Wednesday, June 3, 2009

Macroeconomics in theory vs. practice

Greg Mankiw writes about business school vs. econ department macroeconomists in response to a question from David Brooks, while Steve Levitt criticizes the subdiscipline for choosing to take the mathematical route toward understanding the macroeconomy, when it isn't apparent that's the best way.

It's always seemed a little strange to me how theoretical microeconomics gets its own field in Ph.D studies, sometimes just called "theory," while there are many more applied micro fields. In macro, you have both types of folks crushed together all under one tent. It's arguably much more difficult to do either job well in macro anyway; Levitt points out that there's just less macro data (which is probably why a lot of "macro" folks actually use individual-level data these days), and the whole economy is a lot harder to model theoretically than just a part of it.

Several years ago, Greg Mankiw wrote a very nice piece in the J. Econ Perspectives about the dual roles or two types of macroeconomist, discussing along the way how they came to be quite so distinct.

I'd like to see a renaming of "macroeconomics" in which we are clearer about what we often really mean: "banks, money, and fiscal policy" or something similar. There are macroeconomists in all kind of other subfields whose research is less directly relevant for macroeconomic policy per se. Like health and demography, just to take a totally random example.