Interesting times for macroeconomics

Mario Rizzo asks: where's the progress?

In the last forty-five years, I am told by macroeconomists, there have been many advances in macroeconomic theory. Let us grant this. Then why is the Keynesian policy position – putting relatively small differences among proponents aside for the moment – more or less the same as when I was an undergraduate at Fordham University from 1966 – 1970? . . .

Let me put things another way. Suppose Gardner Ackley, the Chairman of the Council of Economic Advisors under Lyndon Johnson, had been asked in 1964 for his policy recommendations for a hypothetical just like today’s situation, what would be different in the fiscal realm between his advice and that of the Obama advisors? 

The discussion in the comments is also interesting.

One commenter writes, "The cure for the common cold is the same as it was in the 60s or 30s, does that mean there have been no advances in medicine?" [Close, but no cigar. If the cures for heart disease and cancer were the same today as in fifty years ago, this would be a better point.]

Rizzo replies to a defense of modern macro with this:

I believe that the age of a policy idea is not relevant per se. After all, laissez-faire is older than the idea that fiscal deficits should be run in times of recession.

My point has nothing to do with the appropriateness of the stimulus policy prescription. It has to do with the ultimate “cash value” of recent macro theory.

And the Chicago Tribune notes three big-name economists who are skeptical--seemingly quite skeptical--of a big stimulus. (Link via Greg Mankiw.)

John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is "taught only for its fallacies."

New York University economist Thomas Sargent agrees: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."

Nobel Laureate Gary Becker says any benefits will be modest at best.

Economists throw down!.

Comments

[John Seater]

This issue has bothered me literally for decades, and the answer I came up with more than 20 years ago (and have mentioned even in a published article) seems as correct today as it did when I first formulated it: Politics. More accurately, political and social preferences and priors.

The political left generally likes the idea of the government running things. Keynesian macroeconomics provides a rationale for government intervention in the workings of the macroeconomy. Hence most left-leaning economists like Keyenesian economics.

The political right generally dislikes the idea of the government running things. New classical macro provides a rationale for the government butting out. Hence most right-leaning economists like new classical macro.

Values and priors unavoidably interfere with scientific objectivity. We all are only human. Most of the left-leaning and right-leaning economists I know are not deliberately dishonest. They simply view the world from different perspectives, and those perspectives have a very strong conditioning effect on what they interpret the world.

The strong effect of preferences on perceptions is no weaker in microeconomics than it is in macro. Just talk to anybody studying industrial organization, public finance, income distribution, education, health care, and on and on. It just is more obvious in macro because most of the economic issues that make the front page of the newspapers are macro issues: inflation, unemployment, recession, economic growth.

In my opinion, though most economists are not dishonest, most are sloppy and often unwilling to be disciplined by their own science, which is the real source of embarrassment. In my view, any economist not willing to accept the policy implications of his own science should stop pretending to be an economist and call himself something else.

By the way, this problem is not confined to economics. Global warming, global cooling (the earlier climatology fad), cold fusion, and sociobiology are but a few examples where political preferences (and the opportunity to get government grants) interfere with objective science.

I thus arrive at a conclusion that applies to all science, not just economics: Whenever a science has public policy implications, that science will be corrupted and perverted by political influences. Economics just happens to be the science with the most policy implications. Literally everything economists do has policy implications. As a result, economics is the most perverted of the sciences. Within economics, macro has the most obvious policy implications, so it is the most perverted part of economics. Too bad, too, because there really is a lot of beautiful science in macro.

[JorgXMcKie]

What he said. Except, once anti-government types find themselves in (partial control) of government they tend to want to use that Big Ol' Hammer almost as much as everyone else.

[kyle8]

I agree with you Mr. Seater, but as someone who was originally an at least partial Keyensian, and now is not. I have to say that it takes a much more of a willingness to disbelieve the evidence to still go along with those sort of policy prescriptions.

And we are likely to see even more evidence of the failure of the Big government, pump priming system in the near future.