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Sunday, December 16, 2012
Menzie Chinn reports on a discussion with Heritage Foundation economists. I focus on one sentence and flip out as usual.
My comment.
I'm going to take them at their word and pretend they consider a modern intertemporal model as in "Heritage Foundation economists, like most academic macroeconomists, have put away the old Keynesian model in favor of modern alternatives." Now I ask why ? The old Keynesian model has proven extremely useful in forecasting over the past, well 74 years. In contrast the modern alternatives have failed and failed and failed.
Newer is not necessarily better. For years I have been asking my fellow macro economists for evidence that adding intertemporal maximization to macro has had any empirically useful implications.
I have yet to get an answer. See http://nyti.ms/U2CWxQ
http://www.angrybearblog.com/2012/03/new-keynesian-vs-keynes-challenge-ii.html
Basically I get the demonstrably false claim that old Keynesians believed that an expectations un augmented phillips curve illustrated a long term trade off http://bit.ly/TDqz9R
The Heritage economists make elementary errors, but academic macroeconomists who don't make those errors (definitely including Robert Waldmann) have failed to demonstrate scientific progress beyond the old Keynesian model. We have nicer math and extremely powerful intellectual fashion, but no actual evidence of progress.
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