KISS and Macroeconomics

My PhD was in macroeconomics. Specifically, it was do with business cycles. It took my seven long years to finish my PhD, and that was mostly because I was (and remain) incurably lazy.

But here is what I know about macro and business cycles for having finished my PhD in the topic:

1. Macro is hard.
2. We don’t really know what causes business cycles.
3. We don’t really know what to do about business cycles, and when to stop doing whatever it is that we choose to do about them.

That’s not what I said in my thesis, of course. Because one is not awarded a PhD for saying these three things, I ended up taking a lot of pages and a lot of words to make it seem as if I knew what causes business cycles. I also made it seem as if I had figured out what to do about them.

But the truth is that well, macro is hard, and we don’t really know what to do about business cycles.

And so these days, when I teach students introductory courses in macroeconomics, that’s what I tell them. That hey, macro is hard. And my job is two-fold:

One, it is to show you how and why it is hard. And two, to tell you what we think we know about how to deal with it being hard. And three, to tell you that we do all this because we think (hope, really) that tinkering with a big, complicated thing we don’t really understand will make our world a better place, at least in the short run.

What do I mean when I say “short run”? Well you see, we don’t really know for sure.

But anyways, the reason we study macro is because we wish to make our world a slightly better place. And in order to make it a better place, we need to:

1. Understand the world better,
2. …and we need to understand our current theories about how to make it better.

And so a good course on macro will teach us about the world, and about our macroeconomic theories of the world.

The problem is that most macroeconomic textbooks focus exclusively on the latter, and not at all on the former. This is a problem, because context-less theorizing doesn’t get us very far. Context without theory also doesn’t get you very far.

You need, in other words, both:

“while the conceptual framework influences our selection of contexts, a contextual understanding enriches our conceptual understanding and also points out the limits of economic theory. And to do good economics, it is necessary to equip ourselves with both concept and context by continuously reading—the classic books (and articles) in economics, the history of economic thought, studies based on extensive fieldwork in India, government and RBI reports, books of fiction and newspapers”

Amol Agrawal points us to a lovely essay by Prof. Annavajhula J C Bose of SRCC, which drives home this point with lovely, eloquent prose. Please read it here, and if you have not already, please read the macroeconomic textbook by Alex Thomas (EFE review here). It is that rare book that talks about both the world we live in, and how to make it better by thinking about macroeconomic theories.