Jul 22, 2017

Wait, but this is exactly what modern macroeconomics does by making a huge leap from microeconomic fundamentals and aggregating this into the Solow, Romer growth models and many derived upon models. It got so crazy that Paul Romer critices this approach himself in a well regarded paper last year: https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble....

The austrian economists in turn don't pretend to know that macroeconomics work this or that way, they can make assumptions of effects that can happen due to policies, but don't attempt to quantify them.

I think the austrian school is largely ignored for two reasons:

- from it derives a very libertarian view of the world, which many people reject because of political views. after the WW2 libertarian views were not popular, so Hayek and Mises where largely forgotten. - because its philosophical approach is exhaustively researched and you cannot add more fundamentals, leaving economists with the problem of not having much to work on.

Jul 16, 2017

Mainstream economics is a bit of a cult due to the identifiability problem. This is the problem that empirical evidence is ignored in most econometric papers and there is usually no way to identify economic events discretely that correspond to the ones mentioned in papers. Paul Romer, a professor at the Stern school of business, has published a great paper calling this out (pdf: https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.... ) .

Central planning has and always will be an epic failure. The economic calculation problem always leads to its downfall.

The Chinese banking and finance model, which is akin to largely privatized central planning, is the only real alternative and it is ignored, though it seems to have solved the business cycle, given that western observers have been predicting a Japanese style prolonged financial crash for 30 years and instead there's been continuous growth.

Jan 16, 2017

Noah Smith tries to describe the overall state of macro in this recent post: https://www.bloomberg.com/view/articles/2017-01-11/tribal-wa...

He starts out strong and gives a good overview of the "schools" that have been laid to rest, but concludes on some kind of utopian, happy note that I don't believe he has any evidence to support. But then again he spends most of his time in conversation with leading economists (I think) so he should have a pretty good idea of what's up.

Paul Romer has a good summary of the state of macro in his 9/16 paper "The Trouble With Macroeconomics". Here's the abstract:

For more than three decades, macroeconomics has gone backwards. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as "tight monetary policy can cause a recession." Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes. A parallel with string theory from physics hints at a general failure mode of science that is triggered when respect for highly regarded leaders evolves into a deference to authority that displaces objective fact from its position as the ultimate determinant of scientific truth.

It's a good one...https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble....

Personally, just from reading books and papers it seems like there are very few economic clans left, just economic celebrities (Krugman, Varoufakis, etc.) and the profession's credibility is suffering due to the Fed (and other leading central banks) inability to make anything happen with an empty clip monetary policy wise.