The point is that preexisting models, tested on modern data, are being tested using data from that era. This back and forth between Eggertsson and Cole/Ohanian has taught us that we don't know much about “animal spirits” when inflation expectations are unanchored by monetary policy. These papers have pointed in the right direction though for figuring this stuff out.

I don't see how the method I'm describing is any different than making assumptions about the behavior of particles of matter, deducing expected behavior and then comparing those measurements against actual behavior.

These aren't just-so stories. Its true macroeconomic data is observational, but unlike in history or evolutionary psychology or whatever, the economy keeps running and new data are generated all the time. Models die when new data contradict their implications.

I think a disconnect here is that macroeconomists study business cycles (or growth) in general but not particular recessions. Studying particular recessions/depressions is what historians do and their stories are just-so. To macro people, historical events are just data. Our models explain or they don't. To the extent they do, they're good models. To the extent they don't, they're bad models.

Look: nobody doubts that economists are great at creating just-so stories, mathematically elegant bundles of assumptions and valid conclusions. But economists, particularly macro economists, are *not* very good at demonstrating genuine causation, whether historically or in terms of proposed interventions. This doesn't mean that physicists or sociologists would do any better, of course; the problem is incredibly difficult. But it's far from clear that either, A, the training and tools of modern economics is the right approach to finding the knowledge we're looking for, or B, the structure of academic economics is organized in a way to (collectively) discriminate reliably between good and bad explanations or research programs.

It's worth noting that the profession's barriers to entry have both selection effects (only appealing to those both skilled at math and tempted by the prospect of reducing behavior to tractable systems of equations) and treatment effects (it would be psychologically devastating to give up on the formalization / general equilibrium framework after suffering so much to acquire proficiency in it) that have worrisome implications for precisely the desideratum Ambrosini highlights: an awareness of what is actually known versus not known.

For example, if I'm the head of Bear Stearns, and it's Friday and I'm telling my shareholders (and anyone else who'll listen) that B.S. is as solid as a rock, that nobody has anything to worry about and we'll still be around Monday morning, people will assume it's true because I'm in charge and I'm supposed to know these things. But when Monday rolls around, it turns out B.S. is in dire straits and looking for a gov't handout, no amount of reassurances I can give is going to change the fact that B.S. is in deep shit, especially since I've already stated that the situation B.S. is in wasn't going to happen.

Unless I have a Big Brother-style stranglehold on access to information (about Bear Stearns' financial matters), most–if not all–people are going to notice that rather inconvenient gap between what I said would happen and what actually happened. And then they start questioning everyone else's judgement, and start assuming everyone else might be as full of shit as I am. Goodbye rational markets, hello financial meltdown.

She has yet to show the goods, and has had quite a few opportunities to do so. It is the hot thing for actresses to have this in their contracts now (yet another reason I miss the 80's). Rumor has it that she gets nekked in the new chick-flick cum Guantanamo detainee screener, “He's Just Not That Into You” but it may be just that, a rumor, based on the brief glimpse we get of a skinny-dipping scene, which, if I know contemporary Hollywood, will be coy and disappointing.

On that note … back to the economics!

http://econlog.econlib.org/archives/2009/02/my_...

summarized as:

#1) The way out of the recession will be powered by business profits (as usual). A targeted macro solution: tax cut on the payroll tax (profits go up, and only after the profits have been locked in, employment will go up)

#2) Nobody wants leverage. Let the modern finance system built on leverage die, quickly and painfully, because drawing it out will only be more painful (like removing an adhesive bandage). Nobody wants leverage, people will only pay attention to profits (see #1)

Now Larry Summers … well let's just say he needs to show some serious man-boob if he wants me to get behind Obamanomics.

In a perfect world, macroeconomists could give advice to policy makers, and it would be taken, that perfectly reflected the findings of the science. Because the science tells us inflation expectations are key, policies should reflect that. Monetary policy is the best way for policy to affect expectations, but the President wants to “do something” and the congress want to “do something”. Giving rose colored speeches seems least harmful while being most likely to have an a positive impact on expectations.