Morning Must-Read: Mark Thoma: Can New Economic Thinking Solve the Next Crisis?

Mark Thoma: Can New Economic Thinking Solve the Next Crisis?: “It is certainly true that mainstream, modern macroeconomic models failed us…

…prior to and during the Great Recession…. But amid the calls for change in macroeconomics there is far too much attention on the tools and techniques that macroeconomists use… and far too little attention on… the questions that economists ask…. Why did macroeconomists adopt a representative agent framework that made financial meltdowns so difficult to incorporate into their models?…. Because macroeconomists, for the most part, did not think questions about financial meltdowns were worth asking, so why bother with those theoretical complications?… The questions that macroeconomists ask are dictated, in large part, by current macroeconomic events…. Presently, for example, questions about the international flow of financial assets and the balance of trade have all but disappeared from the economics discourse…. Does that mean such questions will never be important and research into these topics should be dismissed as uninteresting?… The problem is the sociology within the economics profession that prevents some questions from being asked. Why, for example, were the very questions we needed to ask prior to the Great Recession ridiculed by important voices within the profession? The key to a better economics is to ask better questions, and that will require a much more open mind–particularly from those in charge of what gets published in economic journals–about the kinds of questions economists are allowed to ask.

This is, I think, why whenever things get interesting the only people who have something to say are the economic historians–all the other macroeconomists have been part of the swarm of 20 six-year-olds in a mass scrum around the soccer ball, have not been playing their positions, and thus have little to say when reality makes the ball squirt out and go someplace else…