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We have talked a few times in class about needing new theories, our old macroeconomics models no longer stand. This is an article that goes a little more in depth. Any comments?
http://www.nakedcapitalism.com/2010/05/alford-why-we-need-a-new-macroeconomics.html
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This article brings up good points that our models are not correct always and that at times they were down right wrong. It also brings up a point that we need to be more open to change and I think that this quote sums it up, "Complacency and overconfidence are risks to good macroeconomic policy. Economists and policymakers must be open to any evidence that the economy or markets are adapting in an unforeseen and counterproductive manner." Once economists do this we will be able to start to create better models overall.
ReplyDeleteI think the article makes a great point. To pretend that our macro models are fine and that all our problems were caused by flawed micro models is ludicrous. We do need a major rethink of all of our models (or in my extreme opinion: modeling at all).
ReplyDeleteI really liked the comparision to regulating the safety and effectivness of drugs. While economics is a social science it is still "science" and therefore it is constantly changing and evolving with exceptions to every rule. Our hubris in the infalliability of our economic models led to the financial crisis. We must constantly be challenging the accuracy of our micro and macro economic models and improving them based on new findings.
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