I’m back to that title. Comments welcome on this idea for how it might open:
In discussions of macroeconomic policy in Washington and in the press, these four propositions are taken as given:
(S) Spending is what drives the economy. Spending creates jobs, and jobs create spending. When unemployment is high, the problem is too little spending.
(M) Monetary policy must steer the economy carefully between overheating and slumping. Doing so requires high levels of skill and intellectual resources.
(F) Fiscal policy is just as important. When there is unemployment, monetary policy cannot do the job alone, because the Federal Reserve also has to keep an eye on inflation. So the Federal government must engage in deficit spending to stimulate the economy.
(C) Computer models are essential tools that enable economists to forecast the economy and assess the impact of alternative economic policies. Using computer models, the Congressional Budget Office is able to score the number of jobs a particular policy will add to or subtract from the economy.
These four propositions are what I term quack macroeconomics, or quackroeconomics for short. Like quack medicine, quackroeconomics is unproven, unreliable, inconsistent with the views of leading researchers in the field, and possibly dangerous.
Until now, however, there has not been a book that confronted quackroeconomics head on. Other economists seem reluctant to do so. Instead, they prefer to accommodate it.
Academic economists who would never teach it to students nonetheless write op-eds that employ quackroeconomics. When they come to Washington as economic advisers, they adopt quackroeconomics with alacrity.
The authors of undergraduate textbooks provide theoretical analysis that, if properly understood, discredits quackroeconomics, but such conclusions are never spelled out. As a result, students come away from class with quackroeconomic intuition rather than an understanding of the analytical models.
In graduate school, professors discard what students learn as undergraduates and teach something else entirely. The advanced material is even further removed from quackroeconomics, but by this point it does not matter. Most of these students will never again think seriously about macroeconomics as a whole. Those who are troubled by the discrepancies between quackroeconomic intuition and what is taught in graduate courses are those who are least likely to stick with macroeconomics. Instead, they will go into another economic sub-field, such as environmental economics, economic development, or industrial organization. Those who pursue macro will do so because they enjoy the sort of mathematical puzzle-solving that nowadays leads to a tenured professorship in macroeconomics.
I worded M, F, and C carefully so that just about every economist would disagree with them. In fact, my guess is that many would object that I am attacking a straw man. I believe, however, that this is not a straw man when it comes to economic journalism. If readers spot articles in the press that pertain to this issue, please leave a comment (you do not have to go back and find this post–any post on the blog will do)
Great start, but I wonder if people will understand you are focusing on macro. Also, you could throw in other basic trade fallacies that everyone “knows to be true”.
More here: http://www.econjobrumors.com/topic/quackroeconomics-arnold-kling
The list of four fallacies is a solid start that draws you in, but I agree w/Brent there’s no context. Is it fair to contrast with micro as more traditional, classical econ? Then where did either macro or quackro come from, and how are the two distinguished? The line about puzzle-solving implies macro as a whole is divorced from reality. Also, the education part is a bit hard to follow. Profs would never teach quackery to students, but instead advocate it in popular forums. Textbooks should keep students away from quackery if properly understood, or if more clearly written. Still, students come away from both books & profs with quack “intuition.” Unclear then if books/profs are explicitly teaching quackery, or if the problem is a pre-existing urge to believe it, flat-earth style.
Need a (B) for behavioral since that’s the only thing that drives all this madness.
I think some punctuation is needed in the title. Quackroeconomics does not scan well for the general public.
I think you would do better with two words: Quackro Economics
Or at least a hyphen: Quackro-economics
In software engineering, Anti-Patterns are designs or solutions that are commonly used but are ineffective or counter-intuitive in practice.
You might structure ‘Quackro’ like an anti-patterns book. It might be more broadly popular if you start with the usual problems (collapsing asset bubble, high unemployment) and describe the effects of the usual solutions.
In fact, “Anti-Patterns in Economics” would be a great (sub?) title. If not, I like “Quack Economics” better than the 1-word short version.
Oops – meant to say ‘counter-productive’.
“Quackro” sounds much better and captures the relevant emphasis more. It also avoids looking like a ripoff of Freakonomics.
You are missing the other half, that lower tax rates spur the job creators, that there is an economy without monetary policy, that any easing will lead to hyperinflation, that fiscal cuts will restore confidence and spur the economy, that what is right for the household is right for the government and the economy.
Lord, Good point. There are lots of lousy ideas out there in macro, apart from the ones I criticize. I think, however, that they encounter a lot of outspoken contempt among academics and the press, while the four propositions that I mentioned are allowed to slide
Here’s a few more for your list:
Financial markets are self regulating
Trade is always win-win
Price reflects value
Banks/financial institutions do not need to be represented in macro models.
Actually, a list of good macro ideas might be shorter.
” Four unproven, unreliable, and possibly dangerous propositions, also inconsistent with the views of leading researchers in Macroeconomics, are taken as given in discussions of macroeconomic policy in Washington and in the press.
These four, that I term quack macroeconomics, or quackroeconomics for short, are:
………”
This description leaves me worried that you are just going to be attacking the sort of thing you might describe as “folk Keynesianism”. Apparently you will be debunking propositions that few economists actually believe. What is the point of that? It no longer seems to be anti-textbook as originally advertised. When you have said from time to time that you think macro is screwed up, I assumed you meant actual, not folk, macro.
Many of the economists who reject the four propositions have economic opinions contrary to yours. What are their actual (good) reasons? That’s what you should be attacking. It would not be the best use of your talents to discredit merely the way economics is popularly presented, even by big-shot economists.
Frank, I am wrestling with exactly this issue. That is, not only do I disagree with quackonomics, but I also have problems with mainstream macroeconomics. Trying to fit both sets of criticisms into the same book is a challenge.
As usual, I have no constructive suggestions. Both subjects are interesting. The anti-quack version might create more short-term buzz, and could also have the beneficial intellectual effect of flushing out the real, fundamental reasons that informed people have for their views. (I, an uninformed layman, find it unreasonably difficult to put my finger on those reasons, despite the number of people expounding their opinions on economics.) But in the long run what matters most are the best arguments for, and strongest objections to, the serious alternatives.
I think this is a great idea for a book. Unfortunately, so many economists and economics writers never question the basic assumptions of the conventional thinking. If they did, they would not be able to work. They pretend to be certain, but how can they be? Trying to explain, predict or simulate the workings of an economy (whatever the scale) is an incredibly complex and likely impossible task. For example, when asked for examples of successful fiscal stimulus, Paul Krugman points mainly to WWII, but the experience of post-WWII, with a tremendous decline in government spending was followed by a boom. Is that all he has?
Is it coincidence that the two worst downturns in US history were periods of furious government activity? Or did the causation run the opposite way from the way most analysts see it: government actions worsen the downturn?
Macroeconomic models are not built from the ground up. Instead of creating an economy based on the sum of actions of individual actors (I think they refer to them as agent-based models) the standard models take a top-down approach and attempt to model high-level parameters, not directly related to the agents. This strikes me as guess-work, trial and error attempting to fit the outputs to the results in the real economy. You may be able to make a model “replicate” a particular time period, but how good are they in the long run. I think the same goes for climate models.
If the true uncertainty were acknowledged, most of the rationale for tactical government stabilization and smoothing actions would be eliminated. At best, these actions would be like beating the drums during an eclipse to bring the sun back. At worst, they are a waste of resources and an impediment to recovery.
AK: Good stuff, but I think for (F) the standard quack claim is that central banks have only limited power to stimulate because they are constrained by the zero bound on interest rates. (Your former schoolmate makes that claim often.)
I will discuss the zero bound in the e-book, but that is not the standard *Quack* claim
I am wondering whether “supply side economics” and “the Laffer curve” belong in this list of quack macro.
At what point is there a distinction between finance and macro? Is the efficient market hypothesis and rational expectations finance or macro? Are theories of the term structure of interest rates (which are relevant for Fed guidance and QE) finance or macro? Is the CAPM macro? Are studies of banking panics and financial crises macro or finance?
Are labor market theories of search and matching macro or labor econ?
I am wondering: if we reject the idea that fiscal policy matters for the economy, for growth, and for employment, does that mean we can raise taxes to any level and it would make no difference?
Is the entire framework of IS-LM-AS from undergraduate textbooks just quackery?
Would you ask climatologists or geologists or epidemiologists also to give up computer modeling and forecasting?
at best, supply-side economics and the Laffer curve have often been abused. at worst, they belong in the quack category.
On finance vs. macro, I personally want to downplay rational expectations/efficient markets as the divider. I think that the important difference concerns the menu of assets. In finance, the menu is long, and substitution is treated as easy. In macro, they do the opposite.
Searching and matching models are macro-oriented. I see them as in the class of macro theories that I would call “static coordination problems,” meaning that the resources and wants are given, but the market has trouble coordinating them. PSST is a dynamic coordination problem, where the allocation of resources depends on discoveries not yet made.
I do not reject the view that fiscal policy affects what mainstream econ refers to as the supply side of the economy.
If computer modeling and forecasting is accurate and the conditions for scientific use of non-experimental data (the Hill criteria) are satisfied, then fine. If not, then not.