Tuesday, September 08, 2009

Only Mainstream Macroeconomists Exist For Krugman

Many have already written about Paul Krugman's article, "How Did Economists Get It So Wrong?" in the September 6 issue of the New York Times Magazine. Krugman himself followed up with blog comments. Brad DeLong has prepublication and postpublication comments, as well as comments on other commentators. I like Colin Danby's take, in comments, on the intolerance of the orthodoxy. Mark Thoma has a comment on Sean Carroll's take. Some commentators, such as Ramanan get it.

In Krugman's article, all macroeconomists are either freshwater or saltwater. Post Keynesian criticisms that apply to both types are not mentioned. Although I am not too familiar with mainstream macro, I can think of three:
  • Both situate their models in logical, not historical time
  • Both assume a representative agent
  • Both assume a single good that functions as both a capital and a consumption good.
These limitations rule out a priori the possibility of some interesting dynamics and perhaps make it difficult to see why agents in the model would want to hold money or even trade with one another.

References
  • Paul Davidson (1982-83) "Rational Expectations: A Fallacious Foundation for Studying Crucial Decision-Making Processes", Journal of Post Keynesian Economics, V. V, N. 2 (Winter): pp. 182-198
  • Alan P. Kirman (1992) "Whom or What Does the Representative Individual Represent" Journal of Economic Perspectives, V. 6, N. 2 (Spring): pp. 117-136
  • Graham White (2004) "Capital, Distribution and Macroeconomics: 'Core' Beliefs and Theoretical Foundations", Cambridge Journal of Economics, V. 28, N. 4: pp. 527-547

5 comments:

Tao said...

Paul Davidson's new book The Keynes Solution does a very nice job of explaining the common features of mainstream macro and comparing and contrasting mainstream macro with Post Keynsian macro. Available on Kindle and in hardback.

KEYNES said...

Here is what one blogger has written about Paul Davidson's new book THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY. (Palgrave, New York, 2009). The blog is http://macromouse.blogspot.com


One Lucid Diamond…

America’s seminal economist, Dr. Paul Davidson, has written the clearest vision of money and math mechanics, to date. Not since the 18th century’s true mathematical logicians, De Morgan, Jevons, Clifford, Peirce and Veblen, have scientific ideas of logic, money and math mechanics been laid so clearly before our eyes. Mr. Davidson begins with a simple explanation of a true scientific method, any high school student can easily understand, then exposes the fallacies in relation to and of the classical economists’ and mathematicians’ mistakes, of economic model mis-applications and mis-interpretations of. He reveals his entire thesis in a simple dialectic method any gifted 5th grade student could understand, by keeping the technicalities to his other 22 published books, and some 200 articles. Never before, in the history of economics, has so much been revealed by such a simple, yet scientific, method.

As an example, Mr. Davidson, shows how the ‘universal’ facts, habits and ambitions of money, control the ‘particular’ events of all economic history. He does this by revealing Keynes’ true vision of how all nations’ balance of payments’ imbalances and hoarding, actually starves the world of its productive employment potential. This is truly where all macro-economic theses should start, yet sadly almost all other classical macro-economists see not the forest for the trees. It’s taken America’s yet unrecognized genius, Paul Davidson, to point this very fact out. He further exposes this first and foremost generating problem, creating the other unrecognized problems’ mechanics with and in ‘the ergodic theory’, ‘the neutrality of money theory’, ‘comparative advantage theory’, ‘free-trade theory’, ‘efficient market theory’, ‘the incompatibility theory of mobile money and full employment’, and all really generated from the fundamental ‘balance of payments’ imbalances and hoarding theory and facts’, just as Keynes originally stated and implied them, in his total works, published and unpublished, private and governmental letters, etc.

After clearly and succinctly showing the relationships between true Keynesian theories and facts, against classical mis-interpretations of the same theories and facts, Davidson easily explains his extended Keynesian solution, to the world’s present problems. This is done through his recognition of the world’s need for not only a new ‘re-regulation of financial markets and trade’, but also his, as it was Keynes’, call for a new ‘international financial architecture’, to re-balance the world’s prices, money and currency contracts. Davidson has updated Keynes’ ideas to a 21st century feasible plan of fundamental economic and highly possible political actions, the world sorely needs.

Never before has an economic book impressed me as much as this little treatise, as I see it having the potential of reaching not only the academic economists, but most all political, academic and intellectual elites, along with many private citizens. This is what the nation and world really and truly needs__a clear and concise manual to explain and solve the world’s massive problems. Davidson has succeeded as no other in accomplishing this job…
L.A.Gillespie
…autodidactic, polymathic economist, logician, etc…

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Patch said...

Is Davidson's book the same as his other books? Just asking because the three books of him I have read had almost the same content.

Robert Vienneau said...

It won't surprise me if Paul Davidson's latest book is good. I don't intend to purchase it, since I've already read a number of his books, including his 2007 book, John Maynard Keynes.

Anonymous said...

This is a response to the review of my book THE KEYNES SOLUTION ("The Keynes Comeback" in the October 2, 2009 issue of THE ECONOMIST.

Today’s economic problems involves the largest global downturn since the Great Depression. Ultimately, however, the reviewer declares that the policies I developed for the 21 century global economy from Keynes’s ideas and philosophy for ending the Great Depression and creating a full employment global economy after the second world war are “to most others[ mainstream economists? politicians? powerful interest groups?] .... solutions that are outmoded and unworkable”.

Aren’t these “most others” the same people who for the past three decades have advocated government de-regulation of financial markets, no constraints on international capital flows (which led to the contagion of a U.S. sub-prime market collapse to threaten the global banking community), free trade with flexible exchange rates, and perfectly flexible prices and wages so that any unemployment problem can always be eliminated by removing any social safety net that protects the unemployed and thereby force unemployed workers to choose to accept lower wages or see their family starve to death? These classical policies are ultimately based on the ideas espoused by 18th century Adam Smith and 19th century classical economists such as David Ricardo and Leon Walras.

The reviewer argues that "the world economy may have changed beyond recognition since 1944 but to a true disciple of Keynes...[his] policies make sense" while most mainstream economists think them "outmoded". Since the world economy has changed much more since the 18th and 19th century of classical economists, does the reviewer really believe these ideas of 18th and 19th century economists are not “outmoded" and unfounded or worse merely because “most " mainstream economists and policymakers", still cling to such failed ideas and policies rather than face the reality of Keynes’s analysis of how modern market oriented, money using economies actual operate?

Finally I am reminded of the advice an elder devil gives to a younger devil in one of C. S. Lewis's books--namely do not argue over whether something is true or not but whether it is outmoded since this is practical propaganda that is more
paul davidson