13 Jul 2010

Economists Are Funny

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Bryan Caplan:

Out of all of Arnold’s macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables. …

Frankly, I don’t see why anyone would even start to hold Arnold’s view. The quantity theory of money is extremely intuitively plausible, as Hume’s famous thought experiment shows. And all of the clear-cut historical examples of large increases or decreases in the money supply support the view that large changes in the money supply change nominal GDP roughly proportionally. I agree that matters are messier when you look at small changes in the money supply and short-term fluct[u]ations. But if a theory’s intuitive and passes the clean tests, why wouldn’t you just embrace it?

Exactly! Kling offers a response, which is basically “Yes the Fed can obviously cause hyperinflation if it really wanted to, but in the moderate zone it can’t exactly control outcomes.”

Well OK, but that’s not establishing the much broader claim where Kling tries to shock everyone by claiming it is a myth that the Fed affects nominal variables. So I totally side with Bryan.

I mean, Kling’s position would be analogous to someone saying, oh I don’t know, that parents have no effect on their kids. And then you could say, “That is the most absurd statement I have ever heard. You’re saying if parents lock their kids in a closet for 8 years, that won’t affect their standardized test scores?”

And then the guy would come back and say, “Oh, of course parents can affect their kids in extreme cases. I’m just saying, reading to your kid in the womb doesn’t do anything.”

2 Responses to “Economists Are Funny”

  1. Sean A says:

    haha, got ’em both. You got me as well, thinking you were pandering to Bryan in this post. I was convinced of that after:
    “So I totally side with Bryan.” Then the next line, bam That sound literally appeared in my head. I’ve found that argument absurd for some time–particularly when I read his Wall St Journal article–which is why this post is so entertaining. Good form, sir.

  2. Silas Barta says:

    Speaking of the parental influence issue (and recalling our earlier discussion of it), I think the most defensible position is that the *marginal* unit of parental investment doesn’t matter.