Saturday, June 14, 2014

Macroeconomists and "skin in the game"

Noah Smith has reviewed Big Ideas in Macroeconomics. My review is here. An interesting argument from Smith:

Athreya also fails to deal with another reason for outside criticism - the need for "skin in the game" when it comes to policy advice. Macroeconomists are usually well-off people with good job skills, often with tenure, who won't really suffer if they give the government bad advice for dealing with recessions and inflations. . . . That means politicians need to be skeptical of academic macro.

This is an interesting rule of thumb. My first thought was that almost nobody who gives policy advice is ever forced to fully internalize the effects of their policies--macro or microeconomists, social scientists generally, probably most of the macro "outsiders" Smith describes, and even the politicians making the policies never really bear any serious costs. Macroeconomists are not unique in this respect. My second thought was that there is a large body of policy advisers who do have skin in the game: rent-seeking businesses and others that just want policy to funnel cash and prizes their way.

So I think it's a dilemma.

Smith makes this argument in service of the notion that non-macroeconomists play a useful role in alerting policymakers to the shortcomings of macro. That is a good point; though I will say that this doesn't solve the problem of outsiders sometimes being utterly confused (yet confident nonetheless) about the macro practices they criticize.

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