One question I find myself coming back to is whether or not macroeconomics is a useful source of explanations.
On the one hand, the generalization of very complicated human interactions into models helps simplify our understanding of the world. On the other hand, it’s often incorrect.
Besides explanations, macroeconomics would be useful if it gave us an information advantage. In investing, consensus macro forecasts provide no value because if everyone knows the same thing there is no advantage. In tournament like fields favor high-variance strategies so if everyone draws the same conclusions from the same data it’s not useful.
We might be able to spot bad macroeconomics if we focus on good explanations. For example, trends are not explanations so economic theories that look at trends to make predictions are almost certainly wrong. The good ones will hold up in the face of new data. In How are Milton Friedman’s ideas holding up? by Noahpinion, it’s clear that Friedman’s ideas that fit the economy of the 70’s no longer fit the 2000’s making them bad explanations. Unfortunately, outdated ideas can perpetuate for years especially if it becomes imbued in public policy.
- Nobody grades an economist but maybe we should