Which Economic Models Are Más Macho?

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


A few days ago Alex Rosenberg and Tyler Curtain wrote an op-ed titled “What Is Economics Good For?” In a nutshell, their answer was “not much.” Paul Krugman begs to disagree:

Rosenberg and Curtain completely misunderstand what’s been going on at the Fed. They also misunderstand the nature of economists’ predictive failures. It’s true that few economists predicted the onset of crisis. Once crisis struck, however, basic macroeconomic models did a very good job in key respects — in particular, they did much better than people who relied on their intuitive feelings….Wonks who relied on suitably interpreted IS-LM confidently declared that all this intuition, based on experiences in a different environment, would prove wrong — and they were right. From my point of view, these past 5 years have been a triumph for and vindication of economic modeling.

Something about this passage has been niggling at me since I read it yesterday, and I just now figured out what it is. Krugman has been banging this drum for quite a while, and regular readers know that I’m basically on his side. Basic Keynesian macro has done a pretty good predictive job in the aftermath of the financial crisis, and it’s fair to wonder why skeptics continue to be skeptics even after years of solid results from textbook macro.

But here’s the thing: I’m on Krugman’s side in hindsight. A better question is whether it was obvious in 2008 that “suitably interpreted IS-LM” was likely to be the best model for dealing with the post-crisis recovery. Maybe it was. Krugman makes the case, for example, that RBC models should have been abandoned decades ago for not fitting the data. But conservative economists would argue that Keynesian macro was quite justifiably thrown out even earlier for failing during the 70s. That’s obviously a matter of contention, but it’s certainly the case that the Keynesianism of the 70s has since been retooled into the New Keynesianism of the 90s and beyond. But that makes it a fairly new theory. So again: how obvious was it before the fact that Krugman’s preferred models were likely to be the best ones for 2008-13?

This is light years above my pay grade, so I’m throwing it out mostly in the hopes that some real economists will essay an answer. I’m not even sure I’m framing the question entirely properly. But the basic problem is that economists change their models the way most of us change our television viewing habits, and the best models often seem to be very dependent on a particular place and time. Wait a couple of decades, or examine a different kind of economy, and suddenly the old models don’t work so well anymore. So how do we know in advance? Can Krugman legitimately say that his models have had a long track record of success in different environments, and therefore should have been the obvious incumbents when the economy went kablooey in 2008?

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate