Macroeconomics – barely a science at all

29 Jun, 2012 at 09:53 | Posted in Economics, Theory of Science & Methodology | Comments Off on Macroeconomics – barely a science at all

In a post the other day I was complaining – after having read a piece by Simon Wren-Lewis – about macroeconomists that go on teaching macroeconomics after the crisis as if nothing really happened in the Great Recession 2008-9.

Noah Smith now also has reacted on Wren-Lewis gobsmacking picture of the state of macroeconomics:

I’m pretty sure that Wren-Lewis’ statement that “nothing has really been thrown away” applies to the journals too. Four years after a huge deflationary shock with no apparent shock to technology, asset-pricing papers and labor search papers and international finance papers and even some business-cycle papers continue to use models in which business cycles are driven by technology shocks. No theory seems to have been thrown out. And these are young economists writing these papers, so it’s not a generational effect …

If smart people don’t agree, it may because they are waiting for new evidence or because they don’t understand each other’s math. But if enough time passes and people are still having the same arguments they had a hundred years ago – as is exactly the case in macro today – then we have to conclude that very little is being accomplished in the field. The creation of new theories does not represent scientific progress until it is matched by the rejection of failed alternative theories.

The root problem here is that macroeconomics seems to have no commonly agreed-upon criteria for falsification of hypotheses. Time-series data – in other words, watching history go by and trying to pick out recurring patterns – does not seem to be persuasive enough to kill any existing theory. Nobody seems to believe in cross-country regressions. And there are basically no macro experiments …

So as things stand, macro is mostly a “science” without falsification. In other words, it is barely a science at all. Microeconomists know this. The educated public knows this. And that is why the prestige of the macro field is falling. The solution is for macroeconomists to A) admit their ignorance more often … and B) search for better ways to falsify macro theories in a convincing way.

“So as things stand, macro is mostly a “science” without falsification. In other words, it is barely a science at all.” That almost sounds as an answer to my post from yesterday – Is economics really a science?

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