Keynesian alchemy
January 17th, 2009When chemist discovered alchemist were cranks and one couldn’t actually turn lead to gold, what were the policy implications?
When the king asked his alchemists-turned-chemists for gold, did the chemists continue the alchemist’s line — “I can turn 1 pound of lead into 1.5 pounds of gold!” — or did they have the guts to share with him their new found truth that you can’t get something for nothing?
Did kings have to learn graduate level chemistry before they stopped asking for gold or did their advisors grow spines?
…
Perhaps the chemists didn’t have faith that their new science was correct. Why upset the king with the truth if you don’t believe it either?
January 17th, 2009 at 5:26 pm
The “Keynesian revival” over the last few months was really surprising and, dare I say it, depressing.
January 17th, 2009 at 6:13 pm
So do we not believe this stuff or are we spineless advisors?
January 17th, 2009 at 6:39 pm
Stiglitz is right… scratch the surface and most economists believe in the neoclassical synthesis, i.e. “classical” trend + output gaps. Micro-level efficiency and macro-level failure. Basically, Mankiw’s textbooks. That’s why a lot of effort is invested in rediscovering old results via new tools.
January 17th, 2009 at 7:48 pm
“macro failure” – doesn’t that explain your Keynesian revival?
January 17th, 2009 at 8:45 pm
Huh… I’m not sure I follow this conversation anymore.
“Output gap keynesianism” gives us a deceivingly simply story about the economy. There’s really no alternative out there, in terms of simplicity and verisimilitude.
Sure, you can always rationalize one particular event in a model with enough shocks, but… I just don’t know.
January 17th, 2009 at 10:08 pm
You said you didn’t get the Keynesian revival but then you went on to say that people intuit outgapism. If you’re intuition is Keynesian, it shouldn’t be surprising for you to be Keynesian when push comes to shove.
January 18th, 2009 at 12:09 am
Oh, ok. I think that the output gap story is simple and therefore accessible and easy for people to apply (and people love stuff they can master!) but I also think it’s deceivingly simple, in that policy is too easy to conduct.
The Keynesian revival is equivalent to closing our eyes to a bunch of glaring issues and inconsistencies with the data record.
January 18th, 2009 at 1:40 am
I think I’ve mastered it. It’s minmax without the min!
January 18th, 2009 at 12:24 pm
Well, add that to the unlimited budget constraint and I think you may be on to something!
January 18th, 2009 at 7:26 pm
Yes. All max. We just have to take the economy up to 11!