Macroeconomists under Attack! (And thank goodness) 

Showbiz economists have a lot of influence these days. And that’s a shame. They’re almost always as wrong as they are confident. In what follows, I’ll try sketch some reasons why. But today a friend sent me a little paper by Kartik Athreya called “Economics is Hard. Don’t Let Bloggers Tell You Otherwise.” It’s making the rounds. Before I join the pile-on Athreya’s started, allow me offer a nice sliver of his piece:

The main problem is that economics, and certainly macroeconomics is not, by any reasonable measure, simple. Macroeconomics is most narrowly concerned with the tracing of individual actions into aggregate outcomes, and most fatally attractive to bloggers: vice versa. What makes macroeconomics very complicated is that economic actors... act.

And I would add that it is in these individual actions - and their complex interdependence - that macroeconomics largely falls short. Why? These economists rely on what one defector Arnold Kling calls a “hydraulic” view of the economy. The critique is similar to one I‘ve made in which I accuse macroeconomists of using a “machine metaphor.”

The fetishization of aggregates is common--particularly, of course, among those who get paid to protect the privilege of spinning narratives out of aggregates. But this is a dangerous trend. Economics ain’t so easy:

In summary, what I’d like to convince the public that economics is far, far, more complicated than most commentators seem to recognize. Because if they did, they could not honestly write the way they now do. Everything “depends”, and this is just the way it is. And learning what “it” depends on, exactly, takes enormous e?ort. Moreover, just below the surface of all the chatter that appears in blogs and op-ed pages, there is a vibrant, highly competitive, and transparent scienti?c enterprise hard at work. At this point, the public remains largely unaware of this work. In part, it is because few of the economists engaged in serious science spend any of their time connecting to the outer world..., leaving that to a group almost de?ned by its willingness to make exaggerated claims about economics and overrepresent its ability to determine clear answers.

Athreya goes on to name names:

De?cits, short-term interest rate targets, sovereign debt are all chewed over with a level of self-assuredness that only someone who doesn’t know more could. The list of those exhibiting this zest also includes, in addition to those mentioned above, some who might know better. They are the patron saints of the “Macroeconomic Policy is Easy: Only Idiots Don’t Think So” movement: Paul Krugman and Brad Delong. Either of these men will assure their readers that it’s all really very simple (and may even be found in Keynes’ writings). Lastly, before you dismiss me as a right- or left-winger, I am not. I’m simply less comfortable with ex cathedra pronouncements and speculations than the people I have named.

It’s not just the arrogance of these self-appointed oracles. It’s the fact that they exploit an apparent asymmetry of expertise (i.e. between the public and them) to play the Wizards of Economic Oz. “At the end of their yellow-brick road? A curtain, behind which lies a model, behind which lies an agenda.” I go on to describe the way to diffuse their influence:

[W]e have to explain that a scientist’s model, while useful in limited circumstances, is little better than a crystal ball for predicting big phenomena like markets and climate. It is an offshoot of what F. A. Hayek called the “pretence of knowledge.” In other words, modeling is a form of scientism, which is “decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.”   A model is thus a cognitive shortcut for both the wonk and the journalist, the latter of whom wants to peg his story to something authoritative the wonk has to provide. At the receiving end of this wonk-writer alliance are the rest of us—with little besides common sense as a shield. And I don’t mean this as populism. It is rather a defense against scientism launched from the turf of Austrian economics.

What do I mean by that last statement? A lot actually. Despite the sophisticated maths, macroeconomics is a gross and damnable oversimplification Austrian economists have spent years attempting to dispel. Showbiz economists think they can render the complex interdependences among actors in the world with a relative few variables -- inputs, outputs, etc. But the truth is, they simply cannot. Mathematical models just leave out too many aspects--aspects that, if they were possible to fathom or render, would have to be rendered by a godlike intelligence. Not a person nor a few people. That’s why I rhetorically ask: “So what do all these macroeconomic models have in common?” My own answer would be:

> They’re rendered either in impenetrable math or with sophisticated computers, requiring a lot of popular (and political) faith.

> Politicians and policy wizards hide behind this impenetrability, both to evade public scrutiny and to secure their status as elites.

> Models vaguely resemble the real-world phenomena they’re meant to explain but often fail to track with reality when the evidence comes in.

> They’re meant to model complex systems, but such systems resist modeling. Complexity makes things inherently hard to predict and forecast.

> They’re used by people who fancy themselves planners—not just predictors or describers—of complex phenomena.

But with common sense and a little a priori reasoning, we can show that the “Macroeconomic Policy is Easy: Only Idiots Don’t Think So” movement should die. And kill it we must. Why? Because it’s based on pure hubris. And hubris can bring down civilizations.

If you get paid to make pronouncements, I guess you’d better be cock-sure. You’ve got to throw red meat to those with whom you share a world view. You’ve got to practice the KISS principle. Those who dither or nuance just don’t make the big bucks. But again: things ain’t always so simple.

Paul Krugman said in an interview what attracted him to economics is that it offered, "the beauty of pushing a button to solve problems." I can’t think of a statement more hubristic. And I can’t think of a disposition more dangerous to our way of life. It’s just this sort of showbiz economics that needs to be stopped. Why? Because if we don’t, the button pushers will continue to descend on Washington.

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Max Borders

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