70 - Greg Mankiw on Macroeconomists as Scientists and Engineers

Episode Summary

Executive Summary: Greg Mankiw reflects on his path into macroeconomics, his textbook-writing career, policy experience at the CEA, and the evolution of macro from Keynesian engineering to new classical science and back toward pragmatic synthesis. He argues the Great Recession exposed gaps in standard models, especially finance, while reinforcing the need for useful, policy-relevant macroeconomics, cautious discretion at the Fed, and broad training for young economists.

Main Topics: How Mankiw became a macroeconomist (Priority: 5/5): He describes a largely accidental path into economics via a Princeton course, mentorship, and an internship at the CBO that sparked his lasting interest in macro and the Phillips curve. Textbooks, teaching, and broad influence (Priority: 4/5): Mankiw explains that textbooks are an extension of teaching to a broad audience, recounting the origins of his intermediate and principles texts and their global reach. CEA experience and policy work (Priority: 5/5): He reflects on serving as chair of the Council of Economic Advisers under President George W. Bush, emphasizing the workload, practical policy learning, and interaction with top officials. Outsourcing controversy and trade politics (Priority: 5/5): Mankiw revisits the 2004 outsourcing backlash, arguing his comments were textbook economics but were politicized; he and Beckworth discuss how recessions and anti-foreign bias fuel populism and trade skepticism. Scientist vs. engineer in macroeconomics (Priority: 5/5): He frames macroeconomists as either scientists focused on understanding the world or engineers focused on solving policy problems, and uses this lens to interpret the field’s history and internal tensions. History of macro: Keynesians, new classicals, and synthesis (Priority: 5/5): Mankiw traces macro’s evolution from the Keynesian revolution to monetarism, rational expectations, real business cycles, and the later new Keynesian synthesis that better connected theory with policy. Current macro, inflation, and Fed policy (Priority: 5/5): He discusses weak inflation dynamics, the limits of the benchmark New Keynesian model after the financial crisis, uncertainty about the balance sheet, and the value of rule-based benchmarks alongside discretion.

Key Arguments: Mankiw’s entry into economics was shaped by exposure to a friend’s class, then reinforced by key mentors and a CBO internship that revealed the policy relevance of macro. Textbooks can be a powerful form of teaching and have broad influence when they translate economics to large audiences over many editions. His CEA experience showed that economics in government is practical, fast-paced, and collaborative, with policy meetings often involving large groups rather than one-on-one exchanges. The outsourcing controversy was not economically controversial; it was a political and media distortion of standard trade theory, especially during a tense election period. Weak recoveries and recessions intensify anti-foreign sentiment and populism because people search for scapegoats when economic conditions deteriorate. Macro has long oscillated between science and engineering: academic theory advances understanding, while policy institutions need usable models for real-world decisions. The early new classical revolution powerfully challenged Keynesian models, but its policy relevance was limited, motivating the new Keynesian effort to bridge theory and practice. The post-crisis era revealed that standard new Keynesian synthesis models were incomplete because they left out financial institutions and intermediation. Inflation’s behavior since the Great Recession remains puzzling and cannot be fully explained by saying expectations were simply anchored. Rules like nominal GDP targeting, price level targeting, and the Taylor rule are useful benchmarks, but Mankiw does not favor legislating one rigid rule into law. Young economists should seek breadth across disciplines and institutions to become more creative and effective analysts.

Data Points: Years at CEA as chair: 2003 to 2005 - Mankiw served as chairman of the Council of Economic Advisers under President George W. Bush. Harvard tenure before CEA: About 20 years - He had been at Harvard roughly two decades before taking the CEA job. Frequency of meetings with President Bush: 2 to 3 times a week - Mankiw estimates how often he met President Bush while serving at CEA. Textbook sales: About 200,000 books a year - He says his books still sell heavily in the U.S., with roughly an equal number in translation abroad. Textbook editions: 8th edition - He notes his principles textbook is in its eighth edition. Intermediate macro textbook edition: 10th edition in progress - He says he is starting work on the 10th edition of the intermediate book. Public service leave from Harvard: Two years - Harvard allowed public service leave without resignation while he served at the CEA. Early 1980s macro era: 1980 - He recalls entering graduate school as Lucas, Barro, Sargent, Wallace, and Prescott shaped the field. Great Recession timing: 2008-2009 - Discussed as the financial crisis that exposed weaknesses in dominant macro models. Federal inflation target: 2% - The Fed has struggled to hit its implicit/explicit inflation objective since the Great Recession.

Pivotal Quotes: "Engineers are first and foremost problem solvers. By contrast, the goal of scientists is to understand how the world works." — Greg Mankiw: He defines the central distinction in his framework for macroeconomists. "The sad truth is that the macroeconomic research of the past three decades has had only a minor impact on the practical analysis of monetary or fiscal policy." — Greg Mankiw: He reflects on the gap between academic macro research and policy practice. "I think all of these rules are really benchmarks for central banks to think about as they're sitting policy." — Greg Mankiw: He explains his view on nominal GDP targeting, price level targeting, and Taylor rules.

Implications: The conversation suggests macroeconomics is most useful when it balances theory with policy realism. For the Fed, finance and low-rate dynamics remain key challenges. For students, breadth, policy exposure, and humility about models are essential.