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Wednesday, June 06, 2012

The Macroeconomist as Weatherman

Imagine that, over the past 200 years, there have been a bunch of meteorologists studying the weather. What has happened, though, is that one of them, living in Florida, has focused on thunderstorms. He came up with a pretty good model of thunderstorms, but then announced, "The weather is made up of a series of thunderstorms: to be safe, people need to install lots of lightening rods everywhere, and very good drainage so that streets and creeks don't flood."

Another fellow lived in Oklahoma, and he focused on tornadoes. He developed a pretty good model of tornadoes, and then declared. "The weather is characterized by periods of calm followed by tornadoes: to remain safe, people need good solid basements and very sturdy wooden shutters."

A third meteorologist lived in California. His studies focused on seasonal variations in rain. He developed a good model of those, and then professed that "Human weather problems can be solved, if only people find ways to store up all that rain that falls in the winter for use during the long dry months of the summer."

A fourth investigator lived in England. He focused on anticyclonic gloom. He concluded that the government had damned well better do something to break up the high pressure system causing the phenomenon, as the country was just too depressing to live in while it went on and on.

Each of these meteorologists developed followers, who created a school of meteorology pushing their founder's model as the model that described all weather phenomenon. But, at long last, certain meteorologists began to notice that what was going on was that, rather than competing models, one of which might possibly describe the weather as a whole, what we really had were complementary models, each of which described some aspect of the weather.

Of course, all of the above is a metaphor for what I think has really happened in macroeconomics. And I think we are starting to see some recognition that this is so, as the talk linked to above indicates. And, if I am right, then the job of the macroeconomist, when it comes to describing what has occurred and prescribing responses to it, becomes like that of the weather forecaster who must be familiar with all of these different weather phenomena, and learn how to identify which are most helpful in understanding the current weather situation. So we might find people (as I have at times recently) saying things like "Well, the initial problem triggering the current bust was a Hayekian misallocation of resources into housing, but various factors combined to turn the reaction to that into a Keynesian liquidity trap." And we could deal with each problem in a more intelligent and appropriate way, if we recognize that the global macroeconomy is very complex, and like the weather, is likely to contain many types of phenomena, with a different model appropriate for each of them.

The question, generally, should not be "Which model is correct?" but "Which model best applies to this or that aspect of what is occurring right now?"

8 comments:

  1. I believe this is how macro is currently taught in many graduate programs (Cowen basically taught it this way at GMU). Of course, it is clearly not how macro is discussed on the blogs and op-ed pages.

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    1. That is good to hear. It is certainly how macro will be taught at SUNY Purchase next fall!

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  2. But I'm confused. Which school of weathermen are the dirty rotten commies?

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  3. BTW that talk was awesome; von Pepe had me read that on the plane to Austria.

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    1. And what a cool name: he sounds like the lead guitarist from a speed metal band.

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  4. Why do you want to take all the fun out of economics ?

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  5. Economists and meteorologists - they are wrong one day and get up and do it again the next day. Two fields where you seem to get an infinite number of free passes :-)

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    1. Hey, Bill, welcome! Comments are moderated: they don't show up until I approve them.

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