Romer starts his post with two statements:
1.The model in Lucas (1972), Expectations and the Neutrality of Money, made a path breaking contribution to economic theory. It is comparable in importance to the Solow model and the Dixit-Stiglitz formulation of monopolistic competition.As Romer points out, the first statement concerns a modeling contribution, while the second has to do with empirical usefulness. But Romer thinks that how we - that is, macroeconomists in particular - think about those two statements should be revealing.
2. The model in Prescott and Kydland (1982), “Time to Build and Aggregate Fluctuations”, has no scientific validity.
Most of us can read those two statements and know how the extended arguments are likely to play out. Of course, it helps to have been around for a while - anyone under 33 would not have been born in 1982, and would see Kydland/Prescott as ancient history. And Lucas (1972), though of course highly influential, does not show up on many PhD reading lists these days. But, even if we know the typical arguments, we would like to know more. Has the author of the statement got anything new to say? How do they flesh out the argument? I might think, for example, that the author of the second statement isn't just commenting on how Kydland-Prescott fits the data. Maybe he or she has something to say about the whole methodological approach. In any case, I'm curious. I would like to know. I'm open to persuasion. Indeed, that's what economists do - we try to persuade others, using whatever means possible. And a lot of that persuasion involves words - written and spoken. My ex-colleague Deirdre McCloskey, had a lot to say about this. Here's an excerpt:
In spite of my reluctance, I'll play along with Romer. He says:
Think of some macroeconomist X that you know.Fine. Some people would say I'm a macroeconomist, so I'll volunteer. Mr. X at your service. The next step is the following:
Consider these questions:So, note that I'm going Romer one better. He's asking you to put words in someone else's mouth. That seems a little weird.
A. Would X agree that there is an objective sense in which statements 1 and 2 can be said to be either true or false?
B. Would X agree that a reasonable person could conclude that statements 1 and 2 are both true?
C. Would X be able to examine dispassionately the evidence for and against these two statements and evaluate them independently?
In answer to A: Stupid question. (i) Give me the rest of the argument, not just a blunt statement. I want you to try to persuade me. This is definitely not about true and false. What's true and false is something we'll never know - we're just scientists in the dark trying to figure things out. (ii) What you should be asking is: Are you persuaded? Maybe, after hearing the whole argument, I'm halfway-persuaded, but I have something I can add to the argument to make it more persuasive. Maybe I've got a clarifying question. Maybe I want the author to expand on the argument.
B: No idea. First I want to see if the authors of 1 and 2 are giving me what I think is a persuasive argument.
C: No. Dispassionate? Remember, we're talking about human persuasion here. Humans are passionate. If macroeconomists were not passionate about their work, working with them would be deathly dull. I would rather paint houses for a living. And why would we be thinking about 1 and 2 independently? Indeed, given the nature of the statements, we should be thinking about these things in the same context. How you argue one could have a lot to do with how you argue the other.
Where is Romer leading us? Well, he seems to want to make the case that we (macroeconomists) are "infected by tribalism." He also argues that physicists are not tribalists.
I've argued elsewhere that, taking macroeconomics in particular, that the field is much less factional than some people would like to claim. Emphasis on factionalism sometimes makes an interesting story for undergraduate macro students. In the old days, there was a conflict between Monetarists and Keynesians - Chicago vs. the east coast. In the 1970s there was a conflict between "saltwaters and freshwaters" - CMU/Minnesota/Chicago/Rochester vs. the east coast. But, as the technology has changed, and people and ideas have moved around, it's much harder to identify warring camps, or a war. You'll note that statements 1 and 2 concern very old ideas. Romer didn't give us, say, post-2000 statements along these lines. Why? Because he would have a hard time finding such things, except perhaps on the blogosphere, where people seem to love rehashing old - and long-ago resolved - disputes.
But, researchers in macro - as with researchers in other fields in economics - will split off into groups that are internally relatively homogeneous. That's how we make progress. Persuasion is hard. If we try to work in heterogenous groups in which we're constantly going back to first principles to justify what we're doing, we're not going to advance much. Sometimes we make the most progress in a group where we can agree on assumptions. I spend some of my time interacting with a group of monetary theorists who share a common view about research methods and direction, and we tend to share an evolving set of models. I've learned a lot from that, and from the continuing relationship with people in the group. And so what if two groups are having a dispute. That's just healthy competition.
So, within economics, is macro unusual? Of course not. Indeed, the whole emphasis of post-1970 macroeconomics is to do it like everyone else. Before 1970, no one would have been discussing macro and Dixit-Stiglitz in the same sentence. Should economics work like physics? Of course not. We're studying very different problems requiring very different methods. Why would you expect economists to behave like physicists?
What's my bottom line? Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything. Here's something that would be more fruitful. Romer's chief beef with the macro profession seems to be that we don't give him enough credit. The two characters who wrote the articles in statements 1 and 2 get plenty of credit. They are well-cited, and they have Nobel prizes. Romer also has plenty of citations, but seems to want something more. I'm not a close follower of research on economic growth, but I see growth papers sometimes, and my familiarity with this stuff is roughly that of your average macroeconomist. Romer made a couple of key contributions to the literature on economic growth early in his career, building on the seminal work of Solow and the optimal growth theorists - Cass and Koopmans for example. Romer's work, and Lucas's for example, was highly influential, and spawned a whole literature - endogenous growth theory.
The hope for this line of research was that we would gain an understanding of the forces behind technological change. This type of research, it was thought, could give us huge rewards. Some countries are extremely poor, while others are extremely rich. If we can figure out how to make the extremely poor extremely rich, this would be a huge payoff for macroeconomic research. My impression - and I could be entirely wrong - is that this line of research has been something of a bust. Most of the insight we have into economic growth and the sources of disparities in standards of living in the world comes mainly through the lens of the Solow growth model, and Solow's paper was published in 1956.
So, I think it is incumbent on Romer, if he wants more credit, and more recognition, to make the case for himself - for his older ideas - and to give us some new ideas. I'm willing to be persuaded, as I'm sure most macroeconomists are. But, arguments about "mathiness," "macro gone wrong," and unsubstantiated charges of dishonesty aren't persuading anyone, as far as I can tell.