Finančna kriza iz leta 2007, iz katere se razviti svet še ni izvil, je zasejala velik dvom v primernost linearnih ekonomskih modelov z racionalnimi posamezniki in reprezentativnimi agenti, katerih samouravnavajoče se delovanje gospodarstvo vedno znova vrača nazaj v ravnotežje (steady state). Med ekonomisti glede tega, ali sedanja finančna kriza pomeni konec mikrofundiranih linearnih makro modelov ne boste našli soglasja, tudi konvergence v pogledih ne.

Olivier Blanchard, glavni ekonomist IMF, sicer pa profesor na MIT, je pred meseci zapisal, da so linearni modeli lahko povsem solidno orodje za razumevanje in uravnavanje gospodarstev, dokler ekonomski politiki (zakladnici in centralni banki) uspeva gospodarstvo ohranjati v normalnih okvirjih (oziroma v “koridorju”, kot to poimenuje Roger Farmer).

No, čez vikend se je glede tega razvila zanimiva diskusija med Frances Coppola, Bradom DeLongom in Rogerjem Farmerjem. Frances Coppola ni bila prizanesljiva z Blanchardom:

The models that macroeconomic practitioners developed reflected this essentially linear view. Blanchard went on to observe that although macroeconomists did not ignore the possibility of extreme tail risk events, they regarded them as a thing of the past in developed countries. Western governments had inflation licked because of inflation-targeting central banks. Bank runs had been solved by deposit insurance and central bank lender of last resort functions. Sudden disastrous reversal of capital flows and balance of payments crises were problems for emerging market economies, not for developed European economies. And anyway, central banks could prevent or stop market “panics” by flooding the place with liquidity. If you get the policy settings right, linear models will work.

Except that they won’t. And that is because these models are not realistic views of how the economy actually works. Representative agents aren’t actually representative of anyone. Rational expectations are driven as much by emotion as logic. Behavioural economics is still in its infancy, but we are now beginning to understand just how much humans are driven by instincts such as herding. And nowhere is this more apparent than in the finance industry.

The financial crisis drew to our attention – once again – the crucial role of the finance industry. No industry that can cause such havoc when it goes wrong should ever be regarded as irrelevant or superficial. On the contrary: financial institutions perform the functions of capital allocation and money transmission which are so vital to our economy. Disruption or interruption of these functions, even if only for a brief time, has terrible consequences.

…

It is fair to say that the academic macroeconomists have done a lot of soul-searching since the financial crisis, and there are important signs that things are beginning to change. But some of the most influential people in macroeconomics have spent their lives developing theories and models that have been shown to be at best inadequate and at worst dangerously wrong. Olivier Blanchard’s call for policymakers to set policy in such a way that linear models will still work should be seen for what it is – the desperate cry of an aging economist who discovers that the foundations upon which he has built his career are made of sand. He is far from alone.

Čez vikend se je ob Coppolin zapis obregnil Brad DeLong in se postavil v bran linearnim modelom, rekoč, da so ti lahko dobro orodje ekonomske politike, če (ponazorjeno z IS-LM modelom) ekonomski politiki uspeva gospodarstvo obdržati na naraščajočem delu LM krivulje in preprečiti, da bi padlo na vodoravni del krivulje (v likvidnostno past):

That being said, I think that Olivier’s intuition is in large part sound. It should not be beyond the government to make sure that there is enough debt outstanding in the economy that even high-quality short-term debt sells for less than par. And if high-quality short-term debt sells for less than par then there is a powerful and predictable incentive to spend and not hoard cash. And if your banking system allows the central bank to control the stock of cash–then, voila!, the problem of demand management is well on the way to being solved.

To put it another way: as long as you can keep the economy on the upward-sloping rather than the flat part of the LM curve, linear models should be good enough for practical purposes. And the government has mighty fiscal policy and credit policy tools at its disposal that it can use to keep high-quality bonds, even short-term bonds, from going to par.

The key questions of macroeconomic political economy then are not the questions of the construction of nonlinear multiple-equilibrium models that Frances Coppola wants us to study. They are, instead, the questions of why ideological and rent-seeking capture were so complete that North Atlantic governments have not deployed their fiscal and credit policy tools properly since 2008.

Coppola DeLongu odgovarja z analogijo iz medicine, in sicer s primerom prehlada in možganske kapi. Leta 2007 gospodarstva ni prizadel prehlad, pač pa kap, in kapi se ne da zdraviti s čajem, antibiotiki in počivanjem. Treba je razumeti, zakaj je prišlo do kapi, da bi jo lahko (morda še) pozdravili in preprečili v prihodnje. Tega pa se ne da s samouravnajočimi se linearnimi modeli, pač pa z modeli, ki imajo močno integrirane finančne sektorje in njihovo veliko volatilnost in ki dopuščajo multipla ravnotežja:

To be fair, the economics profession seems to be waking up to the idea that 2008 and its aftermath was no ordinary recession. Central banks and supranational institutions seem to be leading the way on recognising the monetary nature of the modern economy and the critical importance of accurate modelling of the financial system: Haldane at the Bank of England, Borio at the BIS and various researchers at the IMF have all explored non-linear modelling for the financial economy. Borio has called for financial cycles, which are longer than business cycles and seem to be increasing in amplitude, to be incorporated into economists’ models. But the financial system is known to be in disequilibrium much of the time. I confess I find it difficult to see how a system that is normally far from equilibrium can be adequately represented by a general equilibrium model, but then I am not a mathematician. I am encouraged therefore to see that Borio seems to share my concerns (my emphasis):

Modelling the financial cycle raises major analytical challenges for prevailing paradigms. It calls for booms that do not just precede but generate subsequent busts, for the explicit treatment of disequilibrium debt and capital stock overhangs during the busts, and for a clear distinction between non-inflationary and sustainable output, ie, a richer notion of potential output – all features outside the mainstream. Moving in this direction requires capturing better the coordination failures that drive financial and business fluctuations. This suggests moving away from model-consistent expectations, thereby allowing for endemic uncertainty and disagreement over the workings of the economy. It suggests incorporating perceptions of risk and attitudes towards risk that vary systematically over the cycle, interacting tightly with the waxing and waning of financing constraints. Above all, it suggests capturing more deeply the monetary nature of our economies, ie, working with economies in which financial intermediaries do not just allocate real resources but generate purchasing power ex nihilo and in which these processes interact with loosely anchored perceptions of value, thereby generating instability. In turn, this in all probability means moving away from equilibrium settings and tackling disequilibrium explicitly. 

So, sorry Brad, but I do not think I am wrong to say that the economics profession’s love affair with linear models must be ended. Multiple equilibria, disequilibrium and non-linearities are the new flame.

Coppolovi pritrjuje Roger Farmer, ki je razvil enega izmed takšnih modelov splošnega ravnotežja, kjer se gospodarstvo premika med različnimi možnimi (multiplimi) ravnotežji. Farmer pravi, da bi morale centralne banke prevzeti večji nadzor nad volatilnostjo finančnih trgov. Proti tej volatilnosti se posamezniki ne morejo zavarovati, to lahko naredi samo vlada (centralna banka). Pri tem pa ji en sam instrument (obrestna mera) ne more biti dovolj:

… In my view, central banks and treasuries must recognize their responsibility to counteract the wild swings in asset markets that are the root cause of financial crises.

Horror! Surely, we should leave the allocation of financial capital to those who know best. The decisions of billions of people, freely contracting in markets, can surely make better choices that a cadre of appointed mandarins who purport to understand the economy  better than the markets. Not so.

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What can possibly go wrong with private markets? Quoting again from my Guardian op Ed,

Economic theory teaches us that free trade in markets leads to efficient allocations. But a precondition of that doctrine is that everyone who is affected by trade is free to participate in the market. That condition does not hold in the context of the financial markets. We cannot buy insurance over the state of the world into which we are born.

The problem of excess financial volatility is one that cannot be solved by any individual; but it can be solved by government. The Treasury has the power to make commitments on behalf of future generations. The FPC, by exercising that power on behalf of the Treasury, can make trades in the financial markets that capitalise on the inefficient boom-bust financial cycles that are the source of so much human misery. In this way, the FPC will at the same time stabilise volatility in the market and promote financial stability.

There is a growing awareness that free trade in the financial markets does not lead to Pareto efficient outcomes. And, as we have learned only too painfully; pain on Wall Street leads to pain on Main Street. Monetary policy cannot ensure financial stability and stable prices with only one instrument. We must manage the risk composition of the central bank’s balance sheet as well as its size.

Diskusija se nadaljuje…