Paul Romer's "The Trouble With Macroeconomics" gave the blogosphere heaps to comment.
You didn't read Romer's paper? No worries! Noah Smith ("The New Heavyweight Macro Critics", September 14) summarises it, in a Reader's Digest kind of way. What does Smith think about it? Hard to say, other than "Ouch. He also calls various typical DSGE model elements names like 'phlogiston', 'aether', and 'caloric' " Smith remains safely non-committal ("committal" would sound dangerously like "commie", I suppose). Maybe one could sum up his view as "totally awesome, dude".
Robert Waldmann's position seems similar. The title of his post tells all: "On the New Heavyweight Macro Critics", September 23).
Speaking of heavyweights. Simon Wren-Lewis seems unimpressed ("Paul Romer on Macroeconomics", September 20). For him, Romer is giving those bad, bad homogeneously heterodox guys ammunition:
"Yes it is unfair, and yes it is wide of the mark in places, but it will not be ignored by those outside mainstream macro. This is partly because he discusses issues on which modern macro is extremely vulnerable."Washing dirty laundry in public? Unforgivable.
"Being angry at RBC and New Classicals (angriness?) does not provide a clear path for macroeconomics."Surprising? I guess he didn't read Wren-Lewis. Personally, I suspect Romer's snarky tone did not appeal to Vernengo (hence, his "angriness" remark).
Marxist (therefore, heterodox) David Ruccio ("Phlogiston, the Identification Problem, and the State of Macroeconomics", September 19) seems more sympathetic: he goes more into the substance of Romer's paper than into its style. In his reading, "Romer’s particular concern is with the 'identification problem,' which in econometrics has to do with being able to solve for unique values of the parameters of a model" and illustrates with a supply-and-demand model of a market (I might develop that: it seems like a cool idea for a post).
Although only Ruccio mentioned explicitly the problem of unmeasurability ("The issue with phlogiston is that it can't be directly measured. Nor, as it turns out, can many of the other effects invoked by mainstream economists."), a careful reading of Vernengo's post suggests he, too, finds that important:
"He [Romer] clearly notes that Real Business Cycle (RBC) models including in the synthesis version with New Keynesian models, the Dynamic Stochastic General Equilibrium (DSGE) models he discusses, use productivity shocks as something akin to phlogiston. He's not wrong."Too bad the heterodox gave the issue of unmeasurability and unobservability so little relevance.
Good ammunition, freely given, largely laid to waste.
Why? In part that may be because macroeconomists (particularly those of the Keynesian persuasion) tend to perceive microeconomic issues as an afterthought.
Obviously, among the general commentariat there were other opinions: here (give me a break), here, and here. Enjoy.
I was about to press the "Publish" button, when I learned of "All Models are False: The Internet/Computer Explanation of Major Recessions", September 24):
"I used to ask the New Classical crowd what the great negative real shock was during the early 1980's. The massive real appreciation of the dollar may have lowered net export demand but that was one of those Keynesian things."Ah! The problem with unmeasurable and unobservable exogenous supply shocks as explanations of major recessions only affects the "New Classical crowd". Unmeasurable and unobservable exogenous demand shocks as explanations of major recessions ("one of those Keynesian things") are perfectly legit (?!)
Romer comments on his commentators: "Trouble with Macroeconomics, Update" (September 21).