logo
  Join        Login             Stock Quote

Chicago Macro: Yet Another Soft Bigotry Of Low Expectations Post

 January 22, 2012 03:13 PM


I really, really wish Karl Smith would not do this…

Karl Smith writes:

Cochrane, Krugman, Lucas, Wren-Lewis and Sumner: A Very Short Interpretation « Modeled Behavior: I think the response to Cochrane and Lucas should go like this: "When the government raises taxes to fund additional spending then in theory the effect on aggregate demand depends crucially on what the money is spent on…."

When Cochrane explicitly and Lucas implicitly thinks in terms of transferring purchasing power from one randomly chosen citizen to another there is no reason to expect that this will have any effect on either the marginal utility of consumption or the marginal product of capital.

[Related -Upbeat Forecasts For US Housing Sales In March]

Indeed, though Lucas trips himself up in the phrasing when he describes the government using money to purchase a bridge he is almost certainly describing a situation that will have an effect on the marginal utility of consumption and perhaps also the marginal product of capital….

My hope is that this closes the intuition around why reasoning from random cash transfers or reasoning from a fully employed economy gives such different results from reasoning about a bridge purchase during a recession.

But Lucas is not "implicitly think(ing) in terms of transferring purchasing power from one randomly chosen citizen to another". Lucas is explicity thinking of the government using money to purchase a bridge.

[Related -Happy Birthday, Moore's Law - Pearls of Wisdom for Investors]

You can say Lucas is confused. You can say Lucas is incoherent. You can say Lucas does not know his models. You can say Lucas has not done his homework. You can say Lucas is not thinking at all.

But to say that Lucas "Lucas implicitly thinks in terms of transferring purchasing power from one randomly chosen citizen to another" but "trips himself up in the phrasing"...

You do nobody any favors when you claim that somebody who grounds out to first really hit a home run...

iOnTheMarket Premium
Advertisement

Advertisement


Comments Closed


rss feed

Latest Stories

article imageUpbeat Forecasts For US Housing Sales In March

The Fiscal Times advises that the “the housing market is about to perk up.” One of the reasons for the read on...

article imageHappy Birthday, Moore's Law - Pearls of Wisdom for Investors

As Moore’s Law turns 50, we reflect on technology’s incredible history and limitless read on...

article imageIndex Investing Is Not Inherently Socialistic

How does capital get allocated to the public stock read on...

article imageDon't Let Fear of a 'Grexit' Keep You Out of European Stocks

After nearly three years of extremely weak economic growth, the European Central Bank is finally delivering read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Index Investing Is Not Inherently Socialistic
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.