First off, if "macro" is at all close to a "science", there should be near unanimity, among macro "experts", on exactly: why did the dot.com bubble keep growing, even after Greenspan's 1997 (?) irrational exuberance comments? Why did Argentina turn into such a mess?
I don't think there is agreement. Until macro-economics can reliably provide policy prescriptions to avoid turning any given country into such mess, or to avoid such bubbles, it is ridiculous to call it a science. Please, please inform me if I'm wrong. (Alex?) (Those who claim macro is "pre-science" can say these are cases of are what is too complex.) It's very interesting to me to see how: somebody does decide on the national interest rate, but, nobody decides on the unemployment rate, nor does anybody decide on the trade deficit. The Pres. & Congress do decide on the Federal budget deficit and tax rates, but nobody decides on the number of bankruptcies, loan defaults, business starts; not even housing starts. Economics is a mix of decisions taken at different levels. This is why the rational actor is so important, as well as why micro is more important, it's where the real decisions are being made. My point is that macro, as a descriptive exercise, useful for understanding what has happened, may be a science like (very recent) archaeology. (Of course, I never liked, nor believed, the Samuelson Keynesianism I was taught, so I might well be missing current macro thought) But what politicians want, which Keynesianism promised much More than Mises-Hayek Austrians, is policies for control. Thus, even more than stories, journalists are interested in how to use (very simplified) economics to explain (support/ criticize) specific political policies. Krugman, for instance, feeds this desire for using econ to criticize policies, or advocate others. As do the Freidmans and other quoted economists. They also, occasionally, make predictions. I think the simple concepts most important are: 1) trade is not a zero sum game - trade increases wealth. 2) All markets depend on the definition of property rights, and the enforcement of contracts. 3) The correct (min) gov't role is to define property rights well, to enforce contracts, and to punish theft and fraud. 4) The vast majority of world poverty is caused by government failure to do its job. 5) Policies have unintended consequences, which can be predicted based on analyzing incentives. eg. policies to reduce "corporate raiders" from taking over underperforming companies meant that top management insiders were able to get all the available money instead of the investors. Tom Grey > -----Original Message----- > From: Alex Tabarrok [mailto:[EMAIL PROTECTED]] > Subject: Re: Questions about the stagflation episode... > > > I think that today there is a unified macro (Bill recognized > that saying > there wasn't was going out on a limb). Macro is now in a period of > "normal science." The profession has decided that the corect > way to do > macro is using a stochastic dynamic general equilibrium model. Some > people include sticky prices in such models and others do not > but either > approach is well within the mainstream. Also, almost all the > profession > will now also agree that sticky prices or not a large > fraction of what > we call business cycles are the natural responses of an > economy to real > shocks. > > Although stagflation opened the door to new ideas what > has driven > the process more than anything is the internal dynamic to make macro > models more micro-based. > > Alex > > -- > Alexander Tabarrok