Arnold Kling  

Two From Mark Thoma

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Keynes v. Hayek, Round 2... Accounting and Financial Crise...

1. He points to Noah Smith's description of learning Dark Age Macro.


I absolutely don't blame Chris House for teaching what he taught. Our curriculum was considered to be the state of the art by everyone who mattered. Without a thorough understanding of DSGE models and the like, a macroeconomist is severely disadvantaged in today's academic job market; if he had spent that semester teaching us Kindleberger and Bagehot and Minsky, Professor House might have given us better ways to think about history, but he would have been effectively driving us out of the macroeconomics profession.

(Read the whole thing. It's spot on.)

If you want to talk that way, then I was driven out of the macroeconomics profession, because I listened to Robert Solow. Criticize his politics all you like, but Solow could smell the rotten fish that came to be modern macro. He was interested in what were at the time the more interesting alternatives--Barro-Grossman, Malinvaud, Clower, Leijonhufvud--and he presented those in the macro course he taught when I was there.

For my dissertation, I tried to develop a theory of sticky prices that would help a Malinvaud (Theory of Unemployment Reconsidered) model. I came up with something based on search costs leading to kinked demand curves. Although I published it, my article had zero impact, as evidenced by the fact that the concept has been rediscovered a number of times since.

I have come around to a different point of view on macro now. If you follow this blog, you know about PSST. I keep plugging away at it gradually. I think that if Solow and I were each 30 years younger it would make a good Ph.D thesis and he would make a good adviser for it.

Noah might not blame Chris House. But I blame Stan Fischer (nice gentleman that he is), and Thomas Sargent (outstanding theorist that he is). And Olivier Blanchard (he's not really responsible, but he is emblematic, and, well, I just feel like blaming him). They created a monoculture, they had cleverness but lacked wisdom, and in my opinion, the profession suffered for it, and suffered gravely.

2. He points to Barkley Rosser, arguing with the latest Keynes-Hayek rap video. Rosser does not think that the accusation that Keynes favored central planning holds up.

I think there is something to Rosser's point. The classic documentary The Commanding Heights made the same oversimplification, and I recall feeling uneasy about it.

Still, Keynes was clearly less obsessed with the knowledge problem than was Hayek. And among the followers of Keynes and Hayek, the polarization seems to have increased. Contemporary Keynesians are committed to treating government as if it were a knight in shining armor prepared to slay the many dragons of market failure. Contemporary Hayekians are probably even more convinced than Hayek that localized knowledge, imperfect science, and public choice considerations argue in favor of markets.

So, although I can see where Rosser is coming from, in the end, I don't think that the new video gives Keynesians an undeservedly bad rap.


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COMMENTS (8 to date)
Jim Glass writes:

And among the followers of Keynes and Hayek, the polarization seems to have increased.

They've both sorely suffered from the law of diminishing disciples.

Contemporary Keynesians are committed to treating government as if it were a knight in shining armor prepared to slay the many dragons of market failure. Contemporary Hayekians...

... popularly tend to be Rothbardians, in my experience.

Jon writes:

Keynes's undeserved celebrity was a nice touch, and true: what in the GT was both right and novel?

Noah Yetter writes:

"...does not think that the accusation that Keynes favored central planning holds up."

He wasn't a Fabian or a Bolshevik, but yes, he favored central planning.

JMK: "...a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment."

Again, JMK: "In contemporary conditions we need, if we are to enjoy prosperity and profits, so much more central planning than we have at present that the reform of the economic system needs as much urgent attention if we have war as if we avoid it."

Eric Hosemann writes:

Keynesians disavow central planning but point to war as an example of stimulus. What is war if not the single best example of central planning?

Foobarista writes:

An irony of Keynesianism is that it's used by numerous lefties to justify all manner of arguments that ultimately boil down to overpaying for government. After all, keeping the cash flowing stimulates the economy...

Keynes said: "even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist". The oddity is the long-dead economist who holds vast sectors of the political class in thrall is Keynes himself.

Sam writes:

Eric Hosemann wrote:


What is war if not the single best example of central planning?

Yet military history also says "No battle plan survives contact with the enemy". You plan centrally, but you also have to be highly reactive to the actual facts on the ground as they develop over time, which leads successful militaries to push much decision making, especially about details of implementation, down to lower levels.

Methinks writes:

"No battle plan survives contact with the enemy"

All that means is that central planning doesn't work.

Kimball Corson writes:

And how pray tell are we to observe as we just have major market crashes and place any credibility or stock in the Hayekian idea "that localized knowledge, imperfect science, and public choice considerations argue in favor of [those] markets [being left to themselves]." It's daft.

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