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Just a little context to justify Frank's praise that accompanied the frontpaging of this diary.

I think it is important both for the fact that the origin of the article was The Economist, so long a bastion of a neo-liberal world view, but also for the fact that Krugman himself has for so long been an adherent of the 'Samuelson Synthesis' American version of Keynesian economics. That version, which incorporates Hicks-Hanson's IS-LM toy economic model and Phillip's curve relating unemployment and inflation, but leaves behind Keynes historical contingency and radical uncertainty, is what Joan Robinson called 'bastard Keynes' and it formed one pole of the Cambridge Controversy - a dispute over the legacy of Keynes.

Krugman's climb down from his previous certitude about the benefits of trade is important. After all it was for his work on trade patterns that he received his Riksbank prize in honor of Alfred Nobel. But also important is Lars Syll's critique of the vacuousness of IS-LM.

Left unmentioned is the role of the Phillips Curve. The validity of the Phillips Curve was historically contingent upon strong capital controls by nation states. When countries reduced capital controls the assumptions underlying the Phillips Curve were undermined. Milton Friedmanm during the '70s stagflation, seized upon the failure of the Phillips Curve, which he (knowingly?) conflated with the work of Keynes to proclaim "Keynesianism is dead!" In fact, it was just the Americanized Samuelson version of Keynes that had died.

Krugman himself touted Keynes as the remedy for the problems we faced after the GFC of '08-09. But Keynes has never regained the cachet he had in 1971 when Richard Nixon said: "I am now a Keynesian in economics". We need an all weather economics, not just Keynes in bad times and the latest derivative of Neo-Classical Economics in good times.

However annoying the neo-liberal views of The Economist can be, it is still an influential magazine and Krugman is an influential economist. It is good to see them both adjusting their views to accommodate the harsh realities of the world economy.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 07:58:16 PM EST

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