Sadly, macroeconomics IS based on common sense.

This article by Stephen Moore in the WSJ basically sums up the economic viewpoint of naive conservatives. Key excerpts:

I'm surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense... 

How did modern economics fly off the rails? The answer is that the "invisible hand" of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new "macroeconomics," a witchcraft that began to flourish in the 1930s during the rise of Keynes. Macroeconomics simply took basic laws of economics we know to be true for the firm or family—i.e., that demand curves are downward sloping; that when you tax something, you get less of it; that debts have to be repaid—and turned them on their head... 

As Donald Boudreaux, professor of economics at George Mason University and author of the invaluable blog Cafe Hayek, puts it: "Macroeconomics was nothing more than a dismissal of the rules of economics."..."All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.

I won't bother to rebut the article, since David Glasner and Paul Krugman do a good job of it. I just want to add two points. 

First of all, a minor point. Students do not hate macroeconomics because it is counterintuitive. They hate it because it has more math than they expected it to have. A lot of econ students are business majors who simply don't think of themselves as "math people," and are surprised to find themselves in an applied math course. But this is kind of unavoidable; since so much of business requires math skills these days, MBA types will have to toughen up some time, and econ classes are as good a time as any. Cheer up, business majors, taking derivatives builds character!

But anyway, on to my main point. Moore is wrong; much of macroeconomics is, in fact, based on "common sense" very similar to Moore's! I am referring, of course, to the "neoclassical" (or "freshwater" or "RBC") school of macro, whose theories have more-or-less dominated the field since the early 80s. These theories use plenty of math, but no more than their chief rivals, the Neo-Keynesian theories. The reason neoclassical models retain such popularity is that their assumptions are considered plausible by many economists - in other words, the assumptions seem like "common sense."

What are those assumptions? Well, they're pretty much the same as Stephen Moore's! "Real" business cycles are assumed to be driven by supply shocks, as Moore feels they must be. These supply shocks can take the form of technology shocks, or changes in people's willingness to work - as in Moore's example of his lazy son, unemployment in freshwater models is often a result of people deciding to "sit on their duff." As for taxes, neoclassical theorists assume that the Frisch elasticity of labor supply is really high, meaning that income taxes strongly discourage people from working. And neoclassicals assume that fiscal stimulus causes people to anticipate higher future taxes ("the money has to come from somewhere!"), rendering stimulus ineffective.

To reiterate: 1) All of these assumptions are exactly the same as Moore's "common sense." 2) Models that use there assumptions are widely accepted because the assumptions are considered plausible - i.e., because they are "common sense." And 3) The implications of these models - that fiscal stimulus, taxes, and unemployment benefits are bad for the economy - are exactly what Moore's "common sense" leads him to conclude.

In other words, Stephen Moore's intuition has allowed him to reproduce much of freshwater macro in his head. Should we conclude that common sense is in fact a very good tool for understanding the economy? Or should we conclude that the highly formalized math of freshwater macro is little more than window-dressing for a conservative worldview that people believe in because it just sort of feels right? I tend to lean towards the latter, given how little use common sense has been in the development of physics, chemistry, biology, and psychology. But who knows. Maybe I am wrong, and economics is in fact simpler and more intuitive than the natural sciences.

In any case, Stephen Moore should cheer up. Every business-cycle theory that has won a Nobel Prize since 1981 is squarely in line with his common sense.


Update: Stephen Williamson thinks that this post was meant to ridicule Ed Prescott. Far from it! Williamson must be thinking of this post, this post, and this post. ;-)