Hoover is attempting to argue that Macro has no real connection to Micro and that the microfoundations program that has been going on in economics for the past 70 years is completely misguided. He discusses how the changing focus has been on breaking down the macroeconomy into its micro principle parts. Hoover believes many economists cling to the belief that micro foundations exist because the economy is made up of individual actors and not necessarily because it is plausible or practical to measure. He wonders if economists merely try to find micro principles which support the macro findings because there are “supposed to be” some there for them to find.
Finally Hoover starts talking about things I can understand. He says that eventually the definition of macro always comes back to the aggregate actions of the actors within the economy. He then distinguishes between natural aggregates, simple sums or averages (employment), and synthetic aggregates, or totals that are constructed in such a way that their composition changes the components of which they are made of (price level). The discussion of the price level is extensive and he talks about how it can be likened to measuring the temperature in that there is only a relative degree of accuracy. The price level is “high” or “low” much like it is “hot” or “cold” outside. He also shows how it is decomposed and the logic that goes into the calculation of the price level. Also he adds that the weights put on certain components of the price level are chosen quite arbitrarily. He then briefly discusses the Paasche and Laspeyres indices which are the two most common weighting schemes. He points out that neither is correct and there are an infinite number of schemes which exist between them. He shows that the price of money is unlike the price level of any other good and probably has characteristics all its own. Another synthetic aggregate he discusses is GDP. He claims that the general price level and real GDP are the two most important aggregates in macro economics. He states that averages do not translate well in making the conceptual leap from micro to macro and that is why macro often does not capture what is taking place at a micro level.
Hoover next moves on to discussing more philosophical crap that I don’t really understand. He says that instead of macro theory being based on micro theory economists should understand that macro reality is based on micro reality. Then he discusses two arguments for macro existing. The first argument boils down to the fact that it is an observable thing that can cause a marked effect on other things so it must be real. The second argument is called idealization in which primary factors are determined based on secondary factors set to extremes.
I think that Hoover makes two convincing arguments in opposite directions. However, I have difficulty believing that there are no micro foundations for macro theory and occurences. His argument that economists strive to search for micro foundations simply because they have always assumed they were there does not really convince me that they do not exist. I think the problem is that the techniques and methodology used to measure macro phenomena cannot accurately depict what is going on on a miro level because of the effect of externalities. The actions taken by an individual might have an impact on the macro economy, but maybe only under certain conditions since their decisions are considered to be one giant Nash equilibrium. Without micro foundations, macro would be reduced to data gathering.
He concludes that yes, maybe, macro is real today. So, a few things:
1) when did this course take a left down philosophy street?
2) why did I have to look up ontological four times?
3) where in the hell did Hoover come up with this paper?
a) why in the hell did Hoover come up with this paper?
It was a very difficult paper of which I understood very little and hope Greenlaw plans on clarifying for us tomorrow.