Comment of the Day: Charles Steindel: “Seems to me that what he means by ‘macroeconomists’…
…are assistant profs at research universities, not the people at MA. I’m probably the last person who got a Ph.D. at MIT for doing something that might be called improving equation 62 out of 97 (this happens to be the precise period of the year I finished — I handed in the thesis the day after Elvis died!). While hardly a major piece of work, much of it was involved, in fact, with trying to clarify some of those ridiculous identifying assumptions (most notably, crudely trying to match income expectations in the consumption function with profit expectations consistent with stock market valuation). So even the left tail of MIT was aware of this other world (I did put in a reference to Lucas, in fact).
More notably, Olivier Blanchard’s thesis, finished a few months earlier, was concerned with introducing learning into a rational expectations view of the world. Olivier, of course, was the hottest student on the market so every serious place would have been aware in 1976–77 that MIT was absorbing the SAGE views. Stan and/or Rudi were on every macro student’s committee (and Bob Hall, somebody else important at MIT at that time, was also on quite a number). I don’t quite understand why Bob Solow’s conference comments would be seen as such a big deal and regarded as a general MIT or ‘saltwater’ view.
I’m not all that enamored with the specific policy results of the MA and other updated models (if the empirical Phillips Curves are the best thing around, which I kind of agree with, there is a lot missing), but I agree that they appear to capture something real, and after 35 or 40 years the ‘SAGE’ research program has failed to supplant them in real-world policy analysis. I’m not sure that more amicable dialogue between advocates and skeptics would have improved practice all that much.