All Models are False: The Internet/Computer Explanation of Major Recessions

Uneasy Money has a wonderful post on the “all models are false dodge”. Nothing really to add but I especially enjoyed this:

Romer’s most effective rhetorical strategy is to point out that the RBC core of modern DSGE models posit unobservable taste and technology shocks to account for fluctuations in the economic time series, but that these taste and technology shocks are themselves simply inferred from the fluctuations in the times-series data, so that the entire structure of modern macroeconometrics is little more than an elaborate and sophisticated exercise in question-begging.

I used to ask the New Classical crowd what the great negative real shock was during the early 1980’s. The massive real appreciation of the dollar may have lowered net export demand but that was one of those Keynesian things. One would think the rise in the relative price of domestically supplied goods would have increased employment. Same with the alleged wonders of the Reagan tax cut. Oh but it was paid for by reducing transfer payments – another one of those Keynesian things. If poor people got less government assistance, then they should have gone all Jeb! and worked harder. And of course we were enjoying the start of the computer and technology revolution. But here is where the list gets hysterical – the line was that these new tools were being used to do less work in the office. But before you fall in the floor laughing at this excuse consider a recent excuse ala Tyler Cowen:

There are a few reasons, but the internet may be the biggest. It is easier to have fun while unemployed. That's a social problem for some people.

Tyler was debating Noah Smith. Noah had just argued for more infrastructure investment on the Keynesian notion that we were still below full employment. Tyler seems to think the low employment to population ratio is still somehow consistent with full employment. Noah disagreed noting that real wage growth is weak to which Tyler continues:

Maybe employers just aren't that keen to hire those males who prefer to live at home, watch porn and not get married. Is that more of a personal failure on the part of the worker than a market failure?

Oh my – boys will be boys! Noah had some good counters including:

Female labor force participation in the U.S. is well below its pre-crisis level. Maybe video games are now marketed equally toward men and women.

Thankfully Tyler did not respond by suggesting the ladies in the office were going crazy over hot dudes on Instragram.