Arnold Kling  

Toward a Book on Macroeconomics

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Suppose I were to write a book on macroeconomics. How should it be structured?

My goals would be:

1. Explain why controversies in macroeconomics are so difficult to resolve. Explain why it is a mistake to be supremely confident in one's macroeconomic views.
2. Describe macroeconomic fluctuations in historical and international perspective. In studying macroeconomic episodes, we can learn from differences as well as from similarities.
3. Make the case for some of the ideas that I have been pushing on this blog. Recalculation, the Minsky financial cycle, and the Garett Jones model of labor.
4. Explain what I think are the flaws in various approaches to macro, including monetarism, Keynesianism, macroeconometric models, and Dark Age macro (rational expectations, DSGE, and all that).

How to structure such a book? How can I tell a linear story that has two dimensions? One dimension is historical--how events and ideas evolved over time. The other dimension is theoretical--how macroeconomic issues look from various theoretical perspectives.

One approach would be to organize the core of the book on historical lines. However, the introduction and conclusion would deal in broad themes. Thus, the introduction would talk about issues that crop in macro, including the labor market, the capital market, monetary policy, fiscal policy, etc. It would talk about the major theoretical perspectives. But in the main part of the book I would tell a chronological story. My inclination would be to start with "pre-history" (before the 20th century), then move to the 1920's hyperinflations, then the Great Depression, then macroeconomic impact of the Second World War, the post-war boom (which was unexpected at the time and remains somewhat mysterious), the postwar recessions, the Great Moderation, the dotcom boom and recession, and the current Great Recession. I also want to include important macro episodes in other countries, such as Japan's lost decade. A major focus would be on how macroeconomic events at the time related to developments in macroeconomic thinking. That is, I want to include a fair amount of history of thought along with history of macro variables. Then the conclusion could wrap up my views of various theories in light of the history.


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CATEGORIES: Macroeconomics




COMMENTS (14 to date)
BZ writes:

I've seen your suggestion done before, and it did work well. He also used each historical episode to lapse into appropriate thematic discussions, or refer to ones discussed previously. Either way, chronological appears to be the way to go.

mlb writes:

Another interesting theme that macroeconomists seem to miss is the role of market expectations of macro policy. Macroeconomic policy does not occur in a vacuum - a policy move may have different outcomes depending on whether the market expects that policy or not.

The oft-discussed moral hazard is a simple example. The policy of Fed easing at the first signs of weakening demand is intelligent...until the market completely accounts for that. So in recent years economic actors have become comfortable taking on extreme amounts of leverage in certain areas...just enough leverage to weather a modest recession, but not a bad one. This to me is a market response to the policy of "avoid bad recessions." That market reaction to policy makes the policy of pre-emptive easing much more unpredictable in my opinion.

Sean S writes:

I'm in the middle of reading The Holy Grail by Koo, and I'm interested in your commentary and dissection of his ideas.

Can I request a review?

- Sean

Jayson Virissimo writes:

Macroeconomics: Theory and History
by Arnold Kling and Scott Sumner

Now that is a text I would buy.

david writes:

You need to hammer out the microfoundations of your own pet narrative.

You clearly have a model of the firm, consumer, and money market that varies from the neokeynesian and monetarist varieties, for instance. As you have noted before, there are Austrian and Post-Keynesian elements in your narrative; but the microfoundations of these militate against each other.

These don't have to occupy the bulk of the book, which can still be mostly historical content. But it does need to be clearly explained.

As a side note re: 1; don't get hung up speculating on the motives of those advocating theories you disagree with. Austrian and post-Keynesian authors do this a lot and it is likely one reason they are easy to ignore.

Joshua Sharf writes:

"An Intellectual History of Macroeconomics."

I like the 30,000-ft. structure you've laid out.

Perhaps it would help to structure each historical episode this way:

- State of thought & economies at the beginning (game reset)
- What was done & why, i.e, in response to the theories of the day
- How it worked out, and how the theories of the day responded to the results
- Brief discussion of how those events look to today's theories

#4 might be helpful, since you'll be reviewing history in light of today's theories anyway, and the repetition will make it easier to see.

I suggest this as someone who plans to be reading this book, so I know what works for me. Actual mileage may vary.

Ryan Singer writes:

I'd prefer to see two companion books. I think too many macro classes conflate theory and history, and it results in analyzing past events in light of past theories, instead of using modern theory to understand what really happened. I don't need to learn what Keynes said happened in the great depression.

So I think we should have two books, or maybe even three:

1. Modern Macroeconomics, a primer
2. History of Macroeconomic Theory
3. A Macroeconomic Tour Through Modern History.

Norman writes:

david said "don't get hung up speculating on the motives of those advocating theories you disagree with."

I'd like to second that. I think making your case that the time series data can't be pooled is a good idea, but don't put much time into why everyone still tries to do it.

Lori writes:

Whatever you do, don't do a Steven Langham and write a polemic disguised as a textbook.

If you can explain macro so I can actually grok it, I will be forever in your debt. Some years ago there was a "Motley Fool" radio show on NPR. They had a weekly feature consisting of a sound bite type utterance from the Chairman (at that time, Greenspan) and inviting listeners to offer interpretations on "what the Chairman said." This pretty much sums up how macro looks to me, and it seems I'm not alone.

bdm writes:

Please, please, please write this book. That is all.

JFox writes:

Arnold, we need a textbook from you! Most texts are terrible. I'd recommend the historical approach. This would highlight why some of the theories look the way they do. General societal thinking at the time obviously affected the theories. Also try and reconcile the theories at a high level. Obviously many theories are contradictory. They can't all be right. Teach the students how to form the basis to reconcile the theories on their own

Scott Wentland writes:

Scrap a linear, historical version of macro. It will be too restrictive for writing and will read more like a history book rather than a work of economics. It will just have a lot of downside than upside.

To me, Macroeconomics is simply schools of thought. I would like to see a book with all of the content you're suggesting, but within the context of explaining the many schools of thought out there. Perhaps you end such a book by picking and choosing the elements of these schools of thought you synthesize in your own economic views. That way, readers get a better sense of where you're coming from and how you've formed your views on macroeconomics based on praise and critiques of Keynesians, RBCists, Austrians, etc.

That's my two cents...I hope to see the book someday!

steve writes:

If you really want to write a useful book, you need at least one chapter on why macro has failed as a predictive tool. In that chapter you should emphasize the pitfalls of relying too heavily on any one theory when implementing policy. Maybe use Greenspan as an example, but there are plenty of others.

Steve

Joseph Sunde writes:

I say go with the approach you put forth here:

"[The beginning and end chapters] would talk about the major theoretical perspectives. But in the main part of the book I would tell a chronological story."

Sounds like the best strategy to me.

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