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Sunday, April 07, 2013

World Without Macroeconomists

Ex Macroeconomist Noah Smith argues that it is a good thing that there are professional macroeconomists.  He has two arguments

 So does this mean that macro research is useless for policymaking? No! Not at all!! Because here's an interesting thing about policymaking: No matter who advises the policymakers, policy is going to get made. That includes economic policy. So if there were no academic and Fed macroeconomists around to advise policymakers, who would policymakers listen to on economic matters?

My guess: Some very dangerous people. 

2) useful things have been learned from empirical macro including stuff you see with half an hour of FREDing and "slightly less than half of people seem to be "hand-to-mouth" consumers who don't obey the Permanent Income Hypothesis."

My rude comments.

1) A world without macroeconomists wouldn't be a world without economists who talk to journalists about the macroeconomy.  The risk is that the voice of the economics profession will be trade theorists, economic historians, behavioral economists and finance economists such as Krugman, DeLong, C Romer, Goolsbee, Fama and Cochrane (note ex macroeconomist Smith decided to go into finance).

I actually think that macroeconomists have very little influence on macroeconomics as perceived by policy makers and the public.  Summers is influential.  He is also a total heretic (he didn't leave the field, the field left him).  Blanchard and Woodford are influential macroeconomists and reasonable people.

The world has chosen not to benefit from the insights of the most influential academic macroeconomists Robert Lucas and Edward Prescott.  I don't think you think this is a bad thing.

2) On consumption and the PIH the data suggest that somewhat less than half of consumption is by hand to mouth consumers.  They don't suggest anything about the rest.  The rest of fluctuations in consumption can't be predicted by predicting current GDP.  Also radioactive decay can't be predicted by predicting current GDP.  The PIH is not a good theory of radiactive decay.

The (representative agent with an additively separable utility function and no liquidity constraint version of the PIH) glass is not much more than half full.  I am not aware of evidence that it isn't empty.

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