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.

Chapter 7: The economics of the laboratory mouse: where do we go from here?

Xavier Ragot

Subjects: economics and finance, methodology of economics

Extract

Very few economists foresaw the economic and financial crisis that broke out in 2007 and which has turned into the deepest world recession since 1929. Even worse, the field of economics may have prevented observers from perceiving the first movements – the steady accumulation of economic and financial fragility – of this extremely grave turbulence. It is thus time to reassess the usefulness of current economic theory, but how far should we go? How should a researcher in economics approach the subject if he has come to perceive his work as being much like that of a laboratory mouse? How can he advance his discipline, and therefore the understanding of economics? And once the experimenters outside the cage have placed the cheese, in which direction should he then search? What needs to be changed in the research process of the discipline of economics? The purpose of this chapter is primarily to identify what exactly needs to be reconsidered in economics. The task consists in addressing the problem for numerous rival research programmes: the exploration of the role of rationality, financial imperfections and their nature, the importance of comparison to the data, and so on. Beyond this diversity, we must seek the principles of common methods to define the mainstream in economics. The question we then face is this: can the reform of economic thought be achieved through modifying the dominant approach, or do we have to search much farther afield?

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