Trouble with Macroeconomics, Update

My new working paper, The Trouble with Macroeconomics, has generated some interesting reactions. Here are a few responses:

Why Name Names?

One suggestion is that it would have been better if I had written one of those passive-voice “mistakes were made” documents that firms issue after a PR disaster.

I name names because this is how science works. The standard practice calls for an individual to put his or her reputation behind a claim; to listen to the claims that others make; and to admit that the claim is false when this is what the evidence shows. I did try to restrict my criticism to people who have received Nobel Prizes in Economics or to Smets and Wouters, who have received wide recognition for their work, so it is not like I’m picking off the stragglers at the back of the head.

And I hope we can agree that if we go too far in the direction of passive-voice science we are not going to be happy about ending up with anonymous-sewer-science. If you have any doubt, you can see the lies and intimidation of sewer-science in the wild over at EconJobRumors.

Why Use Humor and 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.

But let’s be honest. We have a long way to go before the effects of the intimidation wear off. I continue to get emails with suggestions and comments that include a request that “for the usual reasons, please do not mention me in your acknowledgement.”

So ask yourself about the relative cost of:

  1. A paper that ridicules post-real macroeconomics and hurt’s some feelings
  2. A persistent equilibrium in which many economists are afraid to publish things that they believe to be true

In the paper, I refer to Voltaire as the true spirit of the enlightenment. Voltaire understood that the cost of 1 is not so large and that the cost of 2 is extraordinarily high.

Wouldn’t Gentle Criticism Be More Effective?

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.

Poor, Poor, Pitiful Macroeconomists

The whine I hear regularly from the post-real crowd is that “it is really, really hard to do research on macro so you shouldn’t criticize any of our models unless you can produce one that is better.”

This is just post-real Calvinball used as a shield from criticism. Imagine someone saying to a mathematician who finds an error in a theorem that is false, “you can’t criticize the proof until you come up with valid proof.” Or try this one on and see how it feels: “You can’t criticize the claim that vaccines cause autism unless you can come up with a better explanation for autism.”

On the topic of Calvinball, do you remember the old methodological rule, “in economics, we don’t make assumptions about preferences.” At some point, this became “in macroeconomics, risk aversion and leisure shocks to preferences cause fluctuations in investment and labor supply.” One suspects that Orwell would have been amused.

Write Clearly to Think Clearly

Even if all your friends talk about monetary shocks, that doesn’t mean that you can use this phrase without thinking about what it means.

In my description of the Volcker Deflation, I avoid the use of the words shock and reaction function because I see no unambiguous way to make sense of them during this episode. I refuse to throw away the single most informative episode about monetary policy just because it makes life uncomfortable for some theorist. Excluding this episode, as DSGE modeler’s tend to do, is an example of the subordination of facts to theory.

Moreover, one can talk about whether monetary policy is important without any reference to the shock-policy function distinction. If the Fed can change the real interest rate by 500 basis points, no economist can credibly claim that monetary policy is less important than stuff you can learn about the operations of the post office.

In this same vein, saying the word “endogenous” does not give you permission to stop thinking and throw away data that are inconvenient. Suppose that Paul Volcker was reading the newspaper, discovered that inflation rate was high, and raised the real interest rate by 500 basis points after he took office. On this basis, let’s agree that you can say “the increase in the real fed funds rate is endogenous.”

Fine. Now keep keep those neurons firing. Tell me why this means that monetary policy is unimportant?

Sticky-Price Lipstick on an RBC Pig

The one reaction that puzzles me goes something like this: “Romer’s critique of RBC models is dated; we’ve known all along that those models make no sense.”

If we know that the RBC model makes no sense, why was it left as the core of the DSGE model? Those phlogiston shocks are still there. Now they are mixed together with a bunch of other made-up shocks.

Moreover, I see no reason to be confident about what we will learn if some econometrician adds sticky prices and then runs a horse to see if the shocks are more or less important than the sticky prices. The essence of the identification problem is that the data do not tell you who wins this kind of race. The econometrician picks the winner.


I am actually in favor of paying attention to micro foundations. What I’m against is the type of fraudulent pretense about micro foundations maintained by post-real macroeconomists. Saying you rely on micro-foundations does not make it so.

Let me quote from the story told in the email I received:

I was invited by Ed Prescott to serve as a second examiner at one of his student’s preliminary oral. … I had not seen or suspected the existence of anything like the sort of calibration exercise the student was working on. There were lots of reasons I thought it didn’t have much, if any, scientific value, but as the presentation went on I made some effort to sort them out, and when it came time for me to ask a question, I said (not even imagining that the concept wasn’t specific to this particular piece of thesis research) “What are these technology shocks?”

Ed tensed up physically like he had just taken a bullet. After a very awkward four or five seconds he growled “They’re that traffic out there.” (We were in a room with a view of some afternoon congestion on a bridge that collapsed a couple decades later.) Obviously, if he had what he sincerely thought was a valid justification of the concept, I would have been listening to it …

[Continuing with what I wrote in my paper] What is particularly revealing about this quote is that it shows that if anyone had taken a micro foundation seriously it would have put a halt to all this lazy theorizing [about imaginary shocks]. Suppose an economist thought that traffic congestion is a metaphor for macro fluctuations or a literal cause of such fluctuations. The obvious way to proceed would be to recognize that drivers make decisions about when to drive and how to drive. From the interaction of these decisions, seemingly random aggregate fluctuations in traffic throughput will emerge. This is a sensible way to think about a fluctuation. It is totally antithetical to an approach that assumes the existence of imaginary traffic shocks that no person does anything to cause.


Finally, one blogger claimed to have only skimmed my paper, then made a few statements about what he thought it said, and then writes about something else. I guess I should be flattered to be used as click-bait, but I’m not.

My suggested rules:

  1. If you are interested in a paper, read it.
  2. If you want to blog about what is in a paper, read it.