Whither political leanings?

[garbon]

I think the concept of the nation state is where I diverge most sharply from the alt right. What an outdated, silly idea. Why on Earth should I feel more familiarity with some semi-literate farmer from Wroclaw, only because we share a language and ethnic ancestry, than a likeminded fellow in New York or Bangladesh?

Because the nation state offers stability.  The "like-minded" fellow in New York can change his mind overnight and refuse to group with you.  The farmer can't change his ethnicity for the rest of his life.

Ok, and?

Yeah, I'm not sure being stuck with the farmer is a reason to feel bonded to him. Well, except if he is family.

[The Minsky Moment]

The nation state is the best level for decision making we've got yet.

?
Nation-states are the product of various historical processes, much of which was happenstance, the results of which have no connection to some optimal size or composition for decision-making.  Many nation-states are suboptimally tiny, others are geographically awkward (Lesotho), others are too big for centralized decision making and thus devolve very extensively to subunits (which themselves are unfortunately are often suboptimally drawn as in the US).

Look what a mess the historically derived nations have made of the British Isles - an overcentralized state struggling to keep various historical nations in line (Scotland, N Ireland, Wales), none of which is likely highly viable on its own (too small or not economically diverse), with a fourth historical nation (England) comprised in a way is to be totally inappropriate for regional delegation (too big).  Because of the imbalances of the sub-nations, and the lack of any organic, historically developed political regions, there is no clear path for delegating certain powers to more tractable regional size governments.  In the absence of that history, it would not be that difficult to divide the Isles up into a logical sub-national regional structure.

[mongers]

The nation state is the best level for decision making we've got yet.

?
Nation-states are the product of various historical processes, much of which was happenstance, the results of which have no connection to some optimal size or composition for decision-making.  Many nation-states are suboptimally tiny, others are geographically awkward (Lesotho), others are too big for centralized decision making and thus devolve very extensively to subunits (which themselves are unfortunately are often suboptimally drawn as in the US).

Look what a mess the historically derived nations have made of the British Isles - an overcentralized state struggling to keep various historical nations in line (Scotland, N Ireland, Wales), none of which is likely highly viable on its own (too small or not economically diverse), with a fourth historical nation (England) comprised in a way is to be totally inappropriate for regional delegation (too big).  Because of the imbalances of the sub-nations, and the lack of any organic, historically developed political regions, there is no clear path for delegating certain powers to more tractable regional size governments.  In the absence of that history, it would not be that difficult to divide the Isles up into a logical sub-national regional structure.

Wessex FTW. 

[crazy canuck]

So yeah... it's a bit of a mess. Gives me a bit of a before the storm vibe, to be honest.

Yeah. As I say it reminds me of what I've read of the 70s. I think it's potentially a similar breakdown of consensus, 'the old is dead the new cannot yet be born' sort of moment.

What's really difficult is to guess is what comes next?

What is it about the 70s that has any similarity to now? What consensus was breaking down?

[Sheilbh]

In the seventies it was the  social democratic post-war consensus. Now I think it's the liberal consensus that replaced that. There were political fringes on the rise in many countries. We had the National Front and the hard-left organising and on the march. In the US you had student radicals, the Panthers and equally radical right-wing groups.

Then you had economic problems, but more importantly ones that were beyond our governments' ability to fix. So generally there was stagflation, in the UK there was a lot of industrial disputes because of it, in Europe the trentes glorieuses were coming to an end.

Right now I think we have historically low interest rates, inflation and growth (in Europe they have that plus high unemployment) and despite the extraordinary monetary policy we have it seems like the transmissions from that to the wider economy has broken down. Meanwhile a lot of new employment is incredibly precarious: people on zero-hour contracts, or being made to incorporate themselves so they're self-employed contractors rather than employees. You also have the longer term trends flatlining or declining real wages for many people in the developed West for the past 10 years or so. I think we're still recovering from that crisis (and God help us if there's another recession anytime soon) but bits of the recovery are not working in the way they should. As with the seventies, it seems beyond our leaders to return to 'normal' growth - in the 70s it was the 50s and 60s, for us it's the 90s and 00s.

Also this has been the worst year in Europe for terrorism since the 70s (though we're still below that peak) and I think there's something even in that especially the generational element.

[garbon]

(which themselves are unfortunately are often suboptimally drawn as in the US).

I'm not sure that's fair though. Do we ever create units optimally? S wasn't claiming that things are optimal but that they are best option we've come up with so far. I'm not sure I'm inclined to agree, as per your UK example, but I don't think the setup of US states belie his statement.

[Sheilbh]

(which themselves are unfortunately are often suboptimally drawn as in the US).

I'm not sure that's fair though. Do we ever create units optimally? S wasn't claiming that things are optimal but that they are best option we've come up with so far. I'm not sure I'm inclined to agree, as per your UK example, but I don't think the setup of US states belie his statement.

Yep. Sorry I meant to reply but basically this. They're not optimal but they're the best we've got. Maybe we'll get to something bigger one day, but those historical messes matter however much common sympathy may exist between the fairly successful all around the world.

[crazy canuck]

In the seventies it was the  social democratic post-war consensus. Now I think it's the liberal consensus that replaced that. There were political fringes on the rise in many countries. We had the National Front and the hard-left organising and on the march. In the US you had student radicals, the Panthers and equally radical right-wing groups.

Then you had economic problems, but more importantly ones that were beyond our governments' ability to fix. So generally there was stagflation, in the UK there was a lot of industrial disputes because of it, in Europe the trentes glorieuses were coming to an end.

Right now I think we have historically low interest rates, inflation and growth (in Europe they have that plus high unemployment) and despite the extraordinary monetary policy we have it seems like the transmissions from that to the wider economy has broken down. Meanwhile a lot of new employment is incredibly precarious: people on zero-hour contracts, or being made to incorporate themselves so they're self-employed contractors rather than employees. You also have the longer term trends flatlining or declining real wages for many people in the developed West for the past 10 years or so. I think we're still recovering from that crisis (and God help us if there's another recession anytime soon) but bits of the recovery are not working in the way they should. As with the seventies, it seems beyond our leaders to return to 'normal' growth - in the 70s it was the 50s and 60s, for us it's the 90s and 00s.

Also this has been the worst year in Europe for terrorism since the 70s (though we're still below that peak) and I think there's something even in that especially the generational element.

I don't think there was ever a social democratic consensus in the US.  I think there has been a fairly strong one in Canada (evidence our continuing strong commitment to single payer universal health care no matter what government is in power).  I defer to your judgment about the UK. 

Also the existence of fringe groups does not indicate the break down of a consensus.  There are always fringe groups.  The world was a much more straight forward place in the 70s.  Communists were the bad guys.  The bipolar world kept many of the regional conflicts in check.  OPEC was perceived the cause of much of the economic disruption.  But more importantly, to your point, political parties thought they did have the solution.  That is what brought us Thatcher and Reagan.  The main fear in the 70s, or at least the one that dominated my world as a young person, was the threat of nuclear war.

This age is entirely different.  It is much more chaotic, the income disparity is much greater and social mobility has decreased.  I agree with Jacob that the post WW II ties (which were very strong in the 70s) are now breaking down because people have forgotten the lessons of avoiding such a conflict.   At the risk of pulling a Marty, I think Picketty was correct when he thought our age was more akin to the late 1800s.  I have also heard historians like MacMillan make the same comparison.

[Malthus]

As an aside, it is continually astonishing to me how thoroughly the fear of nuclear war has been forgotten in the public discourse. When I was a kid, it was confidently predicted to be an almost inevitable possibility. I still remember seeing the "nuclear clock" moving ever-closer to midnight.

[Hamilcar]

As an aside, it is continually astonishing to me how thoroughly the fear of nuclear war has been forgotten in the public discourse. When I was a kid, it was confidently predicted to be an almost inevitable possibility. I still remember seeing the "nuclear clock" moving ever-closer to midnight.

And all the nuclear weapons are still there, and nearly as close to being launched.

[Valmy]

I did notice that once the US became all about stopping the production of more Nuclear Weapons suddenly the militancy of the nuclear freeze movement really decreased. I never once saw them marching to protest North Korea or Iran 

[The Brain]

Nuclear weapons? They're tools.

[PJL]

As an aside, it is continually astonishing to me how thoroughly the fear of nuclear war has been forgotten in the public discourse. When I was a kid, it was confidently predicted to be an almost inevitable possibility. I still remember seeing the "nuclear clock" moving ever-closer to midnight.

We still have that - apparently we're as close to midnight as we were in the mid 80s.

[Valmy]

It seems climate change is the reason. Huh. DOOOOOMED

[Sheilbh]

Not sure if this belongs here or in the Brexit thread

That voodoo that you do
The bitter, political fight to create a new macroeconomics
Aug 19th 2016, 16:52 BY R.A. | WASHINGTON

THE big debates in macroeconomics have never been polite. I suppose it's understandable that this is the case; after all, the stakes are high. Tyler Cowen excerpts a new blog post by Scott Sumner, which reads:

...what's happened since 2009 involves not just one, but at least five new types of voodoo:
1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.
2. The claim that extended unemployment benefits—paying people not to work—will lead to more employment, by boosting AD.
3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.
4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.
5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?
In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.

Mr Cowen then makes a few points before closing:

We do in fact need a good aggregate demand-based macroeconomics; the topic is far too important to allow it to become so politicized.

I initially read that final jab as a poke at economists like Paul Krugman and Brad DeLong: the ones arguing in favour of deficit-financed fiscal stimulus even as the American economy (in Mr Cowen's view) approaches full capacity. Thinking it over, I'm not sure it isn't meant for Mr Sumner as well.

Why? Well, I understand why Mr Sumner objects to the views in his numbered list. They are at odds with his macroeconomic worldview, which is fine. But he doesn't simply say they're wrong. He labels them voodoo; a highly politicised term of criticism, and one of the nastier things one academic can say about another. (I should be clear that Mr Sumner has lots of company in wielding the term.) If one were trying to bring neutral, academic sobriety to an overly politicised argument, this is not the way one would typically begin.

And then, Mr Sumner claims that there is "almost no theoretical or empirical support" for the views he doesn't like. But that's simply false. Mr Sumner may not care for the Summers-Delong model showing that for certain values of the hysteresis and multiplier parameters stimulus is self-financing, but it does exist. And as far as I can tell, most empirical studies of fiscal policy find a multiplier of greater than zero, if not always greater than one. His list of counterexamples in the paragraph above is just one example of not considering the counterfactual after another. Again, if one were trying to take a highly political debate and pin the thing to the wall with the best available academic work, well, this is not what one would do.

Having said all that, I think I disagree with Mr Cowen that the topic is too important to become politicised. On the one hand, politics is how we resolve lots of really important, really difficult issues. One could indeed argue that the problems we face are the worse because there has been too little politicisation. To a remarkable extent, rich-world politicians of all political stripes have been aligned in their view that deficits should be reduced as quickly as possible, while the technocrats at the central banks have been relied upon to take decisions that go wildly beyond their narrow monetary remit.

And on the other: Mr Cowen's view of dispassionate progress in macroeconomics is just not how things usually work. In the 1970s it was not the case, for example, that rival macroeconomic camps settled their differences, then alerted the world of the new consensus so it could be acted upon. Instead you had bitterly divided academics; you had a political ideology which saw some things it liked in one of the camps, which made those things a part of a successful political programme, and which took a policy gamble; and that gamble created new evidence which informed (though by no means settled) the debate over how inflation and monetary policy and expectations all work. The same thing happened in the 1930s. And in the 1980s, when the original voodoo economics had its day in the sun.

Economists might not like it, but this is how the world will find its way out of the current mess. Not by the calm resolution of disagreements between Larry Summers and John Cochrane, but by the increasing politicisation of a set of radical economic ideas, of one sort or another, which eventually find their way into the practical political programme of a party with a mandate to govern. And then they'll do what they do and we will learn something about who was right and who was wrong, and a few economists will change their minds, but most will find a way to tweak their old models so that the new evidence looks like an affirmation of what they believed all along.

So what does that tell us about how macroeconomists ought to behave? Well, as scientists, they have an obligation to state their hypotheses as clearly as possible, to make testable predictions whenever possible, and to be rigorous and transparent in gathering evidence to support or falsify those predictions. But macroeconomics is also inherently political, and the practitioners who seek to "politicise" their ideas and make them a political reality play as vital a role in the advancement of the field as the scrupulously apolitical academics who never write a public word outside a peer-reviewed journal.