PAUL ROMER made his name modelling the production of knowledge and the growth of economies. Now the World Bank’s chief economist, his latest, unusual, contribution to economics includes a “meta-model” of himself. “For more than three decades,” he alleges, “macroeconomics has gone backwards.” Why, his meta-model asks, is he one of the few willing to say so?
What Mr Romer says is unusually brutal. After over 30 years of “intellectual regress”, the study of booms and busts now reminds him of a lipstick-wearing pig or an obsolete scientific embarrassment like the phlogiston theory of fire. The field is dominated by a tight-knit congregation, he argues, unified by deference to authority, not facts. Their revered leaders rely on high-handed assumptions to make their models work. But they do not admit to these inadequacies, pretending their naked assumptions are clothed in fine theoretical robes.
One illustration is their answer to an old scientific problem: identification. This problem besets even the simplest blackboard model of demand and supply, represented in textbooks by two intersecting diagonal lines, one sloping upwards…Continue reading