Travelings, Models of Business Cycles

For the next month (and the past week) I’m traveling a bit, planning some work events and also getting married so posting might be more erratic.  Perfect timing for the world collapsing and all; I’ll try to keep with the news.

First stop, Berkeley and the Bay Area. I might get my groomsmen copies of Robert Lucas’ 1987 “Models of the Business Cycle” as a gift, because there are several used copies at Moe’s Books.

Check this out, from the conclusion:

The most interesting recent developments in macroeconomic theory seem to me describable as the reincorporation of aggregative problems such as inflation and the business cycle within the general framework of ‘microeconomic’ theory.  If these developments succeed, the term ‘macroeconomics’ will simply disappear from use and the modifier ‘micro’ will become superfluous.  We will simple speak, as did Smith, Ricardo, Marshall and Walras, of economic theory.  If we are honest, we will have to face the fact that at any given time there will be phenomena that are well-understood from the point of view of the economic theory we have, and other phenomena that are not.  We will be tempted, I am sure, to relieve the discomfort induced by discrepancies between theory and facts by saying the ill-understood facts are the province of some other, different kind of economic theory.  Keynesian ‘macroeconomics’ was, I think, a surrender (under great duress) to this temptation.  It led to the abandonment, for a class of problems of great importance, of the use of the only ‘engine for the discovery of truth’ that we have in economics.

Thanks to us, our children won’t even have to know that their primitive ancestors used the term ‘macroeconomics,’ except as a warning to not give in to ‘discomfort.’  Bonus (p. 66):

It is remarkable and, I think, instructive fact that in nearly 50 years that Keynesian tradition has produced not one useful model of the individual unemployed worker, and no rationale for unemployment insurance beyond the observation that, in common with countercyclical cash grants to corporations or to anyone else, it has the effects of increasing the total volume of spending at the right times.  By dogmatically insisting that unemployment be classed as ‘involuntary’ this tradition simply cut itself off from serious thinking about the actual options unemployed people are faced with, and hence from learning anything about how the alternative social arrangements might improve these options.

Right there we get an example of who gets to engage in “serious thinking” – something we saw recently – as well as why Lucas has had to resort to bizarre, sad and low-grade arguments about how Obama has created a socialist state in the past two years to explain high unemployment and off-trend GDP.

Related: peeking around the University of California Berkeley textbook store I see that there’s a new, 2012, 4th edition of David Romer’s Advanced Macroeconomics:

From the website: “Chapters 6 and 7 on short-run fluctuations when prices are not fully flexible have been completely redone. The material is now grounded in microeconomic foundations from the outset. It proceeds from simple models with fixed prices to the canonical three-equation new Keynesian model to modern dynamic stochastic general-equilibrium models of fluctuations.”  Chapter 7 is titled “Dynamic Stochastic General Equilibrium Models of Fluctuations.”  This is new, right?  And does this mean there are no longer graduate level macro textbooks that aren’t DSGE?  Guess all that old memory is lost now…

In other news, mission burritos are still delicious:

More updates to follow.

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7 Responses to Travelings, Models of Business Cycles

  1. Kub says:

    Hey! Congratulations on the engagement, and the wedding! May you have many lovely children who won’t ever have to utter the word “macroeconomics,” let alone “Keynesian.”

  2. Ted K says:

    Who is the guy with the 1970s glass frames hiding behind the book????? Haha, joke, I know who he is, and I actually like the glass frames (although they are 1970s, and if I like them that’s probably a very bad sign for your fashion taste Mike, ‘cuz most people don’t like what I like). My guess is the bride to be is already nagging you to get lighter looking frames. Don’t lose your testicles Mike (change the glasses when you want to).

    Is the Romer book recommended by Konczal??? I have so many unread books now, and seems all these Econ/Fin books (that very few people read), outside those written for retards, end up costing $30–40, even used on Amazon. Peter Norman’s book “The Risk Controllers”, and that book written by the woman on shorting stocks (Kathryn something?), and your Cochran book on Asset pricing. All of them $35+. Geezuz!!! G-damn!!! Do I have to be upper class now just to know what the f*ck is going on in this screwed up country now???

  3. Ted K says:

    P.S. Don’t crinkle up that burrito tin foil and use it as a wedding ring Mike, I know you were thinking about it.

  4. Andrew says:

    Yes, congratulations on the upcoming wedding.

    I do still remember mine, 15 and a bit years ago, with pleasure. Married in our house, 30 people, catering done by a tennis friend who owned an Italian restaurant, broke out the guitars once the 15 minute ceremony was done.

    Wife and 14 year old daughter currently enjoying relaxing holiday in London.

  5. To join the chorus — congratulations on the burrito!

  6. ZeroInMyOnes says:

    congratulations/mazel tov

    thanks again for a great blog

  7. Jeremiah says:

    Love how Lucas went around kicking his adversaries on business cycles before quietly acknowledging that any reasonable theory had to have what can only be called Keynesian foundations (as, sotto voce, in his Presidential address). But this was when he was happy to argue that fluctuations were effectively of no consequence compared to the grand story of growth.

    Delightful also to see how he has rallied to the true faith of late. Comments about all being Keynesians in foxholes notwithstanding.

    But really…

    Congratulations. Mazel tov.

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