Macroeconomists are the powerbrokers of economics. A successful macroeconomist usually is a person transforming simple economics into complicated mathematical models; working on structural reduced form equations; estimating coefficients and betas and explaining to the world complex issues in a more complex language through writing most complex papers. Lucidity, by all means, is strictly prohibited in order to be a good macroeconomist.
Pakistan is self-sufficient when it comes to macroeconomists. A typical macroeconomist in Pakistan has a PhD in economics. A doctoral thesis using complex model earns him/her the authority on macro aggregates. The teaching of macroeconomics in a language alien to common students and the solving of economic problems in a way far from reality adds to the credibility, which is further upgraded by an overly technical and mathematical reading list. Being contextual and closer to the real world, however, may harm credibility.
With few exceptions, an exemplary macroeconomist in Pakistan is limited to macro-modelling to assess the working of monetary policy or fiscal policy exclusively and rarely talks on or researches social, developmental and other policies linking to grassroots socioeconomic problems because this may endanger the head title. Social policy carries lower weightage and good macroeconomists avoid it.
In his/her research, a good Pakistani macroeconomist knows where the most updated data are available from; how to apply Dynamic Stochastic General Equilibrium [DSGE] models-models which incorporate every detail but reality; and how to ‘interpret’ the results in a ‘scholarly’ terminology. No matter if it is alien to the common man and policymakers. It should be fit for academic journals.
A macroeconomist in Pakistan is mostly Esther Duflo’s expert on the big picture. The gloomier the picture is painted, the better the macroeconomist. S/he is an expert on recommending ‘what policy should be adopted’. ‘How to implement this policy’ is a question not for a busy macro expert as it needs details.
The big picture experts are available in varieties. Ranked top are astrologist macroeconomists. To save us and the world from ‘crises’ that no one else can see they are concerned with the future more than the present. An astrologist macroeconomist makes predictions of the world’s economic future as an astrologist does; both like painting doomsday scenarios.
A good astrologist macroeconomist, however, doesn’t forget to offer his/her services if the economic world is to survive. They run forecasting using techniques like Vector Auto Regressive [VAR] analysis. The better make our life easy through applying Structural VAR and decomposition analysis of variance of variables. And the best make their own world of simulations. These virtual-world experts have hardly any time left for the real world.
Meteorologist macroeconomists are expert in measurements using macro-level historical data. They measure betas for us; find correlations and causations between policy variables. Coming from a group of experts on the big picture, these economists pick an issue based on data availability; the issue and problems of the economy have nothing to do with the selection. No data, no problem.
This group – the data machines – use whatever data are available from any country on the world, the so-called panel data. For them, economies are nothing more than a dummy. And one must indeed be thankful that they apply fixed effect models to help inform and design local policy.
We have had, and continue to have, plenty of good meteorologist and astrologist economists. But for informed public policymaking we need Al Roth’s “economist as engineer” or Banerjee’s “economist as a craftsman”. Pakistan mostly needs Duflo’s plumbers as we don’t have many of them. Duflo’s plumber macroeconomist helps a government design policy and regulations and engages in details of public policy.
These details, missed by traditional economists lost in complex models and theories, are of significant impact in final outcomes. These are the details which provide context to issue under analysis relating it to the structures of local economy help designing efficient public policy. A plumber makes the machine work in the real world. So does the plumber macroeconomist. The economy is a machine in continuous work. Those kind of plumbers are needed who not only know the major parts of the machine but also the interconnectedness of the parts of the machine. General prescriptions make no policy influence.
Economy, by very design, in words of Roth, involves responsibility of details. Lessons from general theories are to be applied to a specific situation with a particular context and unique socioeconomic and cultural structures. Let’s wait for macroeconomists in Pakistan to become plumbers dealing in local issues, applying the local lens and getting into the details. This is the only way to improve public policy in Pakistan. Pakistan awaits its Paul Krugman and the like!
The writer the Policy Solutions Lab at Sustainable Development Policy Institute [SDPI].