A macroeconomist tells me off

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 [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link]. 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 [amazon_link id=”0571279201″ target=”_blank” ]Positive Linking[/amazon_link]). 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.

[amazon_image id=”0571279201″ link=”true” target=”_blank” size=”medium” ]Positive Linking: How Networks Can Revolutionise the World[/amazon_image]

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 [amazon_link id=”0393088774″ target=”_blank” ]End This Depression Now[/amazon_link] 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.

[amazon_image id=”0393088774″ link=”true” target=”_blank” size=”medium” ]End This Depression Now![/amazon_image]

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.

81 thoughts on “A macroeconomist tells me off

  1. As one of the “general public” I don’t think I’d be thanked for entering into this discussion between friends, even if I had the brains to do so

    However, since I guess this is an argument about the way forward, I would like to question the basic idea that QE will ever do anything to stimulate growth. All it does is fill the bankers boots (and create inflation later?). Many have said the cash must go direct to industry if it is to work

    A lifetime of work in banking and then private industry has convinced me that politicians can do little to direct the economy well, whoever is advising them, but much to hamper progress. Does the country do better when they take longer holidays? Probably

    My mind goes back to BCCI. Everybody saw the crash coming. Except the regulator. Steady Eddie said it couldn’t have been foreseen. (Despite alleged warnings from across the pond) Bit like Mr Brown. Mr Darling and others all those years later

    I agree with most economists that the government must stop spending so much, and persuade Mr Carr , Mr Diamond, Sir Martin and so many others to pay tax on what they earn (Why do they think they should be so Greek?)

    But most of all, can economists from all sides of the argument tell us where we would be if we had saved all that money we have spent, and are still spending, on war?

    That really would be useful

  2. Love the comparison of Macro to Mr Rochester’s wife; a lack of due care and attention and she also burned the house down!

  3. You may find Paul Krugman brusque but that is hardly an effective reply to his ideas. Here we are in a double dip recession in the UK with a huge amount of talent, particularly young people’s, being wasted alongside housing shortages etc etc. The Government tries to divert attention to the Eurozone but it’s domestic demand and lack of business confidence that is driving where we are now. Presumably based on current policies, the Cabinet Secretary holds out the prospect of a decade more of this misery. Even the IMF is acknowledging Plan B on the horizon.
    In the age of Twitter and blogs, macro economists now seem to be more interested in explaining their ideas in Plainer English. I welcome that. They can always do more. I don’t think we should look for lowest common denominators amongst them but rather a debate about alternatives to economic policies that are plainly not working.

    • As a matter of tactics, I don’t think the Punch and Judy approach is very effective, although I do agree with you about blogging etc making the debate more accessible, very welcome.

      On the substance, I think some additional government spending is vital – I’d pick out job guarantees for young people and housebuilding. As the Euro crisis gets worse, we might well be back in the territory of emergency stimulus. But where the stimulus-advocates fall short for me is in not acknowledging that a short term boost now may require greater retrenchment in future – or even an acknowledgement that there is a long term fiscal challenge. What’s more, the economic problem isn’t all about the demand side and can’t be fixed that way. The banking system doesn’t work – savings are not being channelled into productive investment. The chasm between skills needed and skills taught to our young people is huge. My plea is for a properly nuanced debate rather than economists ignoring real-life complexity in their partisanship.

      • If you don’t think Krugman and others have “acknowledg[ed] that a short term boost now may require greater retrenchment in future” or “that there is a long term fiscal challenge,” you either haven’t been understanding their arguments or haven’t been reading them.

        • I agree with Jake. The pro-stimulus macroeconomists have relentlessly acknowledged the need for long-term attention to the deficit, clearly in an effort to placate critics (who nevertheless claim they don’t do so). And this silliness about ‘it would be more persuasive if they were more polite’ is also disingenuous. The economists who got this right have had to get loud and impolite in order to be heard. That’s a problem with our modern culture and those people with the power to make public policy, not the economists.

        • Absolutely. Ms. Coyle is apparently not paying attention despite her claims to the contrary.

        • It’s worth keeping in mind that, at least in the U.S., the political party that is shouting the loudest for austerity now and forever is the political party that took the surplus that we were running in good times and turned it into a record-breaking deficit in order to cut taxes for the rich. Krugman spoke out against those policies at the time.

          • Oh dear, add Diane to the long list of bloggers who have taken on Krugman only to end up showing they don’t understand him at all. Krugman has repeatedly said there is a long term fiscal challenge in the US (try reading his Macro 101 textbook – its very good, and there’s a nice easy chapter on it for beginners).

            And what of his point that that austerity can make debt worse, not better, and so those who advocate austerity are actually extremely irresponsible. Any concrete response to this? Any cogent argument to show why Krugman is wrong? Any explanation of why he has been consistently right? Or is that all irrelevent because you don’t like his style?

            As for micro, I recall taking part in experiments in my masters of economics in which the basic mathematical assumptions about utility functions failed to hold…

      • The reason many are dismissive of the concern over repaying stimulus are two-fold: firstly, it seems mistimed – like worrying about blood loss when you are being crushed to death – let us deal with the problem of inducing growth first, a much more pressing issue that, incidentally has significant bearing on the matter of debt repayment. Because, secondly, there is the fact that this is not a new problem, and we have some experience in the field; I’m not sure about the UK figures, but the US debt, while clearly frightening to some as an absolute number, is not out of line as a percentage of GDP, and experience tells us that if the economy grows at a “normal” rate, financing that debt is a manageable task. The notion of “repaying” it is nuncupatory, to my mind a red herring, which I occasionally suspect is being used dishonestly by people who should know better. It could, for the purpose of illustration, be argued that the debt the US government incurred in WW II has never been “repaid”, just rolled over, refinanced, and is now subsumed into our current burden. With no damage done.

      • “But where the stimulus-advocates fall short for me is in not acknowledging that a short term boost now may require greater retrenchment in future – or even an acknowledgement that there is a long term fiscal challenge.”

        Oh dear. You really haven’t been paying attention, have you? The stimulus advocates (Krugman, for one) are acutely aware of the long-term fiscal challenge, and have said so repeatedly.

        As for the “chasm between skills needed and skills taught to our young people,” I take it you are referring to the structural unemployment theory, which has been so thoroughly debunked that only the completely ignorant still talk about it. If there really is such a mismatch, then the job sectors in which there aren’t enough people with the right skills should have low unemployment and rapidly rising wages. But such job sectors don’t exist – unemployment and stagnant wages pervade all business sectors.

        Lastly, your plea for politeness misses the point altogether. If you see someone trying to snatch your purse, you will not feel any need to be polite. Similarly, when you see kept economists spouting convenient nonsense to keep their wealthy backers happy, despite the millions of lives ruined, politeness is not really necessary. Economics is not a cocktail party.

      • “But where the stimulus-advocates fall short for me is in not acknowledging that a short term boost now may require greater retrenchment in future.”

        It’s all in the timing. One of the lessons to be learned from the disastrous experiments with austerity of the past few years is that short term “retrenchment” now (austerity) is fiscally self-defeating. Cutting spending in a recession further depresses the economy, which depresses revenue and gpd, which makes deficits and debt to gdp ratios larger. The evidence of Greece, Portugal, Ireland etc. is strong on this. The best way to combat long term debt (which is what we are talking about) is to make sure the economy is growing at a healthy rate. Fiscal stimulus in times of abnormally depressed demand (now) can do that. When the economy is growing in a self-sustained manner, that is the time for “retrenchment”. This is actually what Keynesian macro calls for. Stimulate in recession and run a surplus in the boom years. It’s pretty simple. Your criticism fails to account for that dichotomy. You seem to think, like many critics of Keynesian macro, that it calls for more spending all the time.

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  5. I started following economics blogs over the last two years or so out of curiosity as to how we had all got poor for no apparent reason – I have no formal training or education in the subject. So here’s my contribution to what has puzzled a layperson.

    What struck me as odd was the (mainly US?) quarrel about whether govt borrowing/spending just crowded out private spending/borrowing. It seems (to me) quite a fundamental point to which there should be an answer.

    My impression is that the “crowding out” crowd (Cochrane? may be misremembering) now seem to think that infrastructure spending is OK, without admitting they were wrong.

    The individuals who are considered suitable participants in the debate sometimes strike me as odd, mainly because many of the heads that keep cropping up aren’t macroeconomists (eg Niall Ferguson – and whose idea was it to serve up poor Jon Moulton as a sacrificial lamb to be chewed up by Krugman on Newsnight?). I wonder if that gives rise to the impression of macroeconomists disagreeing with each other, when it’s often macroeconomists disagreeing with bankers/historians/financial economists.

    Trust you’re still on speaking terms. If so, can you tell your friend that it seems difficult to post on his blog, though that might be technical incompetence on my part.

    • One reason the macro debate is difficult is that the context makes a big difference to optimal policies – is there demand for credit if the supply could be increased? Is the economy far from or close to full capacity? And so on. Your point about who is engaging in the debate is interesting, and yes as both you and Jonathan Portes point out Niall Ferguson is not a macroeconomist – although he’s not an idiot either he does make some mistakes.

  6. “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.” You are missing a point here. Paul Krugman is NOT trying to win over professional economists in his popular NYT columns and recent book. Why? Because as professionals and PhD holders they should have known Macro 101 without him appointing himself to be their freshman instructor.

    • My point is a tactical one – no matter who you are addressing, surely the tone matters? When I’m writing or speaking, I assume that if someone seems not to understand my point, it’s my fault, not theirs.

      • After years of using models to predict, explain and recommend while those in disagreement misrepresent his positions, I think anyone has the right to challenge those bullies. And the last 30 years of US government policy have bullied the middle class into near non-existence.

        Krugman’s blog is a mix of macroeconomic analysis with politics. He makes no secret of it. And I think his tone is surprisingly beneficent given the stubborn flogging of ideas and policies he’s proven wrong in umpteen ways.

        We are real people in real distress. If the purpose of economics, micro or macro, isn’t to understand how to avoid and repair this, why bother?

      • It’s rather sad that it has become popular for critics to dismiss Krugman as being shrill so that they don’t have deal with his arguments.

        • In my field, linguistics, there are people known for being shrill. I’d be a fool to ignore the substance of what they say because they are aggressive. It’s ultimately not personal. It’s about ideas. In linguistics it’s low stakes for the general public, and the motivations people take for positions might be suspect, but they are not suspect of corruption usually. That’s not true in economics where many people have more than their feelings hurt because of what you do and say and where money and favors of the rich and politically connected are associated with one of the positions in the argument.

        • Agreed entirely, TimK. I would add it’s also curious so many of the dismissals take the nearly identical form of “Krugman thinks anyone who disagrees with him is an idiot.” (It’s customary to add a penultimate adjective such as “mendacious” or “blithering,” but the basic structure varies very little.)

      • I don’t understand this “tone matters” theme. Tone only matters to those who can afford to ignore it. Fat comfortable people use “tone” to dismiss the fact that people –other people, not themselves — are hurting. “Ask me nicely or you won’t get any supper” is patronizing, and in the real world, cruel.

        • Precisely. Lately billionaires have taken to lecturing ordinary workers who they believe should work harder. Krugman calls them “Very Serious People”. I would suggest Ms. Coyle lay off the politiness schtick when we have people literally dying as a result of the “austerity” seekers. By the way; I don’t recall microeconomists covering themselves in glory the past forty years. Perhaps I have missed something. Have we moved beyond Joan Robinson in analyzling imperfect competition? What has been the policy results of all of the studies of increased concentration and monopoly and monopsony behavior? Have we defined “utility” in a non-circular definition yet? Have we moved beyond defining objective functions in business and consumer behavior as more than “that which we try to optimize?” Microeconomics has become irrelevent in terms of public policy because it’s most defensible conclusions are at odds with the interests of corporate and wealthy interests and microeconomists would rather be irrelevant than rock the boat. I supose they also speak politely all the time so as not to dusatrub the funding sources.

      • “I assume that if someone seems not to understand my point, it’s my fault, not theirs.” You are deluding yourself, but you are not fooling the rest of us. In this debate, smart people have repeatedly argued insupportable positions because they are paid to do so. You are attempting to dismiss Krugman’s arguments without addressing them on the merits.

        • Not sure what you are implying exactly but for clarity nobody is paying me to express my views and this blog is not paid for by anyone….it is my hobby.

          • Don’t know how I wandered into this blog. Why is a microeconomist blogging about macroeconomics? Particularly, a microeconomist who has read so little. As a scientist, I’m sure you’re aware of the fact that the best way to embarrass yourself to to start riffing on a subject that you have done no research whatsoever on.

          • No one is accusing you, personally, of anything (other than astonishing naivety).

            You are not being paid (directly or via departmental funding) to make head-bangingly stupid ideas that were thoroughly debunked 80 years ago sound plausible. But you are assuming that those who are pushing these ideas (most of whom aren’t actually macroeconomists anyway) have an intellectual interest in understanding what Krugman and others are going on about.

            Krugman’s potted histories of economics over the last century are very valuable in teasing this out. Or you could try thinking about this for a few seconds: if the government truly wanted to reduce the deficit, why have they cut staff at Revenue & Customs? Does that make any sense to you?

            Personally, I’d like a few more economists to think properly about this and get an awful lot ruder. What is happening is criminal – literally – and I’m not remotely interested in naive academics sitting around having polite debates about it whilst the voiceless see their life chances disappear along with their life savings.

            You should probably start by thinking more carefully about your sources. As you have now acknowledged, Ferguson is a historian, not an economist. You should not be lending him credibility with yet another article that fails to point this out. He has a loud voice because lots of rich people like what he has to say. You might not be equipped to judge for yourself, but you can at least be honest about his qualifications for commenting.

      • Short answer, been there, done that: the policy debate in the US has, for decades, been about respectful-to-servile Liberals trying to explain some fairly simple points to the Other Side, while they scream “Anti-Christ! Communism! Kenyan! Socialism!” at regular and apparently random intervals. Some of us have decided that approach has clearly been shown to have failed, have elected Krugman as our Leader, and are girding our wizened loins-cum-brains-cum-larynxes for battle. Neither he nor we started out where we are – you become your enemy, or you have your cavalry charges mowed down by its Panzer divisions.

        I think the notion of a fundamentally reality-adverse Conservative adversary may be a new thing for you folks in Outre-Mer. If so, you may want to learn from the US experience, and skip the part where irrationality carries the day for four decades before anyone notices.

      • First, K is most definitely not calling anyone who agrees with him an idiot. Only those who clearly should know better, but don’t acknowledge reality or just don’t want to know the facts. There are quite a few of those. But K can best explain it himself. He has done this a few times on his blog. Clearly you have not read this, which makes *you* the one who is tactically (and factually) wrong. You should search his blog for those post, I leave it as your homework (which you should have done before writing this piece.)

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  8. Niall Ferguson’s claim on equity for future generations is strictly tactical as well as being wrong. If you look at problems involving intergenerational equity, the Ferguson’s of the world come down on the side their ox is being gored on, in this case against digging out of the trap we are in because it would hurt the future, in the case, for example of climate change which is clearly an intergenerational issue (see for example Stephen Gardiner’s A perfect moral storm), no we can’t do anything now, it would cost us too much, and besides, Nicholas Stern is an idiot.

    So you get to the shouty Krugman problem. You have to shout to get through the self protective shell. Polite does not work

    • I should make it clear I’m not a Ferguson groupie. My view is we need to take *all* intergenerational equity issues more seriously, including climate change – it’s in my book, The Economics of Enough. As for the shouting, it depends who your audience is. I could be wrong but think most people are turned off by knockabout public rows, and do tend to conclude ‘a plague on both your houses’.

      • The intergenerational equity issue is, I think, way overblown. A younger generation on one side of the fiscal equation now will be on the other side of it later, which seems to me to be equitable enough.

        I think the issue is used by those who have no better argument to make their case, and it is a very weak argument.

          • Really, Kotlikoff. from 1996, predicting 83 percent tax rates for ‘future generations.’ That includes many of my students (in”eco 101″)! What magic? Ah ha, footnote six, a “6 percent real discount rate.” And, I think, though didn’t actually see it, he’s treating Soc Sec & Medicare as taxes and spending, rather than investment and return. Ah if those could only have that!
            Please, read the Stern Review chapter 2 and subsequent debates on the eternal reality of the present.

      • When does Niall Ferguson suffer a loss of credibility for his stupendously bad predictions? You’ve said repeatedly that we need to hear everyone; why does that include those who make incredibly bad predictions?

        • Celebrity historian, Niall Ferguson, is finally taking some richly deserved heat over his NewsWeek drivel. Will he suffer that long overdue loss of credibility?

          Or is the criticism too shrill to be taken seriously?

  9. Let me see if I can explain what people like Krugman sees is going on here in a metaphor. There is a fire burning down the house (the economy) and you have one group of people (conservative and their economists) saying it isn’t important to get the people out of the house and douse the fire because, in doing so, you take away the “moral hazard” of those people in the house where the fire started and, besides, it’s going to take borrowing to put the fire out and it’s unfair to the unborn future generations to have to pay to put out the fire now.
    On the other hand, Keynesians like the Doctor point out that most of the people in the house didn’t start the fire and, if the house burns down with the people inside, there aren’t going to be future generations that live in a house. They are, those who survive, are going to be living in a burnt-out shell and not have the money for their daily needs, never mind past expenses. When this is pointed out, the conservatives rework their theories to try to fit the facts.
    Is it any wonder people are screaming “Just get the people out of the house and put the fire out, you idiots”!?

  10. This is actually a favorite tactic of conservatives (to use the US term) in the United States, who when faced with the utter and complete failure of the fantasy-based theories from the right that they’ve been parroting, whether Reaganomics-era “trickle-down” theories or more recent variations on the same theme, tend to throw their hands up and say “Oh it’s all too complicated, if so many people got it wrong then everyone must be wrong, there’s no such thing as knowing anything”, and so on.

    As far as the shouty part, try seeing it this way: You’re a partner in a company and all of your other partners, or most of them, start going to an astrologer that one of them was impressed by and the rest started using also, and before you know it nearly everyone is talking about moon signs and this or the other planet rising, and insisting that the company base decisions on such things. You voice an objection, pointing out that it’s all nonsense with no proof that it will work, and they shout you down. You become more insistent, saying look this really is just utter lunacy, and they ridicule you for saying this. Three years later, the astrology-based financial plan has tipped the company into bankruptcy, has failed, utterly, just as you predicted it would, and so you point this out.

    You would likely be seen as “shouty” for doing so. And if you think this is too far-fetched, Europe has tipped itself into recession, again, following equally absurd theories, and the UK has done barely better than the whole.

    If you go back and actually read everything that Paul Krugman wrote over the last three years, I wager that you’d be surprised how closely it matches my little parable above.

  11. Paul Krugman and people like him who devote their time and brain power into evidence based social science have no obligation to convince you or anyone in particular. Insofar as they make predictions, the only scientifically accptable judgement of their models stems from whether these predictions describe reality accurately. Whether you choose to remain a sceptic is something that is completely up to you to decide. I am of the opinion that social scientists that have chosen to work in academia for fractions of the salaries they would earn in the private economy do not have any explaining to do, if people fail to grasp their ideas it’s their problem.

    You are also in my view wrong that macro economists do not agree on anything, once you realize that the process of refuting macro theories faces much stronger obstacles than micro ones, because of data scarcity. All macro economists I know for instance agree on some variant of Friedman/Keynes macro. If you ask a macro guy at the bank of Finland some monetary Econ question you’ll get the same answer you’d get from a macro guy at the bank of Canada. I don’t see how the use of phrases like “in my opinion” should be seen as a sign of disagreement, when the vast majority of evidence based social science macro people employ the same new keynesian paradigm. The only serious disagreement in macro concerns epistemological issues, but I don’t think economists who treat their field as a branch of moral philosophy deserve to be examined versus economists suchas Paul Krugman. Ottomar Issing deserves to be examined versus Paul Krugman as much as your local astrologist deserves to be examined versus Steven Hawking.

    I therefore conclude that if there has been any kind of intellectual failure here, it is the failure of journalists and the public to distinguish between evidence based Econ and moral philosophy based Econ. This is indeed very troubling but hardly the responsibility of economists. In my opinion.

  12. By the way the parable is not meant to imply that economists nearly all joined the lunatic fringe, only that the world on the whole, including the news media who comment on these things, indeed did. Economists, as Krugman points out today in his blog, mostly got it right.

    They just weren’t the loud ones, despite all appearances.

  13. I too am a micro guy who follows the technical macro debates only with difficulty and a certain amount of nose holding – perhaps somewhat like an ordinary M.D. when he wades into a conference session full of psychiatrists.

    I did my undergraduate work in the 1970’s at Berkeley. It was the standard neo-Keynesian playbook, and while I found micro more appealing, there was a coherent set of tools. While there were debates, the terms of the debates were resolvable with the use of those tools. I felt that if I were stranded on a desert island and had to re-create the rudiments of what I had learned for the benefit of my fellow cast-aways, I could reconstruct a reasonable rudimentary version.

    But by the time I got to grad school (now on the East Coast at Boston University) and took my core micro and macro courses, macro had become unrecognizable. The whole rational expectations approach seemed like a cheap magic trick, a self-fulfilling prophesy rather than a pragmatic set of tools. By the time I got my doctorate, I would have been hard pressed to come up with a single concept or approach that I could coherently apply from any of my macro courses. If I had washed up on that desert island after becoming a full-fledged economist, I would have had to reach back to my foggy memory of my undergraduate courses in order to dredge up useful principles that I knew how to apply.

    In particular, I don’t believe that the terms liquidity trap or Say’s Law were even mentioned in the grad school curriculum. My experience leads me to agree with Krugman that those who ended up specializing in macro based on that curriculum simply didn’t have the right tools to cope with the real world, and consequently ended up doing things like scrapping regulations they didn’t understand, because they were applying a faith-based theory. And by the time the global financial crisis hit, none of them could think clearly about what it meant to be in a liquidity trap for the first time in 70 years.

    Thomas Kuhn pointed out that Galileo didn’t persuade his fellow scientists to abandon the geocentric paradigm – but that the heliocentric paradigm gained ascendancy only after enough older academics died out. Are we any more evolved in our profession today?

  14. Nothing in this article weakens Krugman’s point that this crisis has been a good test of macro. Now, with respect to the (supposed) “intergenerational” argument: as Norbert Wiener (a better mathematician than a million Fergusons stacked to the moon) commented: economists and other social scientists have wished to drape themselves in the prestige of the mathematical physics without, however, really understanding the conditions for those successes. In particular, baselines in nature do not change whereas baselines in the economy change unpredictably. (The so-called butterfly effect ultimately refers to an argument between Wiener and von Neumann about the computability, i.e. predictability of complex natural systems.) Ask yourself–if an economist tried, in 1962, to predict the future productivity of the US economy, how much wealth would heexpect to derive from the development of computers or QM in general? There is a decent chance that after we get beyond the current depression we could be looking at a vast boom which will dwarf everything that came before.

  15. Lots of the comments here presume that I’m against fiscal stimulus. As my original post says, I agree with the argument that we probably need the extra stimulus – with the two caveats that it isn’t a silver bullet for current economic problems (because there’s no functioning banking system, because there are serious skill shortages as well as unemployment……), and it will carry a long-term price. Nuance, hello?

    I also still think, despite some of the comments, that it’s perfectly reasonable to doubt that macroeconomists have now got it all right. I’m in the school of thought that says the crisis should have taught us a bit more humility. Nor am I alone in this – Paul Krugman agrees with me:


    • Accusing an entire branch of economists on frivolous grounds, including some Nobel laureates, when you seem to have put little effort into understanding whether they agree or not is hardly a sign of humility.

      I’m sorry to be so blunt but the fact is that macro economists agree on most basic issues, for instance whether there is a long term output-inflation trade off, whether the Lucas critique is valid, whether the government should stabilize the economy using monetary policy and so on. All macro textbooks agree on such issues and these theories held up very well in the crisis, so if you want to argue that macro economists disagree you have to tell us where are those areas in their writings where you spot disagreements.

      It’s not about humility or bragging, you simply failed to present any meaningful evidence in support your thesis, which is why more than one macro economist have been telling you off; rightly so in my view.

  16. “that it does not stand on the same kind of increasingly sound empirical footing as much of microeconomics”

    I can’t tell whether this is meant as irony? How much of neoclassical micro has been verified through experimental or behavioral economics (or, conversely, how much has been shown to be false) – and how much has the standard textbooks (e.g. Varian, Mas-colell etc.) changed? Whatever reason you have to think that micro gets it right – it certainly do not have anything to do with empirics.

    (see e.g. this: http://web.mit.edu/newsoffice/2012/confirming-ricardo-0620.html, which supposedly is a good example, but where the researchers were surprised to find a correlation of 0.2 where theory would have it at 1)

    The reason that it sometimes may seem like micro economists agree is that no one really cares. As soon as an issue gets into the spotlight, everybody disagrees as much as in macro. If microeconomists has agreed on e.g. a optimal policy response to global warming please let me know what it is. Hell, as far as i know micro economists cannot even agree whether there should be a policy response at all – can they?

  17. Diane Coyle must feel like she’s getting deluged by comments defending Krugman after he linked to this blog, I can imagine that’s an interesting thing to undergo.

    In response to your post in the comments above: I don’t think you’re being accused of not favoring stimulus or agreeing with everything that Niall Ferguson says. I think the comments are based on this, among other parts of your blog post:

    “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.”

    Just above those words you’ve posted a link to a book by Paul Krugman in which he does an excellent job of explaining the work of macroeconomics to the general public. It’s certainly not written for economists only.

    He’s been in fact doing a remarkable job of just what you’re claiming that no one is doing, and for some time. A friend I sent a blog post to remarked in reply how much easier it was to understand his explanations of macroeconomics than she ever had before (a highly-educated person, but not even remotely in the field of economics).

    It’s really not that hard to look at what someone like Niall Ferguson has predicted (not an economist, I know, but you’re the one who quoted him 😉 and what Paul Krugman has predicted and see which was right. Even Ferguson has admitted it, basically.

    No, certain economists, like Nobel Prize Winners Joe Stiglitz and Paul Krugman, and then Brad DeLong, James Galbraith, and Dean Baker, among many others, have actually been doing a remarkable job of explaining to the general public what’s been going on, how a series of politically-motivated fantasies became all the rage and sent what could have been a recovery into instead another tailspin, leaving an ongoing employment tragedy that didn’t have to happen.

    If you’re claiming otherwise, I’m sorry but you’re just not reading the right people. Certainly not Krugman, who has done everything you claim that no one has done. If you choose to ignore or discount what he writes because it includes criticism that you find too shrill, I don’t know what to say about that. The information is there, it’s not his fault if you don’t want to acknowledge it.

  18. I’m reading End This Depression Now!, and the blog author’s post is clearly a straw man. You might infer that Krugman thinks that you’re an idiot, but that’s not what he says. The actual content of Krugman’s book is just popular macro that’s politically motivated. It’s fallacious to base a judgment or an argument on the basis of an inference, i.e., that Krugman’s “shouty” because one infers, given his positions, he must think economists who disagree about stimulus are idiots. One would think that the shouty person would just shout what they think.

  19. As a scientist with a hobby of reading economic theories, I have to completely disagree with you. Macroeconomist has performed really well if you have listen to right people.

    As a scientist, the way I see it. At the beginning of the crisis, there were multiple competing theory each with their own model of how things works. With analyzing the data, I have to say that new Keynesian models, while not completely accurate have outperformed new classical models. That is the only truth that one should be concerned about.

    It is irrelevant if there are many macro-economists, even distinguished ones, who still insist on their refuted theory. After all Einstein never accepted quantum theory. It is irrelevant that Krugman think anyone who disagrees with him is an idiot (Which I think most of them are). It is also irrelevant that you cannot perform lab experiments (This is a problem in few area of hard science as well). As a scientist I look at the available models and data and just pick the one that performed the best and that is what I expect you to do as a fellow scientist.

    And the reason that economist in general (and not just the macro guys) are losing credibility in broader scientific community is that instead of sound analysis, certain people are just pooling ranks, bringing the stupid irrelevant philosophy arguments (like that argument about social contract with future generation), flatly lie about the data and just try to justify their position with any stupid argument they can make and their feeling get hurt when someone point at this. I have to agree with Krugman that this people are blithering idiots.

  20. Many thanks to everyone for these comments, almost entirely courteous 🙂

    My correspondents on the whole disagree with my contention that there is a smaller area of agreement between macroeconomists than between microeconomists. This was one thing Jonathan Portes had partly agreed with me about:
    “Diane is clearly correct that there’s far less consensus about the “right” underlying model of the macroeconomy than there is about some aspects of microeconomic analysis (the impact of trade or migration, say).”
    Although he went on to say there is more agreement in macro than I think. Funnily enough, the comments on his post balance disagree with him – I guess that’s the way it goes with blogs.

    No doubt this will run on. My last word is actually a link to Simon Wren-Lewis’s blog post on ‘schools of thought’ in macro:
    He put it far better than I did.

    • Apologies for the lack of courtesy but there’s no polite way to say to someone that they haven’t done their homework. But here’s some (hopefully) constructive advice. Greg Mankiw devotes the last chapter in his excellent textbook, “macroeconomics”, on things macroeconomists don’t know, if you have genuine interest in what goes on in the field, that would be a good place to start.

  21. Who predicted years ago that massive money creation by the Federal Reserve Bank would not cause inflation to rise dramatically? Was it Coyle? No. Was it Krugman? Yes.

    Who said years ago that the massive deficits would not cause interest rates to rise? Was it Coyle? No. Was it Krugman? Yes.

    You get the drift. If an economics cannot predict the near future, it has as little practical import as art history.

    Economics departments are just high level trade schools.

    • Krugman did predict those things, sort of, when WE WERE NOT UP AGAINST THE ZERO LOWER BOUND OF INTEREST RATES. Read for understanding, please.

  22. Paul Krugman has taken more than his fair share of hits from those who disagree with him. And he has, at this time, the right to issue any blistering criticisms of those who disagree with him. Not only has he been amazingly correct both in his analysis and his predictions, but also those who contradict him are, by the power they seem to hold over public policy, causing incredible pain and distress to those least unable to protect themselves from these public policies.
    This is no longer an academic debate being politely held in little ivory towers. There is real pain out there, and real people are getting hurt. And if economists can’t provide any insight and help to those in greatest need, then they have very little use to society, in my humble opinion.

  23. Macroeconomists are “bringing us into disrepute?” Really, Ms. Coyle! Krugman may be shouty, but at least he’s not snobby.

    Oh, those macroeconomists. If only they were a bit less social and a bit more scientific.

  24. I am concerned that you miss the point that certain macroeconomists are making. Either make your case in the tools of the profession or leave the field to those who do. I find that those who believe that Economists who don’t slavishly follow business or conservative ideology are the ones who are criticized for being “contentious” and all they are doing is making their case assertively. The Ad Hominem attacks all seem to come from those policies or pronouncements are called out. Just remember the fairness is not picking a point between reasonable argument and downright crazy or stubborn. Perhaps you can get yourself a job with the feckless US media if you are in the business of always thinking both sides as equally culpable for dysfunction.


  26. It should be obvious that there is a consensus of Keynesian macroeconomists that has been richly confirmed by the empirical evidence. What is not obvious in the blog post or the comment stream is the nuts and bolts of the various macroeconomic claims that have clouded the picture and create the illusion that there is no macroeconomic consensus. Krugman has highlighted all of the factual claims of the other side and shown in detail how and why the empirical evidence shows the claims to be false.

    One small example, the “efficient market” claim in respect to salaries and wages. When there is an excess of unemployed workers this assumption would suggest that wages would rapidly decline until a new equilibrium is found. The empirical evidence is that pricing in this market is extremely sticky and does not decline. There are a handfull of other claims by “conservative” economist who base their claims on abstract theory that serves the super rich and is not supported by evidence. It would be good to have a more robust acconting of those differences include somewhere in this comment stream.

  27. Diane, you cited Krugmans book. That suggests that you read it… What did you think of his arguement? I am a devoted follower of his writings and feel that he explains his position quite well so I am mistified that you have not explained why you do not seem to understand. Obviously micro and macro are as different as meteorology and climate science but if I, a dairyman in Wisconsin, can understand you should be able to as well. You should also be able to state why you cannot accept the particular point you actually mention, the value of fiscal stimulus in a liquidity trap.

    As to your three points…you do not respect macro economists in general….That’s too bad but perhaps you should study more, especially Krugman. He does explain well for a general audience (your third point).
    He is “shrill” because he is correct most of the time and the people in positions of power ignore Keynesians.

    • You may not have seen this?
      “These are the themes of his new book, End This Depression Now. In old-fashioned Keynesian style he believes that the solution to insufficient market demand is for the government to run larger budget deficits. It should start by giving revenue-sharing grants of $300 billion annually to states and localities whose budgets are being squeezed by the decline in property taxes and the general economic slowdown.
      All this is a good idea as far as it goes. But Mr. Krugman stops there – as if that is all that is needed today. So what he has done is basically get into a fight with intellectual pygmies. Thus dumbs down his argument, and actually distracts attention from what is needed to avoid the financial and fiscal depression he is warning about.”

      • She don’t like Krugman. That’s it. She will never admit that he may be right. It’all ideology once again. But, ok, what you can expect from someone defending microeconomics?

        • I do like him, actually, having known him for many years. He might be right (although it doesn’t seem a no-brainer to me, as it obviously does to many other people). I don’t think the adversarial approach he takes is an illuminating or persuasive one – a separate point.

  28. I think there is a basic misunderstanding not about economics, but rather about the point of view of certain people in power.

    Look at the facts: Corporate profits are at record levels. Concentration of wealth among the top 1% (or 0.1% or 0.01%) is increasing tremendously. Productivity is up while real wages for workers are down. Political power has long been equated with economic power and (in the US at least) economic power is now equated to free speech. The economic power of unions is almost completely destroyed while corporations now have no constraints at all.

    If you are in the top 1% or higher, things are not failing – they are working spectacularly well. Why on earth would you want to see that change?

    • Gordon, if the wealthy actually understood that the common good helps everyone then they might not be so willing to keep the common man poor. Even the wealthy would be better off if the poor man was working and purchasing goods.

      • That’s true in theory, but the distinction now is that they don’t need a market in any one particular country.

        Having built the foundation of an industrial base in what has traditionally been the “developed nations” they can now discard that and look to other markets around the world.

        I also question whether they really consider the long view anyway. As long as they can accumulate massive wealth and maintain it through their lifetimes, they don’t care what happens afterwards.

        That may sound cynical, but give me another explanation for their behavior that matches the evidence.

  29. Don’t think the most vocal EMT bods have ever tried to apply it to wages. Happy to be proved wrong.

  30. Thanks for the equally polite and gracious response, Diane.

    As for economists laying out in direct terms what they think is going on, it would be hard to get more direct than this:


    I really don’t think the problem is that economists haven’t been clear. I think the problem is that a lot of people, some because they’re captive to politically-motivated ideology, others because this ideology being all they hear has convinced them that up is down and left is right, don’t accept what the economists say. And of course there are some economists saying the opposite, but not that many really.

    In any case that manifesto lays it all out more clearly than anything else I’ve seen.

  31. Macroeconomists disagree as much as physics disagree.

    Disagreement is a sign of scientific progress in natural sciences when they treat the evolution of complex and dynamic system. Or at least it is how progress in knowledge can be achieved.

    Moreover, empirical verification of a rationalist modelization of social reality has its limits and it may also apply to natural reality (see Lakatos).

    On fiscal stimulus: you may not be convinced by Krugman, but it is because your standard for accepting the validity of a theory are too high. Global austerity in a liquidity trap scenario is wrong, good economists either accept it other they loose their credibility.

    No empirical test can give you the definitive Popperian proof. We are thinking about unique events happening in a complex and contingent environment. You can’t find a sample big enough of similar events under similar conditions (maybe adding data about a bunch of extra-terrestrial societies at the same stage of development?).

    About microeconomics, the greatest problem of modern macro models are their irrealistic microfoundations. So part of the blame for its current status falls on neoclassical microeconomics. I am not say that microeconomic assumptions are wrong either. They help to understand why individual markets works efficienty most of the time and this may help to understand some fo the factors behind the dynamic evolution of macro-aggregates.

    But still they are irrealistic microfoundations. Other assumptions of modern macro are also irrealistic: perfect competitive firms with a fixed price-cost mark-ups, money as a store of value, no role for wealth maximization and the incorporation of a developed credit structure.

    So, as a microeconomist, why don’t you help in finding better mcirofoundations?

    So,a s an economist, why don’t you go back to the history of economic thought and read authors which were critical of neoclassical microfoundations?

    After that, probably Krugman will convince you without being forced to bring the proof of the immaculate conception?

  32. In truth you operate at a different level than a retired businessman like me with a Econ 101 education. However, whatever one may think about the debating style of Professor Krugman there’s absolutely no question that he was proved right about bond rates and Ferguson (who is actually far more shouty imho) proved wrong. Furthermore, although he does tend to overdo the doom scenarios, Krugman has generally been much more right than most of his critics and none as far as I know have fessed up to it.

  33. Interesting point: “When popular critics attack ‘economics’, they mean macro.”

    When did the efficient markets hypothesis, which popular (and generally ignorant) critics of “economics” often home in on, become part of macroeconomics?

  34. I’m very surprised by Niall Ferguson’s ideological rants being the Reith Lectures. I thought the BBC had better standards.

    It seems to me that your mate and all these macro-economists have a big elephant in their room. Everyone is talking about public debt as though it caused the crisis. But in many countries, UK included, it only went up after the crisis as we bailed out the banks. They seem to agree that bailing out the banks was necessary, but again no one is talking about why the banks needed bailing out.

    The real problem with macro seems to me to be that banks create money when they loan beyond their reserves. And this money creation is not in the models. Deregulated banks created a massive amount of money which went into gambling. Leading to inflation of asset prices and rising interest rates until someone decided not to pay and the bubble burst. And this has happened repeatedly since 1971. And it happened in the 1920s. And it doesn’t seem to feature in our discussions about economics.

    I think Steve Keen says it best. Their models don’t include banks or debt or money so they didn’t see a crisis caused by banks, debts & money coming.

    It’s all very well to say that ” Ideology and politics distort macroeconomics as a science.” The first part is true: ideology and politics do distort macro. But it isn’t a science. If it was they would have abandoned their theories the day after they completely failed to predict the credit crunch and subsequent depression. No scientific theory should survive such a massive failure to predict real world events.

    Compare our notions of gravity. Once it was realised that Newton’s equation for gravity could not predict the precession of the orbit of mercury the race was on to replace it. Einstein won, and Eddington provided the first empirical evidence that the theory made good predictions. If Eddington had observed something other than light being bent around Venus as it traversed the sun, then we would not remember Einstein at all.

    Macro is in fact a zombie, having a massive Semmelweis Reflex. It doesn’t know it is dead yet, and refuses to admit their might be an alternative.

  35. I don’t remember the chapter in my MacroEcon 101 book discussing massive criminality at the heart of banking.

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