Thomas Humphrey wrote:
> Without denigrating the seminal achievements of Keynes's classical and 
> neoclassical forebears (and those achievements were phenomenal 
> indeed), I don't understand why one would want to jettison the entire 
> Keynesian framework which from the late 1930s up to at least the 1980s 
> gave us perhaps the most fecund and useful analytical/ empirical 
> schema that ever existed in economics. Why throw out the macro work of 
> economists such as Samuelson, Solow, Tobin, Lerner, Modigliani, 
> Patinkin, Hicks, and many others? Economics improves by building upon 
> the work of earlier researchers. To rule out the five-decade-long 
> Keynesian research paradigm as if it never existed makes no sense to me.
I find Tom's response here truly astonishing.  It reads to me as if Tom 
is unaware of Milton Friedman's 1968 declaration that "in one sense, we 
are all Keynesians now; in another, no one is a Keynesian any longer.  
We all use the Keynesian language and apparatus; none of us any longer 
accepts the initial Keynesian conclusions."  Of course, Tom's response 
demonstrates the error of Friedman's view about the acceptance of the 
initial Keynesian conclusions.

Unfortunately, the Keynesian language and apparatus lead to such 
confusions as (a) savings are not the source of investment funds, hence 
the notion of a paradox of thrift, (b) interest rates are determined by 
a central bank's money supply and demand, and not principally by the 
supply and demand for savings, (c) investment is only the purchase of 
capital goods, (d) consumer spending is the principal driver of 
"aggregate demand", (e) there is such a thing as an expenditure 
multiplier whereby a government's spending is multiplied by a factor 
greater than one (1.5 by the Keynesian advisors to the Obama 
administration), and (f) the price level is determined by aggregate 
demand and aggregate supply, rather than the demand and supply of money 
(currency) -- this because Keynes said he was confused by the Quantity 
Theory of Money as the explanation of price-level determination.  Keynes 
sealed these confusions with the ultimate falsehood that the classical 
and early neoclassical writers assumed there is always full employment!  
Perhaps, Tom is unaware that Hicks, by 1985, significantly distanced 
himself from the IS-LM model that incorporates Keynes's anti-classical 
economic analysis.  Tom's response also appears to disregard the 
vigorous efforts of other prominent economists, including Milton 
Friedman and Robert Lucas, to explain the unhelpfulness of the Keynesian 
framework to our understanding of economic reality.

Tom continues with:
>
> The popular writings of Nobel laureate Paul Krugman are a good 
> antidote to Steve. Contrary to Steve, Krugman emphasizes that the 
> old-fashioned Keynesian model, as embodied, say, in Paul Samuelson's 
> principles textbook, is as relevant today as it was in the 1930s, and 
> in fact is the best model for analyzing the financial crisis and its 
> recessionary aftermath. And contrary to Steve, who contends that 
> Keynesian stimulative policies are bankrupt and useless, Krugman notes 
> that recent Keynesian fiscal and monetary stimuli, though much too 
> small in magnitude to restore us to our 2007 full employment nominal 
> GDP path, at least kept the 2008-9 downturn from becoming as deep as 
> the 1930s great depression. That's a strong indication of the power of 
> Keynesian economics and Keynesian policies, as well as their potential 
> to boost social welfare, contrary to Steve's claims.
There are numerous popular writers on economic issues who disagree with 
what Paul Krugman says.  They may not have the accolade of the Nobel 
Prize in economics.  But the prize is awarded for some specific 
theoretical contribution to economic science.  It is no guarantee that 
whatever its recipient may say about any other aspect of economic 
analysis is necessarily valid.  It turns out that Krugman didn't receive 
the award for macroeconomics, but for a specific aspect of international 
trade theory.  I particularly find Krugman's statements about 
macroeconomics significantly lacking in substance, like we have an 
economic downturn because of insufficient consumer spending or that 
Keynes's paradox of thrift proposition is relevant to our current 
situation. I wish Tom had advanced his own argument in defense of 
economic policies he may prefer rather than to have cited Paul Krugman's 
popular writings!

James Ahiakpor

-- 
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542

(510) 885-3137 Work
(510) 885-4796 Fax (Not Private)