From mouse on the rates blog comes this awesome quote:
It looks like Infometrics have been Smoking some “Green Shoots”.
Given I work at Infometrics, this quote is going to make its way onto my wall. Bloody brilliant 🙂
Macroeconomics failed in this crisis because it has for ages under-rated the importance of the stuff we (might) learn in industrial organization classes
Industrial economics is effectively applied microeconomics in the field of the economy (as compared to some of the more social fields that some microeconomists have moved into). I have always believed that current macroeconomics is simply an application of applied micro from 20 years earlier. Given the amount of progress made in industrial economics over the past 20-30 years I agree with this quote, and can see why an ignorance of these lessons has lead us to some observable errors.
Furthermore, I agree with this quote as it paints the future of macro in “methodological individualistic” terms – specifically we want to understand the behaviour of the individuals in a system in order to understand, and then predict, how the system will work.
I fear that macro will move back to the Friedmanesque interpretation of economic models – where all that matters is current predictive power, not the underlying “truth” of the assumptions driving the model. Why do I fear this? Well, when something goes wrong and the model stops forecasting well (which it will), if we don’t understand the assumptions we don’t know where to look for the failure.
However, I have to admit that trying to apply these lessons to an aggregate framework (which we need for macro) is a lot harder than it sounds. A factor that may make my dreams more of a pie in the sky fantasy than an actual realistic prescription for the direction of the discipline.
Update: Anti-Dismal has a related post on criticisms of macroeconomics and DSGE models. I agree with him on this point “much of the criticism aimed at DSGE models seems to result from a failure to understand the use of the DSGE model”. However, when looking at macro we have to ask – did macroeconomists maybe exaggerate the scope of their own models to get attention? If so I think maybe we deserve a little criticism to put us back in line. However, don’t throw the baby (DSGE modeling) out with the bathwater.
I also discussed criticisms of macro here in March.
The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.
— Winston Churchill.
So, really, it’s all about value judgments.
I heard the following gem round the water cooler at work:
Beer makes economics happen
I felt that given it is a Friday, and given that there is a lot of economics going on, this quote was felt especially poignant.
Personally I think Jagermeister is a better economic stimulant – but I understand that I’m in the minority.
This was a quality quote (ht Economist’s View):
Paradoxically, then, the current disarray within the profession is perhaps a better reflection of the profession’s true value added than its previous misleading consensus. Economics can at best clarify the choices for policymakers; it cannot make those choices for them.
I have to admit – I agree with Dani Rodrik a more during a credit crisis than I do outside of one (although, it is a small sample 😉 ).
Note the last statement in the quote – we cannot make choices for policymakers. Why? Because it involves making value judgments we are ill equipped to make. I was concerned that economists had forgotten about this – but it turns out I was just looking at the wrong economists!
However, given his own argument – why did he term contemporary macro a failure? Is it because he thinks that the use of a scarce resource (time) in a role that isn’t offering the best social return is bad? I think we need someone to frame a potential incentive issue for macroeconomists here (wink wink Rauparaha 😉 )
A quote that currently hold resonance with me:
I disapprove of what you say, but I will defend to the death your right to say it.
This quote is often misattributed to Voltaire – in fact, before I fact checked it today I thought it was a quote from Voltaire.
This quote helps me find peace in the face of different value judgments that I don’t agree with or don’t understand.