Saturday, January 5, 2013

Micro Up, Macro Down?

I have just read two posts, one by Justin Fox, the other by Paul Krugman, that make exactly the same point: microeconomics is doing just fine, but macro is riven by ideological disputes and insufficient use of evidence to resolve them.  Can this be true?

I certainly won’t argue with the take on macro.  Macro models draw on implicit social theory (what motivates individuals, how much deference we should give to their choices, how “social”, which is to say, interactive society actually is, etc.), and most empirical work is filtered through such models, so that testing merges with calibration.  It’s as bad as Fox and Krugman say it is.

But I’m basically a microeconomist, and I think economics is as ideologically driven and counterfactual in many of the topics I care about as it is in macro.  Apparently there is no evidence for this position: micro folks, as can be seen on display here in San Diego, are all in agreement, discussing each others’ papers in a friendly, collaborative way like monkeys grooming their neighbors’ furry backsides.  What does that imply about outliers like me?

In a nutshell, here is what I think is going on, based on my personal experience.  In the areas I work in, I find a lot of common ground with people trained in other social sciences, like psychology, political science and anthropology, and even more with those who have an applied policy background like education, labor relations and public health.  I am virtually unable to communicate on the same subjects with other economists, and I haven’t tried publishing in a “real” economics journal in decades.  (This is not an exaggeration.)

In other words, my view is that the crucial dividing lines in micro are drawn between economists and other kinds of researchers and not within the economics profession.  In macro, by contrast, the lines separate some economists from others.

I have avoided giving any specifics about what makes me such an apostate, since that would require a lot more writing, and I’m already late to an 8 am session I want to attend.  Let’s just say I find most economists' assessments of optimal this and preferred that to be based on implausible and repeatedly disconfirmed assumptions, and I think the substantive ends of policy should be taken instead from those who study ends substantively, like the aforementioned psychologists, public health specialists, environmental scientists, etc.  If you make that leap, you will have to cut the cord to a large part of economic theory, but you will fit in well enough with the hordes of people who don’t populate economics conventions.


Dan Crawford said...

Ah well Peter,

I find the same with Cognitive Behaviourists (for instance CBT) that dominates the politics of psych. Still, I am in sympathy.

Amay Narayan said...

Dear Peter,

I'm a 2nd year econ. student and this post was a refreshing read! I completely agree with you. It is because of this unacknowledged ideological bias in Micro that I see myself becoming more and more of a Macroeconomist, where biases are at least debated. Perhaps it's just me, but I don't get the same sense of vibrant debate in Micro (e.g. in the blogosphere). In micro, put very crudely, the debate seems to be about whether to replace one greek constant or lovely equation representing behaviour/preferences with another.

I especially find the work of people like Tony Lawson far more engaging, where he questions whether mathematical deductivism can in any way be used to model social reality.

Inter-disciplinary approaches seem to offer so much, yet sadly they aren't able to penetrate into the protected core of the discipline.

Jack said...
This comment has been removed by the author.
Jack said...


Which area, micro vs, macro, has the more immediate effect on government policy and legislation effecting distribution of income and growth of assets? That with the greatest immediate influence and effect will have the greatest financial value to those who generate the theories and concepts and, therefore, be most subject to manipulation by those external forces deriving the greatest benefit from a particular perspective. Play for pay. Like the man once said, ",,,'cause that's where the money is."

John said...

I haven't any expertise as a layman about the difference between micro- vs macroeconomics. But it sounds very much like the difference between GAAP accounting vs long-term business plans -- whether and how much money to use for capital costs vs operational costs.
Or perhaps it has to do with a variety of theoretical arguments about stimulus vs growth. I'll leave those arguments to experts in the dismal science.

But the economic distinction I am more certain about is between fiscal policy vs. monetary policy. Those are two areas of economics that are NOT two sides of the same coin.

The next big political tiff will be about the debt limit which is not a fiscal issue but a monetary issue. This is not a trivial distinction since fiscal matters are entirely the result of Congress and monetary policy is the responsibility of the Executive branch.

The constitutional foundation of that difference is embedded in the Fourteenth Amendment but thus far no president has been forced to play that card.

As is said....thus far.