Solow telling Chicago economists some home truths

17 May, 2014 at 08:44 | Posted in Economics | 7 Comments

4703325Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the battle of Austerlitz. If I do that, I’m getting tacitly drawn into the game that he is Napoleon. Now, Bob Lucas and Tom Sargent like nothing better than to get drawn into technical discussions, because then you have tacitly gone along with their fundamental assumptions; your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous – that is, by laughing at it – so as not to fall into the trap of taking it seriously and passing on to matters of technique.

Robert Solow

friedmancash_625-620x396Everything reminds Milton of the money supply. Well everything reminds me of sex, but I keep it out of my papers.
 

Robert Solow

When I was in advanced middle age, I suddenly woke up to the fact that my colleagues in macroeconomics, the ones I most admired, thought that the fundamental problem of macro theory was to understand how nominal events could have real consequences. This is just a way of stating some puzzle or puzzles about the sources for sticky wages and prices. This struck me as peculiar in two ways.

First of all, when I was even younger, nobody thought this was a puzzle. You only had to look around you to stumble on a hundred different reasons why various prices and factor prices should be much less than perfectly flexible. I once wrote, archly I admit, that the world has its reasons for not being Walrasian. robert-lucasOf course I soon realized that what macroeconomists wanted was a formal account of price stickiness that would fit comfortably into rational, optimizing models. OK, that is a harmless enough activity, especially if it is not taken too seriously. But price and wage stickiness themselves are not a major intellectual puzzle unless you insist on making them one.

Robert Solow 

7 Comments

  1. First one is my absolute favourite, and I hadn’t even seen the third one, so thanks!

    Having said that, I think “getting tacitly drawn into the game that he is Napoleon” is often unavoidable, especially in blogging.

  2. I have zero sympathy for this. Solow and Samuelson dug their own graves. You can apply Solow’s own methodological criticisms to his distribution in a split second. He may be funny, a good writer and smart but that doesn’t make up for it. He ushered this in with his paper from the 50s. Make no mistake. Read his Nobel lecture for a morass of hypocrisy and nonsense.

  3. “Of course I soon realized that what macroeconomists wanted was a formal account of price stickiness that would fit comfortably into rational, optimizing models. OK, that is a harmless enough activity, especially if it is not taken too seriously. But price and wage stickiness themselves are not a major intellectual puzzle unless you insist on making them one.”

    Ignoring for the moment whether price and wage stickiness are serious frictions (I don’t think they are), Woodford would agree with Solow on this. Price stickiness is not an intellectual puzzle so let’s just throw it into the model via Calvo contracts.
    I think they are both wrong. If we want microfoundations they should be the right microfoundations and not a short-cut like Calvo contracts. If you think that price and wage rigidity are serious issues you should throw ALL the issues that cause it into your model … and as they are so numerous nobody would start with an Arrow-Debrez model anymore.

    So the argument that destroys New Classicals and New Keynesians is not the “the ad-hoc times were better” but “take your own microfoundations principles seriously”.

  4. the trouble with Bob Solow is that when technical response is staring him in the face, he refuses to recognize it because Samuelson and his theory suffer from the same technical difficulties as Lucas. Samuelson , I have quoted, as saying — to make economics a science one must adopt the ERGODIC hypothesis.

    Solow was a critic of an earlier paper of mine linking uncertainty with nonergodicity and its implications for macroeconomics — which occurred before my ergodic vs. nonergodic argument was published. His criticism was that in reading Davidson’s paper he felt like the US sailor who had just visited a harem in Turkey. When the sailor’s friends asked him what he did in the harem — the sailor’s response was “There was so many things to do, that I did not know where to start”! Solow then went on to rant and rave without mentioning anything in my paper at all!

    I guess he really did not know where to start.

    Paul Davidson


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