DAVOS, Switzerland — Sitting down to open a new Evernote notebook, I typed, “Where are all the microeconomists?” in the subject title. Evernote instantly autocorrected “microeconomists” to “macroeconomists”; when I changed the “a” to an “i”, the autocorrect system remained indignant, underscoring the offending word with a jagged red line. It appears as if even Evernote is in on the joke these days.
Macroeconomists enjoy a certain celebrity status, even if a lot of it is negative. Of the academic economists (from both economics departments and business schools) listed as Annual Meeting participants at this year’s Davos, just 14% concentrate their research on microeconomics—broadly defined, a branch of economics concerned with the behavior of individual units of an economy rather than the behavior of the economy as a whole.
Perhaps microeconomics, largely unconcerned with “hot” topics such as interest rates and money supply, just isn’t that glamorous. Following the 2008 economic crisis, macroeconomics was thrown into the limelight as most of the profession’s critics blamed the macroeconomic models in failure to identify systemic risks present in the banking system. A commonly mentioned shortcoming was that they did not incorporate financial markets in these predictive models. “It’s very simple … everything that a central bank ought to be interested in was excluded from the models,” Charles Goodhart, former member of the Bank of England’s Monetary Policy Committee, told the Institute of New Economic Thinking when asked why central banks failed to foresee the financial crisis. In 2009, Paul Krugman penned a New York Times column, titled, “How Did Economists Get It So Wrong?”. Meanwhile, microeconomics for the most part managed to escape the public flogging of the economic discipline.
The existential crisis faced by macroeconomics continued to harpoon academics as the sovereign debt crisis hit the Eurozone and ideas such as secular stagnation, reintroduced by economist Larry Summers in 2013, challenged the macroeconomic toolkit widely used by policymakers at the time.
But macroeconomists continue to be considered influential despite the stigma associated with their research. The Economist published a list of the most influential economists earlier this month, ranked by media influence—of the top 25, the majority are macroeconomists.
Recognizing that it might be helpful to incorporate elements fundamental to microeconomic theory (such as optimal decision-making relationships between agents), modern macroeconomics more widely adopted micro-founded frameworks, such as the ‘dynamic stochastic general equilibrium’ (DSGE) models now used by many central banks. This is not to say that microeconomics is without fault. These micro-founded models still have yet to address systemic risk, and rely on unrealistic microeconomic assumptions, such as all individuals in the economy having perfect information. Nevertheless, these developments can be lauded for their recognition that many facets of economics as a discipline are crucially interlinked.
Whatever the challenges and criticisms facing both sides of the discipline, it is clear that in addressing economic challenges in policy and financial arenas, experts from both can profit from pursuing a joint conversation. The WEF could certainly benefit as well from broadening its panel of experts to include some more thinkers in microeconomics.