japan had one lost decade, not two. Now, here's the puzzle. What caused the Japanese growth speedup of 2000-07? Remember, during that entire period, Japan was stuck in a liquidity trap."
Mark Thoma: Economist's View: 'The Austerity is Real': "Ryan Avent: 'The austerity is real, by Ryan Avent: Tyler Cowen is quick to link to pieces calling into question the extent to which austerity plans have been austere. Here is the latest example. He quotes a Washington Post story... But if this is so, then why is a bank like Goldman Sachs, which has little incentive as far as I can tell to stumble dumbly into rah-rah Keynesianism, warning of an ongoing, significant decline in federal government spending?'"
On February 10, 2013:
- REPUBLICAN GRIFTERS GOTTA GRIFT: RON PAUL VS. RONPAUL.COM EDITION http://delong.typepad.com/sdj/2013/02/republican-grifters-gotta-grift-ron-paul-vs-ronpaulcom-edition.html
- NO, CHINA IS NOT PAYING TRIBUTE TO THE U.S.: HENRY FARRELL VS. DAVID GRAEBER, PART CXXVII http://delong.typepad.com/sdj/2013/02/is-china-paying-tribute-to-the-us-henry-farrell-vs-david-graeber-part-cxxvii.html
- LIVEBLOGGING WORLD WAR II: FEBRUARY 10, 1943 http://delong.typepad.com/sdj/2013/02/liveblogging-world-war-ii-february-10-1943.html
- NOTED FOR FEBRUARY 10, 2013 http://delong.typepad.com/sdj/2013/02/noted-for-february-10-2013.html