by Mario Rizzo
In the last forty-five years, I am told by macroeconomists, there have been many advances in macroeconomic theory. Let us grant this. Then why is the Keynesian policy position – putting relatively small differences among proponents aside for the moment – more or less the same as when I was an undergraduate at Fordham University from 1966 – 1970? The talk is still about deficit-financed stimulus either through expenditure or, to a lesser extent, tax cuts. I am still hearing about multipliers (really R.F. Kahn’s invention). The numbers involved are larger, but conceptually the policy talk is as if the past forty-five years did not happen.
Let me put things another way. Suppose Gardner Ackley, the Chairman of the Council of Economic Advisors under Lyndon Johnson, had been asked in 1964 for his policy recommendations for a hypothetical just like today’s situation, what would be different in the fiscal realm between his advice and that of the Obama advisors? Surely the advances of the past forty-five years would give us something new. What is it?
(Note: I chose Gardner Ackley because he was the author of the most widely used macroeconomic theory textbook for graduate students in the 1960s. Look at the book you’ll be surprised at how “up-to-date” it is.)
UPDATE: For a detailed examination of the stimulus idea see this article by Robert Murphy, an alumnus of the Colloquium. It is called, “Does ‘Depression Economics’ Change The Rules?”