excellent article! Some comments:
There's an article by Barro in the ECONOMISTS' VOICE. It is truly full of "boneheaded arguments." It's an embarrassment. Basically, it says that fiscal policy can't work because if it could that would imply that the government could make better decisions than the private sector. The article says: >On the way up, macroeconomists were not wholly complacent. Many of them thought the housing bubble would pop or the dollar would fall.< "many"? Dean Baker, Robert Shiller, who else? > It was also because they had too little interest in the inner workings of the > financial system. “Philosophically speaking,” writes Perry Mehrling of > Barnard College, Columbia University, economists are “materialists” for whom > “bags of wheat are more important than stacks of bonds.” Finance is a veil, > obscuring what really matters. As a poet once said, “promises of payment/Are > neither food nor raiment”.< These economists are instead philosophical idealists, because they understand the economy by confusing it with the the words and math describing the economy, reducing the former to the latter. As the article says later, some economists > can become seduced by their models, fooling themselves that what the model leaves out does not matter.< For them, to quote Hegel, "What is rational is real and what is real is rational" where the "rational" (the idealized conception of the world) trumps the real. (They also confuse a model used to explain a theory with a theory itself.) The idealized model of neoclassical economics lacks money as a serious element (as Mehrling says), but there exist other types of idealizations. In fact, there are many of them, as with the common reduction of real-world uncertainty to merely statistical risk. >The benchmark macroeconomic model, though not junk, suffers from some obvious >flaws, such as the assumption of complete markets or frictionless finance. >Indeed, because these flaws are obvious, economists are well aware of them. >Critics like Mr Buiter are not telling them anything new. Economists can and >do depart from the benchmark. That, indeed, is how they get published. Thus a >growing number of cutting-edge models incorporate one or two financial >frictions.< One problem is that the "benchmark macro model" starts becoming inconsistent when more than one departures are introduced. It's like the "theory of the second best." For example, the benchmark says (to summarize using desperate brevity) that labor unions are bad. If we introduce one or two "imperfections" (i.e., elements of the real world) into the benchmark, suddenly unions can be good: they can raise employment and wages at the same time, for example (by counteracting other "imperfections"). Intellectual chaos ensues, especially since these economists (being chained to the Invisible Hand at the wrist) know in their heart of hearts that unions are bad. So they go running to the shelter of their economists' little helper, their computable general equilibrium models. >Macroeconomics began with Keynes, but the word did not appear in the journals >until 1945, in an article by Jacob Marschak. He reviewed the profession’s >growing understanding of the business cycle, making an analogy with other >sciences. Seismology, for example, makes progress through better instruments, >improved theories or more frequent earthquakes. In the case of economics, >Marschak concluded, “the earthquakes did most of the job.” > Economists were deprived of earthquakes for a quarter of a century. The Great > Moderation, as this period was called, was not conducive to great > macroeconomics. Thanks to the seismic events of the past two years, the > prestige of macroeconomists is low, but the potential of their subject is > much greater. The furious rows that divide them are a blow to their > credibility, but may prove to be a spur to creativity. < That's right. The autistic institution that is the economics profession (cf. http://myweb.lmu.edu/jdevine/JD-2002-AutisticEcon.pdf) is most likely to respond to external shocks than to internal debates. The profession has a lot of defense mechanisms that it uses to prevent serious internal debates. Julio Huato wrote: > http://www.economist.com/displaystory.cfm?story_id=14030288 -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
