The Big and the Small in Economics and Sociology

June 16, 2010

Economist Mark Thoma has an interesting piece up at the blog Money Watch: The Macroeconomic Foundations of Microeconomics. Thoma argues that microeconomists need to take as their starting point one of the assumptions of modern macroeconomics – that sticky prices prevent markets from moving immediately to equilibrium – and build models in light of that assumption to help macroeconomists understood macrodynamics. In other words, microeconomists need macrofoundations.

It’s a neat argument, and I encourage everyone to read the relatively short essay. I also wonder if there might not be similar analogies that would hold over in the land of Sociology, with all our debates about bath-tub models and microfoundations and whatnot. Are there macrofoundations that need to be worked into microsociological models to be further explored? Are we doing that already? Is the whole micro-macro metaphor thing a big waste of time and energy?


6 Responses to “The Big and the Small in Economics and Sociology”

  1. […] Hirschman, posting at Socializing Finance, links us to Mark Thoma’s thoughts on macrofoundations for […]

  2. I’m not really sure what the author you link to is intending to say. He seems to be saying that macro would be improved if micro theorists would adopt the wage rigidity assumptions of macro, which would in turn help inform macro.

    But as far as I understand, modern macro models are essentially just micro models themselves — they consist of a representative firm, household, and government sector in a dynamic stochastic general equilibrium. There isn’t much additional machinary besides that. That’s basically true for both New Classical and New Keynesian approaches, except New Keynesians have price rigidies and imperfect competition. So for a micro theorist to adopt the assumptions of a New Keynesian macro theorist would just mean using a macro model (?)

    As for sociology, that’s an intriguing question. Since performativity is a popular topic on this blog, I’ll say that I think one of the implications of that program is that we might need to take macro sociological theory into account when doing micro. So, an obvious question is: how does the popularity of the “Risk Society” concept or Marxist political economy shape people’s behavior, norms, etc. This sort of thing will matter more in certain domains than others.

    Interestingly, it seems that this awareness of the reflexivity of social theory is exactly what drove the development of modern macroeconomics in the first place. If you look at the Lucas Critique and similar writings in the 1970s, you see this concern with how individuals will react knowing that monetary authorities use certain macro models to do monetary policy.

  3. danielbeunza Says:

    Dan — I could not disagree more. These debates about macro and micro levels of analysis are exactly where the action is in economic sociology. This is not just what emerges from reading Woody Powell and colleagues (e.g., Colyvas and Powell 2007), but also the reason why macro sociologists, from Fligstein to marxists are so against performativity. Paraphrasing someone’s description of football, I’d say that this debate is not at matter of life and death — something much more important than that.

    Here’s my take. Over the last two decades institutional theory has taken a turn to agency. This has taken the form of the research on the heroic institutional entrepreneurship. Others are focusing more on politics and contestation — the whole work on “logics” by Lounsbury. Institutions are now conceptualized as political settlements, and social movements are a key driver of institutional change.

    But institutional theory seems to be running into a loop here. The more that agency is allowed for –the more “micro” it goes– the less important are institutions as a source of inertia, etc. How can you have a situation that allows for limited aggregate change but also envisions a greater role for individual agency? The lack of a framework makes it difficult account for the sheer difficulty of large scale institutional change.

    The solution, as you rightly link in your message, is technology. Technology is an alternative source of permanence and durability that allows individuals to develop agency and counter institutional pressures. Hence the point of the work of Latour and Callon, especially “unscrewing the big leviathan”.

    In my own work with Fabrizio Ferraro, we are now looking at these efforts to introduce large scale social change by changing the decision-making tool — the market device. We are following how a large company that supplies financial data to banks and funds has introduced data on corporate responsibility on its computer terminals. Judging from the reactions of the established protagonists of the responsible investment field, this is a momentous change that could have a lot more impact than countless mobilizations done by activists. Again technology mediating the micro-macro split.

    • First, I very much look forward to your work with Fabrizio! I was just speaking with my econ phd-student housemate about this line of research in Sociology, and (for example) the lack of such tools for individuals making decisions about climate change and energy consumption. These problems seem incredibly fruitful, with potentially large payoffs.

      Second, I agree that these debates are where the action is. I just meant that perhaps the action should be re-framed, in the style of actor-network theory. Conflating agency and individuals, or institutions=big and individuals=small, is exactly the sort of theoretical trap that ANT seems suited for avoiding. Technology plays a key role, as you say, but for me the payoff is not having to talk about the macro and the micro in the same old terms. Technology does not just mediate the micro-macro split, it invents the split in the first place! The rejection or ignorance of that argument contributes to (or drives) the institutionalist critique of performativity arguments being too “small”.

  4. danielbeunza Says:

    Dan — we actually see the issues in the same way. After I wrote my comment, I had a very interesting chat with Fabrizio about your post, and we realized that I had misread your post. Because you wrote “big waste of time and energy” and linked to the Leviathan paper, I interpreted your post as “against” the ANT take on the macro-micro divide. But I realize now that you meant the opposite. We are in agreement.

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