I’ve been taken to task by a friend – a macroeconomist – for being overly dismissive about macroeconomics. I won’t name him – he can always do so himself if he likes.
He agrees that macro is not covered in glory at the moment, but disagrees with my charge that its intellectual flaws are substantial, and that it does not stand on the same kind of increasingly sound empirical footing as much of microeconomics. He also is sure, absolutely sure, that UK government policy is wrong-headed and what we need is an urgent dose of fiscal stimulus.
I’d already annoyed my friend by criticising the state of macro, no doubt in exaggerated terms, in my recent Tanner Lectures (pdf). (I confess I did compare it to Mr Rochester’s mad wife in the attic, too embarrassing to acknowledge.) The more recent prompt for my telling off was my tweet suggesting the first of this year’s BBC Reith Lectures by Niall Ferguson was worth a listen. Ferguson argues that public debt burdens in the UK and elsewhere represent a breakdown of the social contract between us and future generations. He believes ‘austerity’ policies remain necessary. I think this is an important argument to acknowledge in public debate – taking due account of the future is an important theme of The Economics of Enough. My friend doesn’t disagree with this but says Prof Ferguson is empirically wrong in his reasoning about why a fiscal stimulus is a bad idea, and consequently in his blanket dismissal of the standard macro analysis, and therefore shouldn’t be taken seriously in economic policy discussions (to quote, he thinks Ferguson should have suffered ‘a terminal loss of credibility’).
I’ve got a three-fold answer to my friend (if he’ll still talk to me).
First, macroeconomists simply do not realise how low their stock has sunk in the eyes of their microeconomist colleagues. When popular critics attack ‘economics’, they mean macro. It’s bringing us into disrepute, we fear. Although macroeconomists will insist that there are known scientific facts, they do not appear to agree on what these are. One of the (micro)economists I discussed my lectures with sent me this email about a public occasion when he’d been on a panel with four (macro)economists:
“They disagreed fundamentally with each other and almost every statement was introduced by “in my opinion…” or “I think…” leaving the audience with no way of coming to an intelligent way of judging between the opinions. But I think that is a different issue (is it?) from what happens in academic macro where the failure of macroeconomists to agree on the basic model feels to me more like some other social sciences where there are very
basic disagreements which seem impossible to reconcile using evidence.”
In a forthcoming collection of essays about the teaching of economics, What’s the Use of Economics? (out in September), the section on macro reveals an extraordinary spread of views, from those who think existing models just need a few tweaks to those who argue for an entirely new intellectual project involving network science (one of these is Paul Ormerod in his new book Positive Linking). I’m trying to educate myself by reading the excellent macro blogs such as those by Simon Wren-Lewis and Jonathan Portes, but I don’t see them acknowledging at all the possibility of an entirely new approach to modelling economic aggregates. No wonder the ESRC is sponsoring an important conference this autumn on the state of macro.
Positive Linking: How Networks Can Revolutionise the World
This takes me to my second point, which is that it is hard to believe in the existence of a significant consensus about empirical truths in macro policy when the discussion among macroeconomists is so shouty. Paul Krugman in his new book End This Depression Now plainly thinks those who disagree with him about a fiscal stimulus now are blithering idiots. OK, maybe I am, but it’s not a good tactic to win me over in the debate. Chris Giles’s views in his recent FT column were more persuasive: a fiscal stimulus might be needed soon, he says, but it won’t fix the economy and it will need reversing later – and by the way, there would be an adverse impact on policy credibility.
Finally, and following on from the point about shoutiness, all economists need to do far, far better at explaining their work to the general public. This is all the more important for macroeconomists in the context of a macro crisis in which voter attitudes materially limit the courses of action open to politicians. The process of education will need to start from what macroeconomists do agree about, not what they disagree about in vituperative public rows. My friend assures me that some theories have performed well in recent years. I – a professional economist, albeit of the micro and possibly even blithering idiot kind – do not know what they are. I shouldn’t have to keep up with the professional literature in a different field from mine to know, either. So I’ll end with a challenge. Can some of the macroeconomists out there agree about what they agree is empirically well-founded, including the policy implications, and let us know? It will be a lot more interesting than the polemics, and maybe it would stop me being so naughtily dismissive about macroeconomics.