Thursday, October 13, 2011

Again, It's Time Horizons

Via Matt Yglesias, FLG learns of this passage by Russ Roberts:
The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews. Whose evidence is better? I’m not sure it’s a meaningful question. My empirical points about Keynesianism won’t convince Krugman. His point don’t convince me. I am not saying that we will never get any kind of decisive evidence on the question. I’m saying it sure isn’t here now.

Paul Krugman responds:
Which brings me to the final point. Russ Roberts may choose his economic views because they support his political prejudices. I try not to. Maybe I sometimes fall short — but I try to analyze the economy as best I can, never mind what’s politically convenient, and indeed to bend over backward to avoid believing things that make me comfortable, to avoid turning everything into a morality play that confirms my political values.

FLG would just like to point out that he thinks this, particularly Roberts' approach, is the wrong way to go about this. FLG still contends this is about time horizons.

FLG asserts that Roberts, as the more conservative of the dyad, values the future relatively more than Krugman. Thus, he has a lower discount rate than Krugman. Therefore, Roberts' view of stimulus is more akin to Ricardian Equivalence. Whereas, Krugman would argue that dealing with unemployment now is very important and tax revenues are discounted so much that they don't really matter. Therefore, the NPV of stimulus spending is huge for Krugman, but zero or negative for Roberts.

This approach doesn't necessarily fix the problem of convincing the other party since reasonable people can disagree about the relative importance of the present versus the future, but it is beneficial because gets away from somewhat opaque and nebulous political priors topic.

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