Following this post, I’ve been reading the blogs of quite a few heterodox economists. There is a lot that I have read which is challenging, and which has made me think about things in different (for me) ways, which is good. But there is also lots of stuff that seems less helpful, which when it is repeated over and over becomes (for me) somewhat annoying.
Stuff like we cannot possibly take microfounded macro seriously, because it is based on an all-embracing representative actor equipped with superhuman knowledge and forecasting abilities. To which I feel like shouting – where else do you start? I always say to PhD students, start simple, understand the simple model, and then complicate. So we start with a representative agent. What else could we do? We could start with aggregate relationships, but unless these are purely statistical, they will almost certainly appeal to theory about what individuals do.Read it at mainly macro
What about superhuman knowledge and forecasting abilities? That seems like an extreme position. But the alternative is to assume we know what kind of mistakes agents will make. Where does this knowledge come from? I’m sure different agents are using different models from the one I’m using, but I have no idea what these models are. To keep things simple, I therefore assume I do not know what mistakes they will make, which implies rational expectations. If I want to be more realistic, I can look at the huge mainstream literature on models of learning. It is not a field I know well, but if there is a message there that we should go back to assuming adaptive expectations, I have missed it.
The heterodox versus the superhuman representative agent
by Simon Wren-Lewis | Professor, Oxford University
Here's your chance, folks. There are already some good comments. Ramanan's comment appears to be spot on, but Wren-Lewis has ignored it so far, although he has responded to others. It seems that this is not the way he thinks.
Hopefully, at least one of the MMT economists will take up the challenge in a blog post and address Wren-Lewis specifically. This is getting legs in the blogosphere.