Bringing the issue home to this committee, what I am saying is that you will become the defunct politicians and administrators of the future. Your role in guiding research is pivotal in the future of science and society. So, when economists fail, it means that your predecessors have failed. What I mean by this is that when, over drinks, I have pushed macroeconomic researchers on why they focused on the DSGE model, and why they implied, or at least allowed others to believe, that it had policy relevance beyond what could reasonably be given to it, they responded that that was what they believed the National Science Foundation, and other research support providers, wanted. That view of what funding agencies wanted fits my sense of the macroeconomic research funding environment of the last thirty years. During that time the NSF and other research funding institutions strongly supported DSGE research, and were far less likely to fund alternative macroeconomic research. The process became self-fulfilling, and ultimately, all macro researchers knew that to get funding you needed to accept the DSGE modeling approach, and draw policy conclusions from that DSGE model in your research. Ultimately, successful researchers follow the money and provide what funders want, even if those funders want the impossible. If you told funders it is impossible, you did not stay in the research game.
One would think that competition in ideas would lead to the stronger ideas winning out. Unfortunately, because the macroeconomy is so complex, macro theory is, of necessity, highly speculative, and it is almost impossible to tell a priori what the strongest ideas are. The macro economics profession is just too small and too oligopolistic to have workable competition among supporters of a wide variety of ideas and alternative models. Most top researchers are located at a small number of interrelated and inbred schools. This highly oligopolistic nature of the scientific economics profession tends to reinforce one approach rather than foster an environment in which a variety of approaches can flourish. When scientific models are judged by their current policy relevance, if a model seems temporarily to be matching what policy makers are finding in the dark, it can become built in and its premature adoption as “the model” can preclude the study of other models. That is what happened with what economists called the “great moderation” and the premature acceptance of the DSGE model.
Read the whole thing here.
“you will become the defunct politicians and administrators of the future”
“… de facto…”?
FDB
17 Sep 10 at 9:39 am
Obvious whingeing…
# No consideration of entrepreneurial activity (hence the preference of agency models by others)
# The assumptions about price stickiness should be atheoretic and revealed in the model, not determined by what Keynes said about the world in 1936 or Muth said in 1960.
# The dynamic nature should allow dynamic equilibrium and disequilibrium PE markets
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17 Sep 10 at 9:45 am
Some nutty thinking about macro modelling on an economist thread:
http://www.economist.com/node/16636121/comments#comments
”
Ianmac37 wrote:
Jul 23rd 2010 4:27 GMT
Any model that fails to take into account the changes in income distribution and the consequent changes in consumption patterns will fail. Period. Since 1982 there has been a massive shift in income share in the United States from the poor and middle class to the rich. Obviously, the rich spend their disposable income in different ways than either the poor or the middle class. Since the US economy is consumption driven, the social engineering that the Republican tax and fiscal policies engendered had a strong effect on the overall economy. I liken it to a runaway train that picks up speed until it runs off the tracks. We will not completely recover until we return prosperity to the middle class and hope to the poor. The rich have wasted their gains on CDOs and derivatives and bankrupted the rest of us with job losses.”
Clearly this dude doesn’t realise growth makes more people well off, the total consumption has increased and he’s assuming that there can be no growth in investment driven growth.
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17 Sep 10 at 9:56 am
Colander should spend more time reading Catallaxy and also Kealey on science policy.
From the comments at Coordination Problem.
Collander has made a major mistake if he thinks it is a good idea to separate pure and applied research.
“What I’m arguing is that it is most useful to think of the search for the social science policy keys as a two-part search…”
The mistake has a long history and it was enshrined in the success stories about scientific research leading the way in civilisation and economic progress etc. This story has been subjected to devastating critique by Terence Kealey in “The Economic Laws of Scientific Research”.
The bottom line is that theory and practice should never be separated, pure and applied research should synergise, as they did in Australian rural research.
http://catallaxyfiles.com/2010/09/16/4-well-spent-kealey-on-civilisation-and-free-trade/
In fairness to Colander, he may be heading in that direction with his final suggestions.
Rafe
17 Sep 10 at 10:04 am