The Unassuming Economist

From Noah Smith:

“Ed Prescott, who was in some ways the father of modern macroeconomics, passed away recently at the age of 81. I thought this would be a good idea to write about the state of macro as a science. I used to write about this a lot when I first started blogging, so it’s a fun topic to revisit.

Macroeconomics has a bad reputation. I often see people whom I like and respect say stuff like this about the field of economics:

When they say this, I’m pretty sure they aren’t talking about the auction theorists whose models allowed Google to generate almost all of its ad revenue. And I’m pretty sure they aren’t talking about the matching theorists whose models improved kidney donation and saved countless lives. When people say “economists are still struggling to predict the last recession”, they’re talking about macroeconomists — the branch of econ that deals with big things like recessions, inflation, and growth.

It isn’t just pundits and commentators who are annoyed with the state of macro; economists in other fields often join in the criticism. For example, here’s Dan Hamermesh in 2011:

The economics profession is not in disrepute. Macroeconomics is in disrepute. The micro stuff that people like myself and most of us do has contributed tremendously and continues to contribute. Our thoughts have had enormous influence. It just happens that macroeconomics, firstly, has been done terribly and, secondly, in terms of academic macroeconomics, these guys are absolutely useless, most of them. Ask your brother-in-law. I’m sure he thinks, as do 90% of us, that most of what the macro guys do in academia is just worthless rubbish.

This is much harsher than I would put it, but it hints at some of the vicious internal battles being waged in the ivory tower. And even top macroeconomists are often quite upset at their field — see Paul Romer’s (extremely nerdy) 2015 broadside, “Mathiness in the Theory of Economic Growth”.

Ed Prescott’s generation of macroeconomists came into the field intent on fixing this situation.”

Continue reading here.

On the US—developments on house prices, rent, permits and mortgage:    

• The Reason Home Prices Are Finally Dropping. But not everywhere. – Slate
• U.S. Mortgage Rates Top 7%, Highest in More Than 20 Years. Rate for 30-year mortgages hit 7.08%; a year ago it was just over 3%. – Wall Street Journal
• Year-over-year Pace of Rent Increases Continues to Slow. Expect YoY Rents to Slow Further in Coming Months – Calculated Risk
• First Look at 2023 Housing Forecasts – Calculated Risk

On the US—other developments:    

• How owner-occupancy regulations are contributing to the housing crisis – Brookings
• Lawler: Selected Operating Results, Large Home Builders. Cancellation Rates Increasing Sharply – Calculated Risk
• US Pending Home Sales Fall by Most in Two Years as Rates Rise. Contract signings dropped more than 10% in September. Excluding early months of pandemic, index is lowest since 2010 – Bloomberg
• The US housing market’s stagnation has gotten even worse. US mortgage rates have reached a 20-year high this week – Quartz
• The U.S. city of the future – Alfred Twu

On China:

• Japan’s empty villages are a warning for China. Beijing should take note of the risks posed by a property bubble and demographic changes – FT
• China’s Diminishing Returns – Project Syndicate
• China’s property slump continues as October prices fall. Prices in 100 Chinese cities drop for fourth straight month amid strict COVID curbs. – Al Jazeera

On other countries:  

• [Ireland] Gabriel Makhlouf: A refreshed framework for our macroprudential mortgage measures – Central Bank of Ireland
• [New Zealand] New Zealand House Prices Suffer First Annual Decline in 11 Years – Bloomberg
• [Singapore] Singapore Home Prices Jump More Than Expected as Market Holds Up. Private home values climbed 3.8% in the third quarter. City-state’s property market is defying rising interest rates – Bloomberg
• [United Arab Emirates] Dubai Homes Reasonably Priced Despite Record Surge, Emaar Says – Bloomberg
• [United Kingdom] Mortgage shock: what next for embattled borrowers? Spiralling home loan rates add to households’ cost of living pressures – FT
• [United Kingdom] UK housebuilders warn new rules and taxes will add £4.5bn to costs. Industry body says extra expense may be offset by cutting affordable housing contributions – FT
• [United Kingdom] UK House Prices Face 5% Dip Next Year on Mortgage Rate Rises. New buyers face biggest rate hit since late 1980s, Zoopla says. Buyer demand has dived by a third since mini-budget last month – Bloomberg 
• [United Kingdom] UK mortgage approvals and consumer lending fall as rising prices bite. BoE data point to slowdown in property market even before mini-Budget and households building cash buffers – FT
• [United Kingdom] UK House Prices Fall the Most Since Start of Covid Pandemic. Higher mortgage rates and political turmoil take a toll. Headwinds facing market may trigger a longer-term drop – Bloomberg
• [United Kingdom] What will happen to Britain’s mortgages? The end of cheap borrowing will make the property ladder harder to climb – The Economist
• [United Kingdom] The UK Housing Market Finally Cracked. Now What? The jump in mortgage rates is starting to feed through to falling house prices – Bloomberg
• [United Kingdom] UK house prices fall in October as borrowing costs rise. Market upheaval following mini-Budget hits property sector as household finances are squeezed – FT