tag:blogger.com,1999:blog-2546602206734889307.post6507861140203743155..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: The New Classical Revolution: Technical or Ideological?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-2546602206734889307.post-2768210190296534222015-03-17T12:52:07.741+00:002015-03-17T12:52:07.741+00:00This comment has been removed by the author.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46771919969331416372015-03-17T12:51:01.150+00:002015-03-17T12:51:01.150+00:00This comment has been removed by the author.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-89595485682110206422015-03-17T12:49:15.371+00:002015-03-17T12:49:15.371+00:00This comment has been removed by the author.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-81345147678641145702013-01-02T08:20:27.961+00:002013-01-02T08:20:27.961+00:00Robert Lucas and the intellectual collapse of fres...Robert Lucas and the intellectual collapse of freshwater economics-Professor Lars Pålsson Syll Malmö University<br /><br />https://larspsyll.wordpress.com/2012/12/31/robert-lucas-and-the-intellectual-collapse-of-freshwater-economics/#comment-3121<br />31 December, 2012 <br />In a recent lecture on the US recession, Robert Lucas gave an outline of what the new classical school of macroeconomics today thinks on the latest downturns in the US economy and its future prospects.<br /><br />Lucas starts by showing that real US GDP has grown at an average yearly rate of 3 per cent since 1870, with one big dip during the Depression of the 1930s and a big – but smaller – dip in the recent recession.<br /><br />After stating his view that the US recession that started in 2008 was basically caused by a run for liquidity, Lucas then goes on to discuss the prospect of recovery from where the US economy is today, maintaining that past experience would suggest an “automatic” recovery, if the free market system is left to repair itself to equilibrium unimpeded by social welfare activities of the government.<br /><br />As could be expected there is no room for any Keynesian type considerations on eventual shortages of aggregate demand discouraging the recovery of the economy. No, as usual in the new classical macroeconomic school’s explanations and prescriptions, the blame game points to the government and its lack of supply side policies.<br /><br />Lucas is convinced that what might arrest the recovery are higher taxes on the rich, greater government involvement in the medical sector and tougher regulations of the financial sector. But – if left to run its course unimpeded by European type welfare state activities -the free market will fix it all.<br /><br />In a rather cavalier manner – without a hint of argument or presentation of empirical facts – Lucas dismisses even the possibility of a shortfall of demand. For someone who already 30 years ago proclaimed Keynesianism dead – “people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another” – this is of course only what could be expected. Demand considerations are simply ruled out on whimsical theoretical-ideological grounds, much like we have seen other neo-liberal economists do over and over again in their attempts to explain away the fact that the latest economic crises shows how the markets have failed to deliver. If there is a problem with the economy, the true cause has to be government.<br /><br />Trying to explain business cycles in terms of rational expectations has failed blatantly. Maybe it would be asking to much of freshwater economists like Lucas to concede that, but it’s still a fact that ought to be embarrassing. My rational expectation is that 30 years from now, no one will know who Robert Lucas was. John Maynard Keynes, on the other hand, will still be known as one of the masters of economics.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-64794422155925682342012-12-21T14:35:23.179+00:002012-12-21T14:35:23.179+00:00It strikes me as odd that you need to reply whethe...It strikes me as odd that you need to reply whether Krugman is or not at the forefront of research in macro. Note that not being trendy and fashionable, which is the actual meaning of Williamson's "being out of touch" critique, is uterly irrelevant. What it is expected of science is not fashion, but relevance following logic and evidence. In fact, I would argue that Krugman is penalized by using the fashionable DSGE (but New Keynesian) models, which are not as good as old fashioned Keynesian models without intertemporal maximization. Note that Godley type models (developed there in Cambridge) have done much better at explaining and predicting the crisis.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-88802832549545350102012-12-19T14:13:30.116+00:002012-12-19T14:13:30.116+00:00Re the Conservative Party (in footnote note 3)
Ha...Re the Conservative Party (in footnote note 3)<br /><br />Hasn't the Conservative Party always been in favour of reducing government expenditure and the size of the State, the Labour Party more or less the opposite? The policies are consistent, it's the intellectual justification that changes with the times. The evidence is selected to suit. <br /><br />The majority of the population will always follow what PK's Very Serious People suggest, deferring to a perceived higher authority and insider knowledge (Blair's justification for the invasion of Iraq being a classic)unless it is manifestly going horribly wrong. in that case this recession has not been severe enough to convince the average voter to risk rejecting austerity and Very Serious Conservatives in favour of a Keynesian boost from a Not Very Serious Labour Party. <br /><br />After Gordon Brown's failings (if only because it was his hand on the wheel when the ship hit the rocks) and the successful interaction of debt paranoia and the historic characterisation of Labour as spendthrifts, Labour are unable to adopt a sufficiently serious posture to convince the electorate that there is a practical alternative. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-22350087882991858882012-12-19T13:07:06.067+00:002012-12-19T13:07:06.067+00:00Here comes a take from the layman's point of v...Here comes a take from the layman's point of view:<br /><br />Hm, so what is the new classical / New Keynesian answer to the outcome of the Capital Debates? Hand-wawing, I guess.<br /><br />So the Cambridge UK school of economics have revolutionized macro and shown that marginalism is logically inconsistent even at the micro level. Enter the New Classicals with REH, etc. and say: the problem with economics is that there is too little marginalism micro underpinning the bastard-Keynesian macro. We should, consequently, work harder to base our understanding of macro on the marginalism micro, no matter the logical problems of marginalism and no matter empirical evidence. <br /><br /><br />Great. So the last 20 or so years in macroeconomic research have been spent trying to base the somewhat functioning bastard-keynesianism on the empiricilally unproven and logically inconsistent marginalist micro, bacause, you know, you can use complicated maths in DSGE modelling. I'd say 'rotten' is too charitable a word givien the consequences of this theory in the realm of practical policy making.<br /> <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-90810544599069521352012-12-19T03:04:16.311+00:002012-12-19T03:04:16.311+00:00Forgive me, but could you expand on this please:
&...Forgive me, but could you expand on this please:<br /><b>"It was New Classical economists who recognised the importance of Muth’s rational expectations idea, and it is hard to imagine making sense of what the Fed has done this year without it."</b><br /><br />In particular, "hard to imagine making sense of what the Fed has done"<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-75368054203106342442012-12-18T21:22:21.435+00:002012-12-18T21:22:21.435+00:00"work" not "world" ... sorry, ..."work" not "world" ... sorry, I should spell check before posting!David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63286556485024617412012-12-18T21:21:02.493+00:002012-12-18T21:21:02.493+00:00You would not think of suggesting that PK is out o...<i>You would not think of suggesting that PK is out of touch unless you are in effect dismissing or marginalising this whole line of research.</i><br /><br />This just does not follow logically. Of course, PK can do a NK model. The point that Steve is making is that PK appears to be completely ignorant of the world macroeconomists have done on financial frictions since the early RBC models. Yes, he is completely out of touch. And no, this is no way marginalizes the NK research program.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-3961455763832369532012-12-18T19:35:08.346+00:002012-12-18T19:35:08.346+00:00"too much of an obsession with microfoundatio..."too much of an obsession with microfoundation purity"<br /><br />Actually, I think we get this about right. If the tools are there to go deeper, and you can do it without losing clarity or tractability, you should do it. How much you do of course depends on the nature of the problem. For example, its not useful to have a theory of asset pricing that starts by defining preferences over assets. I think most people accept that. You can go too far with it though. Lucas regognizes that here:<br /><br />http://www.economicdynamics.org/News271.htm#interview<br /><br />"too little interest in evidence"<br /><br />I don't know where you get that idea. I see plenty of good empirical work done by Keynesians and non-Keynesians. Note that the revolution itself was in part an empirical revolution.<br /><br />"refuses to acknowledge the centrality of Keynesian insights to macroeconomics"<br /><br />Is Keynes central to macroeconomics? Should he be? I don't know. As scientists, we don't just accept things - Keynes for example - as truth. We keep asking questions. That's what I do here for example:<br /><br />http://newmonetarism.blogspot.com/2010/11/eggertsson-and-krugman.html<br />http://newmonetarism.blogspot.com/2012/09/eggertssonwoodford-and-forward-guidance.html<br />http://newmonetarism.blogspot.com/2012/11/managing-liqudity-trap-monetary-and.html<br /><br />There are people who take this stuff seriously, so I feel responsible to learn what it is about. I'm not dismissive, by any means. Of course, if I thought this was the most productive avenue for research, I would be doing it. Other people should feel free to do it, but I think there are higher returns elsewhere. <br /><br />Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-6022119380987128622012-12-18T15:49:04.301+00:002012-12-18T15:49:04.301+00:00"The first is methodological: too much of an ..."The first is methodological: too much of an obsession with microfoundation purity, and too little interest in evidence."<br /><br />Indeed. And if Friedman were alive today, this would be his biggest criticism. JSeydlhttp://www.jseydl.com/category/economics/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43663238277651609382012-12-18T14:22:19.568+00:002012-12-18T14:22:19.568+00:00“What these people had on their side were mathemat...“What these people had on their side were mathematics, econometrics, and most of all the power of economic theory."<br /><br />In other words: what they had on their side was stuff that is up for dispute, but which Williamson assumes is good throughout his post.Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.com