https://ccl.yale.edu/sites/default/files/files/The Trouble with Macroeconomics.pdf
Takeaway is in the first sentence of the abstract.
Macroeconomics are dead.
Protectionism
- Thread starter The Tariff King
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https://ccl.yale.edu/sites/default/files/files/The Trouble with Macroeconomics.pdf
Takeaway is in the first sentence of the abstract.
Macroeconomics are dead.
jpx7
Very Flirtatious, but Doubts What Love Is.
I just read the abstract, but does he not have grad students at NYU that could’ve given that a copy-edit?
I think what I’ve linked to was actually a working draft. The final product is about six pages longer (and I assume properly edited - but these are numbers folk).
nsacpi
Expects Yuge Games
"Macro models now use incredible assumptions to reach absurd conclusions."
It should be noted that this is the latest salvo of an intellectual dispute in macroeconomics that has been brewing for decades. His critique is mainly directed at the so-called Real Business Cycle Theory. Economists have won Nobel Prizes for their contributions to this theory and I agree with Romer it is a travesty that it has gained the influence that it has. Anyhow it is a civil war in macroeconomics that will eventually be resolved someday. I am amazed that it has been going on as long as it has been.
nsacpi
Expects Yuge Games
This anecdote is a gem:
In private correspondence, someone who overlapped with Prescott at the University of Minnesota sent
me an account that reminded me of what it was like to encounter “negative technology shocks” before
we became numb to them:
I was invited by Ed Prescott to serve as a second examiner at one of his student’s preliminary
oral. ... I had not seen or suspected the existence of anything like the sort of calibration
exercise the student was working on. There were lots of reasons I thought it didn’t have
much, if any, scientific value, but as the presentation went on I made some effort to sort
them out, and when it came time for me to ask a question, I said (not even imagining that the
concept wasn’t specific to this particular piece of thesis research) “What are these technology
shocks?”
Ed tensed up physically like he had just taken a bullet. After a very awkward four or five
seconds he growled “They’re that traffic out there.” (We were in a room with a view of some
afternoon congestion on a bridge that collapsed a couple decades later.) Obviously, if he
had what he sincerely thought was a valid justification of the concept, I would have been
listening to it ...
In private correspondence, someone who overlapped with Prescott at the University of Minnesota sent
me an account that reminded me of what it was like to encounter “negative technology shocks” before
we became numb to them:
I was invited by Ed Prescott to serve as a second examiner at one of his student’s preliminary
oral. ... I had not seen or suspected the existence of anything like the sort of calibration
exercise the student was working on. There were lots of reasons I thought it didn’t have
much, if any, scientific value, but as the presentation went on I made some effort to sort
them out, and when it came time for me to ask a question, I said (not even imagining that the
concept wasn’t specific to this particular piece of thesis research) “What are these technology
shocks?”
Ed tensed up physically like he had just taken a bullet. After a very awkward four or five
seconds he growled “They’re that traffic out there.” (We were in a room with a view of some
afternoon congestion on a bridge that collapsed a couple decades later.) Obviously, if he
had what he sincerely thought was a valid justification of the concept, I would have been
listening to it ...
https://www.nytimes.com/2017/02/07/magazine/the-major-blind-spots-in-macroeconomics.html
Uniquely in the social sciences and humanities, macroeconomics was developed with a specific, real-world purpose, and a negative purpose to boot: to stop anything like the Great Depression from ever happening again. Given this goal — to avert systemic crises and downturns — the credit crunch and the Great Recession were, for macroeconomics, an intellectual disaster.
In retrospect, the failure of the discipline to predict and prevent the crisis was based on deep conceptual faults. One of these concerned a mysterious refusal to engage with the role of the banking and finance system in the economy. Another was the assumption that the discipline makes about individual motivations, assuming that individuals “optimize” their decision-making to behave, in economic terms, rationally. This is a convenient intellectual shortcut for building models, but it is also a fiction, as we know not just from our own human experience but even from within economics itself, where microeconomics has recently made exciting progress in the study of human irrationality, bias and cognitive error. It is a matter of provable fact that our decision-making is not entirely rational. Economic models built on the premise of our rationality will always have a creaky underpinning.
Uniquely in the social sciences and humanities, macroeconomics was developed with a specific, real-world purpose, and a negative purpose to boot: to stop anything like the Great Depression from ever happening again. Given this goal — to avert systemic crises and downturns — the credit crunch and the Great Recession were, for macroeconomics, an intellectual disaster.
In retrospect, the failure of the discipline to predict and prevent the crisis was based on deep conceptual faults. One of these concerned a mysterious refusal to engage with the role of the banking and finance system in the economy. Another was the assumption that the discipline makes about individual motivations, assuming that individuals “optimize” their decision-making to behave, in economic terms, rationally. This is a convenient intellectual shortcut for building models, but it is also a fiction, as we know not just from our own human experience but even from within economics itself, where microeconomics has recently made exciting progress in the study of human irrationality, bias and cognitive error. It is a matter of provable fact that our decision-making is not entirely rational. Economic models built on the premise of our rationality will always have a creaky underpinning.
nsacpi
Expects Yuge Games
I will say this in defense of the field. Economics is hard. And it is for the most part not as precise and tidy as physics and chemistry.
But that does not mean it is useless. There are some models that give fairly good guidance for the basic issues that face policymakers. And it helps to have policymakers capable of understanding them. Few people realize how lucky we were to have someone like Ben Bernanke at the helm of the Fed during the great recession. It could have been much worse. See Great Depression for what can happen when adverse shocks are combined with a poor policy response.
But that does not mean it is useless. There are some models that give fairly good guidance for the basic issues that face policymakers. And it helps to have policymakers capable of understanding them. Few people realize how lucky we were to have someone like Ben Bernanke at the helm of the Fed during the great recession. It could have been much worse. See Great Depression for what can happen when adverse shocks are combined with a poor policy response.
nsacpi
Expects Yuge Games
One of my professors in grad school joked that micro was what economists knew and macro was what they didn't know. That made macro more interesting for me.
nsacpi
Expects Yuge Games
This part is fair and unfair. It is a fair criticism of what can be called the mainstream. But there have been lots of economists somewhat outside the mainstream who have done great work in some of the areas referenced above. And their insights have increasingly made their way into mainstream research.