Modern macroeconomics – science without aspirations?23 August, 2012 at 14:57 | Posted in Economics | 1 Comment
The problem is that the new theories, the theories embedded in general equilibrium dynamics of the sort that we know how to use pretty well now—there’s a residue of things they don’t let us think about.
They don’t let us think about the U.S. experience in the 1930s or about financial crises and their real consequences inAsia and LatinAmerica. They don’t let us think, I don’t think, very well about Japan in the 1990s. We mayn be disillusioned with the Keynesian apparatus for thinking about these things, but it doesn’t mean that this replacement apparatus can do it either. It can’t. In terms of the theory that researchers are developing as a cumulative body of knowledge—no one has figured out how to take that theory to successful answers to the real effects of monetary instability. Some people just deny that there are real effects of monetary instability, but I think that is just a mistake. I don’t think that argument can be sustained.
Isn’t that like having seismological and meteorological sciences that can’t help us explaining or predicting earthquakes or hurricanes? Maybe we should have just a little higher aspiration level as scientists? After all, if uncertainty is all around in the economy and – as Lucas has said – “in cases of uncertainty, economics reasoning will be of no value,” then why should be bother with economics at all? I’m just wondering …