Keynsesians, and Krugman especially, said the sequester would cause a new recession and even air traffic control snafus. Instead, the sequester, though sharply reducing government spending, along with the end of 99 week unemployment insurance, coincided with increased growth and a big surprise decline in unemployment.
Sometimes, I think that there are macroeconomists (Krugman is not the only one) for whom there is no path of economic variables that could ever contradict their point of view. They remind me of the climate scientists who tell us that Buffalo’s Snowvember came from global warming.
Macroeconomics is infinitely confirmable because of its high causal density and lack of controlled experiments. The macroeconomist has enough interpretative degrees of freedom to twist any pattern of economic activity to fit his or her priors.
In theory, you could ask macroeconomists to place bets on their predictions. However, that, too, would run afoul of causal density. If you make unconditional predictions, then an oil shock or other event could make you right or wrong more or less by accident. And the conditional forecasting space gets very complicated very quickly.
The Title, “Macroeconomics is Infinitely Confirmable”, is impressive. I agree with Cochrane’s suggestion: Nothing is “infinitely confirmable”. Besides, I love Cochrane’s joke about macroeconomic variables and the assertion that Buffalo’s snowstorms came from global warming.
I believe more attention should be paid to the sequester. Despite the usual song and dance from Washington to try and make it feel as painful as possible, the stuff that was shut down turned out to be inessential.
I conclude we can balance our budget if we have to. Balancing a budget of this magnitude should not be called “austere”, and should not be quietly assumed to be an economic disaster. We just have to go back to the spending levels of a decade or two ago.
From a larger perspective, this is quite a dirty move being played on all of the public by Washington insiders. They disagree on a number of issues, but one thing they all agree on is that they want more funding.
Ignoring the fact that congress did act to reduce the effect on air traffic controllers and the decline in unemployment was largely people leaving the workforce. If that is the anti Keynesian position it really is scraping the bottom of the barrel.
Economic actors make variables equally cuasual. The whole game plan is to capture causality inside the firm or household. So any observer looking at the aggregate statistics is getting something like a 30% uncertainty, enough to attract their interest, but no sure thing.
As an alternative to asking them to bet on their predictions, ask them to predict the probability that particular events will/won’t take place; then calculate Brier scores based on their predictions and the actual outcomes.