The Major Blind Spots in Macroeconomics is an article written by John Lanchester criticizing those individuals who thought that Brexit would have adverse impacts on Britain and the rest of the world only to be proven wrong. The author has mentioned names of the key organizations such as the International Monetary Fund and the Bank of England who believed that Brexit would cause an increase in unemployment levels and a contraction in GDP. He says that many people expected a sudden economic downturn after Brexit. On the contrary, United Kingdom witness growth in the economy after voting out of the European Union. However, the author explains that Brexit has not occurred yet and his thoughts are in line with doomsayers ideas who argue that the effects of Brexit have not been felt yet. Lanchester also talks about Andy Haldane who is the principal economist for the Bank of England. He says that Haldane also agrees that the effects of Brexit are yet to be felt. According to the author, this is not the first time Andy Haldane has criticized the state of macroeconomics. He says that Haldane during the last fall gave a critical and extensive speech which he argued that the sudden global downturn which started in late 2007 has left a huge crisis in finance and economic profession.
The author believes that this global downturn poses a lot of intellectual crisis for macroeconomics. This is because this field was initially developed to prevent this kind of severe downturn from happening. So does this mean that macroeconomics as a field of economics has failed to address some of these global issues? Well, for us to answer this question we will have to examine the role of macroeconomists. The work of macroeconomists is major to create models which explain the associations between multiple components such as investments, savings, inflation, consumption, national income, and international finance and trade. In general, these models determine the behavior, performance, and the structure of the whole economy. The fact that we are witnessing global downturns and economic crisis means that macroeconomists are not doing their job properly (Lanchester, 2017). This is because macroeconomics was primarily developed to prevent any occurrences which may threaten the state of the economy.
According to Lanchester, the Great Recession and the credit crunch were an intellectual disaster for macroeconomics. He also adds that the failure to predict and avoid crisis was based on conceptual faults. The author explains that Haldane in his speech argued that there is a need for macroeconomics to borrow some ideas from both the social and natural sciences to get a different view on system dynamics and individual behavior. Haldane continues to say that the macroeconomics profession has become a methodological monoculture since it has borrowed little from other fields. In fact, he explains that most economists believe that they have nothing to learn from other fields and that economics is a self-referential discipline. In my opinion, Haldane is right to some point. Indeed, many economists are always reluctant to borrow knowledge from other disciplines. And this is not a good practice at all since if we depend on a single discipline, we would not be able to determine the existing associations between economics and other fields. Haldane also thinks that that macroeconomics field is suffering from inflexible hierarchies and its lack of racial and gender diversity. Diversity allows people to learn from each other and most importantly it promotes cooperation and collaboration. Lack of diversity equates to a minimal distribution of information and skills in the macroeconomics.
The author also highlights some of the solutions that were proposed by Haldane to address several issues in Macroeconomics. One of these solutions is the need to implement agent-based modeling where huge amounts of computer power are used to develop models where individual entities have their agency and their motives. These agents overlap and interact to produce predictions which shows the real picture of the situation in real life. Agent-based modeling will generate models that are accurate compared to the usual models. According to Haldane agent-based modeling has been successful in other fields such as physics and has been used before to model real-world challenges. Lanchester adds that Haldane is not the only popular non-academic economist to argue that there are problems in Macroeconomics. He explains that there are other famous macroeconomists such as Paul Romer who believe that there is a problem with this field. In his article The Trouble with Macroeconomics Paul Romer argues that there is a problem with the way economists evaluate a cause of an event. He adds that identification of an occurrence is critical since if you cant tell the cause of something, then you wont be able to determine the variables to measure, study, or change. Romer confesses that the biggest weakness of the macroeconomics field is the role of money and the omission of finance. But he explains that popular macroeconomics models especially the ones implemented by central banks did not make allowance for the role of money. As weird as it may seem these models have proven to be completely counterintuitive. Therefore, macroeconomists are required to consider the implications of money in macroeconomic modeling and most importantly to determine the interrelationships between credit, money, and other non-financial activities.
In the final paragraph of the article, the author explains that the chief economists of both the World Bank and the Bank of England believe that their trade is in crisis. According to Robert Lucas, a Nobel winner macroeconomics has succeeded in addressing several issues of global downturns. However, he argues that maybe macroeconomics is where physics was at the end of the nineteenth century where many scientists believed that their fields main challenges had been addressed. Just like physics in the twentieth century is about to have a successful period. The success of macroeconomics will start in the work of individuals like Haldane and Romer, who are willing to discuss the pressing issues in this field. In my opinion, macroeconomics will experience growth only if we find more people who are willing to raise issues affecting this field and consequently propose solutions to those issues.
In general, the author of this article has done an outstanding job in explaining how macroeconomics affects us in real life. We notice that macroeconomics is a field which studies the trends and movements and also assesses the entire economic systems such as total employment, total savings, national income, total supply, and total demand. Moreover, it helps us address economic problems such as deflation, inflation, unemployment, and poverty (Thampapillai, 2012). Therefore, it is critical that we develop a better understanding of macroeconomics and most significantly try to improve it to become a better field.
(The original article is found in this link https://www.nytimes.com/2017/02/07/magazine/the-major-blind-spots-in-macroeconomics.html)
Lanchester, J. (2017, February 07). The Major Blind Spots in Macroeconomics. Retrieved December 07, 2017, from https://www.nytimes.com/2017/02/07/magazine/the-major-blind-spots-in-macroeconomics.html
Thampapillai, D. J. (2012). Macroeconomics versus environmental-macroeconomics*. Australian Journal of Agricultural and Resource Economics, 56(3), 332-346. doi:10.1111/j.1467-8489.2012.00579.x
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