Do policymakers listen to macroeconomists?
Ex Macroeconomist Noah Smith argues that it is a good thing that there are professional macroeconomists. He has two arguments
So does this mean that macro research is useless for policymaking? No! Not at all!! Because here’s an interesting thing about policymaking: No matter who advises the policymakers, policy is going to get made. That includes economic policy. So if there were no academic and Fed macroeconomists around to advise policymakers, who would policymakers listen to on economic matters?
My guess: Some very dangerous people.
2) useful things have been learned from empirical macro including stuff you see with half an hour of FREDing and “slightly less than half of people seem to be “hand-to-mouth” consumers who don’t obey the Permanent Income Hypothesis.”
My rude comments:
1) A world without macroeconomists wouldn’t be a world without economists who talk to journalists about the macroeconomy. The risk is that the voice of the economics profession will be trade theorists, economic historians, behavioral economists and finance economists such as Krugman, DeLong, C Romer, Goolsbee, Fama and Cochrane (note ex macroeconomist Smith decided to go into finance).
I actually think that macroeconomists have very little influence on macroeconomics as perceived by policy makers and the public. Summers is influential. He is also a total heretic (he didn’t leave the field, the field left him). Blanchard and Woodford are influential macroeconomists and reasonable people.
The world has chosen not to benefit from the insights of the most influential academic macroeconomists Robert Lucas and Edward Prescott. I don’t think you think this is a bad thing.
2) On consumption and the PIH the data suggest that somewhat less than half of consumption is by hand to mouth consumers. They don’t suggest anything about the rest. The rest of fluctuations in consumption can’t be predicted by predicting current GDP. Also radioactive decay can’t be predicted by predicting current GDP. The PIH is not a good theory of radiactive decay.
The (representative agent with an additively separable utility function and no liquidity constraint version of the PIH) glass is not much more than half full. I am not aware of evidence that it isn’t empty.
“The rest of fluctuations in consumption can’t be predicted by predicting current GDP.”
Reading Dean Baker has lead me to believe that fluctuations in savings rates can be predicted by predicting wealth. Given that real purchases are driven by self-assessment rather than research data and that we have a financial industry that encourages upward biased self-assessments, I can see where it would be hard to tell how big the glass is. Still, for the large number of Americans whose spending decisions really are discretionary, PIH does seem to fit.
William Black has a post over at New Economic Perspectives where the policymakers are lawyers not listening:
But America has its own variant of this insanity and Lew is one of our most self-destructive austerians. Like Schäuble, Lew is a lawyer. As Obama’s OMB Director, Lew prepared a budget and a rationale for that budget that was an ode to austerity. I demonstrated this in detail in a prior column.
Lew was also one the group of Obama aides noted for their protection of Wall Street’s interests who led the effort to inflict austerity and begin to unravel the safety net through what they called the “Grand Bargain” (actually, the Great Betrayal).
Obama’s decision to send Lew, the great proponent of self-destructive austerity, to Europe to urge them to end their self-destructive austerity exemplifies the incoherence of the administration’s financial policies. The fact that Obama is simultaneously proposing the Great Betrayal – its sixth form of austerity that Obama has agreed to inflict on our Nation since 2011 – produces a level of incoherence, incompetence, and hypocrisy so epic that it is likely to cause economists to act like manic depressives bouncing between wild-eyed gales of laughter and crying jags.
Putting two lawyers together to discuss macroeconomic policy also leads to discussions that cause economists’ jaws to drop in shock. If you understand economics you may wish to put on a neck brace before reading the next passage lest its incoherence cause whiplash.
“Standing next to Mr. Schäuble, Mr. Lew said pointedly that deficit reduction needed to be balanced with growth and investment policies. While growth targets may be different for different countries, he said, ‘I think it is fair to say that zero isn’t a good target for anybody and negative is very bad.’”
incoherence for sure. even i have noticed it.
but as for the original question: “do policy makers listen to macroeconomists?”
the answer is no. policy makers make policy that is favored by their friends. “macroeconomics” is the rationalizations for that policy. just “reasonable” enough to satisfy the people, the press, and businessmen who don’t rely on macroeconomics when they are thinking about making money.