Tag Archives: theory

Wise words from Tyler Cowen

From Marginal Revolution:

Macroeconomics really is just a theory.  Politicians are reluctant to spend more money, in tough times, on the basis of a mere theory.  Advocates of fiscal stimulus make it sound as simple as solving an undergraduate homework problem and I think they sometimes genuinely do not realize how much the rest of the world, including politicians, views them as simply being very convinced by their own theory.  There are plenty of historical examples with confounding factors and I’ve linked to some of them lately.  One default hypothesis is that the ranges of fiscal policy being discussed, whether looser or tighter, aren’t going to matter much one way or the other.

I would recommend anyone who takes theory out into the real world to read those words carefully. I find the sentiment is good grounding particularly for econ people who don’t understand why even intelligent politicians don’t make economically sensible policy choices.

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