Tuesday, June 1, 2010

What we don't know can certainly hurt us

Today Ed Glaeser writes about macroeconomic stabilization policies and our relative lack of knowledge about causes and effects, compared to topics in microeconomics.

Glaeser writes, "there are too many moving parts. Times change, so it isn’t obvious that the lessons of the 1930s – not that we can agree on those, either – are applicable today." This is one of the key problems. Underlying conditions can vary so much that it's difficult either to judge the counterfactual, what would happen without intervention, and it's tough to guess how consumers and businesses will respond.