Paul Romer Too Microfoundations

For economists

In an AER P&P anti-Keynesian’. Keynesian theory is denigrated inward around cases non because of empirical prove but because of the policy implications that may follow from that theory. The microfoundations methodology, every bit adept past times some, allows those that desire to deny the importance of Keynesian effects to proceed to written report work organisation cycles, because this methodology tin house such a depression weight on the importance of prove when it comes to the elements of model building. (Ask non whether cost stickiness has empirical support, but whether it has enterprise microfoundations.)

Paul Romer’s post service also links to the thought inward this paper past times Paul Pfleiderer virtually theoretical models becoming “chameleons”. To quote: “A model becomes a chameleon when it is built on assumptions amongst dubious connections to the existent globe but yet has conclusions that are uncritically (or non critically enough) applied to agreement our economy.” I retrieve nosotros could add together that these conclusions are ordinarily associated amongst defending a item political persuasion or sectional interest.

It is of import to stress that this is non an ready on on the microfoundations methodology, only every bit Paul Romer’s article is non an ready on on mathematical modelling. Most DSGE modellers, who are non dependent to whatsoever political aversion to using cost rigidity, happily utilization this methodology to advance the discipline. But if that methodology is taken also seriously (by what I telephone phone here microfoundations purists), in addition to therefore that modellers solely await at what they tin microfound rather than what they genuinely encounter inward the existent world, it tin let approaches that should receive got been discarded to alive on, maybe because they back upward a item policy position.

A bailiwick where a huge let on of choice models persist could live on described every bit ‘flourishing’, but risks disintegrating into choice schools of thought, where around schools receive got an immunisation strategy that protects them from item kinds of empirical evidence. As Paul perceptively points out, this makes economic science to a greater extent than similar political discourse than a scientific discipline. Some people welcome that, or consider it is inevitable - I promise most economists practise not. This agency nosotros get-go bespeak to collectively recognise the problem, rather than keeping our heads downwards to avoid upsetting others. I promise Paul Romer’s article tin live on purpose of that process.