Progress in Academic Macroeconomics

Leading macroeconomists know that they don’t know how our aggregate economy operates.  As reported in today’s WSJ, these researchers are pursuing a variety of different empirical strategies in order to make progress.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

16 thoughts on “Progress in Academic Macroeconomics”

  1. MEK wrote: Leading macroeconomists know that they don’t know how our aggregate economy operates.

    So here’s my question: Then why are they considered “leading macroeconomists”?

    When are folks going to realize that economics is a big flim-flam?
    I assume some of these leading macroeconomists actually are consulted, give advice, and have their advice taken, all while knowing that they don’t really understand. So now we’re just trying a “variety of different empirical strategies in order to make progress”.

    1. I love it! “We have no idea what we’re doing, so, we try one thing and another at random in hopes something will hit! “

  2. So the freshwater line has moved from “we know everything, ergo the Keynesians are wrong” to “nobody knows anything, ergo the Keynesians are wrong”?

  3. And why should we believe that this (pursuing a variety of different empirical strategies) will have any effect?

    Economics as a discipline is 200+ years old. Throughout that time it’s had frequent run-ins with reality, and every time it has chosen to go with its theology rather than reality. (A relevant and recent example is David Graeber’s discussion, at the beginning of _Debt_, of the gap between the economists’ claims of how money arose and the actually existing historical record. That gap has been known for over a hundred years, and academic articles about it have even appeared in the sorts of journals economists read — Graeber referred to one from, I believe 1919. Has that had ANY effect on what appears in econ textbooks?)

    “Leading macroeconomists know that they don’t know how our aggregate economy operates.” But they are UTTERLY convinced of certain “truths” like
    – the only way to persuade a man to do something is via money AND
    – the more money offered, the better a job will be performed AND
    – there is nothing done by “the government” which can’t be done better by the private sector.
    And all the empirical evidence in the world is not going to disabuse them of these facts.

    1. I think this is unfair.

      Economics does not purport to describe individual behavior. It is not psychology. Its assumptions are about aggregates. Nor does it suggest that money is the only motivator.

      There are, possibly, some economists who believe government is inevitably hopelesly incompetent, but, just as with non-economists who hold this view, it is just a sort of cartoonish ideology rather than a serious part of the discipline.

      Nor do I think they are always wrong. Plenty of economists urged a much larger stimulus. I think they were right. Plenty urged aggressive Fed policy. I think they were right.

      1. A large part of macro-economics is supposedly about what causes crashes, and to how to fix them. This is clearly an issue of psychology, and attempted fixes are not going to work if the psychological model is invalid. I mean, WTF is the whole point of the austerity debate except that some are claiming austerity will “restore confidence”.

        Likewise claims that reducing taxes will increase economic growth are indeed a claim that money is the sole motivator — otherwise why is there not scope to argue that the money spent by government may well be more usefully spent than in returning it to people who are already wealthy?

        1. Austerity is hardly economic orthodoxy. Indeed, it is largely a political position rather than an economic one. Similarly, the notion that tax cuts for the wealthy are the best form of stimulus is, to say the least, motivated more by politics than economic theory, which in fact implies that government spending or, alternatively, reducing taxes on lower income people is vastly more effective.

          You seem to be taking right-wing economic ideas, many of which are pretty silly, as standard economic theory. That’s not a good idea.

    1. Do a Google search for the article and take the link–it should get you to a non-gated version.

      1. Thanks.

        I came up with this.

        If that’s the article Kahn is referring to the post seriously misstates what it says.

        1. Bernie, I can’t use the link you posted. It may be a problem in my browser; I don’t know. Here is one that will copy-and-paste into any browser:

          BTW, I agree with your assessment. The article discusses several “Well, duuuh…” truisms and observations, rather than any empirical studies leading to new models, or even new answers to specific questions.

          There is one “sort-of” exception, right at the end. It’s far from a new theory or a new model, but at least it’s an empirical answer to an important question:

          “Scholars are divided over whether stimulus during a recession exerts a “multiplier” effect, sparking businesses and individuals to spend. Some economists say more government spending crowds out investment that might otherwise have come from the private sector. To measure stimulus’s effects, Ms. Nakamura and Columbia’s Jón Steinsson studied how military-procurement spending affected states’ economies. Their research found that when interest rates are near zero and the economy is under stress, $1 in government spending can generate more than $1.50 in demand.”

          Maybe on at least that one little issue, the “austerity economists” will have to shut up for a while.

          Or maybe that’s just a pipedream of mine.

          1. The link doesn’t work in my browser either. Sorry. I must have made a mistake in formatting or something.

            Yours does, though, and it links to the same article. It seems to mostly talk about some questions where research is going on or might be useful. Such questions exist, obviously, in all active fields of study. Do chemists know everything there is to know about chemistry? Of course not, but no one would write that “Leading chemists know that they don’t know how chemical reactions work.”

  4. “Scientific method” requires that there be a hypothesis, which can then be tested empirically.

    Or so says the simplistic grade-school understanding of science. Realistically, there are problems which seem so baffling that no hypothesis suggests itself to the intuition. What the scientists do, then, is to collect data … LOTS of data … and try to discern patterns in the data, which will then suggest hypotheses that can be tested. And then they test the hell out of their new hypotheses.

    A “variety of empirical strategies” suggests a snow job–substituting a two dollar phrase for a ten cent truth. Namely, “we’ve run out of models that we can show are true, so we’re gonna collect some more data, and hope that the new data will suggest one or more new models.”

    But implicit in the approach of (1) collect a lot of data, (2) develop hypotheses that fit the data, and (3) test the hypotheses, there is one immutable truth about science:

    You MUST NOT test the hypotheses with the same data that suggested them. You must collect NEW data to test your hypotheses.

    Macro-Economists have a hard time with that. For one thing, they can’t do controlled experiments. For another, the data collection has to span long time periods, during which the environment is continually changing, because they can’t control that either. And finally, they shouldn’t be expected to make value judgments. They are observers and explainers, not rule-makers. Yet in the words of Ralph, they “are consulted, give advice, and have their advice taken.” We ask rocket scientists whether they can build a spaceship, but we don’t ask them whether we ought to, or what destination we should choose if we decide to. If ecomomists truly represent themselves as scientists, then when asked what we should do now, their answer should be “Hey, that ain’t my circuit. I’m a scientist.”

    Good luck with that.

    1. You MUST NOT test the hypotheses with the same data that suggested them. You must collect NEW data to test your hypotheses.

      Amazing how often that gets overlooked.

  5. “Ceteris Parabus” is a fancy way of saying, “If there weren’t actually a real world out there….”

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