Beware of Economic Theories Claiming to Explain Everything
Concepts based on facile logic and storytelling may not have much bearing on how the economy really works.
Was it tested here first.
Photographer: Craig Warga/BloombergHow can you know if a macroeconomic theory is a good one? The answer is that it’s surprisingly hard. Because macroeconomics doesn’t work quite like science, policy makers and finance industry professionals are often tempted to ignore academics and embrace the simpler, logical-seeming ideas of unconventional paradigms like Austrian economics or modern monetary theory. But they should resist this temptation — although macroeconomics isn’t quite a science, academics have lots of useful things to say.
In recent years, economists have embraced empirical research that is yielding ever more convincing, conclusive information about the economy. This has allowed economists to test long-standing theories, some of which have been found wanting.