Home > Uncategorized > Macroeconomics is not about investigating ideas but about investigating the macro economy

Macroeconomics is not about investigating ideas but about investigating the macro economy

To the uninitiated reader the previous post, by Peter Radford, might seem eloquent albeit a little hyperbolic. It is eloquent. It is not hyperbolic. Peter states: ‘The relevance of an actual economy – for example the US between 2007 and now – is not considered if it does not allow the wizardry to be displayed.’ ‘That can’t be right’ the casual observer might think – but it is.

Peters’ idea that many people who call themselves macroeconomists are not talking about the economy but about ‘economics’, i.e. about the logical arguments of other economists, is, when put to the test, totally true. Below, excerpts from two independent reviews of a new book aimed at explaining this kind of thinking and written by one of these economists, as well as a reply to one of these reviews by this economist. It seems that the book (which I did not read) shies away from everything which can be measured and instead talks about the inner world of a rather selected group of economists – which can be explained without any serious discussion of macro economic concepts and variables.

John Quiggin on the Crooked Timber blog

The easiest way to see why the book is so striking is to list some topics that do not appear in the index (and are not discussed, or only mentioned in passing, in the text). These include: unemployment, inflation, recession, depression, business cycle, Phillips curve, NAIRU, Taylor Rule, money, monetary policy and fiscal policy.

By contrast, the book includes a lengthy treatment of such topics as Bayes-Nash equilibrium in game theory, intertemporal optimization of consumption and the theory of mechanism design.

If you think that this sounds like Hamlet not merely without the Prince, but without anyone in Elsinore, from King Hamlet’s Ghost to Fortinbras, that’s because you are expecting the wrong play.

And David Glasner on his Uneasy Money blog

Big Ideas in Macroeconomics is a moderately big book, 415 pages, covering a very wide range of topics. It is noteworthy, I think, that despite its size, there is so little overlap between the topics covered in this book, and those covered in more traditional, perhaps old-fashioned, books on macroeconomics [which includes every macro textbook I’ve ever seen, M.K.]. The index contains not a single entry on the price level, inflation, deflation, money, interest, total output, employment or unemployment. Which is not to say that none of those concepts are ever mentioned or discussed, just that they are not treated, as they are in traditional macroeconomics books, as the principal objects of macroeconomic inquiry. The conduct of monetary or fiscal policy to achieve some explicit macroeconomic objective is never discussed. In contrast, there are repeated references to Walrasian equilibrium, the Arrow-Debreu-McKenzie model, the Radner model, Nash-equilibria, Pareto optimality, the first and second Welfare theorems. It’s a new world.

The response of the writer (to Glasner in the comments thread of the blogpost and I and, fortunately, David also did not really understand it ):

First, the things that you worry are missing, are missing for a reason: I wanted to show how the analyses of the many things you would define as macro as dealt with (to vary degrees of satisfactoriness) in work that uses or blends the various types of models I describe in detail. I had no intention of asserting what consensus opinions of all the hot-button issues of the day were among macroeconomists. Now *that* would be worthy of the admonishment of “methodological arrogance.” :).

Employment and unemployment and fiscal and monetary policy and inflation and deflation and money and interest and business cycles and total output merely as the ‘hot-button issues of the day’… Well, that’s not even what he writes. He actually states that he didn’t want to write about the consensus opinion of economists about these issues. The ‘consensus opinion of macroeconomists’. Wow. Talk about weird assumptions… Talk about ‘writing off the unemployed‘. Anyway – Peter is right. ‘The relevance of an actual economy – for example the US between 2007 and now – is not considered if it does not allow the wizardry to be displayed.’

  1. BFWR
    February 12, 2014 at 1:43 pm

    Considering that economics and economic theory is the body of human thought which is least integrated with the whole nature of Man himself that the real solutions to our economic problems lie in that direction, and that such integration, if it incorporates into its policies accurate reflections of the highest and most powerful condensations of human Wisdom….would transform economics not only from the “dismal science”, but also a much more functional one at that.

  2. davetaylor1
    February 13, 2014 at 10:37 am

    “This, then, is my main quarrel with orthodox economics, that it confused the substance and the shadow. It mistakes debt for wealth and is guilty of the same mistake as the old lady, who, when remonstrated with for overdrawing her account, promptly sent her banker a cheque for the amount”.

    Frederick Soddy, 1922,on Cartesian (i.e. post Bacon, pre-Hume) Economics.

  3. Norman L. Roth
    February 13, 2014 at 9:45 pm

    Feb. 13, 2014,

    The author of # 2 above, should refer back to ‘CLIMBING THE SHOULDERS OF A GIANT
    VEBLEN EDITION, Dec. 10th, 2013, # 6, before he invokes the name of scientific giant Frederick Soddy, the discoverer of Isotopes. Who had good cause to be embarrassed about his rather strange incursion into the surrealistic world of Monetary economics back in the 1920’s. Wherever he is now,he’s either rocking with laughter; Or red-faced with embarrassment. I’m sure Mr. Soddy got over it long ago. Unlike certain stragglers a few generations later. But # 6’s citations are a perfect example of [cognitive] hysteresis in its human, rather than electro-magnetic, context. Please refer to TELOS & TECHNOS, page 2 of introductory chapter 1 in the 197 page edition. And to the final chapter of Philip Mirowski’s MORE HEAT THAN LIGHT. Where he clearly demonstrates via a ‘reductio ad absurdam’, the folly of using the physics of energy [mid 19th century version at that] as a driving metaphor anywhere in economics. Look what it DIDN’T do for Paul Samuelson when he attempted it even more blatantly a generation later: By applying it to ALL Economics, not just monetary ‘creativity’ on steroids. Mind you the current addiction to printing it by the trillion, dwarfs anything that Fred. Soddy, Howard Scott, Silvio Gesell, Hjalmar Schacht, or the venerable Major Douglas could have dreamed- up in their worst nightmares. Cicero said it with more brevity: To paraphrase him, ‘Above all else, do not debase the coin of the realm’ . Please accept the foregoing in its didactic intent only.
    P.S. The greatest economic thinkers, e.g. Adam Smith, David Hume Jean Baptiste Say, the Physiocrats, [Leontief’s predecessors] Karl Menger, Veblen, Mises, Hayek, Keynes, Georgescu-Roegen, to name a few, never, never short-changed the intimate linkage between “the whole nature of man” and economic behaviour.
    To quote Veblen, on page vi, before introductory Chapter 1 of Telos & Technos: “In the organic complex of habits & thought which make up the substance of an individual’s CONSCIOUS LIFE, the economic interest does not lie isolated and distinct from all other interests”.

    Norman L. Roth, Toronto, Canada: Please GOOGLE [1] Economics of Technos, Norman Roth [2] Origins of Markets, Norman Roth, [3] TELOS & TECHNOS, Roth

  4. davetaylor1
    February 14, 2014 at 3:00 pm

    Poor Norman: so arrogant he cannot see the possibility that Soddy could see further than him, to a non-Euclidian quantum theory based on symmetry rather than measurement. Here’s Soddy (1936). Try applying information theory to the Big Bang, before the uninverse differentiated itself and Hume made a mess of Descartes’ Baconian science.

    (From http://ens.math.univ-montp2.fr/SPIP/spip.php?article2907)

    Four circles to the kissing come,
    The smaller are the benter.
    The bend is just the inverse of
    The distance from the centre.
    Though their intrigue left Euclid dumb
    There’s now no need for rule of thumb.
    Since zero bend’s a dead straight line
    And concave bends have minus sign,
    The sum of squares of all four bends
    Is half the square of their sum.

    Nature, v. 137, 1936.

  5. Norman L. Roth
    February 16, 2014 at 1:15 am

    Feb. 15,2014
    The author of #2 and #4 above, & “BFWR” should familiarize themselves with the teachings of Joseph Alois Schumpeter, if they actually believe {hopefully not without reflection} that “Orthodox” {???} economics …mistakes debt for wealth”. Or that all financial institutions are sophisticated conspiracies populated by master manipulators of Money supply, interest {always = usury} and confiscatory taxation. They should also, in the spirit of the frequently admirable G.K. Chesterton, be clearer on what is meant by “orthodox”. Bon viveur “Sepp” Schumpeter has frequently been popularized as an “unorthodox” thinker who introduced the phenomenon of technological change as a prime example of “creative destruction”[not the only one] into macro economics. And married it to the role of entrepreneurial innovation . But the great Schumpeter was not very specific about what different forms ‘TECHNOS’ took. Nor how it actually interacted with innovative changes in the elements of consumer demand [the current conception of the standard of life, not the same as the “standard of living}:As well as other goals {teloses} of economic action. Nevertheless Schumpeter figures prominently in TELOS & TECHNOS even if he did not pursue that line of thought any further.
    His real accomplishment was to demonstrate clearly how the institution of CREDIT [spontaneously] evolved into a vehicle for enabling entrepreneurial action, as well as the vital and civilizing networks of trade and commerce. Which combination he believed, was the driving force behind the often rocky but indispensable road to ‘Entwicklung’ . Please consult the chapter on Credit and Capital in THE THEORY OF ECONOMIC DEVELOPMENT. It’s probably the most important in the book. It will certainly relieve you of the mistaken notion that debt cannot DEVELOP into [ additional] wealth. Thank you again for your patience and consideration.
    Norman L. Roth, Toronto Canada. Please GOOGLE: [1] Economics of Technos, Norman Roth {2} Origins of Markets, Norman Roth

    • BFWR
      February 16, 2014 at 10:17 pm

      The problem is your thinking is all derived from prior theory, while Douglas’s was based (and still can be found) in the empirical monetary evidence found in the cost accounting statistics of any “going” enterprise. And Douglas’s policy prescriptions are the essence of both the practical (compensated retail discount) and the conceptually transformative (dividend) which would FINALLY create the temporal and conceptual symmetry that economics has so long lacked…and is still being resisted today.

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