Tamed Zombies = Free Labor!

Great post at Overthinking It. How will society recover after the zombie apocalypse? Undead slavery to the rescue!

Truth Claim of the Day

Justice is a matter of making it up to the people you hurt.

Please, discuss. The context is found here.

What Do I Do, Again?

In the last few days, there has been an interesting discussion on a couple of major economics blogs regarding the relationship between macroeconomics (which is where my research lives) and microeconomics (which is what I typically teach). The key posts, with assorted commentary, begin with Matt Yglesias, followed by some thoughts by Arnold Kling and David Henderson. The gist is that, beginning with Keynes, macroeconomics was thought of as a separate area of study from microeconomics. This changed over time, though, and now macroeconomic work that isn't heavily founded in microeconomics is not really publishable. How and when did this happen, and is it a good thing or a bad thing?

I thought I would chime in here as if I have something to say that hasn't already been mentioned.

First, macroeconomics without micro has a serious drawback to it: namely, the work isn't structural. Without being able to say "decisions work this way because of these enduring features of human decision making," which is what micro-foundations are all about, there is no real way to say that what has happened in the past tells us anything useful about what will happen in the future, particularly if we are talking about policy in which the government changes something. The models of the 1970s failed precisely because they only told about how people behave in a specific environment, and thus couldn't actually tell us anything about how people will change what they do when the legal environment changed.

Second, macroeconomics is, in my view at least, purposed with studying the aspects of economies that we would miss if we only considered things from the micro, one market at-a-time perspective. There are a lot of things that are true of the forest that are not true of any particular tree or small group of trees. For one thing, microeconomics doesn't tell us why we don't run out of trade, and thus why economic activity doesn't work nicely for a while and then stop. There has to be something that continually expands the ways we can benefit ourselves through trade. Thus long-run economic growth is a macro subject. For another thing, microeconomics doesn't have much to say about how vague issues like how many dollars are floating around or how confident we are that this growth will continue affects individual markets. Monetary policy and economic stability are macro subjects. These examples serve, I hope, to illustrate that macroeconomics is more than just microeconomics, but it is not less than microeconomics.

Last of all, the blogs mentioned suggest that the importance of macroeconomics lies in being able to predict what will happen, not merely offer some explanation of what has happened. This is quite true. However, anyone with a bit of statistical software can predict the future with a surprising degree of accuracy. Macroeconomics contributes to this only if the models, which put restrictions on what can conceivably happen and how, actually improve forecasting above the results of naive statistical forecasts. That is to say, macro models must be predictive, but they will only be predictive if they are right and add real information not contained in easily viewed data. So far, the economic models which have contained additional information that seems to be right have all been derived from microeconomics to one degree or another.

So in my macroeconomic research, I don't worry too much about the microeconomic foundations. But the closer the models I test fit the microeconomics that seems to be true, the better the chances those models will add to our knowledge and tell us things simply staring at data can't.