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: