Arnold Kling: Economics>Macro

Arnold Kling is right that Macroeconomics is only a subset of economics – and as a result a failure in macroeconomics does not damn the whole economic method.

However, I think he might be giving macroeconomists a bit of a free ride here.  Think of it this way – microeconomics has evolved to generalise hypotheses and make them testable.  Microeconomists have also been careful to posit counter-factuals to their cases and discover necessary and sufficient conditions for their results.  The strength of microeconomics has lead to a burgeoning industry in “Freakonomics” style books.

Macroeconomic theory has followed micro, attempting to solve general economic situations from “individual rationality” and even applying some game theory.  However, as soon as the business hit the fan – they dumped their attempts at a framework and rushed back to arbitrary debates on the size of the “multiplier”.

Recent debates have illustrated that macroeconomists are really just “play economists” – stating that they believe in scarcity, and want to study the allocation of resources, but don’t want to put in the hard yards that microeconomists have.  Where is the general equilibrium theory?  Where is the study of multiple, heterogeneous, agents interacting in a dynamic system with poor information and imperfect institutional arrangements.  Do macroeconomists actually have a general framework (based on methodological individualism) that they agree on – like microeconomists do.

Some people posit that the separation between micro and macro is like the difference between general relativity and quantum physics – these people would have us believe that there is only one step left between reconciling these divergent disciplines and having a “general theory”.  However, doesn’t that give macro a little more credit than it deserves?

Note:  This post is supposed to be contentious – I would like to hear how macroeconomists would go about answering the claims I’ve made in this post :)

  • http://www.econ.canterbury.ac.nz/eric Eric Crampton

    DSGE stochastic calculus porn doesn’t count as gen eq theory for you either? :>

    We’re hiring in macro and so have been seeing LOTS of candidates…neat how many of them are turning away from RE to adaptive/learning models.

  • http://www.tvhe.co.nz Matt Nolan

    “DSGE stochastic calculus porn doesn’t count as gen eq theory for you either?”

    No – but it is pretty damned sexy :) . I like DSGE models – but I wouldn’t put heaps of weight on the raw forecasts they produce is all …

    “We’re hiring in macro and so have been seeing LOTS of candidates…neat how many of them are turning away from RE to adaptive/learning models”

    I remember at Vic lecturers enjoyed the RE method – but they were always quick to recognise that there is a role for adaptive expectations. Calibrating models to fit for that is a big pain though :P