My recent post bemoaning the “missing macroeconomists” in today’s policy debate yielded a number of very insightful responses. I received two particularly interesting missives from two of the brightest stars in macroeconomics.
First, Princeton’s Ricardo Reis added a new explanation for the missing macroeconomists:
Macroeconomics has taken a turn towards theory in the last 10-15 years. Most young macroeconomists are more comfortable with proving theorems than with getting their hands on any data or speculating on current events.
Partly, this is due to the macroeconomy being quite boring in the last 10-15 years of prosperity. Most young PhD’s with an interest in the world’s problems have gone to work in applied micro (like you) or in development, where the real-world questions seem more pressing.
And another part is due to a change in the structure of the older members of the profession. As economists have become more respected in policy circles, many practical macroeconomists have left for policy work. When Bernanke, Blinder, Mankiw, and many others decided to spend time in D.C., they left the control of the top journals and the tenure committees in the hands of their more theory-inclined colleagues. Young people were quick to catch on to who was in charge, and they became more theoretical.
Chicago’s Erik Hurst wanted to let me know: “I found the missing macroeconomists.” To his eye, “the initial ‘shock’ to the economy was a finance shock,” and so, “they just happen to be working undercover as ‘finance’ economists.”
To prove his point, Erik suggested a really useful (and slightly Chicago-centric) reading list:
1. David Greenlaw, Jan Hatzius, Anil Kashyap, and Hyun Song Shin, “Leveraged Losses: Lessons from the Mortgage Market Meltdown” (also suggested by Romain Wacziarg).
2. Atif Mian and Amir Sufi, “The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis.”
3. Benjamin Keys, Tanmoy Mukherjee, Amit Seru and Vikrant Vig, “Did Securitization Lead to Lax Screening? Evidence from Subprime Loans 2001-2006.”
4. Carmen Reinhart and Ken Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” (ungated version here).
Erik has also been quite vocal on the likely consequences for consumption: See more in an interview, which aired last week on NBC Nightly News.
And Doug Elmendorf, back from vacation, adds his $0.02, arguing for a role for specialization:
I agree with you that our profession has been slow to react to events. However, I think the principal reason is one you did not include on your list:
Professors are generally people with the inclination to think long and deeply and carefully about specific problems, not people with the inclination to take a few general principles and wade into a complex mess of problems changing daily. Thus, professors tend to be good at developing fundamental new truths but not at offering practical policy advice. On the bright side, that leaves a lot of running room for policy-oriented economists like me! On the dark side, that means that economists are often under the streetlight rather than closer to where their keys might be. This problem may be especially acute when the problems are new and hard. The profession took a decade, perhaps, before we got our minds around stagflation.
For those who are after a more digestible reading list, the always-excellent vox blog has included a number of excellent crisis-related posts from Willem Buiter, Stephen Cecchetti, Richard Portes, Carmen Reinhart, and others.