
 What If Your Model Is Wrong? - markbao
http://www.avc.com/a_vc/2009/01/what-if-your-mo.html
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johngunderman
The problem I see with claiming that the model is wrong is that, well... the
model isn't wrong. Sure, maybe one day our economic policies will shift away
from capitalism, but we are a capitalistic nation (though with some
unfortunate socialistic leanings IMHO). The reason why economists can apply
practically the same methods to the 21st century as they did the 20th is that
there is no real difference in the fundamentals of the economy have not
changed. We still operate in a capitalistic society where supply and demand
create (relatively) efficient generation of wealth. Sure, you can buy things
on eBay and the like, and transactions on the stock market are now digital,
but the market still fundamentally behaves in the same way.

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rw
Krugman and other macroeconomists do not generally dispute those commonly-held
microeconomic assumptions. Where they differ, and what the original article is
referring to when he says "Keynes vs. Friedman", are in the macroeconomic
models. Macro is tricky because 1) we cannot ethically run controlled
experiments on the economy, and 2) there are way too many parameters one could
include. Macro is a useful but very approximate science; no serious economist
would tell you that these models are without flaws.

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Tichy
I think economic models are largely independent of the environment. Saying
"these are 20th century models applied to 21st century economics" is a bit
like saying "these are 20th century physics applied to a 21st century world" -
yeah, but physics hasn't really changed that much.

Put differently: 21st century/internet has not changed the wiring of the
economy, only the parameters. So the old models (if they are good) still
apply, just stick different parameters in there. A parameter being something
like "cost for finding a matching product for my needs".

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natmaster
How is spending money you don't have helpful? How can this NOT cause harm?

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natrius
By this logic, any loan anyone has ever taken has been a bad idea.

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benzim
The Author said "So Obama will spend upwards of a trillion dollars of stimulus
in a combination of tax cuts, building roads, bridges, and hopefully public
transportation. And it can't hurt and maybe it will help." I can think of
plenty of ways this could hurt.

Obama could create new entitlements that burden America for generations. The
money could be used to prop up failing businesses, creating a situation where
success is determined by who has the best lobbyists.

Not every loan is a bad idea, but plenty of them are. There is no guarantee
the effect of this loan will be positive.

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natmaster
And by setting a precedent for bailing out bad businesses not only are the
people who have to pay for this hurt, but everyone in the future because
businesses will be encouraged to be corrupt rather than produce goods.

This is like in the prisoners dilemma, but you force the American people to
not rat anyone out - so the corrupt businessman can get all the benefits at
the cost of the American people.

