Comments on: Alex Tabarrok on Labor Market Flexibility

By: Spencer

Spencer — Thu, 11 Sep 2014 18:47:11 +0000

During the time he is looking for falling wages, particularly in low wage industries like leisure and hospitality industry, the minimum wage rose 40%.

I can not help but think that this omitted variable had a big impact on the data he was looking at.

By: Rick Hull

Rick Hull — Wed, 10 Sep 2014 20:17:42 +0000

> In macroeconomics, the economy is one enormous GDP factory with one price and one wage. But macroeconomics is, in my view, misguided and misleading.

The more specific and biting criticism, in my view, relates to the shape of distributions. It’s possible to ignore the shape of a distribution and rely on a single number like the mean (though I should steelman the median), but a few obvious problems come to mind:

1. The shape of the distribution could change completely while affecting the mean not at all
2. The mean is only descriptive for symmetric (normal?) distributions

Much of macroeconomics seems deliberately blind to these problems. The Austrian focus on the structure and heterogenous nature of capital seems directly related here. Of course the math is easier with scalar values rather than distributions, and even if we can summarize distributions with a tuple of scalar values (e.g. mean and standard deviation for normal distributions), I can imagine this makes most of the existing economic math intractible or unintelligible — for example, the math would need to presuppose the nature of the distribution in order to for the summary tuple to apply correctly.

This seems again related to other deliberate macro myopia, such as making unrealistic assumptions so that models do not fall apart. The drunk is looking for his keys under the lamppost. Garbage in, garbage out.

That said, I totally buy that we can make “unrealistic” assumptions and simplifications in order to yield macro-level insight. That our brains can only handle the information in oversimplified form. But yielding insight is totally insufficient for making direct policy prescriptions or deriving causation in the real world. Macro is a tool that is not useless, but it is being applied incorrectly with entirely too much (faux) certainty. But I suppose that’s what the conscience of a liberal dictates.

By: Andrew'

Andrew' — Wed, 10 Sep 2014 17:37:25 +0000

Hey, hey, hey! We’re taking the most charitable view of those who disagree here!

It’s an interesting idea though. What we know for sure is curtailing CO2 affects the economy. We don’t know what it does to the climate. It certainly doesn’t provide “control” of the climate.

By: Yancey Ward

Yancey Ward — Wed, 10 Sep 2014 15:53:02 +0000

But it is that way on purpose! It provides convenient excuses for the exercise of power and control. In many ways, it is mirrored by the idea the controlling CO2 emissions can effectively control the climate.

By: Andrew'

Andrew' — Wed, 10 Sep 2014 14:52:57 +0000

So, do you think that there are times when things approach a limit where “the economy is one enormous GDP factory with one price and one wage” or is it never the case (“binding constraint”?)?

PSST to me doesn’t preclude that, for example, a monopoly on the unit of account, i.e. money, (for example, the easiest part at least for me to understand a macro idea) can cause feedback to the calculations that nudge PSST. Even if monetary policy is ostensibly neutral in the common usage of the word, it could be non-neutral in a PSST world. Would a first-draft “macro” research program of PSST could simply add balance sheets and income statements to standard macro models?