Is economics a science? Not yet, apparently:
- If I Google “predictions liquidity trap model,” the first author who comes up is me.
- The second item which comes up is this article, which suggests a test: “A random coefficient estimation procedure is used to estimate the time profile of the interest rate elasticity of Japanese money demand. Contrary to the prediction of the liquidity trap hypothesis, the absolute value of the elasticity is found to decline at lower levels of interest rates.”
Is anyone right now talking about this test, much less performing it? I don’t see it. Is anyone mentioning that the test judges against the model, at least for Japan?
- Toss in Google Scholar and the first item is Bennett McCallum arguing, on largely empirical grounds, that a liquidity trap is unlikely.
- Liquidity trap proponents cite the confirming evidence when they see it, but do they discuss the disconfirming evidence? Are negative supply shocks in fact expansionary? Do asset price markets reflect this scenario? Were big wage hikes expansionary in the Great Depression? Scott Sumner has crushed that view, with an eyeball scan of the numbers, along with some simple narrative.
- If I Google “predictions liquidity trap negative supply shock,” the first author who comes up is…me.
I conclude that economics is not yet a science. Economics is most like a science when people do not care about the outcome of the argument.