Not so easy to place Paul Romer on the school map of economics’ paradigms. Though basically mainstream, he voiced his disenchantment with the post war development of macro in a manner so scathing it may have pushed him out toward the critical edge.
Read his now (in)famous “The Trouble With Macroeconomics” below. For some reactions, background and context read William Black’s : “Bloomberg Notices Paul Romer’s Indictment of Macroeconomics”
update 2021: to place Romer on the map read this excellent article:
ideasforindia.in 2018 Nobel laureate Paul Romer’s contribution to endogenous growth theory – by Mausumi Das
…”Romer’s proposed theory of long-run growth challenged several other conventional wisdoms associated with the neoclassical growth theory. One major difference arose from their contrasting views about the desirability and efficacy of government policies. Neoclassical growth models are founded on the premises of perfect markets and rational agents, which preclude any role of the government in influencing long-run growth. Romer on the other hand advocated for a proactive government policy. In the presence of externalities, market return to knowledge creation would differ from its social return which, according to Romer, necessitates government intervention. The role of the government in this context would entail creating the right incentives for private agents to engage in research….”…
The Trouble With Macroeconomics
Paul Romer
Stern School of Business New York University Wednesday 14th September, 2016
Abstract
For more than three decades, macroeconomics has gone backwards. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as “tight monetary policy can cause a recession.” Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes. A parallel with string theory from physics hints at a general failure mode of science that is triggered when respect for highly regarded leaders evolves into a deference to authority that displaces objective fact from its position as the ultimate determinant of scientific truth.
