Perspective on the current state of macroeconomic theory

Abstract

Historically, microeconomics was the domain of scientific methodology in economics, while macroeconomics attacted less mathematically oriented economists. In recent years, the level of sophistication of macroeconomics has grown dramatically, and that field now attracts many of the most mathematically oriented economists. Nevertheless, the field's set of shared views (i.e. maintained hypotheses) has not grown. The purpose of the scientific method is to permit the maintained hypotheses within a field to grow by establishing a rigorous methodology for deductively deriving and empirically testing hypotheses. The field of macroeconomics has failed that test of scientific success during precisely the decades of most rapid growth in the use of scientific methodology. It is argued that the source of the paradox lies in the fact that the inroads of science into macroeconomics have been asymmetrical. Central to the definition and objectives of macroeconomics is dimension reduction and dynamics. Rigorous dimension reduction is impossible without formal aggregration, and complex dynamics is impossible without non-linearity. Yet applications of formal aggregation theory and non-linear dynamics to macroeconomics have progressed very slowly, at a time when scientific methodology in other areas of macroeconomics has advanced rapidly. This asymmetry explains the paradox.