Must Macroeconomic Theories Have Microfoundations?: Macroeconomic theories which do not derive such phenomena from microscopic interactions are thus incomplete, and intellectually unsatisfying.... So: the true and complete theory of macroeconomics must emerge from the true and complete theory of microeconomics.... [But if] a good macro-level theory cannot be founded on our current micro-level theory, this could be due to:
- (a) defects or weaknesses in our techniques for calculating aggregate consequences of micro-level interactions;
- (b) specifying the wrong sort of initial/boundary conditions, or interaction structures, in the microscopic models;
- (c) errors in our understanding of micro-level interactions and dynamics;
- (d) errors in our formulation of the macro-level theory.
There will certainly be some situations where (d) is right.... But it is hard for me to see why (d) should always be the preferred option in economics... it seems mere prejudice that it should always be macro which adjusts....
[C]irca 1900 classical mechanics and electromagnetism were extremely well-confirmed theories, in much better shape that microeconomics is. Nonetheless, any attempt to explain condensed matter physics on that basis, starting from molecular interactions, was doomed...
See "ultraviolet catastrophe."