The Anti-Macroeconomics Roar Grows Louder

In a reasonably interesting Guardian article, Larry Elliott argues that the macroeconomists of yesteryear were superstars, but the current crop have lost sight of what macroeconomics is supposed to be about: describing the macroeconomy, not writing down fancy mathematical models.

The current crop of macroeconomists would argue that fancy mathematical models are the best way to understand the macroeconomy. That claim might even be proven correct in the long run, but I can’t say that I think it’s the most likely outcome.

In my opinion, the fundamental problem is this: from a modern academic perspective, the sorts of skills that accompany having a good working knowledge of the macroeconomy are not easily measured by, and are not rewarded in, the current incentive schemes for economists. In microeconomics, at least there is an abundance of good data, so people who are good at measuring and describing things can succeed. But in macro there is not much data, so most of the rewards are for the mathematics, not the empirics.

The single easiest way to make a mark in a modern macro paper is to solve a problem that is really, really hard mathematically. Even if it is not that relevant to anything, it is seen as a sign that the author has “impressive skills,” which is enough to get a job — and even tenure sometimes — at top universities.

You might think that macro forecasting would be an important part of what academic economists would do, but in practice there is almost nothing of that sort being done. That sort of thing is left for economists at places like the Federal Reserve or private banks to do. You might think that the models that most successfully explain economic patterns would rise to the top, but in the current regime, if they are not meticulously constructed from “micro foundations,” they aren’t allowed to be considered.

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  1. Ken says:

    This rings true for me. In my early undergrad courses, Macro was a very fun course and subject, and we discussed real-world policy issues – deficits, debt, monetary policy, trade policy etc. Getting to grad school, macro courses were all about abstract mathematical models that bore no relation to the real policy environment in the outside world.

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  2. Chris S says:

    “… if they are not meticulously constructed from “micro foundations,” they aren’t allowed to be considered.”

    Aren’t allowed to be considered?

    You do consider this to be a problem, right?

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  3. Sidharth says:

    It is indeed a bad state for economics to be in. When there are no jobs for radical and intuitive thinkers in the field, it is bound to stagnate.

    Or maybe modern economics is waiting for the optimal use of computational technology. All the refinements in the mathematical aspects might just be a preparatory phase for the simulations that could be run on the forthcoming supercomputers leading to a change in the very premises of economics as a subject.

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  4. Troy Cross says:

    Nearly every field has a methodology, which can be played like a game, unto itself. Playing the game skillfully impresses your colleagues and gets you the brass rings within the discipline.

    The fact that the game’s significance is not obvious to outsiders makes it even more highly prized, because it affirms the group’s defining values and solidifies IN GROUP status.

    Thus, the perverse incentive system you identify is not an isolated problem in macro econ, but a consequence of the social organization of universities and of human nature.

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  5. Moslof says:

    Socionomics is a much better forecasting model than the mathematical schemes used by economists. The socionomic forces are currently positioned to push people into a search for new ideas. Their financial forecasts are drawing a lot of interest.

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  6. karl says:

    It seems just the opposite to me. Most “economists” are too busy espousing a political doctrine to actually look at data. If you can’t come up with data or a model that supports your economic claim, how good of a claim is it, really? And there’s not enough data for macroeconomists? I would argue that there is too much, and macros have trouble understanding and interpreting that data.

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  7. Andy says:

    Individual incentives are the foundation of all economic theory–I’m pretty sure you guys said something similar in the print version of Freakonomics.

    If that’s the case, how can any macro model be legitimate if without some sort of micro-foundation, which gives at least a basic explanation for the individual behaviors that aggregate into the macro trend? Otherwise, we’d be left with observations with no explanations.

    If there’s really an alternative to focusing on micro-foundations, where does it’s legitimacy come from?

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  8. joel bernard says:

    Would be interested to have you expand on your final paragraph. Which are the macroeconomic models that are constructed from microeconomic foundations, and how do their assumptions differ from those of the mathematical models?

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