Unfortunately I read Greg Mankiw's of Harvard paper (Title: The Macroeconomist as Scientist and Engineer --in pdf) right after giving last lecture of intermediate macroeconomics, with topic on the stabilization policy (the birth of, Keynesian, macroeconomics) and the subsequent New Macroeconomics. If not, I would like to add it as reading list. For non economists, don't worry, it's a non-technical paper (read: no math). You can take it as the biography of the macroeconomics.
In that paper, before coming into a rather disheartening verdict on the disconnection of macroeconomics as science and as engineering (or problem solving) Mankiw draws a very clear and readable history of macroeconomics as a discipline. Soon you would be engaged in a gripping tale on the battle of ideas between Keynesian and New Keynesian in one hand, and New Classical in the other.
Indeed some knowledge on intermediate macroeconomics would help to understand and follow what is being fought. You know: Philips curve and wage stickiness, rational expectation, systematic monetary policy, etc. But even for you who doesn’t have a chance, and privilege (kidding!), for being trained into the subject, it is still fascinating to enjoy the exchange, sometimes nasty, arguments amongst the proponent of each camp. Particularly between Bob Lucas (
In page 12 Lucas was quoted saying:
"People don't take Keynesian theorizing seriously anymore"
While Solow called that it
"foolishly restrictive" for the new classical economists to rule out by assumption the existence of wage and price rigidity and the possibility that markets do not clear.Mankiw thinks that Lucas represents the analytical rigour of the new classical --in other word, a sophisticated science--; and Solow concerns on the lack of reality of market clearing assumption -- bad engineering --.
Meanwhile the science itself develops in both camp of neoclassical and neo Keynesian (modern macroeconomics, you would like to say). The interesting research projects of the two schools have been discussed briefly, but excellently, in the paper. Both leads to a conclusion that now we know better about the subject.
If God put macroeconomics on earth to solve the problems, then the Saint Peter will ultimately judge us by our contributions to economic engineering. So let’s ask: Have the developments in business cycle theories over the past several decades improved the making of economic policy? p.15Alas, no.
Mankiw shows that the macro-model used by
This is indeed a disheartening that since Keynes (and to some extent Hicks) --well OK, call it Neoclassical-Keynesian synthesis-- macroeconomic framework in the 30s, no one come up with significantly different and better model of an economy.
I was expecting, and still hopes, that 1998 Asian crisis, a resemblance of 1929 Great Depression, would give a birth to a new Keynes –-perhaps from the East-- to revolutionize the way we see the economy and business cycle as well as devising better way for stabilization policies.
Apparently we still have to wait.
* yeah, it's Karl Marx's word, not on macroeconomists, but philosophers who are too busy interpret the world in various ways.