Monday, December 23, 2013

Noah smackdown watch: Minneapolis shakeup edition

OH MY GAWD, two Noah smackdowns in one day! It must be Festivus.

Actually, this time I am just one of five targets of Steve Williamson's ire. The others are Nick Rowe, Miles Kimball, and Matt Yglesias. Basically, Steve is very unhappy with the coverage of the Minnesota Fed shakeup, including the Quartz article I wrote with Miles. He is most angry at Rowe, while characterizing Miles, Yglesias, and myself as "comic", and firing off his usual barbs at Krugman.

Williamson complains that Miles and I paint the divisions in macro with too broad of a brush (or, as he puts it, we hurl paint at the canvas and call it a day). This is probably true but unavoidable. We took great pains to make our article as nuanced as we possibly could. Personally I think we did a pretty good job of being nuanced. And you should see the amount of nuance that the editors cut out!

But I think the division we highlighted is very real. You don't see papers like this unless there is serious academic disagreement. For more on the Freshwater/Saltwater division, Williamson should check out "New Classicals and Keynesians, or the Good Guys and the Bad Guys," the NBER working paper by Robert Barro. The division is not as intense as in the 80s when Barro wrote that paper, but the notion that it has disappeared seems highly dubious. See also Williamson's own blog post, "New Keynesians and New Monetarists".

Williamson also complains repeatedly and vociferously about people saying that Ellen McGrattan was "fired". In actuality, her contract was not renewed. Williamson should direct his complaints to Ms. McGrattan herself, who said: "Our lingo is to say that you’re being fired, but you’re not really being fired, you’re just not being retained." We were simply using the same lingo.

Anyway, I don't really want to defend myself too strenuously,since I kind of felt bad in the first place about writing about people getting fired. I don't like to see anyone get fired. And also, Steve obviously feels very strongly about this issue - more strongly than anyone else who blogged about it, probably. I have no such strong feelings, so I'll just leave it at that.


  1. Congratulations, Noah, two smackdowns in one day! Heck, you are still at the stage where it does not matter what they say about you so much as they are saying it, and you want to make sure that they spell your name right. Way to go!

    Barkley Rosser

    PS: I have never been smacked down even once, much less twice in one day, :-(.

    1. Oh, I do not mean to imply that I have never been criticized in cyberspace. I have been torn to shreds by packs of wild economists and others on more than one occasion, but I have somehow never merited a full-bore smackdown, so, again, congratulations! :-)

      BTW, maybe some day we shall all learn what REALLY happened at the Minneapolis Fed...,

  2. "In actuality, her contract was not renewed."

    That is false. Ellen is a full-time Fed employee, on leave from the Miineapolis Fed, and working at the U. of Minnesota as of January 1. She was no fired, as she points out herself.

    Quite while you're ahead, Noah.

    1. Are you typing drunk???

    2. Ha ha. Let me explain further. Ellen is not a contract employee. Bob Lucas has a contract with the Minn. Fed. Randy Wright has a contract. Ellen is full time, so there was no contract to be renewed, or otherwise. What she's saying, of course, is that she felt as if she was fired. What you should be asking is, why is it she wasn't fired, and Pat Kehoe was?

    3. I assumed it was because Kehoe had a second job already, while McGrattan needed some time to get her new job worked out.

    4. Also I kind of doubt that her employment did not involve a contract.

    5. You're mighty persistent. No. No contract. This is just a normal employment relationship. You're notified of your salary every year, just like anyplace else. But, no contract. No non-renewal. Ellen, if she had chosen to, could be working at the Minneapolis Fed on January 1.

    6. "I assumed it was because Kehoe had a second job already, while McGrattan needed some time to get her new job worked out."

      As you say, those are just assumptions. You can assume all kinds of things. If you're going to write about it as if you understand what it means, it might help to find out what is actually going on.

    7. In terms of what you have written in this post, you just haven't got it. Here, you've mischaracterized my motives, as if I'm driven by anger and emotion. I've thought about these issues carefully, and gone to some effort to try to correctly characterize what is going on. You seem to be embedded in some fantasy wrestling match world of smackdowns, good guys, bad guys, winners, and losers.

      I'll give your original post with Miles credit for being well-written. But, forget the nuance. It's primarily a work of fiction. What's going on in Minneapolis is pure Shakespearean tragedy. There are no winners in that episode. This ain't Star Wars.

      So, get your mind off your own hurt feelings. You're a good writer. Just get to know your subject before you write about it.

    8. Anonymous12:57 PM

      Wow. An all-night bender. Both inebriation and negotiation. Dude, get over it already and get back to Krugman envy.

    9. My feelings have not been hurt in any way.

    10. Excellent. One more complaint though. I don't take accusations of drunkenness as a joke. That's pretty nasty. I am not a substance-abuser of anything but espresso.

    11. You must be from the older generation! I blog drunk all the time. In fact I think that's the secret of my excellent writing ability... ;-)

    12. I thought that was the old old generation. In the economics profession, there was a group of people who were thoroughly pickled most of the time. Harry Johnson was famous for this. This is from Wikipedia:

      "He was a strong drinker and his reputation at London School of Economics and Political Science was that he travelled weekly between London and Chicago, and he would enter each flight with a bottle of Southern Comfort and would leave it with a fully written paper!"

      Johnson, in spite of a humongous CV, seemingly has no lasting legacy (in trade maybe?). You probably have never read one of his papers. You'll note he was also Canadian. In Canada, beer comes next only to Saturday night hockey on the priority list.

    13. It is not as if fixed term employment contracts don't exist. On occasion these are used when slots do not exist to pick someone up until one appears. What might have happened here is that Dr. McGrattan was picked up on a temporary contract full time at the Fed with the expectation that she would be offered and accept a faculty slot at UMinn, at which time she would be offered a part time consulting gig as the others have. Well she is starting at UMinn but the Fed has not offered a consulting contract.

      That's speculation, but this is a blog.

    14. Sometimes, there is so much feces being thrown around it becomes really hard to tell which one is the intelligent monkey ...

      Btw, meant to be taken humorously, not personally.

  3. Given how some of the typing is going here, Noah, my wish that "they" spell your name right turns out to be non-trivial, :-).

  4. "Oh, but the nuances!"

    1. Throughout history, very intelligent people have believed all kinds of utter drivel.

    2. Nuances are often unimportant; in many cases, what is important can be stated in a sentence. Nuances are a good defence for the the intelligent and wrong.

    These thoughts, combined with a festive mood, set me thinking, so here are some one-sentence rebuffs, in roughly chronological order.

    Plato: You do not need a realm of forms to render the use of classes in language coherent.
    Aquinas: Your natural-law reasoning is not strictly deductive, which means you can reach any conclusion you like.
    Descartes: You presuppose some absolute notion of existence before you are in a position validly so to do.
    Schopenhauer: The notion that the world is fundamentally "will" has no implications; you might as well say it is fundamentally "stuff".
    Nietzsche: You ask some excellent questions, but your answers are either asserted or supported by bad history.
    Russell: There is no reason to expect a natural language to follow mathematical laws.
    Republicans: But there hasn't been high inflation.
    Gold bugs: You would expect the price of any commodity, in terms of other commodities, to be highly variable if the supply was fixed.
    George Osborne: But there is no reason to expect fiscal contraction to be expansionary.
    Fund managers: I can explain your "alpha" in terms of leverage, alternative betas and random variation; unless you can provide a better explanation, why would I pay you?
    Macroeconomists: Your approach takes no account of complex-systems theory or modern work on predictive modelling, and is not usefully predictive. Why would I take it seriously?

  5. Well, some dude once said: the only only thing worst than being talked about is not being talked about.

  6. For decades, central bankers have been raising nominal interest rates when they think inflation is rising above where they want it to be, and cutting nominal interest rates when they think inflation is falling below where they want it to be. And if you look at (say) the Bank of Canada, over the last 20 years of inflation targeting, which has hit its 2% target almost exactly on average, they seem to be right about that.

    If a central banker then makes a speech showing he is unaware of that practice and experience of central banking, and says you need to raise nominal interest rates to increase inflation, I say that is stupid. And if any advisor failed to point out the problem with that speech, given the opportunity to do so, that advisor should

    Before that episode, I thought that the freshwater/saltwater distinction wasn't really a useful one any more, because it was only a difference in degree, and not a big difference at that.

    After that episode, I realised there was a big difference in kind. It's not about microfoundations (which is mostly a difference in degree). It's something else. Those economists who can't see any problems with the idea that if the central bank wants to increase inflation it simply has to set a higher nominal interest rate are on a different planet, where Wicksell never existed.

    The freshwater/saltwater distinction (if that is what it is) is bigger than I thought it was.

  7. >> Actually, this time I am just one of five targets of Steve Williamson's ire. The others are (1) Nick Rowe, (2) Miles Kimball, and (3) Matt Yglesias. (And Noah makes 4.)

    Maybe people are distrustful of economists because their business is numbers but they can't count. :)

    1. Krugman is always a target.

    2. Right by definition Krugman is #1. However, we have a new term now-Krugman envy. I like it. In fact I see that both Krugman and SW wrote about the dialect test. Hmmmm. Who posted first?

  8. I think that the Mystery of the Minnesota Fed has become worthy of resolution by the likes of Sherlock Holmes or Miss Marple, or Hercule Poirot or maybe the Thin Man, with that resolution needing a nice long dinner at a secluded English country estate or Park Avenue penthouse, where crucial questions would come over Squib Napoleon (with culinary commentary by Tyler Cowen) and some fine Cote d'Or burgundy, with the denouement over some Souffle Grand Marnier with appropriate vintage port. Questions might well take the form of "So, Dr. McGrattan, were you wearing the purple shawl previously owned by your Great Aunt Matilda while you were signing your 'nonexistent' contract with the Minneapolis Fed?"

    1. Gosh, I realize that the real mystery of the "Minnesota Fed" is why would anybody even write about such a nonexistent entity, for which contracts with would certainly be nonexistent, rather than, say, the Minneapolis Fed? I think that I was out carousing with the ghost of Harry Johnson excessively, that would explain it, :-).

  9. I don't get how Steve Williamson can write, "Ellen is full time, so there was no contract to be renewed, or otherwise." Maybe what he meant was that she was not on an annual contract? Of course there was a contract. I can't imagine any corporate entity employing people not to have formal written contracts with them. If there is no contract there is no security for either side. There is no requirement that they pay her the amount she is notified of periodically; they can just say, well, that's an email, it's not binding in court. They can just tell her not to bother coming to work tomorrow. Without a contract they don't have any obligation to have a reason for terminating her. I'll bet Steve Williamson has an employment contract with Washington University. I'll bet Ben Bernanke has a contract with the Fed. I wonder if President Obama has a contract with the Civil Service Commission. I had a contract with the Defense Department when I was on active duty. If you're employed you have a contract, unless you were picked up for casual labor on Los Angeles Avenue this morning.

    1. Check out 'At-will employment.' It's a thing. Also, contracts don't need to be written with quills on parchment anymore. Many verbal agreements are given the same weight as written contracts by the courts.

      Just to ensure I avoid the ire of the Man From WUSTL, I will add that what I say above is general, and in no way is intended to describe the internal Shakespearean drama at the Minneapolis Fed (or any other Fed regional bank), a situation of which I have no personal knowledge.

    2. Anonymous11:59 AM

      " I can't imagine any corporate entity employing people not to have formal written contracts with them. ...They can just tell her not to bother coming to work tomorrow. Without a contract they don't have any obligation to have a reason for terminating her. "

      In my working life of over thirty years I never had a contract. And yes, that meant that at any time they could just tell me not to come to work tomorrow. And once they did. The great majority of that time was spent working for corporations.

      In this I am like the great majority of people. I'm sure Steve Williamson does have a contract. In fact, since he has tenure he has a contract to have a contract.
      Although if they really wanted to get rid of him he might come to work one morning and find he had no office. I've heard of at least one case like that. But I don't expect it to happen to Professor Williamson.

  10. Anonymous4:43 PM

    I just wasted 10 minutes reading these comments.

  11. Haha I wish Steve Williamson had read some of my pro-Kocherlakota propaganda:

  12. At some point, in the future, there will be fascinating looks back by neurohistorians at this quarter's episodes in economics. Until then, where are the psychohistorians hiding?
    As my frozen brain recalls, after WWII, the psychohistorians came out first, with reasonable assessments of major figures. This work foundered on the need to apply intimate assessments to larger groups. By the 1960s, the tendency shifted to cohort analysis, with historical political or economic experiences replacing inner configurations as drivers of behavior. Cohort assessment has remained a substantial sub-literature, but hasn't become mainstream.
    Best example, the mightily enhanced population of baby-boomers' children hitting the skateboards around the turn of the century, ignored in "discussions" of the housing boom. It's all "irrational exuberance" or financial "engineering" of one sort or another. That’s not to say these issues are invalid. But, we have been discussing homeowners' psychology, how financially stupid they were, or what liars, instead of the real housing needs of the population.

    The upcoming debates over social protections, boil down to how an economy can be designed to "sustain" its fluctuating distribution of inhabitants. Models without that aren’t.
    The contentiousness of current discussion may result from an unnaturally extended mixture of academic cohorts. We are not accustomed to thinking about the mental constitutions of the many themes involved, though at some point it might be desirable, to determine whether the recent elongation of maturity among the affluent has been accompanied by increasing stupidity, as some geneticists have sort of argued.
    Enough with the “smackdowns” already, professorial criticisms designed to castigate students rather than solve problems. The blogosphere is rather like the stock market in the 1980s, all short-termism and noise, inhibiting signals. This is bound to continue, more blood and guts than glory, unless the audience becomes a chorus.
    This comment is driven by other mental images, of hockey players clashing sticks, pratfalls on ice, and the Borgias’ face-off between French and Papal armies, with the condottieri not knowing each other, or what side to get on. Let’s settle this fresh versus salt water battle, not with magical incantations, but on earth, with data, instead.

  13. Jonah3:19 PM

    I'm no fan of Wiliamson's economics work, but he's right on every point he makes here, and in no way deserves whatever ridicule he's getting. Noah wants to write topically like a journalist without meeting journalistic standards. When this is pointed out, he snarks. He's cheerful about it, and has academic credentials. But it's vacuous punditry all the same, and shabby.

  14. Noah, do you have a response on substance? I am still confused about the equivalence relation being used to partition the set of economists to saltwater and freshwater. If you insist that it is adherence to rational expectations then how do you respond to Steve's remark that Kehoe has a paper on herd behavior? Or what about the fact that rational expectations is a standard assumption in New-Keynesian models? If it is the assumption of sticky prices, how do you explain that Kehoe has papers that make this assumption?

    In my opinion, there is division, between those who think that current macroeconomic models are adequate for policy analysis (Krugman seems to believe this is the 1960s IS-LM, others look at New-Keynesian models) and those who feel that these models are too flawed to be used for that purpose. But such a division is very different from your old freshwater-saltwater. Steve seems to be on the skeptical side, and yet in his models money is not neutral in a liquidity trap, nor is the equilibrium Pareto optimal. Heck, given your strong and frequent criticism of macroeconomics, I would expect you to also be on the skeptical side. Are you not? And if you are, does this mean you are freshwater after all?

    P.S. Happy Festivus and Happy New Year!

    1. Hey, Costas!

      "Freshwater" and "Saltwater" don't apply to economists as a whole (this is a point I've made often in the past; "schools of thought" describe ideas, not people). It does not partition the set of economists.

      Nor does this dichotomy apply to most of the issues in macro; for example, modeling asymmetric info is neither "Fresh" nor "Salt". The relation does not partition the set of models.

      That doesn't mean the divide doesn't exist, though. First, it is a human network divide, as evidenced by that paper I cited a couple posts back (too lazy to link). Second, there are key idea differences; as I see it, the main one is the idea of whether mechanisms like Calvo pricing are acceptable for structural models. Third, there seem to be major policy-recommendation differences between the human networks; in particular, "Freshwater" supporters seem to recommend a more inflation-hawkish approach, while "Saltwater" supporters seem to be less afraid of inflation.

      In my opinion, there is division, between those who think that current macroeconomic models are adequate for policy analysis (Krugman seems to believe this is the 1960s IS-LM, others look at New-Keynesian models) and those who feel that these models are too flawed to be used for that purpose. But such a division is very different from your old freshwater-saltwater.

      I agree, this is a real difference of opinion as well. Put me strongly on the "skeptical" side.

      Merry Christmas, btw! Let's grab dinner sometime in January, if you're around.

    2. Yes, let's. By the way, I will be in Philadelphia for the meetings on Friday (afternoon) and Saturday so if you are planning on going we can have a drink/lunch/dinner there. If not, let;s meet locally. Send me an email with details.

      As far as everything else, 1) Can the networks not be explained by proximity? By the way, Barro, who is at Harvard, has a B.S. in physics from Caltech and a Ph.D. in econ from Harvard. It seems to me he is as saltwater as anyone. 2) Is hawkishness about inflation enough to sustain a critical division? But then, Steve has repeatedly argued that, contrary to the Friedman rule, some inflation may be good as it taxes criminal enterprises who hold large amounts of currency. How do we square with this? My point is that, if there is a division, it is too subtle to make a big fuss about it, and by making reference to it we are doing harm for many reasons.

      For example, there is no doubt that Calvo pricing is a shortcut. How else would you call a pricing mechanism in which the cost of adjustment is either zero or infinity? I believe that even New Keynesians would ideally like something more structural, and should be digging deeper. Does pointing this out make you "freshwater"? I think it makes you a good economist, and one should not be afraid to be a good economist in case they are labeled "freshwater". Similarly, I have concerns about Steve's suggestion that raising the interest rate on reserves is desirable in a liquidity trap. I have a suspicion where in his model this result is coming from, and I do not think it is general enough, but since I am still studying the model I won't say more at this point. Does that make me saltwater? Again, I like to think that I am just trying to be a good economist.

      Going back to the example of inflation, the issue is that we don't yet have a model that can tell us what the optimal rate of inflation is. We know there are benefits of higher inflation and also costs that rise exponentially, so I don't think anyone could take a scientific stance on whether 2% is preferable to 4%. Which is why I believe Steve would challenge anyone who says otherwise. Does this make him a hawk? I don't think so. On the contrary, it is why even though I have never met the guy in person, I have great respect for him. He reminds me of what being a scientist is about. Too often economists pretend to have answers either because these answers are ideologically convenient, or because they are paid or pressed to justify specific policies. To close your ears to such sirens shows integrity, and I wish more economists had that.

      Anyway, maybe we can talk more about this in person. :)