I always find it hilarious when some smart economist like Brad Delong or Scott Sumner pull their heads out of this keister and notice their field doesn’t even agree on the basic observations necessary to make decisions.
Here’s Scott Sumner talking about Nobel Prize winning economist John Taylor:
“And that’s actually pretty mind-boggling, when you think about it. It’s not that strange that we might differ on whether current monetary policy is contractionary or accommodative (although non-economists must be appalled that economists can’t even agree on something as basic as that.) What’s really shocking is that we even agree on the four effects from that monetary policy, even though logically one would think that accommodative policies would produce the exact opposite effect from contractionary policies. ”
This is what happens when you operate in a system devoid of agreed upon empirical checks, or that weave in assumptions about the future which can never be known.
The reason we’re big on Godley over here is because the Godley/Lavioe/(Cripps?) system is ground up coherent. By design, this stock-flow consistent model takes into account everything in the economy, in a logical and coherent manner.
If you somehow discover something Godley/Lavioe missed, you can put it into the model. You just need to make sure the model of the economy is stock flow consistent, because our economy is stock flow consistent.
This isn’t true for most other models in macro economics. You’ll find smart people disagreeing on the most basic facts, the most elementary observations, the simplest conclusions because the model doesn’t link to the real world, and it doesn’t demand internal consistency. It’s like doing simple electrical circuit physics and just throwing away 50% of the current flow through the system, because, well I don’t know why.
So, Mr. Sumner, you’re welcome to come over here, read a few posts, and see if you can spot why MR will be drinking your milkshake.
What a great scene. I DRINK YOUR MILK SHAKE!
“weave in assumptions about the future which can never be known.”
Right – as Joan Robinson said (neoclassical) economists describe a world “where somehow the future has already happened”
Ramanan – what is the difference between the Godley/Cripps textbook and “Monetary Economics?” Do you recommend both?
I have the same question.
I just got my copy of Godley/Cripps a few days ago, and am still working through ME.
The intro(s) to ME point out some of the history of how the book and ideas came into being, and that alone is worth the price of the book. Godley started really looking at the sector balances equation in the early 1990s, and from there the fully formed ideas on which ME are based started coming along through the 1990s.
Once the book started, the major concept – a solid macro model must be stock flow consistent – was already in place. The work fell to Marc to put it together, along with tons of input from Godley.
The Godley/Cripps book was an early response to the monetarists of the 1970s, because the keynesians didn’t have something which explained more than a few parts of the economy. So when the 1970′s happened, the keynesians were left sputtering in the wake of the inflation, even though Godley predicted it would happen.
This is what I recall from my one reading of the first few paragraphs.
He’s going to end up as the giant of economics in 150 years, and he’s not even part of the mainstream conversation today. In 2150, he will be recognized as the first person to put together a coherent model of the economy based on how the real and notional economies interact over time. Lavioe will be recognized as his Minkowski – the guy who did much of the hard math to make it all work.
wh10,
Cripps/Godley is a solid book. It starts with national accounts and the identities connecting economies, then banks, then government/fiscal policy, central bank balance sheets and flows. After that it goes into costs/prices, inflation, inflation accounting and finally open economies. It has central banks setting rates, exogenous fiscal policy and money endogeneity and all those things. Its authoritative!
It’s out of print and the prices in the used book market seems to be much higher than before.
However Monetary Economics is much more detailed in how stocks and flows change. In Macroeconomics, these are derived by various shortcuts but the results are similar. In some cases however brute force methods are used to illustrate the final result.
Although Macroeconomics is stock flow consistent, two main missing things are the Transactions Flow Matrix and Tobin’s asset allocation methodology.
You could buy it once you start liking Monetary Economics.
It sounds like, though, “ME” has everything “Macroeconomics” has but more?
Godley/Cripps is shorter and less daunting to approach if you aren’t already handy with this kind of analysis. For many people (like me) it is a more tractable intro. Fortunately I was able to pick up a used copy cheap some time ago.
wh10,
You could get it for the originality and the authoritative style. I got a used copy for $150 and it looked brand new with no marks and even the dust jacket in perfect shape.
Wow! I found one for $3.50 plus shipping, another 3 bucks maybe. But mine is obviously used, although no markings.
Mine was the hardbound published by OUP. Maybe that caused the diff?
Totally different story. I bow to you.
A world where the future has already happened. Hmmm, that sounds like a vaguely familiar “inherently progressive” economic theory.
The idea about how the future unfolds like clockwork is both liberating and flawed. We need to keep it at least a little, because to make predictions about the future, we need to have some model upon which to base the prediction.
I can see a version of Godley/Lavioe ported to something non-proprietary and run through monte carlo simulations being useful.
Yet, we can’t know the future perfectly and pretending we do and will doesn’t make sense.