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Wednesday, May 04, 2011

Peter Temin: Macroeconomics Has Lost Its Way

Here are a few passages from a much longer interview of Peter Temin:

Peter Temin in Conversation with The Straddler: ...In my opinion, macroeconomics has lost its way. The kind of models that many people use—general equilibrium models—start from assumptions of ... omniscient consumers, and various like things which give rise to an efficient economy. As far as I know, there has never been an economy that actually looked like that—it’s an intellectual construct. But many people claim that the outcomes of that economy are natural outcomes. When you say “natural,” you already have an emotionally laden term. Deviations from the “natural”—say, like, minimum wage laws, or unions, or governments that give food stamps, or earned income tax credits—are interferences with the natural order and are therefore “unnatural." ...

The general equilibirum view tends to lend support to those who want to make the economy more efficient in the sense of having fewer “distortions”—you know, all of these neutral economic words—from taxes, from labor unions, from minimum wages, and so on. Now, what has happened in the last thirty years—and this is what Hacker and Pearson note in their book [Winner-Take-All Politics]—is we have gotten ourselves into a feedback situation. As people have gotten richer, conservative people have funded organizations which generate economic research promoting their political views.

I recently reviewed a book [published by the Federal Reserve Bank of Minneapolis and] edited by Timothy Kehoe and Edward Prescott—a Nobel Prize winner in Economics—which had a very distinguished group of people writing about macroeconomics and depressions using the currently fashionable general equilibrium analysis. In my review, I argued that the answers that they got were terrible, that the model—however useful it is for other things—is not useful to analyze the conditions like the conditions today. And I even suggested [here Temin read from the review]:

Lurking behind these presumed inefficiencies appears to be a campaign for minimal government. Minimal government would not require many taxes as it would not have large expenditures; it would not interfere in labor markets, letting individual workers deal with large business firms as ordinary people deal with the grocery store. This is not an attractive place to live for some people, and this book appears to be supporting such an arrangement by stealth, rather than by direct argument. If this is an intended subtext, it would be appropriate for the authors and the Federal Reserve Bank of Minneapolis to bring it out into the open.[3]

The authors of the book deny that that’s what they were doing, but I think it is implicit that current economics has a political stance, or at least political implications.[4] But these guys working at the Minneapolis Fed can say, well, you know, we’re not partial, we’re neutral scientists. ...

A real problem is that a lot of people don’t know enough economic history. I’m an economic historian, which is a kind of endangered species. When I think about macroeconomics, I think about the Great Depression a lot because I worked on it and taught about it and so on. But, look, a lot of people in the 90s didn’t have personal experience of the Depression. They didn’t think it was terribly relevant. ...

To give you an idea about the state of the profession, here's a key piece of advice for getting published in top journals:

1. You always need to think carefully about the journal you submit to, and you need to research the kinds of papers that have been published there; whether the journal seems to be open to your type of work; who the editor is and what his or her orientation is; and who the associate editors are, because they are likely to be referees for your paper. 

This is basically saying that if your "orientation" is different from the editors, freshwater instead of saltwater for example, you can forget about publishing in that journal. Yet we hear about open-mindedness, and that "we’re not partial, we’re neutral scientists."

    Posted by on Wednesday, May 4, 2011 at 10:17 AM in Economics, Macroeconomics, Methodology | Permalink  Comments (19)


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