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If you'd like some puzzles along these lines, try the North American Computational Linguistics Olympia. Puzzles and solutions are here.

While in fact Gavagai is a command that native speakers give to their dogs, and it roughly translates to: "go chase that animal and try and catch it."

I like the story. But "And if you have your own theory, it makes it seem harder to understand someone else's theory."

The second linguistic reaches the wrong conclusion because he's ignorant about the world he's studying, not because he has his own theory. Or are my own theories getting in the way of understanding yours?

The second linguist *thinks* he's reached the right conclusion, because he doesn't have a theory. As far as he's concerned, rabbits and hares are all the same, and he calls them all "rabbits".

(BTW, I've never been 100% sure on Canadian rabbits vs hares. In my (British) theory, rabbits are smaller, have shorter legs, burrows, and white meat; hares are bigger, with longer legs especially rear legs, nest in "forms" in the middle of open fields, and have dark meat. totally different animal. Dunno what "Jack rabbits" really are, but I suspect hares. "Rabbit" is IIRC originally Norman French for young "coney/cony" (the traditional Anglo Saxon word). "Leveret" (from French "lievre") is a young hare.)

Brett: but those puzzles seem to have right answers!

Yes, carefully designed to do so, but you can be tripped up by your own theory, for example that a sentence in another language would likely have an subject-verb-object order like English.

You should credit Quine.

& now I see you did in a link, which I missed the first five times I looked this over. Did I tell you my honors thesis at Cal was about the Indeterminacy of Translation & that I was able to discuss it with Quine for a couple of hours when he visited Berkeley?

I will post here, as I think that there is a lot of very intelligent people who may have answers. But prior to getting into the point, I would really appreciate if all those Nobel price winners would stop inventing primitive strawmen about what their oponents thinks such as ideas "for MMTers deficit never matter". This only makes those smart people look really dumb. Is there any solid critique of MMT from respected economist, maybe similar to this one by Brian Caplan against Austrians - http://econfaculty.gmu.edu/bcaplan/whyaust.htm If you do not have solid critique and rely on a professional feeling in your gut that there is something rotten in MMT but that you do not have time (yet) to find out what it is, then be honest and present it in such a way.

And now to what Scott objects to MMTer (Fisher effect). I spent only like short time on the whole MMT issue, but even I know that they recognize that inflation is bad and that they have at least 3 ways how to handle the situation - most obvious ones are increasing taxes and cutting spending. But there still is a third oprion - pay interest on reserves. Was it not Krugman who on his blog presented the idea that long term interest rate is sum of expectations for short term interest over time? In this way bank reserves will basically turn into T-bills and there is no longer imperfect substitution between the two. You do not need any bonds as long as markets believe that unified government (Monetary and Fiscal authority) is serious about inflation.

Now maybe there is some other reason why markets want government bonds with long maturity. Maybe as to balance the risk in their portfolios or whatever. But then start talking about them in such a way.

Don: I was hoping and expecting you to show up here! Knew you were a Quine man. Like you, I read W&O at Berkeley, but never met the man himself.

(Yep, I couldn't think of the best way to acknowledge Quine without interrupting the flow of the story. Those who have read Quine will automatically see the implicit "Gavagai" acknowledgment, and those who haven't still ought to understand the story by itself.)

Do you think the Wiki link is reasonably accurate? (It looked OK to me.)

So, do you think my Quinean point is correct?

Georgioz: Economists like Paul Krugman, Scott Sumner, and me, already understand MMT better than most followers of MMT. For example, the equation I-S+G-T+X-M=0 was not news to us. We also understand the difference between that equation as an accounting identity and as an equilibrium condition. We also understand that interpreting it as an equilibrium condition leaves open the question of what variable(s) adjust when it is not equal.

I thought Scott Sumner's "Australia vs Canada" critique was very effective. If you do a search on this blog, using words like "MMT", "Functional Finance", "Accounting" "Government Budget Constraint" you will see my very serious attempts to interpret what MMTers are saying. I can critique MMT as interpreted. But then they can always duck out by saying my interpretation is not correct. Just like in this post, it's impossible for me to tell whether they are mistaken in saying the hare is a rabbit, or if I haven't understood what they meant.

After several good-faith attempts to interpret them in some sort of way that makes sense of what they are saying, I've given up. The stuff they are saying that seems to be right under some conditions is stuff I already knew. I had already read Abba Lerner on Functional Finance. I knew about dynamic inefficiency when the growth rate exceeds the rate of interest. I know how Old Keynesians think. I used to be one myself, around 1975. They haven't helped me understand this stuff better. I found myself having to attempt to help them understand it better.

There are only so many hours in the day.

Nick, thanks for your response. I generally trust that smart people like you, Paul or Scott already thought about things that various heterodox schools suggest and that you found it not convincing. But then someone may think that Lucas, Rajan and other very smart people thought about what you are saying and ... well, we are not going anywhere.

But as you said, there may be a lot of good responses out there (e.g. I especially like your "Taxes and the value of paper money" article). Maybe all that is needed right now is to have someone gather all these critiques in easily accessible way. The last thing we need right now is another bunch of people telling us "we told you that this would happen, come to our church" next time there is a challenge to what we know about economics.

Georgioz: well, we've thought about some of them, but there's always the chance that they have thought of something useful that we haven't thought about. (Because, in general, some of the heterodox guys are pretty smart too). So that's the reason (as well as sheer idle curiosity) that I started checking out MMT in the first place (and why, in the past, I have checked out the Austrians, and Post Keynesians too). I learned some good stuff from reading the Austrians, and some of it has stuck with me, even though I'm not an Austrian. But with all these things, you run into diminishing returns. If my time was infinite, I would check out everything 100%. But it isn't. And if I check out MMT 100% there will be other stuff, probably more useful, that I won't have the time to do. So you start checking them all out a bit, but when you find the marginal returns are falling rapidly, it's usually wise to switch to something else, and start looking elsewhere for inspiration. (But there's always a chance that if you had looked just a little bit further, you might find some nuggets of gold, but who knows?)

Yep, it would be a good thing if there were some central wiki-sort of resource for all the critiques. Trouble is, few of the critics have any real incentive to set it up. There's something rather dispiriting in devoting your life to the study of a theory you think is off-base. Very few people will do it. Only when that theory is very popular does it seem like a useful way to spend your time, and even then it's not fun. So you get a few heterodox types who will spend a lot of time understanding and critiquing the "mainstream"; but very few "mainstreamers" go the other way. Sad really.

The funny/sad/ironic thing is: when a heterodox theory has something useful to say, it often (we hope) gets picked up and incorporated into the mainstream. So it's no longer seen as "heterodox" any more. This has happened to Monetarism, and to some extent to the Austrians too. And then they get the response "That's not a Monetarist/Austrian idea; everybody knows that!". So "Austrian economics" comes to mean "That subset of Austrian ideas that nobody else thinks are much good". And "Monetarism" comes to mean "Just make the money supply grow at k% per year".

I think you could say the same thing about Functional Finance. When Abba Lerner wrote it (in the 1940's???) it was a very heterodox view. Nowadays the Keynesian/monetarist mainstream accepts most of it, with qualifications. So there's this sort of time-warp disconnect in arguing with MMTers (Functional Finance is a large part of MMT). A bit like finding an *American* soldier still fighting WW2 in the Philippine jungle, trying to kill Japanese tourists.

Does the second linguist reach the wrong conclusion? Maybe neither the native speaker or the second linguist speak a language that recognizes a difference between rabbits and hares (so that both rabbits and hares are "rabbits" or "gavagai"), or perhaps both group animals into the same family, so that both rabbits and hares are "rabbits" or "gavagai. We do the same thing with cats, dogs and fish. If you replaced rabbits and hares with guppies and goldfish, a linguist wouldn't be crazy to conclude that "gavagai" means "fish".

Bob: yep, agreed. But the first linguist does recognise this possibility, when he writes "Gavagai = Rabbit or hare?" It's just that he's not sure if he's right.

Reminds me of the Borges story of the Chinese encyclopedia entry on "animals".


You can imagine both linguists' surprise when the native speaker sees a fox or squirrel and says 'Gavagai'.

As Frances said, the native could actually be instructing his dog (or the linguist)"go chase that animal and try and catch it." It has nothing to do at all with identifying a rabbit or hare.

I like the Borges story, it reminds us of the possibility that "gavagai" might mean "things that are tasty to eat"

rogue, Bob: yep. It get's even worse if we think the native speaker might have bad eyesight. Or might even be lying to us. He might be trying to say that it is "poisonous", because he doesn't want us to catch it and eat it.

The "Principle of Charity" (Quine, or Davidson?) said you choose that translation which maximises the truth-value of what the native-speaker is saying (roughly). But that becomes especially problematic if the native speaker has different beliefs from you. Understanding a theory that contradicts your own is hard.

you really don't understand that there is a difference between endogeneous and exogeneous theories of the money supply?

this is a fundamental difference, and it matters. there is a beef here

you vs. mmt basically boils down to the fact that you think reserves have a power that the post-keynesian literature doesn't. at least that's what i've gleaned

"So there's this sort of time-warp disconnect in arguing with MMTers (Functional Finance is a large part of MMT). A bit like finding an *American* soldier still fighting WW2 in the Philippine jungle, trying to kill Japanese tourists."

really? the developed world is right now obsessed with austerity. the us is massively cutting it's own budget for reasons that are entirely contrary to the arguments set forth by functional finance. these fights matter more that they do in a long time. maybe it's different in canada? or just within academia?

sorry for the triple post should have condensed them into one

Nick Rowe: The funny/sad/ironic thing is: when a heterodox theory has something useful to say, it often (we hope) gets picked up and incorporated into the mainstream.

Thinking out loud:What happens when the paradigm doesn't share the same methodology or ontological assumptions? For instance, how would an open system view of the economy -- that is, the economy is a complex adaptive system which evolves over time -- fit into the mainstream paradigm, where you have a closed system, with long-run equilibrium?

"The second linguist writes in his notebook "Gavagai = Rabbit, confirmed".

OC, he should write, "not disconfirmed", or "second instance", or the like. :) Even if he is a Bayesian, he does not have anything like enough evidence for confirmation.

Yes, it is difficult to interpret someone else's theory. I remember reading Sartre and being startled at something he wrote that seemed to contradict what he had written 100 pages before. I managed to reconcile the two statements by changing my interpretation of what he meant by a physical law. I had originally assumed that he meant what I meant, a set of facts and relations. I now think that he meant a verbal formulation.

Am I right? I don't know, but I am pretty sure that I misunderstood Sartre at first. If Sartre were alive, I might be able to check my interpretation with him. But Sartre is dead, so his theory is now en soi. ;) If my present interpretation, when applied to the whole corpus of Sartre's work, avoids contradiction, then I may say that I understand him. Not that there are not an infinity of consistent interpretations of Sartre, but choosing among them is another matter. ;)

Remember the old joke about how the saying, "Out of sight, out of mind," was translated into French and then back into English, to become, "Invisible idiot"? If you cannot rephrase something that someone else has said in a way that they agree with, how can you say that you have understood them? If your interpretation of what someone else has said leads to a falsehood, maybe they are wrong, or maybe your interpretation is wrong. Obviously.

As for MMT, I am a consumer, not an advocate. In the spring of 2010 they were the main voices opposing the debt/deficit fear mongers who were saying that the US was in danger of bankruptcy. It is no critique of MMT to say that the US is in danger of bankruptcy if you use a non-standard interpretation of bankruptcy. Nor is it a critique to say that MMT says that deficits do not matter. Even I know that MMT does not say that. (It was Dick Cheney who said that. ;)) Krugman's latest salvo does seem to have uncovered an actual disagreement, however. At a time when investors, for whatever reasons, do not want to buy US treasuries, if you increase bank reserves, will private banks increase their lending? Krugman says yes, but MMT says that increasing bank reserves (at any time) does not necessarily lead to new lending. We appear to have a possible empirical test of the two theories. :)

Correction: I see that I have misremembered Krugman. He prefaced his claim that the banks would make new loans based upon an increase in reserves by assuming the existence of lending opportunities. Oops! :)

But that leads me to ask Krugman, under what circumstances are there lending opportunities for private banks in US dollars, but investors do not want to buy treasuries? And to ask MMTers, under what circumstances are there lending opportunities for private banks, but they do not lend, even when their reserves are increased?

just to repost, in case it got forgotten:

Nick Rowe: The funny/sad/ironic thing is: when a heterodox theory has something useful to say, it often (we hope) gets picked up and incorporated into the mainstream.

Thinking out loud:What happens when the paradigm doesn't share the same methodology or ontological assumptions? For instance, how would an open system view of the economy -- that is, the economy is a complex adaptive system which evolves over time -- fit into the mainstream paradigm, where you have a closed system, with long-run equilibrium?

mdm: I had only half forgotten. I thought your point was a good one, and it has been running through my mind. But I don't have a good answer. You recognise that an alternative paradigm has got one (or more) good point, but not one you can easily fit into your own.

Sometimes, it's just a question of waiting. It's not immediately obvious where and how to fit it in. But then there's some other change, that lets you incorporate it. Like how imperfect competition allowed us to incorporate stuff from economic geography that we couldn't before. (Not my area, so don't trust me on that).

But my general response to your question: I don't know.

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