Tuesday, July 21, 2009

Buy the premise, buy the bit 

I've been working on a longish piece on the role economic education has played in the financial crisis (i.e., do we bear responsibility?), and I've been interested in the discussions of graduate macroeconomics education that has been going on lately. I find myself sympathetic to this passage from Menzie Chinn:
So what was a common theme in the curriculum? For me, the defining feature in thinking about what model to use was whether the analysis answered the question posed, and whether the question posed was of interest. Now, whenever I read a dissertation prospectus, the key question I ask the student is: "What is the question being asked?", not "What is the methodology?" ...

I wonder if indeed the macroeconomic mainstream is as monolithic as conveyed by various observers. For instance, one certainly perceives a certain homogeneity amongst Ph.D.'s trained at certain universities. And there's a certain similarity in the mode of analysis preferred by economists in financial firms. Since the financial press tends to focus on Wall Street economists, one gets a misleading impression regarding the degree of uniformity of views.
I think one can argue, as no doubt some critics will, that Chinn's judgment of "whether the analysis answered the question posed" is colored by the methodology he favors that is the result of his training. Go back to the criticism last week of Larry Summers' use of a Google trend as a forecasting tool. In a conversation with Ed Morrissey, Ed said "well that's a very indirect measurement." I replied "pretty much everything we do in macro is indirect measurement, proxies of varying qualities. You have to make some decision if there's enough quality." (I think my quote of Ed is direct -- my own answer is of course edited to make me look more literate than what I might have said in a green room.)

Certainly one criticism of macro is proxy quality. If you think national income and product accounts don't really measure economic activity, you will think every mainstream economic forecast is crap. If you think the decision of Paul Samuelson many years ago to move economics more towards mathematical expression (and away from the Marshallian formulation that Mario Rizzo notes) then all the lovely models become useless.

The title of this post is advice on comedy from Johnny Carson. It applies to macro as well.