Below I’ve included some references for my post “Austrian Facts Bring the Death of ‘Normal Science’ in Macroeconomics”. All of them are excellent and most all of them advance essential insights from Austrian economics and/or the work of Friedrich Hayek.
I’ll be adding additional detailed discussions of individual aspects of the ongoing collapse of ‘normal science’ in macroeconomics at my Taking Hayek Seriously blog.
The DSGE framework which evolved out the Real Business Cycle model was racked by intractable empirical anomaly right out the barn door. The macroeconomics profession attempted to “fix” the framework with all sorts of ad hoc formal epicycles hung on it like a Christmas tree — ad hoc additions which mostly had one thing in common, they were inspired by the legacy of Marshall, Pigou & Keynes; “sticky prices” and all that — ideas dating from the 1880s and before.
But as monetary economics and trade cycle economics, the DSGE framework — whether “New Keynesian” or “New Monetarist” — still produces intractable and insuperable empirical and formal anomaly, as the macroeconomists listed below attest in the articles listed.
As the great David Laidler explains, DSGE framework models suffer from core — and intractable — anomaly, including failure to handle core aspects of macroeconomic phenomena previously adressed by pre-war macroeconomists. As Thomas Kuhn points out, transitions from one ‘normal science’ explanatory framework to another nearly always involve the loss of some explanatory capacity — and frequently later involve the recovery of lost explanatory or theoretical capacities from the past. This looks to be exactly were we are in the state of the game today — a reconfiguration of macroeconomics to regain significant explanatory achievements lost in transition to the dominant failed ‘normal science’ framework of today.
The monetary economy has properties that cannot be analyzed using the tools of today’s dynamic general equilibrium analysis. Keynes’s economics, far from being an aberration in the otherwise orderly evolution of modern macroeconomics from Adam Smith’s ideas about the “invisible hand”, was a major contribution to an ongoing tradition in monetary theory in whose creation Smith himself had played a part. Retrospective consideration of this tradition suggests that the property of the monetary economy critical to the generation of economic crises and the stagnation that follows them is its capacity to permit trading at “false” prices, a phenomenon ruled out by assumption in dynamic general equilibrium models. Not only Keynes’s explanation of depression but also Hayek and Robertson’s analysis of the role of unsustainable forced saving in the boom can be thought of as relying on this factor.
In the comments section I’d appreciate help from Mises Blog readers in extending this list of references.
Der Speigel, “The Man Nobody Wanted to Here”.
W. White, “Is Price Stability Enough?”.
R. Frydman & M.Goldberg, “An Economics of Magical Thinking”.
R. Frydman & M. Goldberg, “The Imperfect Knowledge Imperative in Modern Macroeconomics and Finance Theory”.
D. Laidler, “The Monetary Economy and the Economic Crisis”.
O. Blanchard, “The Future of Macroeconomic Policy”.
J. Stiglitz, “A Balanced Debate about Reforming Macroeconomics”.
R. Reis & M. Woodford, “Conference on Heterogeneous Expectations and Economic Stability”.
R. Frydman & M. Goldberg, Beyond Mechanical Markets.
R. Frydman & M. Goldberg, “Financial Markets and the State”.
R. Frydman & M. Goldberg, “Epilogue”.
W. White, “Comments”.
(Updated, revised, and extended)