What are We Learning About the Long-Run

The most famous truism in economics is the statement by Lord Keynes, that 'in
the long-run we are all dead'. It does not imply that the long run is unimportant,
after all institutions can exist for a long time, the Royal Economic Society being
an example, and most of us are altruistic enough to be concerned about the
economic well-being of our children and grandchildren. What Keynes was
actually emphasising was that the study of the short run is also important, as
his statement continues : 'Economists set themselves too easy, too useless a task
if in tempestuous seasons they can only tell us that when the storm is long past,
the ocean is flat again.' I doubt if that is the kind of forecast made by current
economists.
Until recently there has been a rather strange division of labour amongst
ac%ademice conomists with economic theorists generally being concerned with
equilibrium, which in the macroeconomy is associated with the long-run, and
being relatively little concerned with disequilibrium, the short-run. On the
other hand econometricians have largely concentrated on short-run dynamics,
and even simultaneity, and have given less attention to long-run relationships.
This is illustrated by the usual omission of the entry 'equilibrium' in the
indexes of econometrics texts, including the three volume Handbook of
Econometrics (Grilliches and Intrilligator, 1984). If macrotheories are about
equilibria and econometric techniques are not, it becomes difficult for these
theorems to be tested on actual data.