"System change is now inevitable. Either because we do something about it, or because we will be hit by climate change. '...

"We need to develop economic models that are fit for purpose. The current economic frameworks, the ones that dominate our governments, these frameworks... the current economic frameworks, the neoclassical, the market frameworks, can deal with small changes. It can tell you the difference, if a sock company puts up the price of socks, what the demand for socks will be. It cannot tell you about the sorts of system level changes we are talking about here. We would not use an understanding of laminar flow in fluid dynamics to understand turbulent flow. So why is it we are using marginal economics, small incremental change economics, to understand system level changes?"

Friday, September 4, 2009

The State of "The State of Macro is Not Good"

The state of "the state of macro is not good" is not good.

In a lengthy article, Paul Krugman bemoans the collapse of macroeconomic intellectual underpinnings. This is a guy with a "Nobel" prize in economics! So now when I say so, I have some authority I can point to.

Yet, despite a brief nod to "externalities" at the beginning of his essay, Krugman says nothing about the phase change of the human population, the transition from an essentially infinite planet to an essentially finite one, nothing about nature, nothing about the environment, nothing about intergenerational or international equity. It's all about the theory failing, and nothing at all about the theory paying no attention to salient facts. It doesn't leave much room for optimism regarding the next theory.

Update Sep 5: Joe Romm was more favorable to Krugman and had more to say, but considerable discussion of the very issue I raise here is going on at Climate Progress. Comments here are closed. Please direct your comments to Climate Progress.


David B. Benson said...

MT --- I suggest an e-mail to Krugman pointing out your objections to macro-economics failling to take physical relatity into account.

Victor Eijkhout said...

That reminds me of something (now unfindable) I read a while ago, of an economics text book writer. He was trying to get a figure in his book showing that the box "economical system" (or whatever) not only has an in and out arrow, but a bounding box labeled "environment". There was some earlier illustration, where the arrows came and went out of nothing.

The publisher entirely didn't get it and no useful illustration resulted.

Sorry, google is of no help here.

Marion Delgado said...

Very good, Michael. I'll say no more.

Michael Tobis said...

David, I have sent such email in the past; recently I even asked Revkin to ask Krugman about it. And ThingsBreak has been relentlessly peppering Krugmanite economist Brad DeLong about it.

Need I say "Bupkis", or is it obvious?