by Mario Rizzo
Believe it or not, this is a controversial question!
Brad DeLong has argued that the profession seems to know less today about macroeconomics than, say, Keynes did. Paul Krugman has expressed similar sentiments. They see a kind of collective or professional unlearning in the past thirty or forty years. They are right.
While I am not a Keynesian, I would agree that the economics of Keynes (and Keynesian economics!) is more relevant to the present crisis than the graduate macroeconomics taught in most high-level departments today.
I’d also suggest that the business cycle analysis of F.A. Hayek is also more relevant than today’s macro-theory.
By “relevant” I mean, in both cases, that the issues addressed and emphasized are keys to either understanding what is going on or making progress in so understanding. Hayek asks us to consider the role of resource misallocation. Keynes asks us to consider the role of radical uncertainty. Mainstream macro is silent on these issues. In fact, much of it recognizes no connection between financial markets and the real economy.
I am not saying that there is some grand synthesis of Hayek and Keynes that will yield truth. I am saying that these economists raised the fundamental issues. They are relevant.
In my post below, I speculated that the unlearning that has taken place might not be an accident. It might be that in rigidifying their standards of what it means to “know” economists have actually thrown away knowledge. I may be wrong on the cause.
But then what is the cause?
This process has been going on too long to be a minor problem subject to tweaking. No economist would say about an economic phenomenon of forty years duration that it was just a blip on the proverbial screen.
I am asking that macroeconomists think sophisticatedly (philosophically) about their method. What is wrong with this? Aren’t we supposed to be intellectuals?
Now tremendous resistance is out there. The macroeconomic top-brass will not admit to so fundamental a mistake easily. And their students are afraid to challenge them in this way. Perhaps events will succeed in stirring up the pot.