Tuesday, September 16, 2014

(New) Economic Thinking

In "Can New Economic Thinking Solve the Next Crisis?," Mark Thoma writes:
There has been quite a bit of criticism directed at the tools and techniques that macroeconomists use, e.g. criticism of dynamic stochastic general equilibrium (DSGE) models, but that criticism is misplaced. The tools and techniques that macroeconomists use are developed to answer specific questions. If we ask the right questions, then we will find the tools and techniques needed to answer them.  
The problem with macroeconomics is not that it has become overly mathematical – it is not the tools and techniques we use to answer questions. The problem is the sociology within the economics profession that prevents some questions from being asked. Why, for example, were the very questions we needed to ask prior to the Great Recession ridiculed by important voices within the profession?
Since I didn't start studying economics until the Great Recession was in full swing, I don't have a full perspective on "new economic thinking" compared to old, or on what it was like to be in the economics profession prior to the Recession. I only gain second-hand perspective through reading and through studying economic history (which at Berkeley, coincidentally, is largely supported by the Institute for New Economic Thinking).  Thoma's article was prompted by the Rethinking Economics conference, but for me, I'm still learning how to think economics, much less rethink it.

One course that was particularly helpful in shaping my economic thinking was an elective on Empirical Macrofinance taught by Atif Mian. He made a point on one of the first days of class that really stood out. He told us not to see what questions we could answer with the data we have, but rather, to start with the question, and then think about what data we needed to answer it. More often than not, we'd need microdata. Not a problem! We are not in a data-scarce environment!

Mian's work with Amir Sufi on the role of household debt in the Great Recession is a great example of both his point and Thoma's point: start with the question, then choose your tools, techniques, and data. I realize this is easier said than done (trust me, I really do, after spending the last few years trying to implement it in my dissertation), but to me, that's just economic thinking.

Speaking of my dissertation, I'm preparing to go on the job market this year, which is why the blogging has been a bit less frequent! While the preparation is a lot of work, I am fortunate to be very enthusiastic about my research, because I did start with questions I care about, so working on it is a joy, even if it takes away blogging time. Eventually I will blog about my research, just not quite yet.

5 comments:

  1. "The problem with macroeconomics is not that it has become overly mathematical – it is not the tools and techniques we use to answer questions."

    Very wrong. The maths and the tools are at the heart of the problem. For macro-economics to become relevant and ask the right questions and answer them the right way it must engage with the other social sciences and humanities. That means they must know what you are doing, and you them. This will involve dealing with issues that fundamentally cannot or should not be discussed mathematically.

    When analysing data one must understand what it means. That is the historical, societal and other context. Critical analysis and understanding why you use the assumptions you do is taught from the beginning in social sciences. Post-grad economics for many amounts to little more than doing applied mathematics exercises in the back of Romer. This is not the way forward to understanding or dealing with humanity;s current and future problems.

    I am also not optimistic about change. Most people who study post-grad economics are applied mathematicians. Applied mathematicians want more applied mathematics.

    For macro to be a healthier discipline graduate schools need to recruit from more diverse backgrounds and be more eclectic in the methodology it uses.

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  2. I am more optimistic than "Anonymous" because of the rich discussion in the economic blogosphere where I have been (re)learning about macro. Best of luck in your job search. Your blog posts are a pleasure to read.

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