Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Friday, December 30, 2011

Say's Law and Ricardian Equivalence

I'll admit I get a bit confused thinking about Say's Law and Ricardian Equivalence - which I never do, unless actually reading about them somewhere.  But the kerfuffle between Krugman and Lucas has been pretty hard to ignore.  (Each of them is confused as well - or not - depending on whom you chose to believe.)  You can read about it in many places.

What Lucas said.

What Krugman said.




At Noah's place I launched into a reality based critique of Say's Law.  Though it turns out not to have been quite Say's Law, after all.  Like I said, this kind of B.S confuses me.  Still, I think I've given a valid criticism of some aspect of conservative economic thought. 

you can't get around Say's Law by taxing people in the future instead of today, because people are forward-looking and have rational expectations

If Say's Law were not invalidated for other reasons, it would absolutely fall apart here.

Have you ever heard anybody ponder what they would be doing with their money 5 or 10 years down the road if they didn't buy a big screen TV today?

Does anyone ponder relative poverty in their old age vs taking a vacation now?

To the extent that most people think about money at all, it's implicitly in terms of cash flow. Can I make the finance payments on this purchase and still afford to feed my cat? This is the real wold, which is apparently terra incognita to economists.

Plus, rational expectations is the silliest idea to be taken seriously since chemists gave up on phlogiston. People act from the cerebral cortex at least as often as they act from the neocortex. This gives us wars and the herding instinct, makes bubbles and Ponzi schemes so exciting, and enables all sorts of wildly irrational behavior, like voting for Republicans or believing in Ricardian equivalence.

Hale "Bonddad" Stewart also weighs in a Noah's place, with a link to a post where he dismembers Ricardian equivalence with empirical data.  My kind of guy.

UpdateBrad Delong chides Noah, and in the process of clarification, confuses me further.

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