Archive for April 20th, 2011

Anti-Keyesians are Keynesians after all….

April 20, 2011

Dave Altig in Atlanta Fed’s super macroblog asks- Can Keynesians be anti-Keynesian?

He points to how certain so called anti-keynesian economists like John Taylor, Ken Rogoff and Mundell are actually Keynesians. They are at the centre of development of New Keyensian thought:

One of the interesting things about the article is that among the economists cited as being among the critics of “Keynesianism,” you find the names John TaylorRobert Mundell, and Kenneth Rogoff. I find that list interesting because if you follow the links I attached to those names you will find work with models that are decidedly Keynesian in structure. Works by Taylor and Rogoff are, in fact, seminal contributions to the “New Keynesian” paradigm that dominates macroeconomics today.

As far as I know, none of these men have repudiated the basic worldview that motivates the referenced work.

What explains this divergence then? Well it is again the confusion between Keynes and Friedman thoughts:

How, then, to explain the Keynesian predilections of the economists mentioned as presumed carriers of the anti-Keynesian mantle? The source of the confusion, I think, goes back to the historical, but somewhat obsolete, distinction between so-called Keynesianism and monetarism. The latter was, of course, personified in Milton Friedman and his dispute with what was the orthodoxy in the three decades following the Great Depression. Lost in the early-days labeling, however, was the fact that the disputes were more about the empirical details of theory rather than the theory itself.

In particular, Friedman did not deny the effectiveness of policy in principle but rather its wisdom or impact in practice. This sentiment is exactly the one he expressed in his prescient and transformative 1968 presidential address to the American Economics Association:

“In the United States the revival of belief in the potency of monetary policy was strengthened also by the increasing disillusionment with fiscal policy, not so much by its potential to increase aggregate demand as with the practical and political feasibility of so using it.”


My point is that it has absolutely nothing to do with whether one believes (or does not believe) that the New Keynesian framework is the right way to view the world. The essential policy implications of the New Keynesian idea (like the old Keynesian idea) is that changes in gross domestic product can be driven by changes in desired spending by households, businesses, foreigners, and the government in sum. You can believe that and still believe in fiscal policy ineffectiveness, as long as you believe that total spending is unaltered by a particular policy intervention.

There are, of course, plenty of arguments against fiscal policy activism that do not require adherence to Ricardian equivalence, in total or in part. The most obvious would be the position that any short-term rush from stimulative policies is more than reversed in the long run by the negative consequences of higher tax rates on productive activity, or the redirection of private investment to lower return public spending. Again, the point is that a self-professed adherent to a Keynesian reality need suffer no doubts about the coherence of his or her intellectual framework if he or she objects to fiscal policies aimed at juicing the economy through greater government spending.

This whole discussion may seem like a bit of inside baseball, and perhaps it is. But the stakes in this debate are high, as clearly illustrated by today’s announcement from rating agency Standard & Poor’s that it reduced its outlook to negative on the triple-A credit rating of the United States. In my view, productive discussions about the truly pressing issues of our day are unlikely unless we understand where the disagreements lie—and where they do not.

Krugman adds in his typical style:

One thing I guarantee you: if John McCain were living in the White House, these same people would have lots of good things to say about the stimulative effects of deficits in a depressed economy.


McCain is a Republican and all these econs are Republicans as well…Sad state of economics affairs really…

Apart from telling while writing in media whether they are part of some financial firm, they need to also tell us whether they are democrat or republican (US economists that is) and other parties in other countries


Conflict of interest between financial economists and their financial interests: ethical standards for the profession is needed?

April 20, 2011

Gerald Epstein & Jessica Carrick-Hagenbart write a paper with this long and title:  Financial Economists, Financial Interests and Dark Corners of the Meltdown: It’s Time to Set Ethical Standards for the Economics

In this paper they look at how financial economists have behaved before and after this crisis. Quite a few comment and write for the media on topics, such as financial regulation. And then they are affiliated to private sector as consultants/directors etc. The authors say most of thes e guys while writing on these matters fail to report their private financial affiliations. This leads to conflict of interest:


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