2 The evolution of macroeconomic theory
In what follows, I briefly present the aspects of macroeconomic theory
which, in current models, seem to me to be incomplete or erroneous and
try to explain how we came to develop models which have these problems.
The basic argument starts with the fact that macroeconomic theory has
insisted on having ‘sound micro-foundations’ and I argue that this has
taken us down the wrong road. I discuss the problem of aggregation and
then turn to that of information. Then I look at the ‘efficient markets’
hypothesis, and in particular, its historical origins and why, as Alan
Greenspan (2008) remarked recently, this intellectual edifice collapsed.
Finally, so as not to simply join the critical chorus, I offer some suggestions
as to what would be a good basis for macroeconomic theory and
mention two models which provide a basis for an alternative analysis.