DeLong on the real mathiness-people

19 May, 2015 at 11:29 | Posted in Economics | Leave a comment

Paul Romer inquired why I did not endorse his following Krusell and Smith (2014) in characterizing Piketty and Piketty and Zucman as a canonical example of what Romer calls “mathiness”. Indeed, I think that, instead, it is Krusell and Smith (2014) that suffers from “mathiness”–people not in control of their models deploying algebra untethered to the real world in a manner that approaches gibberish.

amathI wrote about this last summer … This time, I replied to Paul Romer’s question with a Tweetstorm. Here it is, collected, with paragraphs added and redundancy deleted:

My objection to Krusell and Smith (2014) was that it seemed to me to suffer much more from what you call “mathiness” than does Piketty or Piketty and Zucman.

Recall that Krusell and Smith began by saying that they:

do not quite recognize… k/y=s/g”…

But k/y=s/g is Harrod (1939) and Domar (1946). How can they fail to recognize it?

And then their calibration–n+g=.02, δ=.10–not only fails to acknowledge Piketty’s estimates of economy-wide depreciation rate as between .01 and .02, but leads to absolutely absurd results:

For a country with a k/y=4, δ=.10 -> depreciation is 40% of gross output.
For a country like Belle Époque France with a k/y=7, δ=.10 -> depreciation is 70% of gross output.

It seemed to me that Krusell and Smith had no control whatsoever over the calibration of their model at all.

Note that I am working from notes here, because http://aida.wss.yale.edu/smith/piketty1.pdf no longer points to Krusell and Smith (2014). It points, instead, to Krusell and Smith (2015), a revised version.

In the revised version, the calibration differs. It differs in:
1. raising (n+g) from .02 to .03,

2. lowering δ from .10 or .05 (still more than twice Piketty’s historical estimates), and

3.changing the claim that as n+g->0 k/y increases “only very marginally” to “only modestly”

(The right thing to do would be to take economy-wide δ=.02 and say that k/y increases “substantially”.)

If Krusell and Smith (2015) offers any reference to Piketty’s historical depreciation efforts, I missed it.

If it offers any explanation of why they decided to raise their calibration of n+g when they lowered their δ, I missed that too.

Piketty has flaws, but it does not seem to me that working in a net rather than a gross production function framework is one of them. And Krusell and Smith’s continued attempts to demonstrate otherwise seem to me to suffer from “mathiness” to a high degree …

Brad DeLong

Leave a Comment »

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.
Entries and comments feeds.