Finally a central banker admitted the truth. On being asked how monetary policy decisions are taken with all the data and science, Bank of Israel chief replied: “This is art, not science”. Moreover, it is all about how much the central banker can credibly hoodwink the media/experts into accepting that the policy is right. As long as this can be done, nothing else actually matters.
Anyways this post is more about this scathing criticism be Paul Romer on state of macro. There has been a lot of it already but this one will be one of the top most criiticism as it comes from a person who has seen and done it all:
In the last three decades, the methods and conclusions of macroeconomics have deteriorated to the point that much of the work in this area no longer qualifies as scientific research. The treatment of identification in macroeconomic models is no more credible than in the first generation large Keynesian models, and is worse because it is far more opaque. On simple questions of fact, such as whether the Fed can influence the real fed funds rate, the answers verge on the absurd. The evolution of macroeconomics mirrors developments in string theory from physics, which suggests that they are examples of a general failure mode of for fields of science that rely on mathematical theory in which facts can end up being subordinated to the theoretical preferences of revered leaders. The larger concern is that macroeconomic pseudoscience is undermining the norms of science throughout economics. If so, all of the policy domains that economics touches could lose the accumulation of useful knowledge that characteristic of true science, the greatest human invention.
He compares the string theory to modern macro:
more revealing one is why there are such striking parallels between the characteristics of string-theorists in particle physics and post-real macroeconomists. To illustrate the similarity, I will reproduce Smolin’s list (from Chapter 16) of seven distinctive characteristics of string theorists:
1. Tremendous self-confidence
2. An unusually monolithic community
3. A sense of identification with the group akin to identification with a religious faith or political platform
4. A strong sense of the boundary between the group and other experts
5. A disregard for and disinterest in ideas, opinions, and work of experts who are not part of the group
6. A tendency to interpret evidence optimistically, to believe exaggerated or incomplete statements of
results, and to disregard the possibility that the theory might be wrong
7. A lack of appreciation for the extent to which a research program ought to involve risk
My conjecture is that string theory and post-real macroeconomics illustrate a general failure mode of a scientific field that relies on mathematical theory. The conditions for failure are present when a few talented researchers come to be respected for genuine contributions on the cutting edge of mathematical modeling. Admiration evolves into deference to these leaders. Deference leads to effort along the specific lines that the leaders recommend. Because guidance from authority can coordinate the efforts of other researchers, conformity to the facts is no longer needed as a coordinating device. As a result, if facts disconfirm the officially sanctioned theoretical vision, they are subordinated. Eventually, evidence stops being relevant. Progress in the field is judged by the purity of its mathematical theories, as determined by the authorities.
One of the surprises in Smolin’s account is his rejection of the excuse offered by the string theorists, that they do not pay attention to data because there is no practical way to collect data on energies at the scale that that string theory considers. He makes a convincing case that are plenty of unexplained facts that the theorists could have addressed if they had wanted to (Chapter 13). In physics as in macroeconomics, the disregard for evidence and facts was a choice.
I mean String theory comparison is not limited to macro guys alone. It is a problem for most economists whose arrogance and hubris is just plain abominable.. It is as if much of economic teaching is actually around teaching arrogance more than anything else..
Even more scathing is how he takes on the priests of modern macro who keep praising each other:
The description of the failure mode of science presented above might be construed as a warning that the threat to science comes from self-interest. This would be a serious misreading of the model of science that guides this analysis. People are always motivated by self-interest. Science would never have survived if it required its participants to be selfless saints.
Like the market, science is a social system that uses competition to direct the self-interest of the individual to the advantage of the group. The problem is that competition in science, like competition in the market, is vulnerable to collusion. Bob Lucas, Ed Prescott, and Tom Sargent lead the development of post-real macroeconomics. Prior to 1980, they made important scientific contributions to macroeconomic theory. They shared experience “in the foxhole” when these contributions provoked return fire that could be sarcastic, dismissive, and wrong-headed. As a result, they developed a bond of loyalty that would be admirable and productive in many social contexts.
E. M. Forster wrote “If I had to choose between betraying my country and betraying my friend I hope I should have the guts to betray my country.” If you substitute “science” in place of “country,” it is not hard to imagine that for many people, choice would still be to support the friend. Unfortunately, this type of loyalty can undermine the competition that science counts on.
Two examples will be sufficient to illustrate the bias that loyalty can introduce.
Example 1: Lucas Supports Prescott…
Example 2: Prescott supports Lucas..
Read the examples for more details….
One could hardly write a more scathing review of state of macro.
It is all an elite club which keeps pushing each other and their ideas which are just accepted blindly worldwide.
Much of economics had already evolved via discussions and debates which are not taught to students anymore. The moment one figures history of economic thought and way it has developed, much of current discourse is just not needed.