Keynesian alchemy

When 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?

10 thoughts on “Keynesian alchemy”

  1. The “Keynesian revival” over the last few months was really surprising and, dare I say it, depressing.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

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