I last heard of Richmond Fed macroeconomist Kartik Athreya about four years ago, when he wrote a screed attacking econ bloggers and rebuking people who read them (see reactions by Tyler Cowen, Scott Sumner, Matt Yglesias, Ryan Avent, and Brad DeLong). Macro is hard, Athreya said, and lay people should stop trying to understand it and leave things to the experts.
Now I see that Athreya, reprising his role as evangelist, has bowed to the inevitable reality that normal people want to understand something about macro. In an effort to oblige them, Athreya has written a book called Big Ideas in Macroeconomics, in which he attempts to explain modern macro theory to the lay public. I predict that very few people, even among the econ blog audience, will actually read the book. On the upside, that fact will probably annoy Athreya himself (hehehe, revenge, hehe). But on the downside, it sounds like a really interesting book, and I think if people read it, they would have a much better understanding of what macroeconomists do these days.
I myself have not yet read the book, but David Glasner and John Quiggin have, so I'll be lazy and free-ride off of their effort. Apparently, Athreya discusses general equilibrium theory and a little game theory, and then goes into some of the modern macro models that incorporate these things. Interestingly, he apparently ignores models that bear on policy questions. Glasner writes:
The index [of the book] contains not a single entry on the price level, inflation, deflation, money, interest, total output, employment or unemployment. Which is not to say that none of those concepts are ever mentioned or discussed, just that they are not treated, as they are in traditional macroeconomics books, as the principal objects of macroeconomic inquiry. The conduct of monetary or fiscal policy to achieve some explicit macroeconomic objective is never discussed. In contrast, there are repeated references to Walrasian equilibrium, the Arrow-Debreu-McKenzie model, the Radner model, Nash-equilibria, Pareto optimality, the first and second Welfare theorems.So what is Athreya doing here? I see two possibilities, which are not mutually exclusive.
Possibility 1: Athreya is trying to balance out the public discussion of macro. He knows that a lot of lay people and bloggers already talk about Keynes and Friedman, monetary policy and fiscal policy. His intent was to write a book about all the other macro stuff that the public doesn't know about - general equilibrium and game theory, incomplete markets and search frictions, and so on.
Possibility 2: Athreya just
I don't know Athreya, but my intuition is that whether Possibility 1 is true or not, Possibility 2 is true - Athreya seems to be in love with modern macro methodology. If he were just trying to balance out the public discussion, he would probably have been more explicit about that goal. Also, the fact that he doesn't seem to talk much about evidence is telling. "Big ideas" apparently doesn't mean ideas that are successful in explaining the data, it means ideas that are neato and cool.
Actually I think you see a decent amount of this attitude in the macro field - although some macroeconomists just use whatever methods they have to in order to explore their favorite ideas about the world, a large chunk seem genuinely in love with the DSGE modeling methodology itself (which we really shouldn't even be calling "DSGE" now that it includes game theory too).
I have always wondered why they love it so much.
Paul Krugman once wrote that macroeconomists are entranced by the "beauty" of their methods. But modern macro models aren't "elegant" in the physics sense. In physics, "elegant" means that you reduced something complicated to something really simple-looking. Modern macro models are more like Rube Goldberg machines full of delicately arranged moving parts. You usually have to solve them numerically. So maybe "beauty" is about complexity rather than elegance? After all, Rube Goldberg machines are beautiful, in their own way. Maybe the appeal of modern macro models is the amazement of having all of these moving parts and yet actually getting something halfway intelligible out of it all?
Or perhaps macroeconomists love the modern models because they're mentally exhilarating? Athreya's 2010 essay seemed to take great pride in how "hard" macro theory is. And I guess it is a little bit hard. It's harder than writing a blog, for sure. It's harder than the macro of days gone by. But as modern theoretical economics goes, it doesn't seem that hard. I'm pretty sure it's not as hard as game theory, decision theory, theoretical econometrics, or quantitative finance theory. If there are people who think that making DSGE models makes them badass math jocks, who are they comparing themselves to?
Or is it the fact that so many people criticize macro? Maybe the torrent of criticism - from the recession-hit public, from annoying bloggers, from certain other economists, even from some within the profession - creates a "circle the wagons" effect, like a culture of patriotism in a country under perpetual siege. Perhaps the simple fact that it's "our methodology" is enough to make it the object of love. It's true that macro methodology is unlike any other theoretical paradigm I've ever seen, so maybe its uniqueness interacts with the patriotism to produce a sense of pride.
Or maybe it's the subject matter that's intoxicating? A game theorist gets to say "Wow, I just figured out how people would interact in an infinitely repeated Prisoners' Dilemma!" Neat, but maybe not as neat as the macroeconomist, who gets to say "Hey, I just modeled the whole economy!"
Anyway, it's a mystery. If any macroeconomists can help explain the intoxicating allure of their modeling paradigm, I'd appreciate it.
An email exchange with Steve Williamson made me realize that I said something that was much meaner (and more of a stretch) than what I meant to say. I issued an update above.
Just to be clear, this post is not criticizing Athreya's book. It sounds interesting, I'm going to read it, and I think you should definitely read it if you're interested in macroeconomics and don't already know all the stuff.
Other interesting hypotheses I've heard advanced for why people love macro methods:
1) Modern macro feels very new and "cutting edge" or "up-and-coming" to some people. (This makes sense to me, because macro had a very recent paradigm shift, back in the 80s.)
2) DSGE-type models may not be mathematically hard in an absolute sense, but they give people who come from non-math backgrounds a chance to do something harder and more technical and more imaginative than they ever did before, and thus feels empowering and liberating. (This also makes sense; I've definitely seen grad students gain mathematical confidence from doing DSGE models for the first time.)
Also, definitely read Costas Alexandrakis' thoughts on the culture of macro, in the comments. Also see Kurt Mitman, a young DSGE devotee, on why he loves it.
Here is a review of Athreya's book by Herb Gintis.
Steve Williamson is mad that I talked about Athreya's book without reading it, calling it "disgusting" that I would try to psychoanalyze Athreya without even reading what he wrote. But Steve needs to chill out. My main claim was that Athreya really loves modern macro methods. I don't see Steve contradicting that claim. But even if I was wrong about Athreya, my main observation - that there are a lot of people who looove modern macro methods a lot - doesn't really need Athreya as an example. Steve himself is a great example. The Athreya reviews by Glasner and Quiggin just got me thinking about macro-method-love. And I certainly was not criticizing Athreya's book; in fact, I recommended that everyone go read it. So calm down, Steve.
Steve also suggests that people actually read Athreya's research, and this I have done - well, a couple of his working papers, anyway. The stuff I've read is actually not very "macro-y" - it's pretty simple and intuitive theory about how credit markets work. In fact it seems more like the kind of thing Ricardo Caballero suggested macroeconomists work on, back in 2010.
Robert Vienneau read much of the book, and confirms that it's about history of methodology rather than history of ideas.
Chris House wonders which methods I'm talking about specifically, but then pretty much answers his own question:
Perhaps it is the conjunction of so many common elements that he associates with DSGE models. For instance, there is a good deal of “boilerplate” which shows up in DSGE models (the representative agent, the production function, the capital accumulation equation, and so on).The method macro people seem to love most is general equilibrium itself. Almost anything with general equilibrium in it can probably now be labeled a "macro model" without anyone complaining. "Micro theory" people (often simply called "theory" people or "pure theory" people) occasionally use GE, but seem to have mostly lost enthusiasm for it. Interestingly, GE itself might be losing its total dominance in macro, as game theory is creeping in via wage bargaining in labor search models. But anyway, in general, Chris is right - DSGE "boilerplate" is really a conjunction of common "boilerplate" elements that people seem very attached to.