Here is Niklas Blanchard's take on Tabarrak and Landsburg, as I mentioned yesterday.
I love this:
. . . doing economics from accounting identities leads to patently absurd conclusions. There are no concrete relationships between savings and investment. They are both dependent variables. Neither is there a concrete relationship between I and C. Both depend on other economic variables, as well. But, zero-sum accounting would get you this result.
I am validated!
And, since I have absolutely no compunction about piling on egregious right-wing idiocy, here's Noah Smith.
OK, clever readers, your assignment is to reread the above blog post very carefully, and think of four reasons why Landburg's post is utter nonsense. That's right, four. I don't want to make it too easy for you.
Noah wraps it up with this.
"Economics by accounting identity" is dubious at the best of times, but "economics by patently false accounting identity" is just inexcusable. You can get economic theory to say damn near anything you want. But by Adam Smith and all that is holy, you just cannot get it to say that consumption is constant by definition! You just...can't!!!
This is about a snarky as Noah gets, which is really a shame. I think he has the gift. (sigh.)
Update: Krugman has something to add; it is a serious and well-deserved indictment of his profession.
Discussions like this really disturb me; they indicate that there are a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together..
. ...vvvvv
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3 comments:
Oh this is getting interesting.
Good post.
The Blanchard link gets me to the Landsburg link. I have real trouble with Landsburg's "For the government to consume more goods and services, somebody else must consume fewer."
Lots of comments on Landsburg's post. About one out of six maybe is Landsburg answering a question or repeating the unobvious.
I wish I had the energy to really study his remarks. SOMEbody must be wrong about this.
Landsburg assumes that there are no slack resources in the economy -- no unemployed people, no factories running at less than full capacity, no contractors who've furloughed their workforce while waiting for a contract to come through. This is the fundamental problem of the accounting identity approach to economies -- it denies the simple reality that in certain economies like ours today, there are slack or underutilized resources. I mean, just look at the unemployment figures, or the factory capacity utilization figures, or etc. If you increase government spending in a time of slack or underutilized resources you could consume goods and services that others are using... but if you are using fiscal policy wisely, instead you are targeting those areas where capacity underutilization exists, and thus are using slack resources rather than resources that were in use elsewhere in the economy.
This is Great Depression 101, folks. We've known this since the 1930's via observing, well, actual reality (as vs. fictional universes inside the walls of ivory towers). The fact that the accounting identity people apparently do not believe in slack resources by default makes them as credible as a biologist who does not believe in evolution or a physicist who does not believe in gravity. Denying clearly evident reality is not a sign of brilliance, it's a sign of insanity.
- Badtux the Economics Penguin
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