Macroeconomic policy as an epistemic problem

Abstract

Macroeconomic theories picture the economy as a phenomenon tractable by their analysis and thus manageable by macroeconomic policies guided by this analysis. This approach has withstood recurrent policy failures, competing theories and several changes of policy paradigms, from Keynesianism to monetarism, because the development of economics as a discipline has been entangled with the demand from policymakers to receive clear macroeconomic policy prescriptions from the expert community. The idea that policymakers can steer the economy in a desired direction relies upon the development of theories with prescriptive and predictive claims, which, in turn, rely on a great deal of analytic reductionism. As a result, reductionist theories continue to offer misrepresentations of the macro phenomenon, particularly by overlooking how policy interventions generate diverse and intractable micro-adaptations that develop into undesired, unforeseen and unintended system-level consequences. This trend continues to cause trouble: reductionist macroeconomic theories foster overconfident interventionist policies that contribute to macroeconomic instability.