The econ twittersphere has erupted in response to a provocative (but very blog-like) essay by the great Paul Romer, published in the Papers & Proceedings at AER. Romer is annoyed that certain old freshwater econ guys use math in an annoying way. Romer follows up here; Tony Yates has some thoughts here. Noah Smith, always up for a good bashing of said old guys, opines here, making the same points he usually makes (to wit: those silly freshwater guys just build models in which government can't be good, physicists and engineers have physics and engineering models that perform better empirically, here are some examples of silly things predicted by some DSGE models, etc.).
In recent years, guys like Noah have made very clear that they don't like bare bones RBC and that they don't like certain old guys in macroeconomics. But during these years, while the blogosphere has obsessed over this stuff, macroeconomists have been doing a ton of interesting work for which the blog debate is an uninteresting sideshow.
I've said this before and I will say it again: Whatever one might think of the contributions of the certain old guys to macroeconomics, the field has moved lightyears beyond that stuff. Nobody is using bare-bones RBC. The "freshwater vs saltwater" distinction is a redundant taxonomy--as best I can tell, it's really about Calvo pricing vs. flexible price models, while the sticky price assumption is just one of hundreds of ways that people add frictions to the RBC model. If you use the water-based terms instead of just describing specific frictions, you're just facilitating mood affiliation.
Few, if any, of the people writing models with flexible prices (but other frictions) would say that nominal frictions don't matter. It's just that nominal stickiness is one among many ways in which the real world deviates from bare-bones RBC, and every model must assume away something, and sometimes nominal stickiness is that something for good reason (meanwhile, a lot of good Calvo pricing papers ignore important financial sector frictions, not to mention heterogeneity and tons of other stuff, and that's ok). Sure, you can always find an absurd element of any model, as Noah does with relish in his post. But we're stuck with a world in which no model can explain everything, and in any case a paper that's good at some things and bad at others is an opportunity for another paper that's good at a few more things and bad at slightly fewer things. That's the nature of the discipline. It will always be easy to make the discipline look silly to outsiders who haven't confronted the magnitude of the problems we face.
Let me also say this: if there is anyone out there who criticizes the absurd oversimplification that is the representative agent model* but also criticizes mathiness, here's a newsflash: deviations from rep agent require hard math and/or nasty computation. The Mian and Sufi critique requires models in which agents differ at least along a wealth distribution. The Geanakoplos stuff requires hard math. So be careful how you use the term "mathiness" (I think Romer is using it in a reasonably precise way, and a lot of people are misinterpreting him and using it too broadly). More realistic models are going to require harder math, though I agree completely with both Romer and Roger Farmer that adding more math isn't always productive.
So while the blogosphere keeps restating 1970s fights, practicing macroeconomists are doing a lot of really interesting research that makes the freshwater/saltwater taxonomy irrelevant or at least useless. Bashing caricatures of the economics profession is a great way to get followers and sell books, but it doesn't advance the discipline.
*I actually think rep agent is remarkably useful, particularly compared to how much it costs.![]()
In recent years, guys like Noah have made very clear that they don't like bare bones RBC and that they don't like certain old guys in macroeconomics. But during these years, while the blogosphere has obsessed over this stuff, macroeconomists have been doing a ton of interesting work for which the blog debate is an uninteresting sideshow.
I've said this before and I will say it again: Whatever one might think of the contributions of the certain old guys to macroeconomics, the field has moved lightyears beyond that stuff. Nobody is using bare-bones RBC. The "freshwater vs saltwater" distinction is a redundant taxonomy--as best I can tell, it's really about Calvo pricing vs. flexible price models, while the sticky price assumption is just one of hundreds of ways that people add frictions to the RBC model. If you use the water-based terms instead of just describing specific frictions, you're just facilitating mood affiliation.
Few, if any, of the people writing models with flexible prices (but other frictions) would say that nominal frictions don't matter. It's just that nominal stickiness is one among many ways in which the real world deviates from bare-bones RBC, and every model must assume away something, and sometimes nominal stickiness is that something for good reason (meanwhile, a lot of good Calvo pricing papers ignore important financial sector frictions, not to mention heterogeneity and tons of other stuff, and that's ok). Sure, you can always find an absurd element of any model, as Noah does with relish in his post. But we're stuck with a world in which no model can explain everything, and in any case a paper that's good at some things and bad at others is an opportunity for another paper that's good at a few more things and bad at slightly fewer things. That's the nature of the discipline. It will always be easy to make the discipline look silly to outsiders who haven't confronted the magnitude of the problems we face.
Let me also say this: if there is anyone out there who criticizes the absurd oversimplification that is the representative agent model* but also criticizes mathiness, here's a newsflash: deviations from rep agent require hard math and/or nasty computation. The Mian and Sufi critique requires models in which agents differ at least along a wealth distribution. The Geanakoplos stuff requires hard math. So be careful how you use the term "mathiness" (I think Romer is using it in a reasonably precise way, and a lot of people are misinterpreting him and using it too broadly). More realistic models are going to require harder math, though I agree completely with both Romer and Roger Farmer that adding more math isn't always productive.
So while the blogosphere keeps restating 1970s fights, practicing macroeconomists are doing a lot of really interesting research that makes the freshwater/saltwater taxonomy irrelevant or at least useless. Bashing caricatures of the economics profession is a great way to get followers and sell books, but it doesn't advance the discipline.
*I actually think rep agent is remarkably useful, particularly compared to how much it costs.