Preface

Summary

The relationship between microeconomic theory and macroeconomic theory has been stormy. The subject has been ignored, discovered, settled and ignored again. The literature is replete with polemics, calls to action, and technical preciousness which obscure the central ideas. Consequently this book is a survey organized around the question “Are the concerns and models of microeconomic theory logically consistent with the concerns and models of macroeconomic theory?”

My biases should be recognized. I consider economic theory to be a scientific discipline. I believe that our knowledge is more secure if our insights can be developed in terms of formal models. I believe that progress occurs in terms of sequences of models which have assumptions that are clear and conclusions that are falsifiable either by empirical tests or by tests of congruence with other theoretical constructs.

Having been trained as a mathematician, I am less impressed with mathematical virtuosity than some economists. However that same training leaves me suspicious of analyses that begin with an ideologically “correct” view and end with conclusions which support that view.

My own approach to microfoundations issues can be summed up by Axel Leijonhufvud's observation, noted in Chapter 5, that

Mathematical general equilibrium theorists have at their command an impressive array of proven techniques for modelling systems that “always work well.” Keynesian economists have experience with modelling systems that “never work.” But, as yet, no one has the recipe for modelling systems that function pretty well most of the time but sometimes work very badly to coordinate economic activities. […]