Friday, May 26, 2017

They Got Him: Economist Who Attacked Mainstream Macroeconomic Modeling Removed From Management Position at World Bank

The World Bank’s chief economist, Paul Romer, has been stripped of his management duties.

According to Bloomberg. researchers rebelled against his efforts to make them communicate more clearly, including curbs on the written use of “and.”

Romer said he met resistance from staff when he tried to refine the way they communicate. “I was in the position of being the bearer of bad news,” he said in an interview. “It’s possible that I was focusing too much on the precision of the communications and not enough on the feelings my messages would invoke.”

In an email to staff obtained by Bloomberg, Romer argued the World Development Report, one of the bank’s flagship publications, “has to be narrow to penetrate deeply,” comparing his vision for the report to a knife. “To drive home the importance of focus, I’ve told the authors that I will not clear the final report if the frequency of ‘and’ exceeds 2.6 percent,” said Romer, citing the percentage of the word’s use in World Bank documents analyzed as part of a “Bankspeak” report.

There is probably more to the story.

Just months before joining the World Bank,
he heroically wrote a paper that trashed macroeconomics as a math-obsessed pseudoscience.

Romer said during an interview with Bloomberg at the Bank’s Washington headquarters, “I just thought, OK, I’m going to say what I think. I don’t know if I’m the right person, but no one else is going to say it. So I said it.”

Notes Bloomberg:
The upshot was “The Trouble With Macroeconomics,” a scathing critique that landed among Romer’s peers like a grenade. In a time of febrile politics, with anti-establishment revolts breaking out everywhere, faith in economists was already ebbing: They got blamed for failing to see the Great Recession coming and, later, to suggest effective remedies. Then, along came one of the leading practitioners of his generation, to say that the skeptics were onto something.

“For more than three decades, macroeconomics has gone backwards,” the paper began. Romer closed out his argument, some 20 pages later, by accusing a cohort of economists of drifting away from science, more interested in preserving reputations than testing their theories against reality, “more committed to friends than facts.” In between, he offers a wicked parody of a modern macro argument: “Assume A, assume B, ... blah blah blah ... and so we have proven that P is true.”

What’s at stake far exceeds hurt feelings in the ivory tower. Central banks and other policy makers use the models that Romer says are flawed.
Romer isn't an Austrian school economist so his critique could have gone much further, As Jonathan Newman writes commenting on an earlier Romer paper:
Unfortunately, Romer’s conclusion in his paper offers a non-solution:
[back in the good ol’ days] Not universally, but much more so than today, when economic theorists used math to explore abstractions, it was a point of pride to do so with clarity, precision, and rigor. Then too, a faction like Robinson’s [politically motivated] that risked losing a battle might resort to mathiness as a last-ditch defense, but doing so carried a risk. Reputations suffered.
So all the profession needs to do to get over this destructive love affair with mathiness is a fresh injection of “clarity, precision, and rigor.” This is like telling a group of criminal graffiti artists to use stencils when they’re defacing buildings.
The real problem is much deeper than Romer realizes. Economics is the science of human action. It deals with motivated human choice. As such, there are no strict quantitative relationships like the ones in the hard sciences. Objects don’t choose to fall at a certain speed, or choose to react to other objects in certain ways. Humans choose. Our choices are based on preferences which change unpredictably in an infinite number of ways over equally unpredictable and infinite varieties of circumstances.
The details of human action are unpredictable and not conducive to strict quantitative rules, but the logic of action provides a rich framework for doing economics.
At the World Bank, Romer declared several positions redundant and enforced term limits on senior managers. Romer said he cut more than $1 million in annual expenses from the group’s budget. That is not going to make you popular in a global government institution with internal growth the only serious agenda item on most insider minds.

Romer said the limit on “and” was a “gimmick” he used to show he’s serious about good writing. “They’ve worked it down to 3.4 percent. They said, ‘We’re getting there’.”

Kristalina Georgieva, the chief executive for the bank’s biggest fund, will take over management of the unit July 1.

Romer will remain the bank's chief economist.

Romer has influenced the "Peoples' Capitalism" concept put forth by James S. Albus—a form of basic income guarantee.

He is credited with the quote "A crisis is a terrible thing to waste," which he said during a November 2004 venture-capitalist meeting in California.


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