Monday, 3 October 2016

Romer, Macro and the Blogosphere

There are few economics articles I laugh my way through; Shake my head in disbelief, cry out in frustration or harass everyone about the naivity of some defunct economist's argument all happens quite a lot - but Paul Romer's The Trouble With Macroeconomics had me laughing on every other page. If you're like me, a sucker for sarcasm, I'm sure you'll love it to.

A few weeks ago, Paul Romer - who is a well-known macroeconomist at NYU and recently announced Chief Economist at the World Bank - created quite some stir in the economics world when his forthcoming article was found online. The gist of his article is neatly captured by the following two quotes
Lee Smolin begins The Trouble with Physics (Smolin 2007) by noting that his career spanned the only quarter-century in the history of physics when the field made no progress on its core problems. The trouble with macroeconomics is worse. I have observed more than three decades of intellectual regress. (p. 1) [...] 
The trouble is not so much that macroeconomists say things that are inconsistent with the facts. The real trouble is that other economists do not care that the macroeconomists do not care about the facts. An indifferent tolerance of obvious error is even more corrosive
to science than committed advocacy of error. (p. 22)
What could academic macroeconomists possibly have done to deserve such ruthless treatment? Quite a lot of things, it turns out. Romer lashes out at macro models standard Bayesian methods, which both he and a number of recent publications point out depend more on the priors one uses than the data one feeds it with. He points to the identification problem (what's-causing-what), and how it gets exponentionally worse the more variables one chucks into one's model - especially in post-Lucas critique models, filled as the are with expectations of future variables. He mocks the "imaginary driving forces" of many macro models, and discards calibration as "a renamed version of identification by assumption". He makes the standard attack on RBC models of having absurd assumptions, before dealing them the death blow; in such models, monetary policy doesn't matter - but in reality, everyone knows it does. Oh, and he spends some time denouncing the academic field of economics for having been transformed into a personalised cult of the "I scratch your back, you scratch mine" sort.

Now, over to the sarcasm. Romer mocks pretty much the entire field of macro, and does so with sassiness 10/10. Since most reasonable people slowly saw that RBC models were quite lacking, Romer argues, they created
DGSE models [which] put sticky-price lipstick on this RBC pig. (p. 6)
Moreover, he sketches a hypothetical example of a DGSE model. Among other things, it includes:
A troll who makes random changes to the wages paid to all workers.
A gremlin who makes random changes to the price of output. (p. 6)
Incredibly funny. And this is how he justifies his use of sarcasm:
In my paper, I decided to use the tools of satire to show my contempt for the threats that the post-real macroeconomists make. I want young economists to see that even if I tweak the nose of the post-real pope, lightning does not strike; the audience laughs. Ridicule is the best antidote to intimidation. [...]
The evidence on this is crystal clear. None of the issues I point to are new. They have all been raised before, gently and deferentially. If macroeconomists had responded to gentle criticism, we wouldn’t have ended up in a target rich environment that is so easy to ridicule.
Needless to say, he had a lot of pushback, comments and also encouragement from the blogosphere. Which, by the way, has become the area of prolific debates in economics where so many brilliant scholars are publishing, commenting, arguing, refuting and keeping the discipline alive, in fast-paced, informal ways, frankly more interesting than journal articles. It's a place where Rethinkers as well as every econ student can gain some insight into what economists do discuss and what topics do cross their minds.

Here's a summary of comments
Noah Smith approves; Kocherlakota is skeptic; Paul Mason calls it Romer's most significant contribution in a generation, and uses it to talk about Marx (as always); Lars Syll gives an ironic thumbs-up; Oxford's Wren-Lewis is lukewarm; Romanchuck is unimpressed; Tim Worstall at the Adam Smith Institute rather attacks Mason than deals with Romer; NakedKeynesianism is having a nervous breakdown;  Mark Buchanan at Bloomberg View picks it up - and mostly discusses physics. Even the Washington Post found it, where Daniel Drezner could ward off his anxieties.

Romer knows how to keep things interesting, that's for sure.

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