Reader RichardH sent me a link to The New York Times article Boom, Bust or What? Larry Summers and Glenn Hubbard Square Off on Our Economic Future.  It is a great exploration of the opposing economic views of Larry Summers and Glenn Hubbard, and the reporters futile  attempt to get them to reconcile their differences.

As I responded to RichardH, at first it seems like the point is that there is no way to separate fact from fiction.

Then I realized that this is the wrong way to look at these opposing points of view.  We the consumers of these ideas and as voters and policy makers need to find a way to turn this away from a religious argument about two sets of beliefs and into an engineering discussion of how to get the economy and society to work best.  Engineering is my bias, because that is my training and natural bent.

As an engineering problem we need to realize that this is a discussion about choosing the right policies in the face of huge uncertainties.  There are things we just don’t know about the future.  There are human, social, and technological changes that will occur that we can’t predict.  There are some changes that we cannot even imagine. This is the type of situation that engineers face every day, yet they are called on to make decisions anyway.

So any policy proposal ought to be accompanied by an analysis of the uncertainties that could upset the wisdom of the policy in major and minor ways.  In other words, what is the proposal assuming for the future and  what is the sensitivity of the proposal to changes in these assumptions.  The proposer should tell us what we ought to measure about the progress of the proposal after it is implemented and how are we realistically to measure it.  What remedial steps are available when the path deviates from expectations after the proposal is implemented?

What other steps can you engineers out there recommend to turn this into a discussion that comes out with a resolution instead of an argument that never moves from the spot we are currently in?  What do people who have been trained or are experienced in other disciplines do to find a path forward?  What have people learned from their mistakes along the way?

What really makes me nervous is anybody who is so sure that a recommendation is so bullet proof that nothing could possibly go wrong.  Hearing that kind of argument, tells me that I am hearing ideas that may turn out to be useful, but that need a lot of further analysis before trying.

The role of some people is to come up with as many wild ideas as possible.  Others must take on the role of weeding out the good ideas from the bad ones. Some of the people who come up with the ideas will participate in weeding out the good from the bad.  Other idea people will choose not to participate. This will always be an ongoing exercise in a very dynamic world.

and The Boston Globe, for that matter.  The Boston Globe has an editorial today in which they praise Harvard Economists Carmen Reinhart and Kenneth Rogoff for owning up to a mistake in their influential research paper and book.

Errors happen in statistical research

is how the editorial phrased it. When they had provided their data to a graduate student at the University of Massachusetts at Amherst,

…he found a Microsoft Excel error that distorted their results.  Corrected computations showed by some accounts, that carrying very high debts – of over 90 percent of gross domestic product – wasn’t quite as ruinous as the two Harvard economists had computed.

Look at the video in my previous post, Study Debunking Austerity Research Sparks Wide Reaction, to see how gross an understatement “wasn’t quite as ruinous” is.

Now we turn to the Brainiac column at the front of the very same editorial section of the newspaper.

But when Thomas Herndon, a UMass economics student, endeavored to replicate Reinhart and Rogoff’s results for a class assignment, he quickly found that he couldn’t. When he dug a little deeper he realized why: The paper had significant errors, including data omissions, questionable decisions about how to weight data, and a coding typo in the Excel spreadsheet they used to calculate the results.

This seems a little more serious than the previously quoted editorial statement  “Errors happen in statistical research.”

Then of course there is the Brainiac comment

The whole dust-up has also highlighted a basic issue present all along in Reinhart and Rogoff’s paper: It doesn’t address causality. That is, it doesn’t show whether high debt slows economic growth, or whether slow economic growth leads to high debt.

Lest you think that the Brainiac column is taking a purely factual stance they include the comment,

In the 1970s, he explained [Dylan Matthews], it [the UMass economics department], remade around a coterie of Marxist radicals and post-Keynesians.”

One of the knocks against the UMass researchers is that  they concentrate , among other things, on

using empirical analysis to question tenets of economic thinking…

To think that anyone would look at how things work in reality instead of basing their thinking on their personal gut reactions must be beyond the pale of anything that could be considered by the Globe editors or the Harvard professors.

In the Metro section of this same newspaper, there is an article, “Professor apologizes for remarks on economist.”  The start of the article explains,

Niall Ferguson, Harvard professor, sought to defuse a controversy Saturday when he apologized for telling an investors’ conference that the policies of influential economist John Maynard Keynes were short-sighted because Keynes was gay and had no children.

The article goes on to explain that Ferguson

was an adviser for US Senator John McCain’s 2008 presidential bid and has been highly critical of President Obama…

This article quotes a conference attendee:

Jeffrey Gundlach, founder of the investment firm Doubleline Capital, said he heard the exchange and “wasn’t offended by it in any way.”  It made him think back to how his views changed when his first child was born.

“I thought it was informative and sort of insightful”, he said.

It is one thing to get an idea about something from your personal experience.  It is quite another to assume it is a universal truth before making a reality check.

And then of course there is the gross injustice of implying that John Maynard Keynes ever espoused deficit spending under all circumstances.  His theory distinctly points out when you should do it and when you should not.  It was the irresponsible Republicans and their academic toadies that said deficits don’t matter during the phase of the economic cycle in which Keynes said the government should be running surpluses, but the Republicans ran up huge deficits.