Wednesday, 6 June 2012

Nolan on talking to macroeconomists

Over at the TVHE blog Matt Nolan is talking about talking to macroeconomists. Who know why? But he notes that this Stuff article has five basic principles to keep in mind when talking to macroeconomists. Matt summaries them as,
1. Commodities are our comparative advantage, they are what NZ is relatively better at making than other things.
2. Monetary policy that targets inflation aims to set NZ in a “Goldilocks zone” where the economy isn’t running too hot (high inflation) or too cold (high unemployment).
3. Don’t put too much faith on one data point, or even one data set. To tell a story we need to explain why a full set of different figures are moving the way they are.
4. As a small open economy, what is going on in the rest of the world is important!
5. Economics isn’t about telling the future. Economic forecasts are useful only insofar as they tell us about risks and describe what is going on – economists cannot tell the future.
Point 4 is a biggy. We are a very small part of the world and what happens to us to a large degree will be determined overseas, and thus there is little we can do about it. No matter what politicians try to tell you! Point 5 explains why 99% of economists never forecast and don't have much time for those who do. Its not clear just how well point 2 turns out in practice. Point 3 is also something to keep in mind, one data point isn't necessarily the truth. This is just as true for microeconomics as for macro. Point 1 is just a statement of the obvious.

I really only have one principle for talking to macroeconomists, don't! Remember that inflation is the only true macroeconomic topic, everything else is micro.

PS: I should, I guess, point out that I'm a microeconomist so may have a biased (if consistent) view of the matter.

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