So my first point, which I have made before, is that we can get rid of a lot of stuff that is simply out of date. Like the LM curve (and theories of money demand that go with it). And the Aggregate Demand curve which is derived from it. And Mundell Fleming which is an open economy version of it (and inconsistent with UIP to boot). And the money multiplier (which, apart from being very misleading, is unnecessary if we stop fixing the money supply).
That is fine. But he winds up with this:
So there you have it. Econ 101 with just three basic relationships: an IS curve, a Phillips curve and UIP
Pointer from Mark Thoma. UIP stands for uncovered interest parity, with the impact that a higher interest rate at home is associated with a stronger currency and reduced net exports.
Actually, I do not think that replacing the equations that have gone out of fashion with those that are currently fashionable represents an improvement. Quite possibly, it is worse. As Noah Smith points out, these equations are not empirically verified. They are merely asserted.
I think that macroeconomics ought to be taught as a combination of economic history and history of thought. In that regard, I think that my macro memoir would have some value, although other perspectives also deserve to be included.
“As Noah Smith points out, these equations are not empirically verified. They are merely asserted. ”
So they do praxeology!
It seems it would be useful to distinguish two types of macroeconomics:
(1) An economic history course for macro policy, using detailed analysis of historical events and cross-country comparisons to build plausible connections, but having as a weakness an absence of micro theoretical foundations
(2) An aggregate economics course (to use Ed Prescott`s term), aiming to build macro from micro theoretical foundations. This endeavour is scientifically important, but still very far from yielding useful policy recommendations.
I see no reason why we could not teach both.
Wait a minute….Piketty just asserted ‘fundamental laws of capitalism’ and is getting away with it…..I guess if it is popular enough, you can assert any mathematical garbage and get published.
Remember, if it’s not peer-reviewed it’s not taken seriously.
I find Piketty’s flaws are miniscule compared to his critics’, for the most part.