A good theory has two characteristics: internal consistency and external consistency. An internally consistent theory is one that is parsimonious; it invokes no ad hoc or peculiar axioms. An externally consistent theory is one that fits the facts; it makes empirically refutable predictions that are not refuted. All scientists, including economists, strive for theories that are both internally and externally consistent. Yet, like all optimizing agents, scientists face tradeoffs. One theory may be more “beautiful,” while another may be easier to reconcile with observation.
The choice between alternative theories of the business cycle—in particular, between real business cycle theory and new Keynesian theory—is partly a choice between internal and external consistency. Real business cycle theory extends the Walrasian paradigm, the most widely understood and taught model in economics, and provides a unified explanation for economic growth and economic fluctuations. New Keynesian theory, in its attempt to mimic the world more accurately, relies on nominal rigidities that are observed but only little understood. Indeed, new Keynesians sometimes suggest that to understand the business cycle, it may be necessary to reject the axiom of rational, optimizing individuals, an act that for economists would be the ultimate abandonment of internal consistency. [Real Business Cycles: A New Keynesian Perspective. Gregory N. Mankiw. Journal of Economic Perspectives. Volume 3, Number 3. 1989.
Tag: Gregory Mankiw
In response to Krugman calling those which advised the Bush administration as hacks and those appointed to fill up the vacancies in the Obama administration as grown-ups…
Seriously, isn’t it amazing just how impressive the people being named to key positions in the Obama administration seem? Bye-bye hacks and cronies, hello people who actually know what they’re doing. For a bunch of people who were written off as a permanent minority four years ago, the Democrats look remarkably like the natural governing party these days, with a deep bench of talent. [The grownups are coming. The Conscience of a Liberal. November 22 2008]
…Mankiw replies with a hint of rising temperature:
Like Paul, I am impressed by the new economic team. I know best the three economists coming from academia–Larry Summers, Christy Romer, and Austan Goolsbee–and they are all first-rate. They are excellent choices.
But are they really in a different class than those in the previous administration? Based a standard ranking of economists’ academic accomplishments as of October 2008, here is where these three stand (out of more than 18,000 economists), together with the rankings of all the CEA chairmen appointed by President Bush:
11. Larry Summers
21. Greg Mankiw
35. Ben Bernanke
99. Eddie Lazear
132. Glenn Hubbard
249. Harvey Rosen
391. Christy Romer
653. Austan GoolsbeeJudging by this objective criterion, it looks like the two adminstrations are drawing economists from roughly the same talent pool.
Of course, if one defines “grownup” as a person who agrees with Paul Krugman, and “hack” as a person who does not, then one might come to a different conclusion. [Redefining “grownup” and “hack”. Greg Mankiw’s blog. November 27 2008
After reading Professor Mankiw’s post, the press seems to have hyped-up Obama’s economic team. The team comprises of great economists but c’mon. There has always been good and great economists in many different administrations, as shown by Mankiw.
I typical share via Google Reader these days but I thought, this post from Greg Mankiw deserves extra attention basically because I agree with it. He theorizes that the youth moved away from the Republican Party because of social conservatism. I expressed the same concerned earlier.
…It was largely noneconomic issues. These particular students told me they preferred the lower tax, more limited government, freer trade views of McCain, but they were voting for Obama on the basis of foreign policy and especially social issues like abortion. The choice of a social conservative like Palin as veep really turned them off McCain.
So what does the Republican Party need to do to get the youth vote back? If the Harvard students are typical (and perhaps they are not, as Harvard students are hardly a random sample), the party needs to scale back its social conservatism. Put simply, it needs to become a party for moderate and mainstream libertarians. The actual Libertarian Party is far too extreme in its views to attract these students. And it is too much of a strange fringe group. These students are, after all, part of the establishment. But a reformed Republican Party could, I think, win them back. [The Youth Vote and the GOP. Greg Mankiw’s Blog. November 5 2008]
Will it happen?