A home for economists who believe macroeconomics can be both coherent and stabilization-policy relevant
The GEM website is a home for economists who believe that mainstream macroeconomics cannot usefully explain the costly instability that periodically rocks modern economies.
In particular, consensus thinking failed to guide policymakers' efforts to deal with the enormous welfare costs of the 2007-09 Great Recession – especially six million involuntarily lost jobs.
That failure is not surprising. Forced unemployment is beyond the reach of coherent market-centric theory that today dominates macro research.
The GEM Project offers an alternative approach that intuitively explains instability while maintaining both coherence and stabilization-relevance. In its central innovation, the Project generalizes rational exchange from the marketplace to the large-firm workplace, crucially microfounding meaningful wage rigidities – the key to policy-useful modeling.
Generalization of price-mediated exchange is offered as the next big idea in macroeconomics. We invite economists dissatisfied with the stabilization-policy limitations of mainstream theory to join us in constructing a better model.
The interactive GEM website provides a variety of ways to contribute:
Toward the end of his extraordinary career, Richard Feynman, the theoretical physicist who solved some of the toughest problems associated with understanding elementary particles, offered some advice on how to do scientific research: “The scientist analyzes something like a detective does. Like a detective trying to find out what happened when he wasn’t there, given clues. We are trying to figure out what nature is like from clues given by experiments. We have the clues and we try to figure it out. It is more analogous to detective work than anything else.” (Mlodinow (2003), p.42)
Macro theorists like to think of themselves as scientists, engaged in proper scientific research. For most problems, while unable to conduct controlled experiments, they are provided plentiful clues from the broad array of evidence that has been, for an extended period, systematically gathered on the behavior of the economy. Unlike scientific research, however, modern practice in mainstream macroeconomics permits analysts to pick and choose which facts to recognize. Chari et al. (2009, p.243) are illustrative, arguing that macro theorists properly “put up with the reality that no model can, or should, fit most aspects of the data.” That loose standard of behavior allows many clues to be suppressed because they contradict consensus theory. That deeply flawed Ptolemaic approach, a crucial subject the GEM Blog returns to periodically, falsifies mainstream macro theorists’ self-description as scientists.
The list of important, widely-known facts that modern mainstream macro scholars, even as they seek policy relevance, simply disregard is frightening. First and foremost of course is involuntary job loss, the rational existence of which requires derivation of meaningful wage rigidity. Macro researchers, constructing general-market-equilibrium models of employment instability that are inherently unable to accommodate MWR, must ignore the most important characteristic of actual fluctuations. As noted last week, Robert Lucas instructed his colleagues in the New Classical revolution that, given that forced job separation cannot be accommodated by neoclassical modeling, it should be simply set aside: “Involuntary...