Monday, November 12, 2012

Widespread Incompetence In Economics

Should one try to engage with those putting forth positions refuted decades ago? Maybe one's time would be better spent on looking at arguments that come closer to reflecting the state of the art, even when those arguments are not backed up by external funding from vicious reactionaries.

Suppose the economy were a complex dynamic system. Those who have investigated this idea have long ago shown that, even if all wages and prices were perfectly flexible, no tendency need exist for the economy to tend towards an equilibrium in which all markets, including the labor market, clear. Some just do not know:

"Given the position [Casey Mulligan is] trying to defend, these are the best arguments available. And that position is widely shared, not only by economists much more famous than Mulligan but by lots of governments and policymakers. Most mainstream opponents of Keynesianism are committed, one way or another, to the view that persistent high unemployment must be caused by problems in labour markets. But it's much easier to talk in vague general terms about rigidities and structural imbalances than to present an operational explanation for the sustained high US unemployment of the last four years. Mulligan at least makes the attempt, which is more than most of the New Classical/Chicago/Real Business Cycle school have done, and necessary if there is to be any progress in the debate." -- John Quiggin
"If (Casey) Mulligan were an isolated crank, I'd ignore him. But he’s endorsed by people like Tyler Cowen who should know better. And, as I said in the opening para, most of the freshwater crowd and quite a few people who were once "New Keynesians" believe or go along with this stuff." -- John Quiggin

2 comments:

Alex Nelson said...

Robert wrote:

"Those who have investigated this idea have long ago shown that, even if all wages and prices were perfectly flexible, no tendency need exist for the economy to tend towards an equilibrium in which all markets, including the labor market, clear."

Can you give some references to good review articles of this?

Robert Vienneau said...

Several lines of arguments come to the same conclusion.

The previous post suggests one line of argument, which many authors have written on. Fabio Petri has a recent book on the topic that I like.

A more mainstream argument draws on the Sonnenschein-Mantel-Debreu theorem. I have previous posted on a survey paper by Donald Saari.