catallaxy files

catallaxy in technical exile

Take that!

with 33 comments

Charles Rowley is blogging. He has posted some comments on macroeconomics. Simply magnificent.

In 2008, however, the Keynesians returned, standing triumphant, all but alone, on a battlefield suddenly deserted by the fickle nobles of the rational choice revolution, so many of whom appear to have retreated into a ‘dark age’ belief in irrationality, coupled with a pagan worship of the forces of animal spirits and herd behavior. Surely John Maynard Keynes is reincarnate, bestriding the Anglo-Saxon economies of Great Britain, North America and Australia like a Colossus. Does this imply that the widespread rejection of his theory during the 1970s was incorrect? Have economists justly awakened to a new Keynesian dawn? By focusing on science, rather than on paganism, this column briefly suggests that such decidely is not the case.

Ultimately, any economic theory, if it is to survive, must withstand repeated attempts to falsify it, repeated exposure to the predictive test that deductive science imposes on its creations. The Keynesian model (I call it this rather than the model of Keynes since no master should ever be judged by the words of his inadequate disciples) was floored by a sequence of empirical failures: an alleged consumption multiplier that regularly under-performed; an alleged inelasticity of aggregate investment to interest rate changes that was notable by its absence; a liquidity trap that failed to manifest itself; a Phillips curve trade-off between the rate of unemployment and the rate of price inflation that proved to be explosively unstable; a flexible exchange- rate system that eliminated final macroeconomic vestiges of fiscal influence. …

Dear reader, the Keynesian model never worked; and never will work. It has been resuscitated by opportunistic economists, not because they believe in its merits as an agent of macroeconomic rehabilitation, but because they recognize its political value as a weapon for moving economies from laissez-faire to state capitalism, or (hopefully) beyond that to fully-fledged socialism.

Rowley is the editor of Gordon Tullocks Selected Works and co-author of Economic Contractions (I’ve recommended this before).
(HT: Peter Boettke)

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Written by Sinclair Davidson

January 13, 2010 at 11:24 am

Posted in Uncategorized

33 Responses

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  1. Keynesian economics was used in the 70s?

    Only an imbecile who has never read the GT was utter such claptrap.

    What a waste of words.

    Isn’t it ironic that sinkers who is so precious about what constitutes Hayekian economics is so ‘liberal’ with what Keynesian economics.

    We have liquidity traps in the US, UK, Europe and Japan and this idiot says it ain’t there.

    Phillips curve how does this red herring get into it!

    Butterfield, Bloomfield & Bishop

    January 13, 2010 at 12:03 pm

  2. Butters,

    Where has Keynesian policy then been used?

    Semi Regular Libertarian

    January 13, 2010 at 12:05 pm

  3. Mark,
    We have been through this road before if your memory is that bad go and get some pills

    Butterfield, Bloomfield & Bishop

    January 13, 2010 at 12:06 pm

  4. Good morning, Homer. As grumpy as ever.

    Sinclair Davidson

    January 13, 2010 at 12:09 pm

  5. as grumpy as you when someone makes highly inaccurate comments about Hayek.

    This ‘article’ is so poor I am sure he has never read anything of Keynes.

    oops he doesn’t even realise Keynes only advocated the use of fiscal policy because of the liquidity trap ie monetary policy ain’t working.

    Indeed a little bit of reading would find Keynes actually preferred a large devaluation to large scale fiscal policy but of course that isn’t possible these days

    Butterfield, Bloomfield & Bishop

    January 13, 2010 at 12:14 pm

  6. We have been through this road before if your memory is that bad go and get some pills

    SRL:

    Don’t use Homer’s brand, as they make you really stupid.

    jc

    January 13, 2010 at 12:14 pm

  7. Homer:

    I have asked you before and as usual you “courageously” walk away.

    Would you advocate more spending in Japan where the debt/GDP ratio is 227%?

    jc

    January 13, 2010 at 12:16 pm

  8. Homer’s usual pedantic-schtick

    By Homer’s definition the only time Keynes has been used was in Nazi Germany after polling by the Gestapo

    jtfsoon

    January 13, 2010 at 12:18 pm

  9. Indeed a little bit of reading would find Keynes actually preferred a large devaluation to large scale fiscal policy but of course that isn’t possible these days

    yes it is, Chavez, the leading light of leftist economics just devalued 50%.

    In floating regimes you can also engineer depreciation as a secondary effect by simply lowering interest rates or in same cases quantitative easing (printing the loot)

    Stop being a bone in every comment as it oppressive.

    jc

    January 13, 2010 at 12:20 pm

  10. “Indeed a little bit of reading would find Keynes actually preferred a large devaluation to large scale fiscal policy but of course that isn’t possible these days”

    Well it was possible in Australia, since we had sensible monetary policy. Not perfect, but sensible.

    The results are in – fiscal policy doesn’t work either. Butter’s usual response is that “Barro is an idiot”.

    We also know America’s problems were the exact reverse of why Keynes said recessions happened. America was far from “under-consuming” or “excessive saving” as the US economy began to falter in March 2007.

    Semi Regular Libertarian

    January 13, 2010 at 12:20 pm

  11. at least John Humphreys was honest enough to own up the ‘Keynesianism in the 70s’ was what some people thought Keynesianism could be not what he actually said.

    Statman is still trying to get over the fact it was Tooze that said the Gestapo was the equal of Gallup is determining the national mood. get over it although like all ‘readers’ of tooze here you seemed to have forgotten a lot of what you read.

    Mark we know Barro’s results were poor because he didn’t know of some important things at the time .
    We also know he didn’t look at periods of a liquidity trap.

    the US suffered and is still suffering from a liquidity trap hence the need for active fiscal policy

    Forrest,

    you never use interest rates to try to ‘engineer’ a depreciation because it doesn’t work all of the time .

    Can’t say many think Venezuela is comparable but then Forrest doesn’t believe the ECB is quantitative easing.

    Butterfield, Bloomfield & Bishop

    January 13, 2010 at 12:43 pm

  12. What does this mean, homes?

    at least John Humphreys was honest enough to own up the ‘Keynesianism in the 70s’ was what some people thought Keynesianism could be not what he actually said.

    Seriously you should be placed under moderation until you promise to read the crap you post here first, as most of it is incomprehensible crap.

    you never use interest rates to try to ‘engineer’ a depreciation because it doesn’t work all of the time

    Oh, so what would you use then if not interest rates, homer? Perhaps dog barks?

    Can’t say many think Venezuela is comparable but then Forrest doesn’t believe the ECB is quantitative easing.

    So Venezuela is comparable because many don’t think it is? Why?

    You said devaluations don’t happen anymore. I proved you wrong with your poster boy devaluing this week by 50% and emptying the shops.

    As for the ECB.

    The ECB did 12 months repos. It was unusual in that it wasn’t a permanent add to the system and they said in December that they were going to withdraw it.

    It wasn’t QE as we know it.

    ———

    Homer:

    Answer the the Japan question. man up.

    jc

    January 13, 2010 at 12:53 pm

  13. Forrest you talk about Chavez I do not.

    Venezuela’s difficulties are not to do with depression like conditions where monetary policy isn’t working.
    It isn’t a first world country either which have floating exchange rates

    the ECB first did QE ( when you explicitly said they didn’t) with covered bonds.

    Guess why QE is happening?

    I have answered the Japan question many times.

    the most ironic thing is using Fiscal policy along a medium term objective where it should be in balance is entirely Keynesian.

    In Boom times you need a substantial structural surplus. This is where people who haven’t got past classical economics got it so wrong in the commodity boom.
    They then compounded their error by getting badly wrong in the GFC.

    An easy question why is the Phillips curve irrelevant for Keynesian economics?

    Butterfield, Bloomfield & Bishop

    January 13, 2010 at 1:06 pm

  14. Venezuela’s difficulties are not to do with depression like conditions where monetary policy isn’t working.

    Exactly my point, homes. I’m with you on this one. Huggy Chavez’s policies have been sooo successful they devalued 50%.

    the ECB first did QE ( when you explicitly said they didn’t) with covered bonds.

    They announced their intentions much later than everyone else, homer. They foot dragged all the way.

    But what’s your freaking point?

    jc

    January 13, 2010 at 1:11 pm

  15. where did you learn to write like that Homer? Honest question

    jtfsoon

    January 13, 2010 at 1:30 pm

  16. “we know Barro’s results were poor because he didn’t know of some important things at the time .”

    Rubbish. What are they then.

    “He didn’t look at liquidity traps”

    These guys did:

    http://michaelscomments.wordpress.com/2010/01/08/boring-unemployment-news/

    Semi Regular Libertarian

    January 13, 2010 at 3:46 pm

  17. Butters,

    “The Keynesian model (I call it this rather than the model of Keynes since no master should ever be judged by the words of his inadequate disciples) was floored by a sequence of empirical failures…”

    I suggest you read this a few times before going off about “what Keynes really meant” once again.

    Semi Regular Libertarian

    January 13, 2010 at 8:13 pm

  18. While I don’t have a PhD in Finance or Economics I thought I had an adequate grasp of the basics. But three issues have got me stumped about economic debate since the sub-prime meltdown.

    1. I was under the impression that neoclassical economics had been the dominant paradigm since as far back as 1960. So what is the source of claims about the “post-war Keynesian consensus until Thatcherism”? And how do they reconcile that at least in the US, monetary policy increasingly became the main policy lever from 1967 or so onwards?

    2. Is the concept of a “bubble” meaningful in anyway? Much rhetoric has been directed against “bubbles” and many assertions about their evil; assertions that are empirical in nature. So how do we empirically identify a “bubble” and if we can’t, shouldn’t we just do away with the concept?

    3. When commentators sharply contrast “neoliberalism” and “social democracy” what are they actually contrasting? What criteria do they use to so label an economy? I have seen many equations of “social democracy” with the “mixed economy”. But all western/OECD/market economies are “mixed” and were so right through the 70s, 80s, 90s, and up till this day, even in the US.

    Peter Patton

    January 14, 2010 at 5:58 pm

  19. Mark,

    you are not measuring correctly.

    Barro got it wrong on ww2 and then in the Korean war he didn’t even know it was self-financed.oops
    That means the multipliers are actually much larger than he thought.

    Rowley , Carling and all the other impostors allege Keynesian economics is the use of fiscal policy to ‘finetune’ an economy.
    It isn’t please read chapter on liquidity trap.

    End of story.

    We either have people extremely ignorant of what Keynes said or people perpetrating a big lie.

    Butterfield, Bloomfield & Bishop

    January 14, 2010 at 7:04 pm

  20. and

    Peter Patton

    January 14, 2010 at 8:56 pm

  21. 2. Is the concept of a “bubble” meaningful in anyway?
    .
    Yes. The simplest example of a bubble is a pyramid scheme. Plus, failure to identify them doesn’t mean they don’t exist. Other things are hard to identify but are (a) real, and (b) we wish we could predict them. Earthquakes spring to mind.

    daddy dave

    January 14, 2010 at 9:14 pm

  22. Well how do you identify “bubbles”.

    Peter Patton

    January 14, 2010 at 9:33 pm

  23. How do you identify ‘bubbles’ ex ante? I’m not sure ponzi schemes count as bubbles. The principle is the same, but i’m not comfortable with the idea that they are bubbles, they’re just fraud.

    Sinclair Davidson

    January 14, 2010 at 9:39 pm

  24. once you figure that out, you’ll make a lot of money.

    daddy dave

    January 14, 2010 at 9:39 pm

  25. But surely economists must have some theoretical and empirical yardsticks to distinguish about ‘prices changing minute to minute, week to week’, volatilty, and bubbles?

    Peter Patton

    January 14, 2010 at 9:41 pm

  26. I’m not sure ponzi schemes count as bubbles.
    .
    okay.
    It seemed to me that they are similar because they involve unsustainable price inflation, and they are a proof-of-concept that prices and values can be artificially high for a time under at least some circumstances.

    daddy dave

    January 14, 2010 at 9:43 pm

  27. Short answer: no.

    Sinclair Davidson

    January 14, 2010 at 9:44 pm

  28. They are similar – but you (normally) know when you’re in a ponzi scheme.

    Sinclair Davidson

    January 14, 2010 at 9:45 pm

  29. very interesting. So there’s no such thing…

    The idea of ‘bubbles’ in asset prices is then considered. It is argued that a ‘bubble’ is not a meaningful way to characterise asset price cycles because the concept lacks both analytical coherence and empirical support.

    daddy dave

    January 14, 2010 at 9:48 pm

  30. Thanks for that Sinclair. I’ll take a closer look later. In that case (and by the way, it’s a view my own amateurish intution has come around to), what is the implication for both theory and policy?

    All this gnashing of teeth that is taking place over ‘bubbles’ and even – lord save us – ‘bubble denial’ must have some import, surely?

    Peter Patton

    January 14, 2010 at 9:48 pm

  31. daddy dave. That is what I think too. I am starting to detect a lot of analytical muddleheadedness with normative assertions substituted for positive identifications. I’m starting to see similarities between claims of “bubbles” and the statement “Australia is a racist society”. Both imply standards that can be measured and verified against theoretical elements.

    Peter Patton

    January 14, 2010 at 9:52 pm

  32. “Barro got it wrong on ww2 and then in the Korean war he didn’t even know it was self-financed.”

    Butters thinks Barro is incompetent and the Korean War was “self financed”.

    I suspect Butters thinks this because a Democrat President started hostilities.

    Really,

    “War can be a self-financing project”.

    Mind blowingly stupid.

    Semi Regular Libertarian

    January 14, 2010 at 10:13 pm

  33. Barro got it wrong on ww2 and then in the Korean war he didn’t even know it was self-financed.”

    War started started June 25, 1950 and ended in Panmunjom on July 27 1953

    That’s interesting Homes:

    1950 27.311 Billion Deficit

    1951 49.776 Billion Surplus

    1952 12.015 Billion Deficit

    1953 51.675 Billion Deficit

    1954 9.468 Billion Deficit

    Total inflation adjusted deficit $50.6 billion during the korean war.

    It was self financed alright.. through the bond market.

    You eggnog

    jc1

    January 14, 2010 at 10:37 pm


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