Wednesday, September 16, 2009

Everyone and their cousins about macroeconomics

For a brief while there will continue to be a flurry of debate over the intellectual shortcomings of modern economics, centered on the perceived failure of modern macroeconomics in the wake of the financial crisis. A great list of recent contributions to the macroeconomics debate can be found here, on Mark Thoma’s blog “Economist’s View”.

Have fun while it lasts – but don’t think things will change. My prediction is that there may be a surface change in which models the profession believes and so on, but that the underlying issue of “as-if,” consistency with “standard assumptions,” over-mathematization of weird psychological assumptions, overreliance on “stylized facts” and quasi-scientific “rigor” and all the rest will remain more or less as it is. I believe the big problem is that the criteria we use to evaluate claims about the real world are severely lacking – and this is not really improved by exchanging the current models for models that a broader set of people feel comfortable with. If anything, this may impede progress as critical assessment of our subject drops as people become more comfortable with what we say.

Never underestimate the power of the dark side.

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