Kling’s criticism of contemporaneous macroeconomics reads like a criticism of the kind of macroeconomics still taught at the undergraduate level. But modern macroeconomics has moved on—it is general equilibrium microeconomics. Its primary objective is not to produce the one and only model for economist-engineers or “experts” to use, but rather to help us understand mechanisms. A good expert knows many models, is informed about institutions, and has the courage to judge which of the models (or mechanisms they identify) are the most relevant in a specific context. We don’t need a new macroeconomics. But maybe we need better “experts.”
To me, this sounds as though Niepelt is happier than I am with what he calls general equilibrium microeconomics and what Paul Krugman (rightly) calls Dark Age Macro. Of course, Krugman wants to go back to old-time Keynesian religion, which I reject. I would refer Niepelt to my macro memoir essay.
Niepelt does give the book some well deserved props. Unfortunately, his point of view, the book, and your memoir, are all USA-centric. One wonders if the insights in each are as applicable in developing economies, in countries with modern political institutions, or in command and control economies.
Macroeconomics is all about the exercise of political power. In a pseudo-democracy like the USA, which is unable to competently conduct an election, leaves huge percentages of the population completely unrepresented in political office, and which to a disturbingly significant extent is subject to control by the petty whim of unelected and unconstrained bureaucrats, the political apparatus by which macroeconomics would theoretically operate is corrupted and lacks minimal levels of public trust. Like a car with broken steering wheel it runs along fine until there is a bend in the road.
Elsewhere the situation might be more positive for the exercise of macroecomics. A good test case, for example, currently is being initiated in Brazil. A U of Chicago PhD economist, Paulo Guedes, is the minister of economy, and Roberto Campos Neto, a Caltech grad math degree holder, is being installed as President of the Central Bank of Brazil. Their macroeconomic policy is fairly traditional and consistent with general equilibrium microeconomics: cut spending, deregulate, control inflation, privatize state industries, and government reform generally. The first, cutting spending, is of course the most difficult. Nevertheless, given the broad representation of the population within Brazil’s modern multi-party political system that incorporates a large measure of proportional representation, the prospects of spending control are much brighter than under the flawed and broken US system. Just as in India, in which the reform government of Modi, has produced strong economic growth, so too, I think we can confidently predict, the Bolsonaro government will too.
To Trump’s credit, following a similarly themed macroeconomic approach, he has managed to discredit the US economics establishment that had preached for years that the USA could not experience healthy economic growth. However, the political instablility and corruption within Washington, DC have severely hamstrung any long term change he may have sought to bring about and his legacy will be short term at best. And regardless of systemic limitations, his vows to constrain spending have failed spectacularly. With the tool of federal spending reductions completely impossible within the US political system, it would appear successful long term macroeconomic policy solutions will be hard to come by.
Arnold,
It’s interesting that you quoted the most negative part of his review. My overall evaluation is that he liked large parts of your book.