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Monday, January 30, 2012

Simon Wren-Lewis writes that he is an anti-anti-Keynesian not a Keynesian.

I want to abolish the Keynesian school. Keynesian analysis should be part of the mainstream, and does not need to be embodied in a school of thought. However, for those that like schools of thought, I will replace it with a new one: the anti-Keynesian school of thought. It covers all those who attempt to dismiss Keynesian ideas like fiscal stimulus at the zero bound, or countercyclical fiscal policy in a monetary union, not through reasoned analysis, but by just labelling it Keynesian.

I comment

First he is right that there is an anti-Keynesian school of thought which rejects ideas because they are Keynesian (and without regard for the data).

However, there are Keynesians. People (some of whom are employed as economists) who think that the first think most contemporary macro-economists should do right now is re-read Keynes (except for the horrible suspicion that many many contemporary macroeconomists will have to read Keynes first before they can re-read him).

I am such a Keynesian. I think that Keynes is one of the very few most insightful commentators on the recent recession in spite of the disadvantage of having been dead for decades.

For example, let's go back to the early 80s. It is true that self proclaimed Keynesians had set great store on IS_LM-AD models with aggregate demand based on some sort of Phillips curve. Keynes specifically warned against doing this. Of course he didn't write "Phillips" as he wrote before Phillips, but his assrtion was clear enough that we can conclude that Keynesians in the 70s either forgot Keynes or decided that they had surpassed him.

Also there was some interest in the so called Lucas supply curve then. It is now agreed that the hypothesis that it was key to "Understanding Business Cycles" (Lucas is not just rejected by the data but was silly to begin with. But the observation that there could be a correlation between inflation and output due to price level perception errors even if the economy was at what Keynes called full employment was interesting. It was also interesting when Muth made that observation. It was even interesting when Keynes made that observation in "The General Theory of Employment, Interest, and Money" Chapter 20 section III paragraph 4

"(1) For a time at least, rising prices may delude entrepreneurs into increasing employment beyond the level which maximises their individual profits measured in terms of the product."

I am perfectly prepared to be convinced that you are not a Keynesian. In spite of our relative professional standing, I am not so convinced that you shouldn't be a Keynesian.

And now for something completely different.

Wren-Lewis also wrote

the label monetarist has many layers of meaning, from the very specific and policy related (money supply targeting) to the much more general and theoretical (money matters). These layers may be related, but they do not have to be.

Magari (if only) the range of meanings were that narrow.

I am a US born Italian resident non monetarist, but I dare suggest that monetarist has a third quite different meaning in the UK. It often is used to mean "somewhat like Margaret Thatcher" and is assumed to refer to hard core laissez faire and indifference to income inequality (or love of it). This conflation is not due to the Iron PM alone. Milton Friedman was a monetarist according to all three definitions and the word often indicates agreeing with Milton Friedman about a lot (uh oh my credentials as a non monetarist are in danger).

1 comment:

Anonymous said...

"the word often indicates agreeing with Milton Friedman about a lot"

Bingo! Although I would add, the word often indicates agreeing with Milton Friedman about a lot, *but not necessarily about monetary theory*.