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JW Mason Profile picture
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16 Apr, 4 tweets, 2 min read
So the scenario is that the weak demand following the crisis lowered potential, but strong demand *cannot* raise potential? Why would we believe that?
If @ojblanchard1 really believes that the financial crisis and recession reduced potential GDP by 10 points for all time, shouldn't his overriding concern be preventing a repeat? If you really thought this, why would you give even a second's thought to overheating?
To claim both that the Great Recession was a far greater macroeconomic disaster than anyone could have imagined, and that we should just go on doing macroeconomic policy as if it never happened, is just fundamentally unserious.
As it happens, @arjun_jayadev just sent me the following passage from Joe Studwell's How Asia Works. Secret ingredient of Asian industrialization: no economists.

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More from @JWMason1

JW Mason Profile picture
15 Apr
A world where workers "just show up" when employers want them is different from one where employers have to actively seek them out, in lots of ways. Differences that get obscured when we assume that measures that restrict labor supply simply lead to lower employment and output.
There are many margins for adjustment - from higher wages to job training to hiring people leaving prison - that won't happen as long as workers just show up. Before we treat reduced labor supply as axiomatically bad, we should think about what we'd like to see on those margins.
There's a nontrivial sense in which what "supply constraints" mean in practice is the ability of people like Ken Rudzki to make their complaints about the lack of cheap, readily available labor politically effective.
Read 5 tweets
JW Mason Profile picture
24 Mar
This is right, and important, especially important if you're someone starting out on career in economics. If you want to contribute to debates over macroeconomic policy, the models you will learn in a mainstream graduate program will do you no good at all. noahpinion.substack.com/p/the-return-o…
I don't however agree with the reason he gives. It is perfectly possible to make useful macroeconomics models. Policy is always based on an implicit model of some kind. As soon as you've talk about a fiscal multiplier, you're using a model. Okun's law is a model. Etc.
The problem is with the specific kind of theory mainstream theory aspires to - a model of an abstract "economy" built up from the level of individual agents, where we can identify actual outcomes with a unique equilibrium. That indeed is hard - in fact it's impossible.
Read 6 tweets
JW Mason Profile picture
22 Mar
@themountaingoa1 @robertwaldmann This isn't really a conversation for twitter, but:

"Microfoundations" can mean a lot of things. I'd distinguish 4 senses:

1. aggregate model that is motivated/justified by explicit views of behavior of units at less aggregated level
@themountaingoa1 @robertwaldmann 2. aggregate model that rests on/incorporates formal model of units at less aggregated level

3. aggregate model derived from formal model of behavior of "agents", atomic units of economy who are consumers of final output, suppliers of labor, owners of wealthy etc.
@themountaingoa1 @robertwaldmann 4. aggregate model derived from formal model of behavior of agents, which must be described as the solution to an explicit intertemporal maximization problem.
Read 7 tweets
JW Mason Profile picture
24 Feb
Senator Warren: "I take it that your view is that inequality is something that holds our economy down and stunts economic growth. Is that a fair statement?"

Powell: "Yes it is."
Powell: "We can't affect wealth inequality. We can, indirectly, affect income inequality."

I understand why he's trying to draw this line but I don't think it's going to work.
Pushed by some southern troll to clarify whether he is for or against the Biden stimulus and relief bill, Powell refuses and adds, "we didn't comment on the tax cuts." Ouch!
Read 10 tweets
JW Mason Profile picture
24 Feb
Powell: "Most research still says there's a tradeoff between job loss [from minimum wage] and those whose wages go up but actually the unanimity of that finding of 30 or 40 years ago is no longer in place, there's a much more nuanced understanding."

Progress in economics.
"We may some upward pressure on prices zs the economy reopens -- a good problem to have -- but I don't think those effects will be large or persistent."
(Yes, now that the kids are in bed I can finally listen to and not-quite-live tweet Powell's testimony today.)
Read 6 tweets
JW Mason Profile picture
24 Feb
"In a global economy, people who can work with and benefit from technology, there's no limit on the number of those people who can be working in the United States."

Did Jay Powell just come out for open borders?
"Central banks have learned how to keep inflation under control - we know how to do that. But that is not a problem for this time, as near as I can figure. And if it does turn out to be, we have the tools that we need."
Senator Rounds: "The chairman has said that banks should do more to support workers and the broader economy. But they can't do that when we're tying their hands with excessive and challenging capital requirements." On the one hand, it's comically obvious special pleading. But...
Read 5 tweets

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