Thursday 22 April 2010

The use of aggregates

In the previous post the following point is made about the use of aggregates in economics:
The “aggregates” of the mainstream economists are merely statistical totals. But one total does not affect another: what actually drives things is the specific actions of the individuals who face the specific choices. [...] Statistical formulae tell us nothing.
I'm not sure this is a uniquely Misesian idea. In work I'm currently involved in I say about whether or not we can know if we are in a "knowledge" or "new" economy:
However while this macro level [productivity] data can tell us that something has changed, it can not tell us what changed and why. The productivity data is the aggregated result of changes at the micro level, in this case at the level of the firm. Such changes require a microeconomic explanation.
So I'm not convinced that mainstream economists are as unaware of the uses and limitations of aggregates as the first quote would suggest. Also aggregates can tell us somethings. In my example the aggregate productivity data shows that for the US there was an increase in productivity post 1995. This alerts us that we need to go looking for a micro explanation of what caused this jump.

2 comments:

Matt Nolan said...

"In my example the aggregate productivity data shows that for the US there was an increase in productivity post 1995. This alerts us that we need to go looking for a micro explanation of what caused this jump."

I'm not a fan of the macro-micro split per see. The key, as you say, is that there is some aggregate data that did something - but we can't interpret it without actually getting in and trying to understand it with economic logic (micro).

I'm not a fan of the split because it lets too many "macroeconomists" just hide tacit conclusions when they discuss numbers, and make conclusions that they want rather than the ones that would hold up to scrutiny.

gih said...

Perhaps you are correct Matt, As what I also observed in Macro-micro economy. Let's just find it out later.