Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 17 June 2015

Speak for yourself, or why anti-Keynesian views survive

“The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government.”

Statements like this tell us rather a lot about those who make them. As statements about why people hold macroeconomic views they are wide of the mark. Of course there is confirmation bias, and ideological bias, but as the term ‘bias’ suggests, it does not mean that evidence has no impact on the views of the majority of academics.

The big/small government idea makes no theoretical sense. Why would wanting a larger state make someone a Keynesian? Many Keynesians, and most New Keynesians, nowadays acknowledge that monetary policy should be used to manage demand when it can. They also know that any fiscal stimulus only works, or at least works best, if it involves temporary increases in government spending. So being a Keynesian is not a very effective way of getting a larger state.

It is also obviously false empirically. In the UK and US a large majority of economists appear to hold Keynesian views. I think it rather unlikely that a similar majority want a large state, and I can think of some notable Keynesians who clearly do not. Central bank models are typically Keynesian. Does that mean central banks want a larger state? No, it means the evidence suggests Keynesian economics works.

Russ Roberts says more recently:

The evidence is a mess leaving each of us free to cherry-pick what sustains our worldview be it ideological or philosophical or just consistent with our flavor of economics.”

Ryan Bourne of the Institute of Economic Affairs goes further:

“when the facts change, the Keynesians don’t change their minds.”

To illustrate their belief that Keynesians ignore awkward facts both the authors above use the example of US growth following the 2013 sequester. (In my experience anti-Keynesians tend to shy away from data series, and especially econometrics, and prefer evidence of the ‘they said this, and it didn’t happen’ kind - particularly if ‘they’ happens to be Paul Krugman.) The problem is that this episode actually illustrates the opposite: that anti-Keynesians are so keen to grasp anything that appears to conflict with Keynesian ideas that they fail to do simple analysis and ignore others that do.

In this post I just looked at the data and did some simple arithmetic to show that this episode was quite consistent with Keynesian fiscal policy analysis. I’m sure others have done the same. But such analysis just gets ignored: they have a superficially good story, and that is all that matters. (Read this post to see how Scott Sumner in response to my work dug himself an even deeper hole.)

Why do we have to go over, yet again, that the clear majority of studies show that Obama’s stimulus worked. Why do we have to keep going over why UK growth in 2013 does not prove austerity works? Why do these people never mention the meta studies that confirm basic Keynesian analysis of fiscal policy? Because they want to believe that the “evidence is a mess” so they can carry on holding their anti-Keynesian views.

Parts of the political right have always had a deep ideological problem with Keynesian analysis. As Colander and Landreth describe, the first US Keynesian textbook was banned. New Classical economists, for all the many positive contributions they brought to macro (in the view of most mainstream Keynesians), also tried to overthrow Keynesian analysis and they failed. 

When anti-Keynesians tell you that support or otherwise for Keynesian macroeconomics depends on belief about the size of the state, they are telling something about where their own views come from. When they tell you everyone ignores evidence that conflicts with their views, they are telling you how they treat evidence. And the fact that some on the right take this position tells you why anti-Keynesian views continue to survive despite overwhelming evidence in favour of Keynesian theory.

54 comments:

  1. Thanks for this post. I used to read Greg Mankiw, Tyler Cowan and Scott Sumner a few years ago but stopped after Realising they have a right wing bias and getting tired of that bias. I worry that I'm being selective in what I read, but your post allays those worries to some extent. If you know of any conservative economists who are worth reading, do let us know!

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  2. Kien17 June 2015 at 02:18

    Clearly, you prefer left-wing bias. here, you get what you want.

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    1. ROFL. A fine example of completely failing to understand the article.

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  3. Hugo(Spinning)17 June 2015 at 03:50

    "Why would wanting a larger state make someone a Keynesian?"

    I would have thought that a true Keynesian would not want the state to be too large as this would leave insufficient room in abnormal times for a fiscal stimulus.

    But, there are reasons why a Keynesian analysis has become confused with support for a big state.

    First, the highpoint of Keynes' influence in the UK was the 1950s to 1979: the period associated with the growth of the state.

    Second political commentators (like Polly Toynbee) who use Keynes always do so in order to argue for increased spending. We don't hear them argue 'we need to ensure the debt/GDP ratio is falling in good times'.

    Third the prominent economic commentators who self identify as Keynesians (most obviously Krugman in the US, and in your own small way yourself in the UK) do adopt more generally leftwing positions on other issues. The absence of a prominent small state rightwing Keynesian is a problem.

    Fourth, it was a serious failure of the Keynesian critics of austerity pre-2013 that they allowed their rhetoric to get the better of them. They gave, at a minimum, the impression that recovery would never come unless austerity were reversed. Blanchflower is an obvious, and extreme, example of this phenomenon. I would I am afraid also point the finger at you in this regard, although I know full well that a Keynesian analysis did not say recovery will never come, and I know you say you make no predictions.

    This confusion between Keynesian analysis and the arguments for a small state is now causing the right serious problems. This is seen in the simply laughable recent pieces by Niall Ferguson, and the silly irrelevant politics of Osborne enshrining a surplus in statute in 'normal' times. The blame for that confusion partially rests with those who self identify as Keynesians however. More dispassionate analysis, and less hyperbole required.

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    1. I think Greg Mankiw counts as a prominent small state right wing Keynesian, as does John Taylor.

      As for giving the 'impression' that recovery would never come, is that the 'impression' you get from this Feb 2012 post of mine

      http://mainlymacro.blogspot.co.uk/2012/02/when-growth-returns-prediction.html

      So what you are saying is that the Keynesians do tend to have the better analysis, but they do go over the top sometimes, so no wonder the other side makes so many mistakes. That is as silly as it sounds. Its looks like classic centrism: wanting to criticise both sides so you can be in the reasonable middle.

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    2. The ideological position on the right generally predisposes them against a Keynesian outlook. Because if you embrace Keynes, you automatically accept the premise that markets can badly malfunction and that there is a very important role for the State to intervene.

      Once you accept that premise, you have a far harder job arguing that the State shouldn't get involved in other areas where the market malfunctions.

      Far easier to simply argue State=bad full-stop. Which means you have to argue against Keynesianism regardless of the contrary theoretical and empirical evidence. Which is the approach we see from Ferguson, Bourne et al.

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    3. Nah.The problem pieces were ones like this

      http://mainlymacro.blogspot.co.uk/2012/10/the-uk-and-austerity-some-facts.html

      which failed to notice that 'austerity' had, effectively, ended. This kind of thing made those who had been so heavily critical of Osborne up until the Spring of 2013 look silly. If (as was actually so) Osborne had eased back on austerity 18 months earlier, critics were entitled to ask why they had said no such thing at the relevant time.

      That kind of thing doesn't matter very much anymore, save that some people (eg Blanchflower again) don't seem to have learned.

      As for 'centrism' the entire point I would have thought is that that there is no center as we are talking about different axes. One can be a small state Keynsian, or a big stater who rejects Keynsianism. (although those categories are small). FWIIW. I am a Keynseian to the extent I am qualified to describe myself as anything, I am not a centerist on that. But I do think that some of its exponents are their own worst enemies, resorting to ridiculous hyperbole, caused by thinking that those who don't wholly agree are idiots. That doesn't, I accept, amount to an equivalent degree of fault to that, say, Ferguson is guilty of.

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    4. We can only go on the figures that are available, which I give in that post. Now of course if Osborne had said what he was actually doing ... But just look what is going on here. You are criticising one side for not picking up the change in policy quick enough, but both Osborne and his defenders still refuse to acknowledge the policy change three years later! Quite how we are our own worst enemies I fail to see.

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    5. Very slippery, dodgy comments by Hugo.

      "Fourth, it was a serious failure of the Keynesian critics of austerity pre-2013 that they allowed their rhetoric to get the better of them."

      For instance, in the US the economy was facing the "fiscal cliff" which many of the critics of austerity were warning about. Luckily Obama outmaneuvered the Republicans who backed down and a deal was struck. But if the fiscal cliff had hit, things would have been much worse.

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    6. In the US the anti-Keynesians seem, at least to me, to be much more of a problem (as they also are in the Eurozone).

      In the UK there really are no examples of serious believers in "expansionary fiscal contraction" even on the right (the sighting of these mythical beasts are so fleeting that they are best dismissed as mere rumour).

      Osborne himself is much more of a Keynesian than either he or his critics would admit, as revealed by his actions if not his rhetoric. That is probably because Osborne is not a complete idiot. Stuff like legislating for a surplus is politics, as his refusal to admit he changed course. What would anyone expect him to do?

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    7. To tell the electorate the truth, not to knowingly deceive and to be honest. That is what I expect of him and our elected public servants.

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    8. No Chancellor in my lifetime meets that standard, not even Darling who I liked.

      Cripps maybe? But before my time.

      That is politics.

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  4. Yes, Anonymous, facts have a curiously left-wing bias, don't they? How rude of reality!

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    1. That is in the eye of the observer.

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    2. No, the facts- supported by accurate, relevant evidence and data, are not 'in the eye of the observer'.

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  5. This comment has been removed by a blog administrator.

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  6. I have noticed a strong proclivity for this sort of 'name-tag' stance-taking among right wing/conservatives. Particularly in the US. It seems 'Keynes' substitutes for 'Darwin' when they shift from creationist to economic issues. And makes as much sense as they do on that turf ...

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  7. Indeed, the "Keynesian" state cannot be too big because that would constrain the effects of and ability to enact discretionary spending. Actually, a big state without discretionary spending is much closer to the german ordoliberal model (small state without discretionary spending is the classical/neoclassical dream economy, while big government with even more discretionary spending, I don't know, does it exist? Scandinavia or Japan?)

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  8. This is a very reasonable article, in isolation. However, immediately after reading it, I read a recent Paul Krugman article where he wholly attributes Florida's outperformance in relation to Spain to American fiscal spending. Okay, maybe there is a reasonable argument for the subordinate role of independent monetary policy. But there isn't even a discussion of alternative explanatory frameworks.

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    1. No he doesn't wholly attribute Florida's "outperformance in relation to Spain to American fiscal spending".
      He simply makes the point that Florida's economic slump was much milder than Spain's due to the fiscal integration and fiscal transfers in the USA, compared to the lack of integration and transfers in the EU, which had they existed would have made Spain's economic slump a lot milder. Whilst he only cites this reason in the short blog post, he does not expressly state that this is the only reason for the differences in the slumps of the two countries.

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    2. I think that your point is true, yet exceedingly generous. If an economist arrives at a row of crushed cars, he would be odd to specify that an elephant had crushed the cars. A generous observer, such as yourself, would note that the hypothesis does not exclude alternative explanations. But the role of the intellectual is to carve away less plausible explanations.

      Imagining reasonable hypotheses and accumulating supporting evidence are talents, but they are talents that support the echo chamber tendency noted by Russ Roberts. Understanding and challenging the next most reasonable arguments is a disciplining process. If you reflexively return to your model without even bothering to note competing explanations, you risk falling into the trap of confirmation bias.

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  9. This sort of postmodernism works in journalism.

    When Robert Peston recently accused the writer of this blog and others of:

    "I am simply pointing out that there is a debate here (though Krugman, Wren-Lewis and Portes are utterly persuaded they've won this match - and take the somewhat patronising view that voters who think differently are ignorant sheep led astray by a malign or blinkered media).”

    This contradicts completely the reply I received on the 02/05/2012 from the BBC's Editor of our Business and Economics unit, in which they said:

    "The job of our economics team is to make sense of hugely complicated areas such as these for general audiences, and for that reason they would often choose not to deploy such difficult jargonistic terms as liquidity trap – especially in a short bulletins piece - if they felt such a term would not add to audience understanding."

    Only one side of this debate has been patronising and full to the brim with misdirection, and it has not been the Keynesians.

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    1. "Only one side of this debate has been patronising and full to the brim with misdirection, and it has not been the Keynesians."

      Are you sure you've been reading this blog and its commenters?

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    2. @Anonymous at 9:28 +1. And SWL is still incapable of actually defending anything but the most basic Keynesian claims.

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  10. "Many Keynesians, and most New Keynesians, nowadays acknowledge that monetary policy should be used to manage demand when it can. They also know that any fiscal stimulus only works, or at least works best, if it involves temporary increases in government spending. So being a Keynesian is not a very effective way of getting a larger state."

    But if you don't have significant regulations you end up getting bubble like the Tech stock bubble and housing bubble, before inflation has a chance to run too high and wages get to share in productivity gains.

    The fact is monetary policy preceding the bubbles wasn't too "easy." Inflation wasn't running too high. And then after the bubbles popped, the countercyclical monetary-fiscal mix wasn't enough to bring down unemployment quickly. So you need to have *enough* of a monetary-fiscal mix.

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  11. I'm an amateur looking to learn but from an objective viewpoint (given I know too little to make an educated guess as to which side of the fence I sit on) I can't see why different paradigms can't be applicable to different situations ie - Keynesianism when in crisis, a more neo-classical approach when the economy is flourishing. As Simon said, they're not mutually exclusive... BTW, someone mentioned Ferguson and from what I've heard he rips most of his work off post-graduate business students... It doesn't surprise me, he's an historian after all...

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    1. This is wrong. What most people forget is what Keynes actually recommended during a boom -- take the punchbowl away! Stop lending money! Tax the profiteers!

      Keynesianism calls for fiscal retrenchment during booms. Bill Clinton did this; I can't think of another example in the world. It's politically *very difficult*. There's always a political vibe of "we're rich, let's spend it all!"

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  12. "In this post I just looked at the data and did some simple arithmetic to show that this episode éthe 2013 sequester and following events] was quite consistent with Keynesian fiscal policy analysis. I’m sure others have done the same"

    Indeed others have including me. The key point is that sequestration was not associated with a noticeable change in the rate of decline of US government purchases of goods and services (G). Therefore the absense of a noticeable decline in real GDP growth provides no evidence for or against Keynes.

    http://angrybearblog.com/2014/12/on-smith-on-cowan.html

    http://angrybearblog.com/2014/12/on-smith-on-cochrane-on-keynesians.html

    http://angrybearblog.com/2015/01/g-transfers-and-gdp-in-the-current-recovery.html

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  13. My point in the post you quote is that all of us, wherever we are on the ideological fence, view the evidence through our preconceived notions--ideological, philosophical, or simply the models we have published or defended in the past.

    I have never read Paul Krugman concede that a stylized fact or an historical event or an econometric study has caused him to reconsider his view that fiscal policy is stimulative. When it is convenient, he will isolate the effect of one policy change (a tax cut in Kansas, say on Kansas's economic growth) as proof that his view is correct. When things don't turn out the way his priors expected, he invokes "other stuff." But there is always other stuff in macro.

    As for formal econometric analysis, it never convinces skeptics on either side. Can you point to a sophisticated econometric analysis that has settled a contentious policy issue causing adherents to change their mind? The minimum wage? Fiscal policy? The effects of gun control on crime? You cite a Washington Post overview of whether the stimulus created jobs. Why hasn't John Taylor's study convinced you? Or why haven't the other studies that find an effect convinced John Taylor? You both have priors that are unmoved by the quality of econometric evidence.

    One way to deal with this reality is to presume that our ideological opponents are hacks and partisans. A second choice is to concede that we are all prone to confirmation bias and that evidence in economics is more like history than physics. I prefer the latter interpretation. I presume that you, like me, want to make the world a better place. We hold different views on how to get there and evidence is unlikely to settle our dispute.

    Finally, I think we should be honest about why we believe what we do. We pretend that we examine the data and come to conclusions about where the truth lies. That ignores our human propensity to filter evidence that makes us uncomfortable. I don't understand how proponents or opponents of fiscal stimulus can be as confident as they appear to be in print about the rightness of their views based on the complexity of the evidence and the complexity of the real world.

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    1. As I said in my post, of course there is confirmation bias and ideological bias. But the point the post was making is that this admits (at least) two outcomes. It admits the position you put forward, where the evidence is a mess and we all go with our biases, or it admits the case where the world is Keynesian, but because of these biases a smallish proportion of economists refuse to admit this. My post contains a number of reasons why the second is much more plausible, which your comment seems to ignore.

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    2. Russ Roberts, you staked a much stronger claim than that Krugman is unmoved by econometric evidence that fiscal policy isn't stimulate. You wrote that:

      "Krugman is a Keynesian because he wants bigger government."

      Where does this come from - other than from the voices in your head? Where does one get such an idea from - even allowing for confirmation bias and ideological bias?

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    3. Simon,

      Would you be willing to be a guest on my weekly podcast, EconTalk (econtalk.org) to discuss the evidence you discuss here and the issue of confirmation bias? Past guests include Joseph Stiglitz, Thomas Piketty, Jeffrey Sachs, and Robert Solow. I think a conversation on this topic would be highly illuminating to our listeners and to me, of course.

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    4. There is a third way. I, for example, can read the papers on minimum wage from both the left and the right. The right raises simplistic arguments based on pre-conceived ideals about how the world must work. The left raises a variety of arguments that more accurately reflect the complexity of the real world.

      The Left is not convinced by the Right because the Right have poor arguments. The Right is not convinced by the Left because the Right insist that their preconceived ideals must be true regardless of evidence to the contrary.

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  14. Russ,

    Fiscal stimulus when there is a liquidity trap is a temporary measure and is offset by austerity in good times as Roger Farmer shows

    your readings of Keynes is very poor.

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    1. But I'm not interested in what Keynes really meant. Well, I am a little bit, but that isn't the debate. The debate is over whether the US was wise to spend $820 billion to fight the Great Recession or whether British "austerity" (a word that is rarely defined carefully) was a good idea and whether either of these policies was successful. The modern proponents of fiscal policy have argued that the US stimulus was a good idea no matter what it was spent on or that it was too small. Some said the stimulus was just the right size, but failed to live up to expectations because "the crisis was worse than we thought." There is always other stuff.

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    2. "The modern proponents of fiscal policy have argued that the US stimulus was a good idea no matter what it was spent on..."

      How can you have a Ph.D. in economics and still ramble off this BS? This is first year macro. Keynesian-oriented economists are well aware that there are different mutlitpliers for different types of spending and tax cuts, and do not view all spending as equal. Plus, lets not forget that a large component of the stimulus were tax cuts (e.g. the payroll tax holiday). Keynesian economics also relies on demand side tax cuts, something that the anti-Keynesian camps quickly forgets.

      Even Keynes was well aware of different types of spending:

      "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."

      Notice Keynes was not advocating that government actually bury money, but was advocating capital spending, specifically on housing. If anything, he was poking fun at gold buggers.

      Either one of two things is happening in the anti-Keynensian camp.

      1. They cannot even comprehend first year macro.
      2. They can comprehend first year macro, but their ideological predispositions prevent them from honesty. Therefore, they create strawman arguments.

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    3. I did not say that there might not be different multipliers. I was saying that proponents of stimulus think that everything is stimulative. In Congressional testimony in 2009, Nobel Laureate Joseph Stiglitz was asked, "John Maynard Keynes said that the government could stimulate the economy by digging a hole, by paying someone to dig a hole and fill it back up again. Dr. Stiglitz, do you
      agree with that?"

      His response: "Yes, but we have better ways of spending
      money than either going to war or filling holes."

      My response: "I don't agree with it. In fact, I want to emphasize one thing we do agree on is that money spent on war is wasted. It is not a stimulus package. I think one of the most destructive and immoral economic doctrines of the last 75 years was the belief that World War II was good for our economy because it created a Keynesian multiplier. Even more effective than just digging ditches, it got people to buy tanks and airplanes. But tank and airplane purchases are good for tank and airplane manufacturers. They are not good for the rest of us. Private consumption in those times fell. It was very bad."

      Transcript is here: http://www.gpo.gov/fdsys/pkg/CHRG-111shrg55916/html/CHRG-111shrg55916.htm

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    4. *Almost* everything spent is economically stimulative.

      War spending is a really special case because it's spent BLOWING THINGS UP -- the destruction may well outweigh the stimulative value. Similarly, spending on "urban renewal" (destroying priceless old buildings), or spending on ripping up railway lines, might not be stimulative.

      Also, spending on "financial products" consists of shuffling paper around and isn't actual spending, so it isn't stimulative either.

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  15. would not a corporate controlled state be in fact a larger state? When private enterprise that is supposedly directed by the state comes into control of the state instead, when the organs of the state come under the control of private entities such as the prison industry, the military contractor industry and so on is that not big government? Corporations can rule the government just as much as the other way around, the government it charged with protecting the people from abuse, if the abusers control government that is larger government not smaller, instead of being under the thumb of government regulation alone we are then under the thumb of corporate regulation using government, twice the opression without a balance of power.

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  16. From true/false to garbage-wrestling and back
    Comment on ‘Speak for yourself, or why anti-Keynesian views survive’

    Science is about true/false and this is why most people do not like it. They point out that the world we live in is not black and white. So we have a zone of indeterminism (Schrödinger's cat!) where true and false coexist.

    This idea reappears in economics as a positive methodological principle: “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574)*

    The logical snag of this popular slogan is that roughly right is equivalent to roughly wrong. Indeterminacy works both ways, but consistency has never been the strongest point of Keynesianism.

    Keynes enthusiastically took indeterminacy on board and became the prophet of vagueness and uncertainty. Thus he occupied the ground between true and false where “nothing is clear and everything is possible.” (Keynes, 1973, p. 292)

    The problem with indeterminism is that it degenerates to anything-goes and wish-wash faster than an egg boils. The remarkable thing is that two of the most advanced scientific propositions, Heisenberg's uncertainty principle and Gödel's incompleteness theorem, are routinely cited by people who have not realized that supply-demand-equilibrium is scientifically barely on a par with the Law of the lever.

    What economics urgently needs is a return to the Principle of bi-valence, i.e. true/false, in order to minimize the zone of indeterminism. For scientists the guiding motto is “It is better to be precisely right than roughly wrong!”

    When we focus on the formalized part of Keynes's theory there is no way around the fact that it is precisely wrong. Keynes stated in the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)

    This elementary syllogism contains a fundamental conceptual error/mistake (2011) that invalidates all I=S-models without exception. The fundamental flaw of the General Theory is that Keynes got the pivotal distinction between income and profit wrong. Now, because I=S is wrong, the multiplier is wrong, and this affects the whole employment theory. The only question that remains is whether Keynes's common sense arguments apply independently from the defective formal foundations.

    Now we can advance from the intense yet pointless pro/anti-Keynesianism wrestling of Cafe Hayek, viz. “The evidence for the Keynesian worldview is very mixed”, to the straightforward Principle of bi-valence, which states unambiguously and definitively that Paul Krugman, Russ Roberts and Simon Wren-Lewis are out of science because they refer to models that are built upon the logically defective and empirically refutable I=S-proposition.**

    Pro/anti-Keynesianism survives because ‘nothing is clear and everything is possible’ is the perfect motto for a sitcom of indeterminate duration.

    Egmont Kakarot-Handtke

    References
    Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian
    Economics, 6(4): 561–575. URL http://www.jstor.org/stable/4537848.
    Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN
    Working Paper Series, 1966438: 1–20. URL http://ssrn.com/abstract=1966438.
    Keynes, J. M. (1973). The General Theory of Employment Interest and Money.
    The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke:
    Macmillan.

    * See also Lars Syll on the RWER blog
    https://rwer.wordpress.com/2013/09/19/why-it-is-better-to-be-roughly-right-than-precisely-wrong/

    ** See
    Krugman http://krugman.blogs.nytimes.com/2011/10/11/why-believe-in-keynesian-models/
    Roberts http://cafehayek.com/2011/10/the-evidence-for-keynesian-economics.html
    Wren-Lewis http://mainlymacro.blogspot.de/2015/06/speak-for-yourself-or-why-anti.
    html

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    1. "The logical snag of this popular slogan is that roughly right is equivalent to roughly wrong."

      No it isn't. If I say that a parameter's true value is in a specific range, and it is within that specific range, then I'm roughly right, not roughly wrong. I'm not a Post-Keynesian, but there is nothing logically wrong with seeking imprecise but correct theories. There are non-logical reasons to prefer, at least in some contexts, precise but wrong theories e.g. it is sometimes by testing precise models and finding them to be wrong that we find out important facts about what doesn't work.

      Incidentally, Keynes was a metaphysical determinist and criticised the idea of objective chance. Uncertainty, in Keynes's view, is always a product of our ignorance, which is why he had a logical rather than a physical interpretation of probability, and was notably uncompromising on this issue.

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  17. Simon
    In the face of everyone in the U.S. (and most people elsewhere) agreeing that there was fiscal austerity in 2013 you appear a lonely "austerity-denier" by sticking to your use of G. Why is everyone apart from you wrong?

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    1. Pathetic. When I plot data:

      http://mainlymacro.blogspot.co.uk/2015/01/faith-based-macroeconomics.html

      to show US austerity began in 2011 and continued thereafter, I am now accused of saying there was no austerity in 2013 and being an austerity-denier!! When I also point out that wider fiscal measures like underlying primary balances say the same thing, this is ignored. You follow faith based economics, and a perfect illustration of the point I am making here.

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  18. On your basis, using the same G for the UK, makes it hard to see Osborne's austerity either.
    https://research.stlouisfed.org/fred2/series/NAEXKP03GBQ652S

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  19. For right wingers it has never been about the size of the state but who benefits from its largesse. Military contracts? Fine. Police and surveillance state? We need to be safe. Jobs for our sons and daughters in the legal system, diplomatic corps and civil service? Only nat'ral.

    Universal access to education? Waste of resources on 'them'. Safety net against micro-economic market failures? Scroungers more like. Local government services? Bunch of grifters you wouldn't trust to run a piss-up in a brewery.

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    1. "For right wingers it has never been about the size of the state but who benefits from its largesse"
      Bingo, bingo, bingo.

      It's always class war for right-wingers. Always. This is the only way to make sense of their behavior.

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  20. Thank you Simon. I am not an expert in economics and was starting to have a crisis of faith in supporting an anti-austerity agenda, but you have given me the belief back, and to take on my opponents!

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  21. You make a fair point. But I wonder if it's not too anglocentric. For example, a lot of people think Germany is an economic success-story. So the predominantly non-Keynesian mainstream view of German economists (and in parts of Asia ?) needs some careful explanation.

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  22. "The big/small government idea makes no theoretical sense. Why would wanting a larger state make someone a Keynesian? "

    Reverse the question: is there any strategy for which small government makes sense?

    I suspect that a lot of those non-economists who support anti-Keynesian views or who fund those who research on their behalf believe that smaller government costs less to run than big government, and that they would therefore pay smaller taxes. That is as far as their logic carries them. Multipliers are too abstract but paying money to the taxman hurts them deeply.

    I believe that it - and they - are as simple as that.

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  23. "The big/small government idea makes no theoretical sense. Why would wanting a larger state make someone a Keynesian? "

    Reverse the question: is there any strategy for which small government makes sense?

    I suspect that a lot of those non-economists who support anti-Keynesian views and fund those who research on their behalf believe that smaller government costs less to run than big government, and that they would therefore pay smaller taxes. That is as far as their logic carries them. Multipliers are too abstract but paying money to the taxman hurts them deeply.

    I believe that it - and they - are as simple as that.

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  24. Looks like we are all Keynesians now.

    Recently I was reading the transcript of a talk by Bob Lucas given before the Council for Foreign Relations a few years back after all Hell broke loose. He said he supported Obama's post crisis stimulus. What ever happened to Rational Expectationalist policy invariance?

    Henry.

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  25. I'd like to correct an error I made in my previous post. Lately I've read quite a few pieces by Lucas and I was working from memory when I posted the comment.

    I made reference to a comment by Bob Lucas at a 2009 Council On Foreign Relations meeting to the effect he supported Obama's post crisis stimulus. Actually, the comment was made in a 2011 interview with Holman Jenkins of the Wall Street Journal. He said:

    . "If you think Bernanke did a great job tossing out a trillion dollars, why is it a bad idea for the executive to toss out a trillion dollars? It's not an inappropriate thing in a recession to push money out there and trying to keep spending from falling too much, and we did that."

    In the ConFR talk he did wax lyrical about Bernanke's monetary stimulus saying it would "help us accelerate the recovery".

    This statement and the one preceeding I would think are totally out of character for a New Classical Rational Expectationist.

    In the 2009 ConFR talk he actually did rail against fiscal stimulus - so this puts this in contradiction to his later comments.

    In the same talk he also seemed to be saying fiscal stimulus can be characterised as monetary policy and Bernanke's monetary stimulus could be "properly called fiscal stimulus".

    Figure that one out.

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  26. Recently I was reading the transcript of a talk by Bob Lucas given before the Council for Foreign Relations a few years back after all Hell broke loose. He said he supported Obama's post crisis stimulus. What ever happened to Rational Expectationalist policy invariance?

    ReplyDelete

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