The Herndon-Ash-Pollin paper refuses to fizzle and now has Mark Thoma attempting to explain why macroecon doesn’t work very well, with a focus on the difficulties in distinguishing actual causal relationships from historical patterns that by chance resemble causal relationships, problems with the ceteris paribus assumption, changing policy regimes, and one of the saddest sentences written about current macro:
I used to think that the accumulation of data along with ever improving empirical techniques would eventually allow us to answer important theoretical and policy questions. I haven’t completely lost faith, but it’s hard to be satisfied with our progress to date.
(sad Mark Thoma is sad)
Thoma can hardly be blamed for hoping that accumulating information would fix our macroeconomic problems. Here’s Kenneth Arrow in 1957:
“there is a cumulative growth of knowledge; as the number of observations gets larger, there is an increase in the efficiency with which we estimate our parameters. The information used this way may be termed cumulative information… The third kind of time is cumulative time, due to the growing knowledge of the laws of nature, not only in economics proper but also in the technology of production and presumably in consumer and worker psychology. A statistician may view cumulative time as increase in sample size… The concept of cumulative time has played little formal role in economics, though references to the growth of knowledge as the greatest source of wealth are to be found among the less orthodox economists.1 Recent empirical studies have laid great stress on the cumulation of information as the main source of economic growth. Of course, these studies refer to technological knowledge; I would like to believe that such cumulation can be as characteristic of economic as of physical knowledge… if I understand some scientific philosophers correctly, the accumulation of information and the passage of time are really the same thing” (Arrow 1957: 526-7)
It may be difficult to claim that we (as a species, as thinkers about the economy, as ____) don’t accumulate information with time. The link between accumulation of information and accumulation of knowledge, though, is less robust than would be convenient for academic work. Thoma’s concerns about causal mimics and causes apply just as much to the HAP as they did to RR. Because Thoma’s concerns address problems historical data rather than problems with particular economic theories or econometric techniques, there doesn’t seem to be much that can be done to change practice in a way that dodges the historical data critique. With this in mind, it’s difficult to come up with an environment in which asserting “P is true” shouldn’t be met with a healthy amount of skepticism. But the uproar about HAP suggests that we’re — with the exception of Reinhart and Rogoff — much more willing to feel certainly about “P is false.”
I’m not certain what’s left in the wreckage of RR because I’m not certain what it supplanted when it became gospel. With that said, the void it leaves should open space for a new and/or different positive model to guide some policy, at least in a world in which economic policy decisions are made according to academic reasoning rather than vague pandering about low taxes and decreased spending.
1 – Arrow meant Veblen, but he could easily have been foreshadowing or tipping his hat to human capital theories which were only beginning to circulate.