Arnold Kling  

Economics does not equal Macroeconomics

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Clive Crook writes,

Mr Krugman gives liberals the economics they want. Mr Barro gives conservatives the same service. They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk.

My take on this is that the consensus of economists is likely to be more reliable on microeconomic issues than it is on macroeconomic issues. In my view, fundamental macroeconomic issues are unsettled. It makes sense to have what a Bayesian statistician would call "diffuse priors" and what an ordinary layman would call an open mind.

The probability that crude Keynesian economics is basically correct is greater than zero. The probability that crude Keynesian economics is all bunk is also greater than zero.

What is important to bear in mind is that just because economists cannot settle disputes about macro does not mean that all of economics is bunk or that nowhere is there a reliable consensus in economics. Macroeconomics is only one area of economics. In my view, it is the area with the highest ratio of unresolved issues to settled questions.

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COMMENTS (11 to date)
Frederick Davies writes:

Or maybe it is just that Macroeconomics overlaps the realm of Politics, and politicians make sure the waters are muddy enough to be able to do whatever they want. Microeconomics does not have such a "political" importance, so economists have it all to themselves.

Zac writes:

Macroeconomics is a travesty. As a discipline, it has failed to respond to the Lucas critique.

Milton Friedman said "An economic model should accurately reproduce observations beyond the data used to calibrate or fit the model." Microeconomics does this well. With experimental economics, we can even put theory to the test.

Macroeconomics has simply failed to deliver the goods. It is nothing but ideology, with a half-hearted attempt to use mathematical wizardry to back it up. There are some 'good' macroeconomists with some valuable insights, but it is more political philosophy than science.

In the upcoming year I'll be starting work on my PhD in economics. Given my research interests I think it is silly that I should even have to be bothered with macroeconomics. I think bundling macroeconomics with microeconomics hurts microeconomics as a discipline.

Jesse Ofner writes:

I am not economist, but I read publications like, The Economist, and Financial Times. I've read JMK, MF, Krugman, Milton, Smith, etc. I've read solutions proposed by the heads of the IMF, Harvard, Columbia, etc. The problem is not that Macroeconomics is bunk, it seems to me that it is more of the fact that application of practical policy based on Macroeconomic theory is politically impractical and partisan politics are based to much in ideology than in reason.

Greg Ransom writes:

"The probability that crude Creationism / Species Platonism is basically correct is greater than zero. The probability that crude Creationism / Species Platonism is all bunk is also greater than zero."

The mistake is to think that probability talk helps us much here.

What matters is explanatory power and non-magical causal realizability.

Crude Keynesian econ does _not_ have non-magical causal realizability.

Hence it's explanatory power is illusory, it's pretend.

That's the whole point of the "micro" / "human action" case against crude Keynesian econ. It ain't of this world -- it doesn't make sense causally in a world understood to be a made up of acting entrepreneurs using non-permanent goods that are chosen on the basis of the ability to produce more or less on different time scales to maturity, etc.

Probability talk doesn't help us here at all.

ardyan writes:

Why are there opinionated Macroeconomists? How could both Friedman and Keynes be so sure of their ideas? And what about Ayn Rand? What in the hell made her think that she was so right?

Lord writes:

Without macroeconomics, economists would have little to say about economic policy. Conversely, most talk of economic policy assumes some version of macroeconomics. Anyone denying macroeconomics should remain silent on policy. The silence is really deafening.

d4winds writes:

Your micro vs. macro distinction is pure canard. "Micro foundations of macro" has been a shiboleth for a generation. Economists specializing in many areas have differing schools of thought within each specialization and different assessments of what "the facts" may be.

Troy Camplin writes:

"Butterfly Economics" shows that Keyne's macroeconomics do not follow logically from his microeconomics. The author then goes on to provide a much better macroeconomic theory based on Keynes' microeconomics. Let me just say that he comes to the opposite conclusions as Krugman on almost everything macroeconomic.

Interestingly, he comes to the conclusion that economies are best understood as spontaneous orders -- though he never uses the term. Seems he rediscovered AUstrian economics on his own.

Robert Bell writes:

"In my view, fundamental macroeconomic issues are unsettled."

That sure seems to be the case, and you had a great post on time series econometrics a couple of weeks ago that help explain it. Also the freshwater vs saltwater post by Robert Waldmann.

"What is important to bear in mind is that just because economists cannot settle disputes about macro does not mean that all of economics is bunk or that nowhere is there a reliable consensus in economics."

You actually can do quite a bit better than that. From what I gather, both the New Keynesian and RBC approaches, for example, have been developed by some very smart people trying to match macroeconomic behavior with microfoundations. So at the very least, it should be possible to make some pretty clear statements on which simple models simply inadequate as descriptions of the world.

John Kozy writes:

Not only are fundamental macroeconomic issues unsettled, all economic issues are. Ardyan above is right. No matter what color their stripes, all economists are true believers. Would you rely on a fundamentalist Christian/Moslem/Jew for advice on ecology? Why ask an economist for advice on the economy? All you'll get is a piece like this that contains "my take," "likely," and "In my view."
Why should anyone car what someone's view is? We need experts who "know." And those that don't should be silent.

Seth writes:

Religion: choosing answers when you have no prospect of obtaining the necessary evidence.

Economics: choosing answers when you have can't gather the needed evidence until it's too late.

Social Science: choosing answers when you have can't gather the needed evidence without changing its meaning.

Houston, we have a problem with our methods.

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