Tuesday, July 21, 2009

Waiting for a Keynes-like Macroeconomist

The Economist published an interesting article on the crisis of macroeconomics. If you happen taking, have had taken, or are about to take the subject, you may want to read that article too.

My personal take on that piece is this: one of the reasons on why I find macroeconomics fascinating is precisely the fact that the subject is still very much evolving. This is the branch of economics where the fight between schools of thought is still kicking, alive, and relevant, particularly after the recent crisis. And it's is a good sign, unless you just want things that already well-settled a.k.a boring.

True, as The Economist states, that for many economists the Great Moderation period from mid 80s to just before current crisis means the end of debates in macroeconomics as the business cycle was then tamed. But I was, and am, not convinced. Ten years ago, the Asia Crisis in 1998 got me thinking that there should be a new way to see the macro economy where economic activities and markets are now much more internationally linked at much speedier pace. I was expecting a new approach out of then the debates between market fundamentalists and panic approach on Asia crisis. Alas it never was.

Up to now, when it comes into macro, I can not really make up my mind and pick between (new) Keynesian or neoclassical school. Both are equally theoretically plausible and empirically defendable. I also am not fully convinced whether micro-foundation of macroeconomics is really the only way to progress, or more pragmatic positive methodology a-la Friedman and Keynes might be more useful.

But make no mistake, I very much enjoy every bit of this my state of not-knowing. It keeps me thinking and rethinking my position. It is good that the crisis of the subject forces macroeconomists back to the drawing board. Hopefully a Keynes-like figure would emerge and come up with a macroeconomics we never knew before.

And to those aspiring macroeconomists, I do not think the current state of macroeconomics should discourage you. If anything, this is the best time to study macroeconomics and join the game. Perhaps you are the Keynes-like we are waiting for.


  1. It is very interesting to notice as argued in one of the articles that macro and financial economists helped cause the crisis.

    If they simultaneously or partly interact with one another in the market, the suspects of why they helped cause the crisis would be:
    1.They don’t really understand the essence of the theories or
    2.They understand but altogether deliberately misuse the theories in practice, or
    3.The theories are actually not capable of predicting the forces behind the market transactions.

    However, apparently, the real threatening jeopardy comes when they intentionally misuse the theory in regular basis practice since the rest of the arguments are justifiable.

  2. m, frankly I am afraid I don't have a neat answer on whether macro and financial economists helped cause the crisis. Too some extent, yes, there is a hint of over confidence amongst the profession following Great Moderation and the absence of deep financial crisis in developed countries for long time. But to argue that all those works are garbage, or even a deliberate fraud, is also unconvincing.

    I think we have learned a lot since Keynes gave a birth to macro, but still all theories failed to foresee the current crisis --hence the profession still needs to get back to drawing room and do the homework.

    Acemoglu made a good note on how to do such homework.

  3. and uh, i could testify that it is occasionally fun.

    how'r u?

  4. ...if not always immediate to common sense.

    i forgot to add that.