"We ask for equations that explain what words mean"

More on this year's Nobel prize winner. I really wish I understood macroeconomics better than I do. Then again, I don't. It is much too esoteric and the leading edge research is literally impossible to decipher. [Mom, do you recall commenting on those pages and pages of equations I doodled in prep for my prelims? That was my attempt to understand "rational expectations," which is the foundation of Prescott's work.]

This article accomplishes several things. First, it offers a nice, breezy explanation of "time inconsistency." E.g., I like this paragraph:

The clever editorial writers at The Financial Times last week compared 'time consistency' to Odysseus' famous trick of putting wax in the ears of his oarsmen and lashing himself to the mast, thus hearing the Sirens' beautiful song, without commanding his boat to steer into the rocks, or throwing himself into the sea.

And it offers a brief history of macro thought. But most importantly, it provides a glimpse into how theoretical macroeconomists work. This excerpt is nice:

[O]ne morning [Bob Lucas] came to work and found in his mailbox a note from Prescott:

"Bob,

This is the way labor markets work.

v(s,y,λ) = max{λ,R(s,y) + min [λ,βº v (s',y,λ)f (s',s)ds']}.

Ed"

...

[Lucas] writes, "Other features of the equation were as novel to me as they are (I imagine) to you."

"The normal response to such a note, I suppose, would have been to go upstairs to Ed's office and ask for some kind of explanation. But theoretical economists are not normal, and we do not ask for words that 'explain' what equations mean. We ask for equations that explain what words mean.

"Ed had provided an equation that claimed to explain how labor markets work. It was my job to understand it and decide whether I agreed with this claim. This took me a while...

I like that very much. It says a lot about the stubborness/competitiveness of economic theoreticians. Yes, theory guys are the badasses of economics. Its too bad that macro has to invoke such fricken complicated equations.