A Useless Synthesis?

Punch (1851): Useless Information (John Leech Sketch archives from Punch)
Punch (1851): Useless Information (John Leech Sketch archives from Punch): "Now, Marm, this goes to the Christial Palis." / "Bless the man! I don't want no Christial Palises. I am goin' to the borough."

Last Friday, the graduate students from my department interested in macroeconomics organized a round table on the so-called “New Neoclassical Synthesis”, as Goodfriend and King (NBER Macroeconomics Annual, 1997, pp. 231-283) called the convergence in method in macro: the fact that “all” macroeconomists seem nowadays to subscribe to the use of a dynamic stochastic general equilibrium (DSGE) model for the analysis of the business cycle and growth.

The students invited three macroeconomists trained in different traditions (two were more “new classicals” and the other was more “post-Keynesian”) and myself to discuss the convergence in macro. The event surprisingly attracted a wide range of people to the audience: graduate students in general, other faculty members working on different areas, and undergraduate students (probably looking more for the heat of the debate than for its light…). A room for 130 people was packed.

The discussion was lively and interesting. One issue that was raised by one presenter was that academic economists do things for grasping better how the economy works, while economists at the Central Banks have to use in the best way they can the available theory to prescribe economic policies (clearly in a different time frame than the academics’), and economists and journalists in the media strategically criticize both academics and policymakers in order to sell their products.

In this vein, it was very interesting that a day prior to the event a friend had just called my attention to Willem Buiter’s comment on Financial Times (March 3rd). According to Buiter, who has important academic and policymaking credentials, modern macroeconomics has to be rewritten almost from scratch: it is simply incapable of dealing with economic problems during “times of stress and financial instability.” Thus, I add, macroeconomists may be proud of spreading the word that they now have a consensus method for doing economics, but a useless one according to some people: simply the wrong direction.

The current economic crisis may bring novel ways not only of doing economics but possibly also of looking at and using its past, a hope (or doubt?) with which Craufurd Goodwin closed his Palgrave (2008) entry on the history of economic thought. Any bets?

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3 thoughts on “A Useless Synthesis?

  1. Yesterday, I heard Goodfriend on Bloomberg Radio and he seemed terribly pretentious.
    [audio src="http://media.bloomberg.com/bb/avfile/Economics/On_Economy/vk6UH1IPjpIs.mp3" /]
    Not surprising since claiming to synthesize the whole of economics is immodest by definition. Also interesting that he wants to prevent government discretion by all means available.

    On the meaty provocation of what about the history of economics, I guess that is up for us to decide (or maybe experiment). I wonder if the history of economics could use a Bourbaki movement? Maybe something to talk about in the kids table at Denver?

  2. Tiago,
    parts of Goodfriend’s interview are really revealing. And probably the pretentiousness you felt on him does have something to do with the understanding that his generation are not trapped into the so called “radio AM-FM debate” as Friedman called the opposition between monetarists and keynesians (Ando Modigliani versus Friedman and Meiselman); members of his generation, as he said, can talk to each other.
    And with respect to the “meaty provocation”, I do love to think about a Bourbaki movement as you mentioned. Would we (historians) take the lead in exploring new ways of using the past (hoping to have some “conversation” with our fellow economists)?

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