Tuesday, February 8, 2011

We can ask macro questions with micro tools

Scott Sumner says that economists can't do that, but  economic micro agents do it all the time, that is why we call it an economy.  Scott Sumner really means, current economists don't know how the economy works, he is partially right.  But if Micro agents are not  computing the Macro solution, there how in the hell does NDGP growth theory have any substance?

In particular, can we predict what Congress will do with the money they get from the Fed buying Treasury bonds on the run?  For good or bad, Congress is doing something with the money, they are micro agents, and they publicly say things like:  "Here is what we decided to do with the money"  The  Micro people can get a good estimate of the redistribution of output, and from there construct construct the Macro variables, from the short end to the long end.  Economists may not know how to do that, but many other scientiests can and do do that.  I have cites bottom to top estimates of city growth, I have cited network computations, I have shown what a generalized yield curve looks like when constructed bottom to top.

I go further and make the claim that uncertainty going from micro to macro is no worse than uncertainty going from macro to mico.  Within six months to a year economists will have the reversible funcion Micro <-> Macro, and many of them cited on this web site, like Levine.

No comments: