Macroeconomic Policy as an Epistemic Problem

Journal of Public Finance and Public Choice

GMU Working Paper in Economics No. 22-37

30 Pages Posted: 19 Aug 2022 Last revised: 21 Nov 2022

See all articles by Aris Trantidis

Aris Trantidis

University of Lincoln (UK) - School of Social Sciences

Peter J. Boettke

George Mason University - Department of Economics; Mercatus Center at George Mason University

Date Written: August 13, 2022

Abstract

Mainstream macroeconomic theory understands the economy as a phenomenon tractable by analysis adequately enough to be manageable by macroeconomic policy guided by this analysis. We explore why this epistemological approach of the economy has remained dominant in mainstream economics despite recurrent policy failures, contradictory theories and inconclusive revisions of both theories and policies. We identify a relationship of ‘epistemic entanglement’ between economics as a discipline and policymaking that has consolidated a reductionist analysis of the economy as well as the subsequent expectation for clear prescriptions on how policymakers can effectively steer the economy in a desired direction. We argue that this reductionist analysis misrepresents the micro-macro relationship, and it is responsible for recurrent patterns of both economists and policymakers overlooking diverse and intractable micro-adaptations to policy interventions that tend to result in undesired, unforeseen and unintended consequences over time. As such, this entangled relationship has contributed to macroeconomic instability.

Keywords: macroeconomic policy, macroeconomics, macroeconomic theory, methodology of economics, monetarism, Keynesianism, Hayek, heterodox economics

JEL Classification: A11, A14, B22, B40, D01, E00, E14, E52, E61, E65, E71

Suggested Citation

Trantidis, Aris and Boettke, Peter J. and Boettke, Peter J., Macroeconomic Policy as an Epistemic Problem (August 13, 2022). Journal of Public Finance and Public Choice, GMU Working Paper in Economics No. 22-37, Available at SSRN: https://ssrn.com/abstract=4189574

Aris Trantidis (Contact Author)

University of Lincoln (UK) - School of Social Sciences ( email )

Lincoln
United Kingdom

Peter J. Boettke

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1149 (Phone)
703-993-1133 (Fax)

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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