.. as someone who never studied econ as an undergrad (I was a physics major), I learned everything I know about macro from my grad courses. If there is an aspiring economist out there whose understanding of macro has been hurt by an overly narrow graduate curriculum, it would be me ..
.. coming as I did from a physics background, I found several things that annoyed me about the course (besides the fact that I got a B). One was that, in spite of all the mathematical precision of these theories, very few of them offered any way to calculate any economic quantity. In physics, theories are tools for turning quantitative observations into quantitative predictions. In macroeconomics, there was plenty of math, but it seemed to be used primarily as a descriptive tool for explicating ideas about how the world might work. At the end of the course, I realized that if someone asked me to tell them what unemployment would be next month, I would have no idea how to answer them.
As Richard Feynman once said about a theory he didn’t like: “I don’t like that they’re not calculating anything. I don’t like that they don’t check their ideas. I don’t like that for anything that disagrees with an experiment, they cook up an explanation – a fix-up to say, ‘Well, it might be true.'”
That was the second problem I had with the course: it didn’t discuss how we knew if these theories were right or wrong. We did learn Bob Hall’s test of the PIH. That was good. But when it came to all the other theories, empirics were only briefly mentioned, if at all, and never explained in detail. When we learned RBC, we were told that the measure of its success in explaining the data was – get this – that if you tweaked the parameters just right, you could get the theory to produce economic fluctuations of about the same size as the ones we see in real life. When I heard this, I thought “You have got to be kidding me!” Actually, what I thought was a bit more…um…colorful.
“New Monetarism” macroeconomist Stephen Williamson responds:
I’m glad to hear that Noah Smith, a grad student at Michigan is interested in frictions and financial economics [because he’s interesting in those things, he should come study at Washington U.] .. I taught a course in the fall of last year in advanced monetary economics and macroeconomics .. As you can see from the syllabus, this is pretty friction-heavy. It’s full of non-neutralities of money, private information, financial contracts, financial intermediation, and financial crisis-related papers, including my own work. Where it’s useful, I throw in some history to motivate the ideas .. When the financial crisis hit, there was plenty of off-the-shelf economic theory of financial contracts, financial intermedition, and monetary theory that could be, and was, brought to bear on understanding the important issues.