How I Learned to Love Macro

/ / Rethinking Macroeconomics

I have despised macroeconomics–even relatively innovative, post-Keynesian, gender-infused versions—for many years, for two big reasons. First, macro remains largely focused on an output variable, Gross Domestic Product, that systematically mismeasures the total value of material goods and services produced. Second, it treats the quantity of one of its most important inputs, labor, as exogenously given and/or relatively unimportant.

This is so wrong. Economies cannot be reduced to the production of commodities by means of commodities. They should be understood, more broadly, as the production of people by means of people. My collaborator James Heintz develops this critique in exceptionally clear and accessible terms in his new book The Economy’s Other Half. All of the participants in the Gender and Macro project under the rubric of the Care Work and The Economy project are, in one way or another, subverting the conventional paradigm.

They have actually taught me to love macroeconomics by showing how analytical models can enrich narrative accounts of social reproduction. I got so inspired that I actually sat in on a graduate course (taught by none other than James Heintz) and reviewed my calculus.

I went back and read some classic articles by Paul Samuelson and others explaining why intergenerational transfers (including the support and care of children and the elderly) cannot be organized by voluntary exchange.

James and I outlined some of the ways economists have conceptualized expenditures on children in a joint paper published in the Basque journal Ekonomiaz (also available on the Political Economy Research Institute website). Most recently, he took the lead on another joint paper that explains long-run macro models minimize the importance of demographic change (Endogenous Growth, Population Dynamics, and Returns to Scale: Long-Run Macroeconomics When Demography Matters”).

It seems pretty obvious that models treating population growth as exogenous ignore the most important link between the family economy and the market economy. It is far less obvious that assumptions regarding constant returns to scale in production functions can have similar implications.  Our paper explains why this is the case. It also develops an endogenous growth model that highlights the potentially negative macroeconomic effects of population growth rates that are either “too low” or “too high.” Microeconomic decisions don’t always magically lead to good macroeconomic outcomes.

The below-replacement fertility rates now common to many countries, including the U.S., Italy, Spain, Korea, and China, can potentially have negative macroeconomic implications, as can the high fertility rates characteristic of many sub-Saharan countries.  In a sequel to this paper, we plan to develop its microeconomic foundations more fully, demonstrating the macroeconomic effects of public policies such as parental allowances and paid family leaves as well as changes in women’s bargaining power in the home. This model could also bring immigration policies into the macroeconomic limelight.

Who knew that macro could be so much fun?


Dr. Nancy Folbre is from University of Massachusetts Amherst and an expert researcher for the Care Work and the Economy Project within the Rethinking Macroeconomics working group.

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