“The Stimulus is Too Small”: Channeling Karl Popper

January 10, 2009

by Mario Rizzo

 

Paul Krugman is now saying  that the Obama prototype of a stimulus plan is not enough. Other, more cautious economists are saying there is no economic evidence that it will be enough. We don’t even have a Congressional bill yet but macroeconomists like to think in aggregates and the specific content of the plan is not, I gather, all that important.

 

Now, of course, this is probably just ordinary academic uncertainty. Yet from the perspective of the philosophy of science, this seems like the beginning of what Karl Popper and Hans Albert, philosophers who emphasized the importance of rational criticism of theories, called an “immunizing strategy.” (See Karl R. Popper, The Logic of Scientific Discovery, Chapter. 1.)   

 

For example, suppose the fiscal stimulus policy is perceived to have failed. Has the theory been refuted? “No” will be the likely answer because the stimulus was not large enough. But if we are indeed out of the realm of the available evidence then such a statement is purely ad hoc – a fancy term for an expedient intellectual invention. Today’s Keynesians are getting nervous. They are either at the threshold of their greatest victory or at the precipice of their greatest failure. They want to be prepared for either.

 

Let’s see what happens.

 

12 Responses to ““The Stimulus is Too Small”: Channeling Karl Popper”

  1. Jake Young Says:

    I don’t know if you have read this book, but it is also what Philip Tetlock in his book Expert Political Judgment calls a “close-call counter-factual.” When what pundits say will happen doesn’t happen, they say that it was still more likely to have happened — but the probable event just didn’t occur.

    Tetlock argues that even experts are horrible at making probabilistic predictions about events. When what we wanted to happen doesn’t, we all both what we wanted and what we estimated would happen to fit events.

  2. Jake Young Says:

    I meant to say: “When what we wanted to happen doesn’t, we all change both what we wanted and what we estimated would happen to fit events.

  3. Barbar Says:

    It’s worth pointing out that confirmation bias afflicts nearly all political commentators. If you support the Iraq War, for instance, then the lack of terrorist attacks in the US in recent years vindicates Bush’s foreign policy (“Bush has kept us safe”), just as an uptick in terrorism would have (“terrorism is an existential threat and we need to kick butt”). Perhaps more relevantly, I’ve seen some people remark that the current financial situation was precipitated by government interference in the housing market, and so if anything the collapse of institutions like AIG and Lehman Brothers should increase, not decrease, our faith in the power of markets.

    If a “small” stimulus fails to work, Krugman’s position will look more defensible if the stimulus has *some* impact than if it has no impact at all. If it’s not possible to assess the impact of the stimulus — because reality only happens once and we have no way of objectively knowing what would have happened in the absence of a stimulus — then the scientific problem here is much deeper than an example of an immunizing strategy. In that case, macroeconomics may not really be a scientific field of inquiry at all, and lots of important statements about the economy are fundamentally unfalsifiable.

  4. RickC Says:

    Bob Higgs has some choice things to say over at the Independent Institute on the bankruptcy of mainstream economics, especially macroeconomics. That the endeavor is not scientific seems clear to me.

    Mario, they will claim validation no matter what happens. It is frustrating because the logic is circular and therefore impervious to critique. We are dealing with a religion here.

  5. Bill R Says:

    No, I will wait with bated breath for the credible unbiased Jacob Weisberg’s pronouncement. About Paul Krugman and his Keynesian ilk he will surely remark that “Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.” No doubt in its failure he will chide “Haven’t you people done enough harm already?”. Maybe I shouldn’t hold my breath at all.

  6. Bill R Says:

    Paul Krugman is now explicit in his concern about the ideological consequences. “I’d add that there may also be a political tipping point: if the stimulus package is too weak, conservatives will pile on after it fails to deliver, claiming that the whole concept has been discredited.”

    http://krugman.blogs.nytimes.com/2009/01/11/a-scary-analogy/

  7. B S Says:

    ‘The Stimulus is too Small”

    Would it help if each and every man, woman and child borrowed $5,000 and gave it to the US Government?

    How about $10,000? $20,000?

    Well the fact is that each man woman and child has currently borrowed and gave the US Government $35,000 each.

    The 10.5 trillion dollar debt of US Government divided by 300 million people is $35,000 each. By the end of 2009 it will be well over $40,000 each.

    Has spending helpt in the past?

    Loose credit put us in the financial “crisis” situation we are currently end. It just so funny that the same idiots in government are suggesting that the banks need to loan money to businesses and people to fix the problem that was created by loaning money that should not have been lent.

  8. Paul Goldsmith-Pinkham Says:

    Mario,

    In addition, Popper specifically agrees with Duhem’s irrefutability thesis: “In point of fact, no conclusive disproof of a theory can ever be produced; for it is always possible to say that the experimental results are not reliable, or that the discrepancies … between the … result and the theory are only apparent and they will disappear with the advance of our understanding.” [Popper, 1965, p. 50, cited in Blaug, 1980]

    What you point out in Krugman’s discussion is not exclusive to him as either a columnist, economist or scientist. What makes his discussion more palatable is that he wants more stimulus ex ante, and has very specific views about how the money should be spent (not on tax cuts, on short-term and long-term investment, and as soon as possible). Given his statements on multipliers stated in the “Obama Gap” column (1.5 on public spending) and an output gap of $2 trillion, one could assume that Mr. Krugman would prefer spending of $1.33 trillion (double of what President-elect Obama is suggesting).

    Immunizing stratagems are often worthy of disdain if suggested after the fact. However, given Mr. Krugman’s vehement statements encouraging significantly higher levels of spending, it seems unfair to accuse him of creating an irrefutable thesis.

  9. Mario Rizzo Says:

    Paul,

    I don’t think I am being unfair to Krugman. My remarks above rely on the fact that the theory and evidence are not sufficient to support any particular conclusion of how much stimulus it will take to “work.” So suppose Obama does exactly what Krugman suggests and it doesn’t work. Krugman could argue: “My mistake was I suggested too little” –not that fiscal stimulus is a faulty remedy. If people were arguing for a given amount of stimulus based on what they believed was strong evidence then I wouldn’t be concerned about immunizing strategies. In other words, what I want to know is what would have to happen for stimulus advocates to say, “Stimulus is a faulty remedy” instead of “Our mistake was to advocate too little.”


  10. What the proponents of the package should do it specify with some precision what they think some major component of the package would achieve, then implement that part and monitor what happens.
    If your car engine is misfiring there could be three or four remedies so you try one at a time (in some sensible sequence) because if you do everying at once you might fix it (if you are lucky) but you wont know what was the most effective intervention.
    Incidentally that is Popper’s approach to experimentation in social systems. See The Poverty of Hisoricism.

    http://www.the-rathouse.com/2008/Poverty-of-Historicism.html

    Memo to Mario: Tread carefully on my turf:)

  11. Mario Rizzo Says:

    I wasn’t aware that you channel Popper too.


  12. [...] The Stimulus is Too Small [...]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,731 other followers

%d bloggers like this: