Thu Mar 5th, 2009 at 05:16:10 AM EST
So, I was getting my periodic dose of Krugman's blogging when I hit this
NYTimes.com: Roots of evil (wonkish) (Paul Krugman Blog, March 3, 2009)
As Brad DeLong says, sigh. Greg Mankiw challenges the administration’s prediction of relatively fast growth a few years from now on the basis that real GDP may have a unit root — that is, there’s no tendency for bad years to be offset by good years later.
After picking up my jaw from the floor, I composed the following comment (now awaiting moderation):
As if there was a need for more evidence that, as Jamie Galbraith put it, "most economists teach a theoretical framework that has been shown to be fundamentally useless".
The unit root is only a problem in a linear approximation to the real thing. It is entirely possible that Mankiw’s ivory tower only contains linear approximations. He might be well advised to go back to grad school and read up on nonlinear dynamical systems…
Is this what a macroeconomics debate among DeLong, Mankiw and Krugman looks like!? Unit Roots!!?? If so, I think we're well and truly screwed.
I remind everyone that Mankiw was one of Bush the Lesser's top economic advisors, and that he's one of the most influential professors or economics in the world, as his textbooks are widely used.
In case you're wondering, a unit root is an instability in a linear autoregressive time-series-forecasting model, leading to secular growth of the series as noise is amplified. Only someone who has spent too much time playing with linear algebra could pretend that "GDP may have a unit root" is a macroeconomic argument.
This is part of the Reasons for Despair
series. Previous instalments: