Will the real “economics” please stand up.

I enjoy an online magazine called “evonomics| The Next Evolution of Economics”. A recent article, “Five Ways to Build a New Macroeconomics” caught my eye so I started reading. I hoped the article would help me understand the news broadcasts I hear when they announce that “the economy” is going to the dogs. Immediately, I was in trouble. I took first semester economics in college (in 1963). It was about “microeconomics”. This article is about “macroeconomics” but I can’t remember the difference. So, of course, I looked it up online…

Microeconomics vs. Macroeconomics: An Overview
Economics is divided into two categories: microeconomics and macroeconomics. Microeconomics is the study of individuals and business decisions, while macroeconomics looks at the decisions of countries and governments.”

Credit: Satish Panday, studied Economics at Pannalal Girdharlal Dayanand Anglo Vedic, University of Delhi (2013)

OK, so Micro = individuals, businesses and Macro = countries and governments. But some businesses have annual budgets many times larger than some national governments. What’s “micro” about them? How do individual financial decisions, like whether I help a young African refugee get a PhD in psychology from a US university, relate to his adopted government’s refusal to provide him with even an elementary school education. Maybe some big, multinational corporation has a scholarship program he can tap into. This is the kind of question that connects individual economic considerations to businesses and to governments. Macro and Micro doesn’t help.

But no, the rest of the article laments the state of economic theory as taught in graduate schools around the world. The author goes on to opine:

“To be sure, there was always a gulf between macroeconomic theory and practical policymaking. But at one time, this could be papered over by a kind of folk wisdom — low unemployment leads to inflation, public deficits lead to higher interest rates, etc. — that both sides could accept. Under the pressure of the extraordinary developments of the past dozen years, the policy conversation has largely abandoned this folk wisdom — which, from my point of view, is real progress. At some point, I think, academic economics will recognize that it has lost contact with the policy conversation, and make a jump to catch up. “

While this perspective may be “real progress”, it doesn’t help me interpret the news or decide how to spend my money. I long for some very down-to-earth discussions of the mysterious “economy” I keep hearing about and I shudder to think that the legislators I help elect have no better advisors than the holders of doctorate degrees based on academic theories in complete disarray. We really do need to “build a new macroeconomics” and, apparently, some new university departments of economics.

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