Macroeconomic aspirations

from Lars Syll

Some economists seem to be überjoyed by the fact that they are using the same ‘language’ as real business cycles macroeconomists and that they therefore somehow can learn something from them.

James Tobin obviously did not find any need to speak the RBC ‘language’:

They try to explain business cycles solely as problems of information, such as asymmetries and imperfections in the information agents have. Those assumptions are just as arbitrary as the institutional rigidities and inertia they find objectionable in other theories of business fluctuations … I try to point out how incapable the new equilibrium business cycles models are of explaining the most obvious observed facts of cyclical fluctuations … I don’t think that models so far from realistic description should be taken seriously as a guide to policy … I don’t think that there is a way to write down any model which at one hand respects the possible diversity of agents in taste, circumstances, and so on, and at the other hand also grounds behavior rigorously in utility maximization and which has any substantive content to it.

Arjo Klamer, The New Classical Mcroeconomics: Conversations with the New Classical Economists and their  Opponents,Wheatsheaf Books, 1984

Using the same microfoundational ‘language’ as mainstream macroeconomists don’t take us very far. Far better than having a common ‘language’ is to have a well-founded, realist, and relevant theory:

Microfoundations for macroeconomics are fine in principle—not indispensable, but useful. The problem is that what passes for microfoundations in the universe of orthodox macro is crap …

realityIt’s nothing more than robotic imitation of teaching exercises to improve math skills, without any consideration for such mundane matters as empirical verisimilitude …

Microfoundations means general equilibrium theory, but the flavor it uses is from the mid-1950s. The Sonnenschein-Debreu-Mantel demonstration (update to the 1970s)  that initial conditions and out-of-equilibrium trades alter the equilibrium itself has turned GET upside down.

Notice that I haven’t mentioned the standard heterodox criticisms of representative agents and ergodicity. You can add those if you want …

Like I said, their microfoundations are crap.

Peter Dorman

Macroeconomists have to have bigger aspirations than speaking the same ‘language.’ Rigorous models lacking relevance are not to be taken seriously. Truly great macroeconomists aspire to explain and understand the fundamentals of modern economies. As did e. g. John Maynard Keynes and Michal Kalecki.

  1. gerald holtham
    October 26, 2022 at 5:12 pm

    All true. But does any reader of this blog need to be told? Tobin’s correct comments are 38 years old. The only people who haven’t got the message are the ones who don’t want to get it. They have diminishing influence in policy circles and hang on in academia.

  2. October 27, 2022 at 3:45 pm

    The neoliberal model leads to sky-rocketing profits and stagnant investments. Corporations move to where taxes are lowest and shift their profits to tax havens like the Cayman Islands, Switzerland, Delaware or Wyoming. Poverty returns with misguided policy, explains professor Franz Segbers. Countries like the US and cities like Portland are devastated, dominated now by boarded-up small businesses and graffiti. Since 2000, the Fed has created trillions to keep alive the financial sector. The corporate media wedded to the political elites rarely speaks a word of criticism! helps with 26 languages including German, Spanish, French, Dutch, Portuguese, Russian, Japanese and Chinese. With humility and encouragement, nearly everyone could become a formidable translator.

    I can translate more in one hour than in 3 or 4 weeks!

    Education is the great transformer, said John Kenneth Galbraith.

    The race is to the most truthful and the most humble, not to the richest!

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