Friday, December 28, 2012

When Will the State of Macro Be Good?

Responding to a debate between Krugman and Steve Williamson on the current state of macroeconomics, Noah Smith asks, Macro, what have you done for me lately? The entire post is definitely worth reading, including the updates and comments. With apologies, I have copied several paragraphs here:
So if collegiality and similarity of technique are measures of a field's health, then macro is doing quite well. But I feel like there's a larger question: What has macro done for the human race in the last 40 years? How are we better off as a result of all this macro research effort?
So macro has not yet discovered what causes recessions, nor come anywhere close to reaching a consensus on how (or even if) we should fight them.
Given this state of affairs, can we conclude that the state of macro is good? Is a field successful as long as its members aren't divided into warring camps? Or should we require a science to give us actual answers? And if we conclude that a science isn't giving us actual answers, what do we, the people outside the field, do? Do we demand that the people currently working in the field start producing results pronto, threatening to replace them with people who are currently relegated to the fringe? Do we keep supporting the field with money and acclaim, in the hope that we're currently only in an interim stage, and that real answers will emerge soon enough? Do we simply conclude that the field isn't as fruitful an area of inquiry as we thought, and quietly defund it?
And who do we call in to evaluate the health of a science? If we only rely on insiders to evaluate their own field, we are certain to run afoul of vested interest (If someone asked you "How valuable is the work you do", what would you say?). But outsiders often lack the relevant expertise to judge someone else's field.
It's a thorny problem. And (warning: ominous, vague brooding ahead!) it seems to be cropping up in a number of fields these days, from string theory in physics to "critical theory" in literature departments. Are we hitting the limits of Big Science? Dum dum DUMMMM...But no, this question leads us too far afield...
In general my views on the matter are well represented by Smith. My early frustrations with economics were largely because I thought pursuits within macro had gone far afield from trying to understand business cycles in a modern economy. Since that time, I have been inspired by a group of competing theories that incorporate money and the financial system into macroeconomic models. My hope and belief is that these currently heterodox methods will, in time, be able to largely explain what causes recessions and how to fight them. If, and when, that occurs, the state of macro will be good.

Also see:
The New Classical Revolution: Technical or Ideological? by Simon Wren-Lewis


  1. A view apparently not widely shared, so let me repeat it again: If the important thing is to understand the economy -- what causes recessions, say -- then economists would do well to pay more attention to the economy and less attention to their squabbles.

    1. Well I certainly won't disagree with that statement. The common theme throughout my first semester of graduate macro was the theories were not particularly accurate empirically.