He then asked how it could be the case that when people look at the same data, they don't arrive at the anything near the same conclusion. He said that it was irritating and frustrating to see constant disagreement by economists over macro issues
I told him two things.
First, there isn't really that much data! Since world war two we are working on what, our 10th business cycle?
Second, macro is largely a non-experimental science thus causation was a b*&#ch to figure out and counterfactuals were in short supply.
I also told him that op-ed level macro wasn't generally serious academic macro (though some of it is).
And he asked me what serious academic macro had done vis a vis predicting the meltdown.
I told him, "very little".
I then told him macro forecasters are like weatherpeople, the worse we do and the worse things get, the more they are in demand. I don't think he was too impressed.
I don't fault modern macro for not predicting the financial meltdown; to me thats a borderline silly complaint.
I do think though that op-ed level macro is often not doing the profession any favors in its quest to be viewed as a science.
5 comments:
I think it's also tough for folks to understand that even when some economists seem to get macro outcomes correct, the timing is up for grabs (e.g., housing recession)
"I don't fault modern macro for not predicting the financial meltdown; to me thats a borderline silly complaint."
Why? What good is any method of prediction if it misses all of the big stuff? This seems like a weatherman missing an entire hurricane. It is irresponsible to make any prediction at all if you miss something this large, with people's livelihood, savings, and retirement funds at stake. That's a completely valid complaint rather than "borderline silly".
BD: I'd say it is much more like trying to predict an earthquake than a hurricane. People could and did predict that house prices were a bubble and could burst, but given that it had never happened before (or only once before in the 1930s) and was a result of new and exotic financial instruments, I don't see how any model could have predicted the extent of the meltdown that ensued.
I really think it is macro's desire to be considered a true science that turns people off. The idea's of economists like keynes, that we can create policy to get social justice has a lot of draw for noneconomist who don't understand that we are not able to get close to knowing all possible outcomes. I say this as an undergrad student in financial econ. My opinion is that any macroeconomist of any moral fiber should spend his working life attemping to gather as much data as possible, and stand on a soapbox screaming to the public, don't play with policy, we don't know the outcome!
Jayson
But, if it were not for "playing with policy," then what would a macroeconomist do? What's the use in gathering all the data?
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