by Roger Koppl
Two recent posts on this blog (here and here) raise the issue of animal spirits and where macro is headed. I’ve recently completed a draft manuscript saying we are headed for “BRACE” economics. I say the “New Interventionist Economics” will be characterized by five features:
Bubbles
Radical Uncertainty
Animal Spirits
Complexity Dynamics
Extra-Market Control
(giving the BRACE acronym). Continue reading
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. Continue reading
by Mario Rizzo
[This was submitted to the Financial Times as a possible op-ed piece. Unfortunately, it was rejected. Nevertheless, it seems to me that most readers of the financial press are still unaware of just how fundamental a challenge F.A. Hayek made to the economics of J.M.Keynes. Hayek’s challenge often gets homogenized with other free-market approaches that are still macro-economic in nature. Hayek questions the macroeconomic way of thinking.]
Robert Skidelsky wrote in the Financial Times that recent debates among economists are a rerun of the disagreements between John Maynard Keynes and the U.K. Treasury in the early 1930s. To a certain extent this is true. But it might be more instructive to pay some attention to another debate in the 1930s. This is the debate between Keynes and Friedrich Hayek. Continue reading
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?”
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