Sunday, March 7, 2010

The evolution of macroeconomics

Mankew offers an interesting account of the evolution of Macroeconomics. He argues that the discipline is divided between engineers and scientists; the former want to develop tools to intervene in policies while the latter want to understand how the economy really operate. In many ways, the engineers continue to operate with a IS-LM model that is useful for policy but was developed a long time a go. New Classical and New Keynesian theory has influenced little the policy debates (and the teaching at the undergraduate level).

This is an interesting point, but one that fails to tackle a key point: why should we consider new classical and new Keynesian models "good" science? At the end, it seems to be because they have higher levels of mathematical sophistication and clearer roots in individual maximization. But at this point in history, we need to go back to the question of why we need to build Economics (and social science more generally) around methodological individualism and rational choice. In fact, the crisis (and even globalization more generally) is a clear demonstration of the importance of structural processes and factors, no?

At the end, then, New Classical Macro was both bad policy but also bad science...

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