Marion Fourcade, Etienne Ollion, and Yann Algan write,
we document the pronounced hierarchy that exists within the discipline, especially in comparison with other social sciences. The authority exerted by the field’s most powerful players, which fosters both intellectual cohesiveness and the active management of the discipline’s internal affairs, has few equivalents elsewhere.
Pointer from Tyler Cowen. As I describe in my macro memoir, Stanley Fischer, now vice-chairman of the Fed, controls a remarkable proportion of the sub-discipline of macroeconomics. For better or worse–and I strongly believe it is for worse–he has decided who is a macroeconomist and who isn’t.
It has been all too obvious that there are people with big reputations who can push equations around but don’t seem to have any sense of what the equations mean.
My only quarrel with that statement is that I believe it applies to equation-pushers from saltwater institutions as well as those from freshwater institutions.
I think there is nothing wrong with economists being equation-pushers and even being unable to make their models empirically relevant.
But then they should not voice opinions about current economic affairs, much less advise Governments or guide central banks.
I believe it was Gerard Debreu, Nobel winner in the 1980s, who replied to the questions of a television interviewer (about interest rates, jobs, the economy, stock markets): “I have no idea, really. I just do theory.” That’s an honest reply and perfectly OK.
Physicists have given mathematics a good name. It seems that equations can predict everything because they predict so much about the physical world. But, this is a shallow understanding of math and physics. Physicists have carefully investigated the predictions made by their equations and have thrown out all of the “non-physical” results. Math predicts physics only because physicists have thrown away all of the math and interpretations which turned out to be wrong.
In particular, equations do not care about cause and effect, and it is easy to manipulate some equations and then interpret them as saying that the effect produces the cause.
This is common in economics, where biased economists compute some result and then proclaim that it must be correct because the equations say so. The worst offender is Keynesian economics. The Kenesian spending multiplier comes from reversing cause and effect.
In reality, the more complicated the math and the more factors which go into it, the more likely that it is wrong.
The failure of any macroeconomic theory to predict makes all of those theories useless. It is laughable that support for some theories comes from what supposedly didn’t happen. The US government spent $800 billion in “economic stimulus”, and proof of its good effect is supposedly that the recession wasn’t worse. There remains no official prediction of the following dismal unemployment rate or slow growth in GDP. All we have are possible explanations of the past given after the fact. That is narrative, story telling, apology, not science.
Some economists spin theories which would supposedly help if government executed the resulting policies, but governments don’t do it the right way. They fail to predict in detail what is the result of of the bad policies, except that some good result supposedly didn’t happen.
The real purpose of macroeconomics seems to be to give politicians a justification to spend more money on the projects of their cronies and supporters. Is there a theory which calls for less government spending and lower taxes?
There is such a naive theory. We look at the productivity of private companies compared to the productivity of publicly supported ones, and we see that the private ones are more productive. Yet, the popular macro theories all prescribe through complex mathematics that we are really better off taking resources from private businesses and giving those resources to the government to spend wisely. These theories say that we are multiples better off. Politicians love these theories and always want to give them a try.
Our lovely government regulates economic research quite heavily with discriminatory tactics. Just look at the alphabet soup of national accounts, always aggregated at the central government level. The see how Fed researchers fair when they try to compare inter-regional differences. They discover that inflation has about a two point variance from Texas to New York, and the research stops immediately.