Interesting times for macroeconomics
January 19, 2009
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!.