I’m teaching four macroeconomics classes this semester, one an eight-week online course, the other three in standard classroom settings. I can live with online, but the classroom is more fun. I’ve been doing this almost three years now, and I’m sort of getting the hang of it.
All that is a matter of experience, I suppose. The teaching.
It’s fine, I mean. I like it well enough that I’m not actively pursuing other work. Maybe I should be, but I’m not right now. I can work and watch a little television and play a little music and write a blog post from time to time and still have time to see my kid. If that’s not doing alright I’m not sure what is.
Anyways, what I want to think about is the macroeconomics part of it. My macroeconomics is pretty limited, that’s one issue. I cannot, for example, adequately explain a DSGE model, which is the cornerstone of academic macro nowadays. And it’s not altogether clear how much that model has really told us. Krugman writes about how IS-LM analysis will give you results analogous to all the complicated models. And then there are other macroeconomic actors, like the Fed, the Bureau of Labor Statistics, the Bureau of Economic Analysis, and the Census, who don’t seem to depend on DSGE either. What’s really going on in macro these days, I can’t tell you.
But what I can tell you is a story about Wesley Mitchell. He began his academic career at UW Madison, when the program was run by Richard Ely. Ely was one of a generation of American economists trained in German universities, where he was educated in the cutting edge techniques of creating and maintaining social statistics. Ely was an innovative and highly influential educator in the late 19th and early 20th centuries in American economics. Anyways, Mitchell does his undergraduate work in Ely’s department in Madison. From there, he goes down to the University of Chicago, where he writes his dissertation under archconservative J. Lawrence Laughlin. Other professors include pioneering Institutionalist Thorstein Veblen and philosopher John Dewey.
After a few years as a professor at Chicago in the opening years of the 20th century, Mitchell goes to Columbia in New York. While he’s there he founds the National Bureau of Economic Research (NBER), a private agency dedicated to the study of the business cycle. Mitchell’s organization would eventually produce the economist Simon Kuznets, who would be hired by the Roosevelt administration in 1933 to create a system of national accounts in order to properly account for the US economy.
In 1918, in a speech to the American Statistical Association, Mitchell said ““In physical science and in industrial technique…we have emancipated ourselves…from the savage dependence upon catastrophes for progress…In science and in industry we are radicals—radicals relying on a tested method. But in matters of social organization we retain a large part of the conservatism characteristic of the savage mind….” I read this quote to my classes, and turn to them and ask, “what do the people in this room look like?” The correct answer to this question is “white men.” They’re wearing suits, and they probably all attend Protestant churches on Sunday. And then I tell my students “but Mitchell knew that what he was doing, what they were doing, was radical. That it would change the world. And he was right.”
Now, the thing is, although this story is technically correct, it’s not really the standard story of macroeconomics. The standard story is: the depression happened, and then Keynes wrote The General Theory and changed everything. Which is only sort of true.
The other part of that story is: MIT emerged as a dominant school of economics in the late 1940s. They had Paul Samuelson, whose 1946 textbook would go on to become the bestselling introductory economics textbook of the post-war era. There was also Robert Solow, a leading Keynesian macroeconomist. They were all influenced by the Keynesians at Harvard in the 1930s, like Alvin Hicks, whose mathematical language for Keynesian macro was widely adopted. See how Keynes is peripheral to all that? He’s not really part of the story.
So, for a while, macroeconomics was about Aggregate Demand, which is the name for all the spending in the economy. Guys like James Tobin, the guy who taught Janet Yellen and Austan Goolsbee (among many others) macroeconomics, basically taught courses about the maintenance of aggregate demand. And then along comes Robert Lucas from Chicago.
Lucas changes the whole game with the so-called “Lucas critique,” which, as far as I can tell, is a fancy way of saying that fiscal policy only works if you can trust the government implementing it. And most of the faculty at University of Chicago, where Lucas spent his career, didn’t trust the government, as a rule. Lucas went on to become the most influential macroeconomist of the late 20th century – a fact curiously absent from the introductory textbooks.
Now this is where I start to feel as if my knowledge of macro is really limited. One way or another, the debate seems to revolve around how you’re calculating the consumption function, whether or not you’re integrating from t or t+1, and whether or not your regression uses an error term. But I’m fucked if I can make heads or tails of it all.
Anyways – after the 1970s there are two things that seem to happen in macroeconomics in the US. One is that the two basic camps are the Real Business Cycle folks, who are following Lucas, and the New Keynesians, who take Lucasian models and modify them until they give Keynesian-ish results. The RBC models use lots of fancy math (that I don’t really understand) but will tell you something like: the best thing to do is to minimize government interference in the economy. Lucas famously said that, if appointed to the Council of Economic Advisors, he would resign. The New Keynesian models supported neoliberal-ish policies, I guess. Or something. Somehow, out of this morass, you got the quagmire of Dynamic Stochastic General Equilibrium (DSGE) models. Again, lots and lots of math that I totally do not understand, but apparently makes great fodder for interminable conferences.
The other major development in macroeconomics following the 1970s is the establishment of monetary policy as the preferred method of persuing macroeconomic goals. This is enshrined in a 1978 law that gives the Federal Reserve it’s “Dual Mandate” of price stability and low unemployment. But the main thing is that the Federal Reserve – which is, as I often stress to my students, not the government – is in charge of the macroeconomy.
The monkey wrench in all of this is the Great Recession of 2008-9. There’s been lots and lots of debate about how macro has changed in the decade since, and how standard intro textbooks has been or should be affected. I had an argument on Twitter the other day with whoever is running the Rethinking Economics account. Rethinking is an organization that formed a decade ago in the UK, and mostly goes on about how neoclassical dominance of economics needs to end, and space made for other models of thought. As a graduate of a heterodox program, I am naturally predisposed to supporting Rethinking. However, I often get hung up on the “neoclassical econ is limiting!” tropes. Uh, OK, sure. But also, it’s the basis of economic training for the last century. Virtually every economist in the US and the UK (and lots of other places) has gone through the neoclassical program. And, having more or less taught that program for the past three years, I feel like the great strength of neoclassical economics is its ambiguity and standardized methods. Heterodox economists love to get on their high horse and gripe about how awful neoclassical econ is, but I frankly think it’s not such a bad thing.
The debate I had with Rethinking ended with them saying I was disingenuous (“a bad look, FYI” – gee, thanks, I didn’t know?) for turning their own words against them. They said “Neoclassical or ‘mainstream’ economics has a clear methodological definition: optimising agents and equilibrium. Empirical work uses linear regression and its numerous variants.” And I said “So, then, you’re saying neoclassical economics provides a clear methodological framework for evidence-based research?” to which the reply was “Erm…no, I obviously didn’t say that.” And ended the conversation.
Narratives have an internal logic – what I did was subverted Rethinking’s narrative. Neoclassical economics is the clear antagonist in their narrative, and so defining it is really important. It has to be powerful, because everybody likes to root for the underdog. But it also needs to be clearly on the losing side, because that’s how you know it’s the antagonist. Who are the good guys in any story? Whoever gets tasked with defeating the bad guys. This is where I think Rethinking falls short though. They’re trying to do this “we’re fighting the big bad mainstream” but in a way that seems calibrated to sell books – if you really wanted to take on the mainstream, you’d need to propose an equally compelling counter-narrative, and Rethinking doesn’t have that.
The thing about the Great Recession is that, after it happened, a lot of people looked at macroeconomists and asked the obvious question: “why did you all not see that coming?” And this is where it’s useful, I think, to ask just what it was macroeconomists were supposed to say in 2006 or 2005 or whatever. “Hey everybody, maybe we ought to rethink this whole real estate market…” or, “Hey, maybe the government should be regulating hedge funds and investment banks more…” or even, “Gosh, contractionary fiscal policy really did not work out in Thailand, Malaysia, Indonesia, Brazil, and Argentina. What happened there?”
I’m not trying to rehash the financial crisis right this minute, I’m just trying to say that the public in general really didn’t give a fuck what the macroeconomy was doing as long as they had a decent job and could go on living their humdrum life or whatever. When shit got real and the housing market collapsed, and credit markets froze up and suddenly the government had to bail out banks and so on, people noticed, but its not like there was a robust public debate over how to do things differently. Lots of people would have liked to see banking executives sent off to prison, but that wouldn’t have actually fixed anything.
You can rethink macro, sure, but you have to do it from within the profession, and that means going along with the standards. And there are plenty of folks doing good work from within the academy, although that isn’t ultimately what needs to change. What is changing is our political economy, and the problem with teaching that in introductory classes is that it means getting into politics. As a community college teacher, I’m loathe to actually bring that kind of shit up. The ambiguity of neoclassical economics is a strength – there can be more than one interpretation to events.
In the meantime, for my own teaching, my basic strategy is to teach using super-simplified empirical models of the macroeconomy. I have students work through how to adjust for inflation, how to calculate GDP, and how business cycles effect the macroeconomy. It’s a long way from perfect, and I still rely on the textbook (I don’t want to stray too far from the mainstream – this is community college, after all…).