The Struggle for the Soul of Economics

Center for the History of Political Economy at Duke University Working Paper Series

23 Pages Posted: 27 Apr 2021 Last revised: 12 May 2021

See all articles by Kevin D. Hoover

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Date Written: April 26, 2021

Abstract

Macroeconomics faced substantial internal and external criticism related to the 2007-09 financial crisis. Much of it was based on the unsustainable idea that its goal could or should be unconditional forecasting of business cycles. Critics specially singled out dynamic, stochastic general-equilibrium (DSGE) models, and called for various fundamental re-orientations of the field. Predictably, the critic’s proposals have not won the day. Critics exaggerated the role of DSGE models in actual policymaking, and their advocates developed the models to address some of the issues raised by the crisis. But DSGE modelers oversold its success, with some prominent advocates having argued that it is the sine qua non of successful macroeconomics. They revive an old controversy in economics between those who prioritize a priori theory and those who prioritize empirical data – a controversy classically exemplified in the Measurement without Theory Debate of the 1940s between the Cowles Commission and the National Bureau of Economic Research. That debate is reviewed for its implications for the recent controversy. In adopting the Cowles Commission position, some DSGE modelers would essentially straight-jacket macroeconomics and undermine economic science and the pursuit of knowledge in an open-minded, yet critical framework. Some alternative approaches are noted.

Keywords: DSGE model, Measurement without Theory Controversy, 2007-09 financial crisis, National Bureau of Economic Research (NBER), Cowles Commission, Marshallian economics

JEL Classification: B3, B4, E1, E3, E6

Suggested Citation

Hoover, Kevin D., The Struggle for the Soul of Economics (April 26, 2021). Center for the History of Political Economy at Duke University Working Paper Series, Available at SSRN: https://ssrn.com/abstract=3834482 or http://dx.doi.org/10.2139/ssrn.3834482

Kevin D. Hoover (Contact Author)

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
238
rank
402,783
PlumX Metrics