Thanks to Marginal Revolution, a post from Cherokee Gothic is getting a lot of attention. I forwarded it yesterday to a bright student who’s conflicted about macroeconomics. Here’s Kevin’s entire post:
People! Check out this quote,
“Michael Gapen, chief U.S. economist at Barclays Plc in New York, said Fischer’s comments “reflect an ongoing divergence of opinion” at the central bank. Fischer “doesn’t see much room for running the economy hot” while Yellen’s views “seem to provide a wide-open door to do that. You have a chair and a vice chair who see policy differently right now,” he said.”
After the events of the great recession, it’s just amazing to me that people think the economy is a steak, the Fed is a precision sous-vide machine, and all we have to decide is medium-rare or well-done.
For the millionth or so time, the models implying the Fed can do this, completely and utterly failed during the great recession. There is also evidence that a large part of the good outcomes credited to the Fed during the great moderation were actually due to exogenous forces (i.e. good luck).
Neither the Fed nor the President “runs” the economy. There is no stable, exploitable Phillips Curve / sous vide machine that lets us cook at a certain temperature.
This Fed worship is more religious than scientific. The past 10 years should be enough to convince anyone with an open mind that the Fed’s power over the economy is quite limited and tenuous.
But I guess it’s comforting to think that the little old lady behind the curtain can fix things for us.
She can’t, Stan Fischer can’t, Bernanke couldn’t. Maybe the sous vide machine is unplugged?
In my principles class I have a bright guy (NC) in the front row. He doesn’t ask too many questions in class, but he asks some zingers after class … mostly because he’ catching on to the idea that what politicians say and do has little relation to what’s covered in the text. With permission, here’s his reply to my forward of Kevin’s post:
This was an interesting read, and definitely reflects where my frustrations with macroeconomics lie.
Out of all the classes I have taken in all the major fields of study here at SUU, no classes have been more eye-opening and more frustrating than macro and micro economics. I have no doubt that if anyone ever asked me what classes impacted my life the most it will be those two, primarily macro. The frustration stems from the fact that in my opinion economics is the only study where mankind is consistently hundreds of years behind its discoveries at all times. Medical discoveries, astronomical discoveries, chemical discoveries, engineering discoveries, all once more or less 'proved' are accepted with relative ease, and mankind benefits because of it. Sure, we burned a few people for saying the sun was at the center of the universe, but it didn't take that long for the heliocentric model to replace the geocentric model. Adam Smith shows in the late 1700's that trade benefits everyone, always, even if one gains more than the other, and its 2016 and half the nation is still calling for major restrictions on trade and fighting for jobs that do nothing but make the cost of living go up, like the steel industry in America. To me, that is unacceptable.
There are many economic issues that we are not 100% sure about, but there are plenty that for the most part economists are pretty damned sure about, such as the dangers of price ceilings/floors, restricted trade, planned economies, erosion of property rights, restriction of free trade, and discouragement of wealth. But despite this we are still having debates over whether or not to give a 206% [sic] minimum wage increase, whether or not to bring back jobs we suck at from other countries, whether we should force the redistribution of wealth, etc. To me this is equivalent to turning on your television and watching Trump try to convince the American people that the Sun orbits the Earth, and Hillary responds with 'No, the Earth goes around the Sun, which is the center of the universe.', better, but not by much.
Sometimes in your class I start to really consider a degree in economics. Then I remember that I'm still not comfortable with having an aneurysm at the age of 23.