Friday, March 9, 2012

The Madness Behind the Method, Part 1

There's an old saying in the military to the effect that amateurs focus on strategy, while the professionals do logistics. It highlights the prosaic reality that a commanding general's job consists largely of making sure his army is fed, clothed, supplied and moved; strategy and tactics are almost an afterthought, and success in logistics may well overshadow what is called strategy or tactics, in determining the outcome of conflict and battle. There's a useful analogy in this wry observation to the situation in the intellectual battlefield of economics: the amateurs focus on theoretical modeling, while the pros do methodology. For the past month of so, there's been a quickening of exchanges in the econblogs over the merit of "microfoundations" in macroeconomics: the pre-occupation of the field with connecting analysis of the behavior of economic aggregates with the expectations and inter-temporal optimizations of (representative) individual actors, largely in models of a type known as Dynamic, Stochastic General Equilibrium (DSGE) models. Although conducted largely in good humor, the exchanges have been fairly stark in terms of outlining alternative views of the value of the DSGE/"microfoundations". On one side, some bloggers have been somewhat dismissive; on the other, some have tried to explain the approach and its value. I say, "tried" without prejudice, since the topic is somewhat technical and esoteric. It is an unusual discussion for the econblogs, because it goes directly to the usefulness of economics, as a body of knowledge and doctrine, and is not a subspecies of ideological partisan sniping over ephemeral policy issues. The usual pattern resembles a kind of ritualized tribal warfare, in which the same tropes are rehearsed. Allies close ranks around their champion, or join together to harass some hapless victim or to engage with a talented provocateur. Some allegedly left-of-center econbloggers would scarcely have an opinion, if they were not constantly provoked by Tyler Cowen (Marginal Revolution). But, here, we get to see some genuine transparency of thought, as bloggers on the same "side" expose their differences and doubts and deepest assumptions. And, this is real core stuff. "Microfoundations" trace back to the Lucas Critique, an event that has helped shape macroeconomics as a field for a couple of generations. Robert Waldmann, in his comment, contrasts the Lucas Critique with Friedman's outline of Positive Economics, as the two methodological touchstones for macroeconomics. As Simon Wren-Lewis observes practically every paper published in what are considered top journals includes several pages laying out the "microfoundations" for the model presented in the paper. And, it is precisely the value of doing so in every case, that is being called into question in this blogospheric back-and-forth. A nearly universal practice, closely associated with professional prestige, is being called into question, with regard to its practical value. And, the back-and-forth is occurring among people of good will and a more-or-less common ideological world-view. It's a remarkable development, a breach of some kind of barrier, I think. Economics is subject to a great deal of scornful criticism from the amateur laity (such as my own lovely self), as well as from gadfly and apostate economists. I don't think the mainstream of the profession likes to engage with this criticism much. There's a tendency to close ranks, and to defend the professional reputation of prominent members of Tribe Econ; if an economist is attacked by other economists, it will be for the partisan claims made in an op-ed written for popular consumption, and not for professional accomplishments. It's OK, somehow, for a Krugman or a Barro to take potshots at each other's popular opinion-writing about, say, Obama's stimulus; disagreements about the useful of technical and professional approaches and accomplishments are another thing.

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