David Segal asks
Why do economists argue at all? Given that Fed members and economists are looking at the same data, and given the reams of evidence accumulated over decades — not to mention a few centuries of great minds, great theories and thick books that preceded this crisis — why isn’t a right answer self-evident?
George Bernard Shaw once said, “If all economists were laid end to end they would not reach a conclusion.” How come? What prevents economics from yielding answers the way that physics, chemistry and biology do?
Isn’t Segal puzzled as to how physicists could manage to disagree about something so fundamental as whether we live in a single universe in which observation induces the collapse of the quantum wave function or whether we live in a possibly infinitely pronged mutli-verse? I mean either there are trillions of copies of Segal floating around “somewhere” or there is only one. Why can’t physicists agree on something so basic?
Or a bit more on the mundane side, why is there still so much controversy among chemists on exactly how water is put together.
And, why can’t biologist agree on where the green stuff in plants came from.
Perhaps, Segal isn’t puzzled at these controversies because they have no political significance. However, let hundreds of billions of dollars be connected to whether water is tetrahedral or ringed and watch the knives come out. By the way, you hate America if you say “ringed.”
The very subject matter of Monetary Economics is how the government should throw around billions of dollars. It is amazing that we have the consensus we do. Stiglitz, Krugman, Sumner, Bernanke, and Plosser may all disagree about the right course of action but if you asked them whether the reversal of disinflation was central to whether the economy will remain mired in a rut or turn around, I am betting they will all say yes.
Also, I have to react to this
“Pride is not in the model. Revenge is not in the model. Fear is not in the model. Even simple things like the disenchantment of people who are fired from their jobs — the model doesn’t account for how devastating that experience can be,” and what that sense of devastation will mean for the economy, he said
But, it’s not not in the model. That is, there is no variable for devastation. However, we do measure hysteresis. This is the study of how past unemployment affects future unemployment. If you asked me casually what the causal mechanism was I would include things like emotional devastations, disaffection, etc.
However, practically what we have are data on past unemployment rates in various places and among various groups and the current unemployment rate. So, that’s what is modeled.