George Akerlof - Behavioral Macroeconomics and Macroeconomic Behavior (Part VII: Conclusion) lyrics

[VII: Conclusion] It is now 30 years since the revolution which began in growth theory and then swept through microeconomics. The new microeconomics is standard in all graduate programs, half of a two-course sequence. Adoption of the new macroeconomics has been slower, but the revolution is coming here as well. If there is any subject in economics which should be behavioral, it is macroeconomics. I have argued in this lecture that reciprocity, fairness, identity, money illusion, loss aversion, herding, and procrastination help explain the significant departures of realworld economies from the competitive, generalequilibrium model. The implication, to my mind, is that macroeconomics must be based on such behavioral considerations. Keynes' General Theory was the greatest contribution to behavioral economics before the present era. Almost everywhere Keynes blamed market failures on psychological propensities (as in consumption) and irrationalities (as in stock market speculation). Immediately after its publication, the economics profession tamed Keynesian economics. They domesticated it as they translated it into the “smooth” mathematics of cla**ical economics. But economies, like lions, are wild and dangerous. Modern behavioral economics has rediscovered the wild side of macroeconomic behavior. Behavioral economists are becoming lion tamers. The task is as intellectually exciting as it is difficult.