Tag Archives: Macroeconomics

Five Ways to Build a New Macroeconomics

What is taught in today’s graduate programs as macroeconomics is entirely useless for the kinds of questions we are interested in.
(evonomics.com)By J.W. Mason –  Jón Steinsson wrote up some thoughts for this panel about the current state of macroeconomics. He begins:

There is a narrative within our field that macroeconomics has lost its way. While I have some sympathy with this narrative, I think it is a better description of the field 10 years ago than of the field today. Today, macroeconomics is in the process of regaining its footing. Because of this, in my view, the state of macroeconomics is actually better than it has been for quite some time.

I can’t help but be reminded of Olivier Blanchard’s 2008 article on the state of macroeconomics, which opened with a flat assertion that “the state of macro is good.” I am not convinced today’s positive assessment is going to hold up better than that one.

Where I do agree with Jón is that empirical work in macro is in better shape than theory. But I think theory is in much worse shape than he thinks. The problem is not some particular assumptions. It is the fundamental approach.

We need to be brutally honest: What is taught in today’s graduate programs as macroeconomics is entirely useless for the kinds of questions we are interested in.

I have in front of me the macro comprehensive exam from a well-regarded mainstream economics PhD program. The comp starts with the familiar Euler equation with a representative agent maximizing their utility from consumption over an infinite future. Then we introduce various complications — instead of a single good we have a final and intermediate good, we allow firms to have some market power, we introduce random variation in the production technology or markup. The problem at each stage is to find what is the optimal path chosen by the representative household under the new set of constraints.

This is what macroeconomics education looks like in 2021. I submit that it provides no preparation whatsoever for thinking about the substantive questions we are interested in. It’s not that this or that assumption is unrealistic. It is that there is no point of contact between the world of these models and the real economies that we live in. more>

The Wonks Battle for the Fed

By Noah Smith – These days, essentially all of the pre-2008 models have fallen out of favor, replaced by models where finance is the key. Most people would agree that’s a good thing.

But those models are going to have just as hard a time getting conclusive support from the data, because there just isn’t much data.

So again, conclusions about whether the Fed should print money and buy bonds to fight recessions will come down to intuition. As Robert Waldmann says, “The models change but the policy proposals remain the same.” more> http://tinyurl.com/k2vkost

Prosperity At Risk

English: Harvard Business School Baker Library...

Image @Wikipedia

January 2012

Findings of Harvard Business School‘s
Survey on
U.S. Competitiveness

By Michael E. Porter and Jan W. Rivkin – For the first time in decades, the business environment in the United States is in danger of falling behind the rest of the world. With this, pressures on jobs, wages, and living standards will only grow.

Today, public discourse about the problem and potential solutions often ignores the root causes. Many see jobs as the goal, when in fact it is only through restoring American competitiveness that good jobs can be created and sustained.

Respondents perceived the United States as already weak and in decline with respect to a range of important factors:

  • the complexity of its national tax code
  • the effectiveness of its political system
  • the K-12 education system
  • macroeconomic policies
  • the efficiency of the legal framework, and regulation

Some current American strengths were seen as declining

  • logistics infrastructure
  • workforce skills
  • communications infrastructure

America’s unique strengths were perceived as stable or increasing in

more> (pdf)