By STEVEN D. LEVITT
In a reasonably interesting Guardian article, Larry Elliott argues that the macroeconomists of yesteryear were superstars, but the current crop have lost sight of what macroeconomics is supposed to be about: describing the macroeconomy, not writing down fancy mathematical models.
The current crop of macroeconomists would argue that fancy mathematical models are the best way to understand the macroeconomy. That claim might even be proven correct in the long run, but I can’t say that I think it’s the most likely outcome.
In my opinion, the fundamental problem is this: from a modern academic perspective, the sorts of skills that accompany having a good working knowledge of the macroeconomy are not easily measured by, and are not rewarded in, the current incentive schemes for economists. In microeconomics, at least there is an abundance of good data, so people who are good at measuring and describing things can succeed. But in macro there is not much data, so most of the rewards are for the mathematics, not the empirics.
The single easiest way to make a mark in a modern macro paper is to solve a problem that is really, really hard mathematically. Even if it is not that relevant to anything, it is seen as a sign that the author has “impressive skills,” which is enough to get a job — and even tenure sometimes — at top universities.
You might think that macro forecasting would be an important part of what academic economists would do, but in practice there is almost nothing of that sort being done. That sort of thing is left for economists at places like the Federal Reserve or private banks to do. You might think that the models that most successfully explain economic patterns would rise to the top, but in the current regime, if they are not meticulously constructed from “micro foundations,” they aren’t allowed to be considered.