In a previous post I said:
We are not always arguing from evidence but from the strength of our convictions - or for lack of a better word, our faith.
The example I used was from Krugman:
Economists who didn’t go down this path, who didn’t flush everything the profession had learned between 1936 and 1973 down the memory hole, aren’t especially baffled by the situation we’re in now; on the contrary, it looks like an extreme version of a fairly familiar event, and policy recommendations aren’t hard to make.
The policy recommendations I am assuming are the following:
1. More fiscal stimulus.
2. Keep nominal interest rates low.
3. Austerity is misplaced.
My reading of this is that the policy recommendations are not purely model based nor are they based on overwhelming evidence. Reasonable economists can argue as to how large a fiscal stimulus could be, the effectiveness of nominal interest rates at the zero bound or that austerity measures in a recession can lead to a more severe contraction if x,y,z conditions are met.
Yet the policy recommendation as stated is based more on conviction (my read of it, that is) and analogy than on anything that we have really learned from the Great Depression. Yes, we may have learned all of the above, yet as economists and so-called scientists we are required to ask ourselves whether these policy recommendations can backfire. One thing that economists do not lack is humility. When we are wrong we brag about how wrong we are and how we cannnot do anything about it - recall Easterly's "economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it."
The role of the blogosphere seems to be to drown out its critics (or to serve as advocate) rather than as a place to debate the nuances of disagreements. Moreover, it serves to accentuate my claim that arguments on the blog are either shrill-based on faith or hunch-based. An example of the latter is Tyler Cowen (and I don't mean to pick on him - just as an example):
If monetary policy is sufficiently accommodative, I do not see that we are risking a 1937-8 repeat. In 1936-7, monetary policy was not just insufficiently expansionary, it was absolutely draconian.
Again, the language matters - what is "sufficiently accommodative" and "insufficiently expansionary" and "draconian" and how do they translate in terms of policy?
Arguments for a policy that I would like to see would go as follows - again, using the above example (and I'm making this up as I go along):
If monetary policy is sufficiently accommodative, I do not see that we are risking a 1937-8 repeat. In 1936-7, monetary policy was not just insufficiently expansionary, it was absolutely draconian. By sufficiently accomodative, I mean that M1 is expanding at 5% each quarter for the next 3 quarters while by insufficiently expansionary I mean that M1 begins to slow to 3% each quarter for the next 2 quarters. I assume that monetary policy in 1936-37 was draconian because interest rates rose by more than x percent and M1 slowed to y percent. And so forth. Yes, I'd like to see these numbers even if they are just pulled out of thin air. (Some would call it hand-waving economics even with the numbers, but then I think its a lot better than without the numbers.)