What’s Right with Macroeconomics?

What’s Right with Macroeconomics?

The Cournot Centre series

Edited by Robert M. Solow and Jean-Philippe Touffut

Global crises are very rare events. After the Great Depression and the Great Stagflation, new macroeconomic paradigms associated with a new policy regime emerged. This book addresses how some macroeconomic ideas have failed, and examines which theories researchers should preserve and develop. It questions how the field of economics – still reeling from the global financial crisis initiated in the summer of 2007 – will respond.

Introduction: passing the smell test

Robert M. Solow and Jean- Philippe Touffut

Subjects: economics and finance, methodology of economics


What is the relevance of macroeconomics today? The crisis that has been raging since 2007 has spread to economic theories, and it might seem that it is no longer possible to do macroeconomics as before. But what version of macroeconomics was at fault here? Macroeconomic questions have not really changed: they examine growth and fluctuations of the broad national aggregates (national income, employment, inflation, investment, consumer spending or international trade). How are these fundamental aggregates determined, and how differently should we think about them? The economic world is too complex to be thought about ‘raw’, so the use of a model to answer these questions helps make deductions and justify conclusions. It is easier, then, to perceive what beliefs they have been based on, and to challenge them. Economic concepts are not built to be put on a computer and run. It is thus all the more important to point out fragility or recklessness wherever it appears. If intuition does not suffice to reject the hypothesis and reasoning, then experimentation must confirm our instincts: does it pass the smell test?