Quote of the day, from Bob Solow

From a 2008 JEP article quoted by Lars Syll:

"[When modern macroeconomists] speak of macroeconomics as being firmly grounded in economic theory, we know what they mean … They mean a macroeconomics that is deduced from a model in which a single immortal consumer-worker-owner maximizes a perfectly conventional time-additive utility function over an infinite horizon, under perfect foresight or rational expectations, and in an institutional and technological environment that favors universal price-taking behavior …"

Of course, one could make similar arguments about some of Solow's work. The point isn't that abstraction is bad. The point is to know what you're getting into. The microfoundations mantra doesn't magically transform macroeconomic theory, and the foundations aren't always as realistic as they are billed to be. Some of these are better "first approximations" than others - one need not accept or reject this modern modeling en masse.

This reminds me of some criticism Solow has had about Romer's "New Growth Theory", some work that I've wanted to tackle because of the way it brings R&D into macro. I'll have to look that up.

He goes on:

"So I am left with a puzzle, or even a challenge. What accounts for the ability of ‘modern macro’ to win hearts and minds among bright and enterprising academic economists? … There has always been a purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts … The theory is neat, learnable, not terribly difficult, but just technical enough to feel like ‘science’. Moreover it is practically guaranteed to give laissez-faire-type advice, which happens to fit nicely with the general turn to the political right that began in the 1970s and may or may not be coming to an end."

I don't know about this as a primary explanation. A lot of modern macro as he describes it grew out of the Lucas critique of the older macro that Solow is famous for. And Lucas was right about structural factors. The question is, does simply generating a structural model give you the right answer by virtue of the fact that it's structural and the older model isn't?

No - of course not.

I saw Bob Solow once when he came by the Urban Institute for a board meeting. Didn't get to introduce myself - he looked busy.