The Agrarian Revolt

Roger Farmer used to have a blogging style that was a bit...abstruse.

Well, no more.

Here is Farmer on the "All models are wrong" dodge:

I have lost count of the number of times I have heard students and faculty repeat the idea in seminars, that “all models are wrong”. This aphorism, attributed to George Box,  is the battle cry  of the Minnesota calibrator... 

Of course all models are wrong. That is trivially true: it is the definition of a model. But the cry  has been used for three decades to poke fun at attempts to use serious econometric methods to analyze time series data.

For good measure, he includes the following picture, which I am just going to steal because it's so awesome:

And here is Farmer on the Real Business Cyclists:

Time series methods were inconvenient to the nascent Real Business Cycle Program that Ed pioneered because the models that he favored were, and still are, overwhelmingly rejected by the facts. That is inconvenient. 

Ed’s response was pure genius. If the model and the data are in conflict, the data must be wrong...His response was not only to reformulate the theory, but also to reformulate the way in which that theory was to be judged. In a puff of calibrator’s smoke, the history of time series econometrics was relegated to the dustbin of history...

And here is Farmer on the H-P Filter:

How did Ed achieve this remarkable feat of prestidigitation? First, he argued that we should focus on a small subset of the properties of the data... 

Ed argued that the trends  in time series are a nuisance if we are interested in understanding business cycles... 

After removing trends, Ed was left with the wiggles. He proposed that we should evaluate our economic theories of business cycles by how well they explain co-movements among the wiggles. When his theory failed to clear the 8ft hurdle of the Olympic high jump, he lowered the bar to 5ft and persuaded us all that leaping over this high school bar was a success.

And here is Farmer on the whole dang post-RBC trend-and-cycle macro paradigm:

By accepting the neo-classical synthesis, Keynesian economists had agreed to play by real business cycle rules. They both accepted that the economy is a self-stabilizing system that, left to itself, would gravitate back to the unique natural rate of unemployment. And for this reason, the Keynesians agreed to play by Ed’s rules. They filtered the data and set the bar at the high school level. 

We don't have to play by Ed's rules. We can use the methods developed by Rob Engle and Clive Granger as I have done here. Once we allow aggregate demand to influence permanently the unemployment rate, the data do not look kindly on either real business cycle models or on the new-Keynesian approach. It's time to get serious about macroeconomic science and put back the Olympic bar.

Dang, Farmer is breathing fire!! This brings me back to the good ol' days of 2011, when the Macro Wars raged in blog-land...



Anyway, Farmer seems totally right about the arbitrariness of the H-P filter and the very very very low height of the empirical hurdle represented by calibration + moment-matching.

It's also very interesting to see someone finally standing up for the idea of non-self-correcting recessions. The whole idea that "trend" and "cycle" are totally independent phenomena always seemed kind of bogus to me, especially in light of evidence like the Mankiw & Campbell "unit root in GDP" paper.

But here's the really cool thing about Farmer's attack on standard macro: it's coming from a real live macroeconomist. Most macro-bloggers I know of are either outsiders (Krugman, DeLong, etc.) or insiders who defend the dominant paradigm (Williamson, House, Wren-Lewis sort of), or nice folks who don't generally get in blogfights (Kimball). It's highly unusual to see a high-level, respected business cycle theorist come out swinging against the conventional macro wisdom.

Anyway, I'll be excited to see who responds!

Ross Douthat ponders the Liberal Marriage Hypothesis

Over the last few years, an unsettling thought has been worming its way into the consciousness of cultural conservatives: What if liberal values are the key to saving marriage?

In the 1980s, this would have been a preposterous question. Everyone knew that liberalism stood for sexual license, single motherhood, and disregard for traditional institutions. To ask if liberalism was the salvation of marriage was like asking if smoking cured cancer. But slowly, people started to realize that working-class people, who are most likely to profess traditional values, are increasingly the least likely to actually live them. Meanwhile, the educated upper middle class, after experimenting with divorce and single parenthood in the 70s and 80s, went back to traditional marriage, while continuing to espouse a belief in gender equality and other liberal ideals.

A scary idea began to dawn on conservatives: What if they had marriage entirely backward?

In a column entitled "The Imitation of Marriage," Ross Douthat nicely sums up this uncomfortable hypothesis:

Many optimistic liberals believe...that what needs to be imitated most are the most socially progressive elements of the new upper class’s way of life: delayed marriage preceded by romantic experimentation, more-interchangeable roles for men and women in breadwinning and child rearing, a more emotionally open and egalitarian approach to marriage and parenting. 

The core idea here is that working-class men, in particular, need to let go of a particular image of masculinity — the silent, disciplined provider, the churchgoing paterfamilias — that no longer suits the times. Instead, they need to become more comfortable as part-time homemakers, as emotionally available soul mates, and they need to raise their children to be more adaptive and expressive, to prepare them for a knowledge-based, constantly-in-flux economy. 

Like most powerful ideas, this argument is founded on real truths. For Americans of every social class, the future of marriage will be more egalitarian, with more shared burdens and blurrier divisions of labor, or it will not be at all. And the broad patterns of upper-class family life do prepare children for knowledge-based work in ways that working-class family life does not. (emphasis mine)

Douthat clearly understands the Liberal Marriage Hypothesis, and he appears to be warming to the idea. As a proponent of the hypothesis, I see this as a very good sign!

But the ship of ideology does not turn on a dime. Like a socialist reluctant to realize that revolution is bad for the workers, Douthat continues to struggle against full acceptance of the LMH:

But the idea that progressive attitudes can save working-class marriages also has some real problems...it underestimates the effective social conservatism of the upper-class model of family life...Notwithstanding their more egalitarian attitudes, for instance, college-educated households still tend to have male primary breadwinners: As the University of Virginia’s Brad Wilcox points out, college-educated husbands and fathers earn about 70 percent of their family’s income on average, about the same percentage as working-class married couples.

The difference, of course, is that under conservative gender roles, the 30% that women earn is an unpleasant necessity. Traditional masculinity tells husbands to be ashamed of that 30% - "What, you can only put 70% of the bread on the table?" I suspect that shame can break apart a marriage, driving a man to leave his wife in order to find his missing masculinity in other activities.

Douthat continues:

Meanwhile, as cohabitation and churchgoing trends suggest, many working-class Americans — men very much included — have gone further in embracing progressive models of identity and behavior than many realize, and reaped relatively little reward for that embrace... 

[T]he Johns Hopkins sociologist Andrew Cherlin cites research suggesting that many working-class men, far from being trapped in an antique paradigm of “restricted emotional language,” have actually thrown themselves into therapeutic, “spiritual but not religious” questing, substituting Oprah-esque self-help for more traditional forms of self-conceiving and belonging.

As evidence goes, this is fairly weak. The quantitative evidence presented by Charles Murray in Coming Apart - that working-class people are more likely to espouse traditional values and less likely to live them - is not in imminent danger of being turned on its head by these anecdotes.

Finally, Douthat suggests his alternative to the Liberal Marriage Hypothesis:

We may have a culture in which the working class is encouraged to imitate what are sold as key upper-class values — sexual permissiveness and self-fashioning, spirituality and emotivism — when really the upper class is also held together by a kind of secret traditionalism, without whose binding power family life ends up coming apart even faster.

This would be very convenient for a traditionalist who didn't want to have to change his view of reality very much! But how is this supposed to work? Who is "selling" these values to the working class? And why are the working class falling for the trick, instead of seeing the "secret traditionalism" of the upper class, or figuring it out for themselves (as the upper class presumably did)?

It sort of sounds like a version of what many traditionalist conservatives say when I bring up the LMH. In one form or another, they tell me that liberalism only works for smart people. Not-so-smart people, they tell me, need simple rules and guidelines, and guiding institutions like churches, in order to live safe, clean, successful, moral, industrious lives. You can't just give them total social freedom and license and let them figure it all out for themselves, the traditionalists tell me.

Well, maybe that's true. Or maybe - and here I am being an incorrigible optimist - it just takes the working class a little more time. Maybe the upper class are the first to encounter new social forces, the first to hop on new social trends, and therefore the first to figure out how to adapt those trends to their needs. Maybe the working class is doing now what the educated class did in the 1970s and 1980s - responding to the advent of the service economy by adopting more equal gender roles. Maybe more-equal gender roles always have the initial effect of disrupting marriage. But maybe working-class people will eventually do the same thing educated people did - realize that, gender roles or no, marriage is a better bet than the alternative.

In other words, maybe what conservatives should be doing is not fighting the transition tooth and nail, but helping speed it through its inevitable Act 2, to its ultimate denouement - the reestablishment of marriage in a new, stronger form.

Fortunately, it looks like we've at least begun the process of convincing Ross Douthat.

Krugman-Cochrane feud is getting out of hand

On one hand, a spectacular feud between two really smart academics is pretty entertaining. In biology there was Richard Dawkins vs. Stephen J. Gould. In nanotech there was Richard Smalley vs. Eric Drexler. In econ there have been a few - Keynes vs. Hayek, the Cambridge capital controversy, Summers vs. Prescott - but in terms of (academic cred) * (importance of issue) * (acrimony), I'm not sure any of them tops Paul Krugman vs. John Cochrane.

Both of these guys are top-flight economists, though interestingly neither one did his main work in business-cycle theory - Krugman is a trade guy, Cochrane a finance guy, each undeniably at the top of his field. Each one has written a paper about the macro of "liquidity traps" in the years since the crisis - Krugman's is here, Cochrane's is here. Their debate has been running for five years now. It began with this Krugman op-ed and this Cochrane response, The argument is over two main issues: A) whether academic macro has run off the rails over the last 30-35 years, and B) whether fiscal stimulus a good idea.

Here are some of Krugman's salvos, here are some of Cochrane's salvos. There are a lot of salvos.

One interesting feature of the dispute is that it has been carried out entirely over blogs. Debate between economists seems to be disappearing from the journals, so maybe blogs are stepping in to fill the void.

The latest salvo shows that the dispute has not really died down, either in the level of disagreement or the acrimonious tone. Here is Krugman, and here is Cochrane. These posts get quite aggro (a slang term my generation invented meaning "aggravated and aggressive"), so I won't quote excerpts.

Anyway, like I said, there is a certain fun in watching Godzilla and King Kong go at it...from a distance. But I think this particular feud is getting out of hand. The acrimony doesn't actually help get to the bottom of the issues at hand - it just provides spectacle.

The fact is, blogs are not that great a medium for resolving issues like this. There's a lot of pressure for rapid response, which means not many equations or data analysis gets put into the posts - that biases blog fights toward ambiguous rhetoric and fights over who-said-what. Additionally, everyone sounds meaner and more aggressive over the internet than they really are.

Having met both Krugman and Cochrane, I don't doubt that if they got in the same room with each other - with a whiteboard and internet access and some other profs in the room to provide comments - and talked about and debated this issue for a day or so, they could resolve a lot of their differences. They have different thinking styles - Krugman is more of the classic economist, thinking in terms of toy models and stylized facts, while Cochrane is more data-oriented and probably prefers a more fully-specified model. But both are reasonable people, and very smart people (duh), and although they wouldn't walk out of the room agreeing on everything, I bet a substantial chunk of the distance between the two would be removed, and - more importantly - a lot of the acrimony would be reduced.

Hopefully this can be arranged at some point. Titanic feuds are fun, but eventually the fun wears off and all that is left is the bitterness.