Debating What's Wrong With Macroeconomics

It wasn't very long ago that macroeconomics was being hailed for answering some of the big, perplexing questions about the workings of the economy. "The state of macro is good," one highly respected economist wrote in August 2008, just before much of the developed world came close to economic disaster. The failure to foresee the financial crisis now is considered one glaring sign of the field's limitations. Bloomberg View columnists Mark Buchanan and Noah Smith met online to debate how macroeconomics needs to change.

Buchanan: I do think that much of modern macroeconomics -- and I mean theory, not empirical work -- is a pretty spectacular failure. Research in this area doesn't look like science to me. It treats an economy as if each household and each firm make optimal decisions, thereby excluding most of the richness and heterogeneity of a real economy.