What If Your Model Is Wrong?

http://www.avc.com/a_vc/2009/01/what-if-your-mo.html

by markbao • 18 years ago

23 15 18 years ago

avc.com

natmaster5• 18 years ago

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

ardit33• 18 years ago

that's so simplistic.

Back home, (ex-communist country), at the early 90s, the infrastructure was in pieces. I remember it took about 1.2 hrs, to travel 30 miles between the two biggest cities (one is a port, the other is the capital), of the country, on a two lane windy road. It was prone to accidents, traffic, frustration (every time when we wanted to go to the beach it was clogged).

The gov. had no money. It had to borrow some from FMN, and foreign dona tors, and build a highway, a modest 4 lane highway. That 70 minutes turned in to 25-mins. Transport became much much easier, faster, and traffic manageable. And shipments a lot easier.

The huge relief that came from the new road war worth the interest on that borrowed money, (money my government didn't have at the time), paid and more.

If you spending on things that have clear future net economic output, there is nothing wrong with borrowing from future income.

.. The problem is when the government borrows money (from future generations output), on dubious projects, or even worse, WARS.

natrius3• 18 years ago

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

natmaster5• 18 years ago

The idea of a loan, is that you'll pay it back at some point.

benzim• 18 years ago

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.

johngunderman• 18 years ago

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.

natmaster5• 18 years ago

http://en.wikipedia.org/wiki/Austrian_School

rw• 18 years ago

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.

Tichy• 18 years ago

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".

What If Your Model Is Wrong?

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