> 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? 

Well, if we are talking about the Phillips curve, its not a very useful analytical/empirical schema, the profession rejected it, and Keynes probably never would have accepted it as an integral part of his economics. What Keynes actually wrote about expectations is far more complex and subtle than a simple tradeoff between output and inflation. There is a stronger basis for relating ISLM to Keynes' actual general theory, but Hicks still left much out- said so himself later on. There is as strong a case to reject Samuelson in favor of Davidson as there is to reject Samuelson in favor of Friedman or Hayek.


> 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.

This is debatable. If you are talking about the Reinvestment and Recovery Act, it was implemented in mid 2009, and given the operational lag it should have had a noticable impact by early 2010- the data also show  that the deep slide ended in 2008 and a recovery emerged in 2009, and the recovery did not accelerate in 2010. One might credit the surge in federal deficit spending in the last months of the Bush admin, or even the agressive actions of the Fed. However, data on things like inventories and personal consumption expenditures also register a turnaround- Keynes did mention such factors, BTW.

The main "evidence" that deficits averted a depression is the Blinder-Zandi model. To quote Arnold Kling "What Blinder and Zandi are reporting is the Keynesian theory that was built into the model". This is not a test to see if Keynesianism worked, but rather a demonstration of how it might have worked- if the model is true. These are not settled issues. There are real reasons to question Keynesian interpretations of the past decade. There are also reasons to reexamine Hayek in light of recent events- the Fed did play a prominent role in these events. 

As such, my spring Intermediate Macro class will examine Keynes and Hayek (The Gen THeory will be required reading). So yes, I would not have us all go running back to bad dentists- Hicks and Samuelson. Perhaps we should go back further to the real Worldly Philosophers- Keynes and Hayek, and see which one is more correct.

D.W. MacKenzie, Ph.D.
Carroll College, Helena MT


 
> 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
 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.
> ---Tom Humphrey
> On Nov 10, 2011, at 3:24 PM, Brad Bateman wrote:
> 
> > It is difficult to respond to someone like Steve Kates
> who is rude about your ideas ( calling them "rancid") and
> relentlessly insistent that they, and they alone, know the
> truth and that you will address their work immediately and
> in the detail they demand. Prudence suggests walking away
> from the opportunity.
> > 
> > Before I say anything else, however, I would like to
> say that some of the best work done in the history of
> economic thought comes out of Australia. I have been engaged
> all my professional life with Australian historians of
> economic thought. While I was in my long cycle of service on
> the HES executive committee, I was a signatory to the letter
> of protest sent to the research body that tried to diminish
> the status of the history of economic thought in Australian
> research assessments. Thus, I refuse to take Kates' comments
> about his citizenship seriously. Frankly, they have no place
> in a post on this list.
> > 
> > I suspect that I should say very little else to Kates'
> demands. In his critique of our op-ed piece, he continually
> returns to his understanding of Keynes's ideas and insists
> that anything we have said about Keynes must be interpreted
> through the frame of his understanding of Keynes. I find
> Kates' understanding to consist largely of caricature. It is
> a straw man and I refuse to argue with him about his straw
> man. I have written for many years trying to explain why the
> figure that Kates is so intent on beating in public is a
> straw man. I have also argued against several other
> interpretations that I believe are inaccurate. As best as I
> can tell, Kates has ignored in his own work everything I
> have written on Keynes's policy ideas; but now he demands
> that I address his work point by point. There is an odd
> asymmetry in his demand.
> > 
> > Brad Bateman
> > 
> > 
> > On 11/10/2011 3:23 AM, Steve Kates wrote:
> >> It is interesting to see just how relentlessly
> Roger Backhouse and Brad
> >> Bateman choose to ignore what I wrote. That was
> the reason I thought I
> >> would bring Allyn Young into the conversation
> since I understand
> >> perfectly well that some faraway economist living
> in the antipodes would
> >> have no standing in such discussions but I thought
> Allyn might.
> >> Nevertheless, I do wish to impress upon them once
> again that what I am
> >> writing about is a direct response to the issues
> they raised. And since
> >> the only compass in which these issues can be
> properly discussed is the
> >> evolution of economic theory over the past 
> hundred years, in every way
> >> this is a subject matter for this site.
> >> 
> >> Going back to the original NYT article, let me
> take the final sentence
> >> as the core point Backhouse and Bateman wished to
> make. What they wrote
> >> was: “If economists want to help create a better
> world, they first
> >> have to ask, and try to answer, the hard questions
> that can shape a new
> >> vision of capitalism’s potential.” To do this,
> they argued, economic
> >> theory should include a major recognition of
> government and its role. To
> >> emphasise how important this point is, they
> criticised Hayek and
> >> Friedman for ignoring the important contributions
> of government,
> >> writing:
> >> 
> >> “In the 20th century, the main challenge to
> Keynes’s vision came
> >> from economists like Friedrich Hayek and Milton
> Friedman, who envisioned
> >> an ideal economy involving isolated individuals
> bargaining with one
> >> another in free markets. Government, they
> contended, usually messes
> >> things up. Overtaking a Keynesianism that many
> found inadequate to the
> >> task of tackling the stagflation of the 1970s,
> this vision fueled
> >> neoliberal and free-market conservative agendas of
> governments around
> >> the world. That vision has in turn been undermined
> by the current
> >> crisis.”
> >> 
> >> Well, what I am trying to tell them is that I have
> attempted in my book
> >> on “Free Market Economics” to do exactly what
> they have argued needs
> >> to be done. It is not perfect but what is? 
> And  because of the book's
> >> hostility to Keynes and what he stands for, I fear
> that if they read it
> >> they would unlikely find much in it that would
> give them pleasure. But
> >> (a) it is obviously about capitalism (although the
> word does not appear
> >> anywhere in the book) and (b) it provides a vision
> of the world in which
> >> economic actions are of necessity buried inside a
> political structure.
> >> Don’t believe it? Here are the opening three
> paragraphs of the book:
> >> 
> >> “This is a book about the market economy.
> >> 
> >> “A market economy is one in which overwhelmingly
> the largest part of
> >> economic activity is organised by private
> individuals, entrepreneurs,
> >> for personal profit. Such entrepreneurs are
> private citizens not
> >> government employees. They make decisions for
> themselves on what to
> >> produce, who to hire, what inputs to buy, which
> machinery to install and
> >> what prices to charge.
> >> 
> >> “There are, of course, in every nation state
> legislative barriers put
> >> in place by governments which limit every one of
> these decisions. No
> >> market is or ever has been even remotely
> laissez-faire. Entrepreneurial
> >> decisions are circumscribed by the laws, rules and
> regulations that
> >> surround each and every such decision.”
> >> 
> >> My aim in writing the book was to explain to
> governments, and to their
> >> citizens, how an economy can be run so that
> prosperity for the largest
> >> number is the result. This is not a book about how
> governments should be
> >> kept away from economic interactions. This is a
> book that embeds within
> >> the text the very necessity for governments to
> intervene to make free
> >> markets work. The point that I try to make is that
> since governments not
> >> only are going to intervene but must, they should
> do so in a way that
> >> actually does some good.
> >> 
> >> But Backhouse and Bateman do not just say we need
> a new vision and
> >> leave it at that. In their article and subsequent
> post, they are
> >> promoting a book with the title, “Capitalist
> Revolutionary: John
> >> Maynard Keynes”. In their view, it is in Keynes
> that we ought to find
> >> that vision. Well the point I wish to make is that
> it is precisely in
> >> Keynes that we will not find that vision, and that
> if we economists had
> >> any sense we would abandon Keynesian theory and
> policy root and branch.
> >> To draw some inference from Keynes that capitalism
> is in constant need
> >> of reform is about as vacuous a statement as I can
> imagine. The need for
> >> institutional adjustment to the changing nature of
> the world is hardly
> >> some great insight.
> >> 
> >> The Keynesian policy vision has created a global
> nightmare both
> >> politically and economically, a nightmare whose
> end is nowhere in sight.
> >> There may be an old guard that wishes to cling to
> such rancid and
> >> outdated ideas but by now it ought to be obvious
> beyond argument that
> >> Keynesian policies do not work. There is not a
> single economy in the
> >> entire world that is safe from the ravages that
> the stimulus has caused.
> >> By all means, let us find a new vision, but for
> heaven sake, the last
> >> place we should be looking for that vision is in
> the works of John
> >> Maynard Keynes.
> >> 
> >> 
> >> Dr Steven Kates
> >> School of Economics, Finance
> >>     and Marketing
> >> RMIT University
> >> Level 12 / 239 Bourke Street
> >> Melbourne Vic 3000
> >> 
> >> Phone: (03) 9925 5878
> >> Mobile: 042 7297 529
>